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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 INTERNATIONAL DEVELOPMENT ASSOCIATION PROJECT PAPER FOR A PROPOSED ADDITIONAL GRANT IN THE AMOUNT OF SDR 6.6 MILLION (US$10.2 MILLION EQUIVALENT) TO THE REPUBLIC OF CHAD FOR THE Report No: TD PUBLIC FINANCIAL MANAGEMENT CAPACITY BUILDING PROJECT April 14, 2014 Poverty Reduction and Economic Management 4 Country Department Africa Region 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 as of March 31 st, 2014) Currency Unit = Central African CFA Francs (BEAC) US$1.00 = CFA US$1.00 = 0,6469 SDR FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS AF AfDB AFS BEAC CAS CEMAC CID COA CONAD CPF DAO DeMPA DGB DGTCP DP ETAVID EU FL FM FY GDP HDI HIPC HQ IBRD ICR ICT IDA IFC IFR IGF IFMIS IMF Additional Financing African Development Bank Annual Financial Statements Central Bank of the Central African States Country Assistance Strategy La Communauté économique et monétaire de l'afrique centrale Economic and Monetary Community of Central Africa Circuit informatisé de la dépense Chamber of Accounts Commission nationale d'analyse de la dette Country Partnership Framework Dépenses avant ordonnancement Debt Management Performance Assessment Direction Générale du Budget Direction Générale du Trésor et de la comptabilité publique Development Partners Equipe Technique d Analyse de la Viabilité de la Dette European Union Finance Law Financial Management Fiscal Year Gross Domestic Product Human Development Index Heavily Indebted Poor Countries Headquarter International Bank for Reconstruction and Development Implementation Completion Report Information and Communication Technology International Development Association International Finance Corporation Interim Financial Reports Inspection générale des finances Integrated Financial Management and Information System International Monetary Fund i

3 ISN IT LOLF M&E MDA MDG MFB MTEF MTBF MTR N/A NDP NOPD ORAF ORMP PAMFIP PDO PEFA PFM PIU SDR SIGASPE SMP SOE STP TBC TOFE TTL UNDP US$ WA Interim Strategy Note Information Technology Loi Organique relative aux Lois des Finances Organic Finance Law Monitoring and Evaluation Ministries, Departments and Agencies Millennium Development Goals Ministry of Finance and Budget Medium Term Expenditure Framework Medium Term Budget Framework Midterm Review Not Applicable National Development Plan Non-Oil Primary Deficit Operational Risk Assessment Framework Oil Revenue Management Program Plan d action pour la modernisation de la gestion des finances publiques Project Development Objective Public Expenditure and Financial Accountability Public Financial Management Project Implementation Unit Standard Drawing Right Système intégré de gestion administrative et salariale du personnel de l Etat Staff Monitored Program Statements of Expenditures Secrétariat technique permanent (STP) To Be Confirmed Tableau des opérations financières Task Team Leader United Nations Development Program United States Dollar Withdrawal Application Vice President: Country Director: Sector Director: Sector Manager: Task Team Leader: Makhtar Diop Paul Noumba Um Marcelo Giugale Miria Pigato Sebastien Dessus ii

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5 REPUBLIC OF CHAD ADDITIONAL FINANCING FOR THE PUBLIC FINANCIAL MANAGEMENT CAPACITY BUILDING PROJECT TABLE OF CONTENTS ADDITIONAL FINANCING DATA SHEET... v I. Introduction... 1 II. Background and Rationale for Additional Financing... 2 III. Proposed Changes and Restructuring... 8 IV. Appraisal Summary Tables: Table 1: The OF Project (following the 2013 restructuring)... 6 Table 2: Project Outcome Indicators Table 3: Project Costs by Component (US$ Million) Table 4: Proposed Revised Financing Plan with Additional Financing by Category Table 5: Risk Ratings Annexes: Annex 1: Revised Results Framework and Monitoring Indicators Annex 2: Results Framework and Monitoring Annex 3: Operational Risk Assessment Framework (ORAF) Annex 4: Estimate of Project Costs Additional Financing Annex 5: Procurement Arrangements Annex 6: Team Composition Annex 7: Country Map iv

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7 REPUBLIC OF CHAD ADDITIONAL FINANCING FOR THE PUBLIC FINANCIAL MANAGEMENT CAPACITY BUILDING PROJECT Country Director: Paul Noumba Um Sector Director: Marcelo Giugale Sector Manager: Miria Pigato Team Leader: Sebastien Dessus Project ID: P Expected Effectiveness Date: TBC Lending Instrument: Specific Investment Financing Additional Financing Type: IDA Grant ADDITIONAL FINANCING DATA SHEET Basic Information - Additional Financing (AF) Sectors: Central Government Administration (100%) Themes: Public Financial Management Environmental Category: C Expected Closing Date: June 30, 2016 Expected Completion Date: December 31, 2016 Joint IFC: No Joint Level: Basic Information - Original Project Project ID: P Environmental category: C Project Name: Chad Public Financial Expected Closing Date: June 30, 2014 Management Capacity Building Project Lending Instrument: Specific Investment Financing Joint IFC: No Joint Level: AF Project Financing Data [ ] Loan [ ] Credit [ X ] Grant [ ] Guarantee [ ] Other: Proposed terms: 30 months AF Financing Plan (US$m) Source Total Project Cost: US$10.2 million Total IDA Financing: US$10.2 million v

8 Client Information Recipient: The Government of Chad Responsible Agency: Ministry of Finance and Budget Address: B.P.144, N Djamena, Chad Contact Person: Dinanko Ngomibe, Coordonnateur du Secrétariat technique permanent (STP) Plan d action à la modernisation des finances publiques (PAMFIP) Telephone No.: (235) Fax No.: (235) ndinanko@pamfip.org AF Estimated Disbursements (Bank FY/US$m) FY FY15 FY16 FY17 Annual Cumulative Project Development Objective and Description Original project development objective: To help the Recipient to improve accountability in the use of resources managed through the PFM system. Project description: Component 1 Public Finance and Financial Accountability: US$4.0 million Existing Activities under OF: This component finances establishing a system to manage public investment projects; streamlining and simplifying expenditure processes; updating and harmonizing the financial legal framework to reflect the new CEMAC Directives; updating the public accounting system and aligning it with the new functional budget nomenclature; providing Technical Assistance for the implementation of the Organic Finance Law(LOLF); and enhancing control over the use of public resources by clarifying the roles and responsibilities of the audit and oversight institutions. Proposed Additional Activities under AF: The AF will provide support to scale up existing activities, including Technical Assistance and training to support implementation of the new organic finance law (LOLF) and CEMAC Directives, and dissemination of its requirements and implications as well as training of line ministries financial directorates, budget departments, public accountants, and financial controllers on the new Organic Finance Law and associated CEMAC directives. In addition, the AF proposes new activities in the areas of Technical Assistance to the design of sector strategies and medium term budget framework (MTBF) for selected ministries. Debt management capacity will also be strengthened under the component as well as public investment management capacity. Capacity building for the Ministry of Economy, Planning and International Cooperation in M&E will also be covered by the AF. The latter will consist of establishing a macro-level M&E system in the Ministry of Economy, Planning and International Cooperation to further improve capacity to monitor and evaluate implementation of the National Development Plan and, later, serve as the basis of the M&E system for the Budget- Programs. vi

9 Component 2: Integrated Financial Management Information System (IFMIS): US$5.4 million Existing Activities under OF: This component finances establishment of an ICT advisory committee and strategic expertise at Ministry of Finances and Budget (MFB); development of a comprehensive multiyear ICT strategy and implementation plan; and support of the implementation and extension of the ICT strategy to selected additional institutions, through the provision of Technical Assistance, equipment, and training. Proposed Additional Activities under AF: The AF proposes funding to scale up activities to consolidate and expand the existing CID/IFMIS including the interconnection of 23 additional Ministries and Agencies to the CID/IFMIS; upgrade the CID/IFMIS in accordance with the new Organic Finance Law requirements; an update of the IFMIS blueprint; further enhance the internal and external network for the public expenditure chain; and scale up capacity building of the ICT Unit as well as in Ministries and Agencies. Component 3: Coordination and Monitoring & Evaluation: US$0.8 million Existing Activities under OF: The component finances the development an operational Monitoring and Evaluation (M&E) system for public financial management; implementation of training plans for the MFB staff with the support of Local Training Institutes; and implementing the communication plan. Proposed Additional Activities under AF: The AF proposes financing to scale up activities in the area of Project Coordination and Management, Monitoring and Evaluation, and communication, including support to implement the PFM reform communication action plan. Strengthen M&E capacity for the STP/PAMFIP in charge of both the implementation of the project and the coordination of the implementation of the overall reform program will also be supported. Support will comprise funding for a PEFA which will include support to strengthen capacity in the MFB to undertake PEFA self-assessments. Safeguard and Exception to Policies Safeguard policies triggered: Environmental Assessment (OP/BP 4.01) Natural Habitats (OP/BP 4.04) Forests (OP/BP 4.36) Pest Management (OP 4.09) Physical Cultural Resources (OP/BP 4.11) Indigenous Peoples (OP/BP 4.10) Involuntary Resettlement (OP/BP 4.12) Safety of Dams (OP/BP 4.37) Projects on International Waterways (OP/BP 7.50) Projects in Disputed Areas (OP/BP 7.60) Does the project require any waivers of Bank policies? Have these been endorsed or approved by Bank management? [ ] Yes [ X ] No [ ] Yes [ X ] No [ ] Yes [ X ] No [ ] Yes [ X ] No [ ] Yes [ X ] No [ ] Yes [ X ] No [ ] Yes [ X ] No [ ] Yes [ X ] No [ ] Yes [ X ] No [ ] Yes [ X ] No [ ] Yes [ X ] No [ ] Yes [ ] No vii

10 Conditions and Legal Covenants: Financing Agreement Reference Description of Condition/Covenant Art The Additional Condition of Effectiveness consists of the following; namely that the Recipient has revised and adopted the Project Implementation Manual Date Due Effectiveness viii

11 I. INTRODUCTION 1. This Project Paper seeks the approval of the Executive Directors to provide Additional Financing in the form of a grant in the amount of SDR 6.6 million (equivalent to US$10.2 million) to the Government of Chad for the Public Financial Management Capacity Building Project (P148476/RN TD/Grant Number H202-CD). The Original Financing Project was disbursed at 83 percent in March 2014, up from 45 percent in March 2013 and 27 percent in March Progress towards achieving the Project Development Objective (DO rating) has been rated moderately satisfactory since December 2012 and the performance of the Implementation Progress (IP) has been rated moderately satisfactory between December 2012 and June 2013, and since then satisfactory. The Project Paper also proposes to: (i) extend the revised project closing date from June to December which will eventually bring the age of the project to 9 years and 7 months; (ii) add new activities; and (iii) revise the Results Framework. The AF responds to an official request of the Government of Chad received on November 14, The purpose of the AF is to scale-up project activities related to the Project Development Objective (PDO) of the original project which was revised following the 2013 restructuring. 3. The Project Development Objective (PDO) following the 2013 restructuring of the original project is to help the recipient improve accountability in the use of resources managed through the PFM system. The operation is thus expected to contribute to building up core public sector capacity as an important requirement for improving public service delivery. The AF will finance activities to scale up the implementation of the Circuit informatisé de la dépense (CID)/Integrated Financial Management Information System (IFMIS), through increasing interconnection of Ministries and Agencies, training and capacity building activities in public financial management, Technical Assistance to implement the new organic finance law and other associated Economic and Monetary Community of Central Africa (CEMAC) directives, and accountability activities including the preparation and dissemination of citizen s budgets. The AF will also contribute to the development of medium-term budget frameworks (MTBF), building monitoring and evaluation capacity, and strengthening debt management capacity. 4. Consistent with the Additional Financing (AF), the Project Paper also seeks approval for a Level 2 restructuring of the Original Financing (OF) Project. The proposed restructuring neither modifies the original PDO nor affects the Safeguards category C of the Project. The restructuring consists of (i) scaling up existing activities; (ii) financing new activities; (iii) extending the Project closing date by 30 months to December 31, 2016; (iv) modifying the results framework to take account of the revised project design and time horizon; and (v) allowing for a single joint Implementation Completion Report (ICR) for both OF and AF after the AF Project is completed. 1

12 II. BACKGROUND AND RATIONALE FOR ADDITIONAL FINANCING Country Context and Development Challenges 5. Chad s chronically unstable security situation has long undermined broad-based economic growth and sustainable poverty reduction. Since independence in 1960 Chad has suffered from sporadic political violence and ongoing tensions between different factions. The country s fragile security has been further compromised by a shortage of resources, weak institutional capacity, and challenging agro-climatic conditions, which have undermined the efforts of successive governments to boost economic growth. However, after rebel attacks in 2008 and 2009, and following the 2010 conclusion of a peace agreement between Chad and Sudan, the security situation in the country has remained relatively stable, presenting a valuable window of opportunity for development efforts to take root. 6. Chad remains among the poorest and least-developed countries in the world with a per capita gross national income (GNI) of US$740 in Chad ranked 184 th out of 186 countries in the 2013 Human Development Index (HDI). Some progress has been made towards the achievement of the Millennium Development Goals (MDGs), but according to the 2010 MDG implementation report, only three of Chad s MDGs are within reach: primary education, access to safe drinking water, and the fight against HIV/AIDS (UNDP 2010). The emergence of the oil sector offers unprecedented prospects for economic growth and poverty reduction. Since oil production came on-stream in 2003, public revenues and expenditures have increased more than 7 fold between 2003 and However, Chad s estimated oil reserves are relatively modest and are expected to be depleted within the next 25 years. The projected decline of oil revenues poses challenges in terms of designing and implementing public investment plans that can promote non-oil growth and broad-based, sustainable poverty reduction. 7. Between 2003 and 2011 Chad achieved moderate but significant progress in overall poverty reduction, and the national poverty headcount rate fell from 55 percent to 47 percent during the period. However, because of population growth, the total number of poor Chadians increased by 15 percent. Similarly, progress on nonmonetary poverty has been modest. Despite improvements in school attendance and access to clean drinking water, many Chadians still face severe deprivation across a range of basic needs. For instance, an estimated 93 percent of Chadians lack access to adequate sanitation. Substantial progress has been made in extending key social services to the poor and underserved, yet the overall fiscal orientation of public spending on the education and health sectors is insufficiently pro-poor. 8. Chad approved its third National Development Plan (NDP) for the period in May The NDP sets eight core objectives: i) sustained growth; ii) food security; iii) creation and access to employment; iv) development of human capital; v) development of the private sector; vi) development of ICT (Information and Communication Technology); vii) protection of the environment and adaptation to climate changes; and viii) improved governance. The NDP is structured around four strategic axes: i) development of production supply and decent employment; ii) mobilization and development of human capital and the fight against inequality, poverty, and social exclusion; iii) protection of the environment and adaptation to climate change; and iv) improved governance. 2

13 9. Progress in governance over the past years has been modest and remains fragile. The World Wide Governance indicator on Government effectiveness improved marginally between 2007 and The Ibrahim Index on African Governance improved from 30 in 2007 to 33 in Institutional capacity remains fragile. Some progress has been registered in PFM (see para. 14), but has yet to be translated in to an improvement in governance indicators. 10. Macroeconomic performance continued to be stable in 2013, with some deceleration in economic growth and inflation. Real GDP is projected to grow by 3.6 percent in 2013, down from 8.9 percent in Non-oil GDP growth is forecast to fall from 11.6 percent in 2012 to 5 percent in 2013, mainly reflecting a return to trend production levels after the bumper harvest that took place in By contrast, oil GDP would likely contract by 4 percent in 2013 on account of a sharper than expected decline in oil production from the mature fields operated by the Esso-led consortium. Inflation fell sharply in 2013, with the annual average rate hovering around 0.4 percent toward the end of the year, compared with 7.7 percent in Such deceleration resulted mainly from a sizable fall in food prices following the high levels of agricultural production in 2012 (and 2013) and took place despite the fact that some prices (i.e., cement and fuel products) were liberalized and/or increased to cost recovery levels. 11. Fiscal policy has been gradually tightened over the last few years. The non-oil primary deficit (NOPD) fell by 1 percent of non-oil GDP over The 2013 budget was anchored on a further 1 percent of non-oil GDP reduction in the NOPD to 18.2 percent of non-oil GDP based on a significant increase in non-oil revenue and a lower level of security-related spending. The revised 2013 budget approved in July maintained the original NOPD target despite the addition of unexpected additional security spending in the order of 0.6 percent of non-oil GDP (linked to Chad s participation in Mali s international military campaign, provision of humanitarian assistance to refugees coming from the Central African Republic, and enhanced security at the borders) and a downward revision in oil and non-oil revenue projections (of about 2¼ and 1 percent of non-oil GDP, respectively). The resulting financing needs (of close to 7 percent of non-oil GDP) were accommodated through large placements of debt in regional markets, withdrawal of Treasury deposits, and a moderate cut in primary expenditure (1.4 percent of non-oil GDP). Parts of the financing needs were covered by non-concessional debt in an oil sales advance operation. 12. Chad reached the HIPC decision point in 2001 and, after a protracted period, implementation of the HIPC program has resumed. With sustained progress under the IMF program and continued implementation of actions to fulfill outstanding triggers, the HIPC completion point and associated debt relief could be reached in FY15. Given the project support towards improved debt management capacity as well as to activities aimed at improving accountability in public spending, there is a strong link between the project and the successful implementation of the HIPC process. Sector Context 13. In 2005, the Government adopted the PAMFIP Action Plan for PFM modernization covering all budget functions. The Plan d action pour la modernisation de la gestion des finances publiques (PAMFIP) is an umbrella government program intended to consolidate and deepen the ongoing and planned PFM activities. In particular, it covers activities aimed at 3

14 improving the quality of PFM and strengthening institutional capacity to make the best possible developmental use of public resources, including oil revenues, to meet the Millennium Development Goals (MDGs). In support of the NDP and as a continuation of the PAMFIP, a strategy for the development and modernization of public finances was prepared in Organized around 19 components, its overall objective is to establish a rigorous, efficient, effective, and transparent public financial management system, which is in conformity with international standards. 14. Significant progress in the implementation of Public Financial Management reforms has been observed in During this period, concrete results were achieved, in particular (i) the enacting of the Organic Finance Law (LOLF) by the President of the Republic; (ii) the creation of a computer center within the Ministry of Finance and Budget (MFB); (iii) the computerization of the public expenditure chain, through the completion of network connections between different units of the MFB and six other ministries as well as the interconnection between the IFMIS and SIGASPE (Système intégré de gestion administrative et salariale du personnel de l Etat). The CID has also been connected to the Treasury and covers the four phases of the spending cycle including payments.; (iv) the establishment and overall compliance of a budget preparation calendar as well as timely approval of the annual budget by Parliament; (v) the establishment of a macroeconomic framework model and the development of operating manuals for public expenditure and manuals for the utilization of the macroeconomic model; and (vi) initiatives have been taken to computerize the accounting system. Support from the Original Financing Project contributed to the achievement of these results although, the SIGASPE was funded by the State Budget and implemented by the computer center established with support of the Project. 15. Despite these efforts, PFM systems need to be reinforced to enhance the efficiency of public spending. Budget execution has been hampered by the extensive use of emergency spending procedures and cash flow management difficulties stemming from the volatility of oil revenue and the irregular seasonality of spending. In addition, the effectiveness of spending continues to be affected by a limited reliance on competitive bidding for public contracts. Despite some recent progress, the accounting process is still manual and fiscal reporting is limited (e.g., there is no formal procedure to frequently report on budget execution). A 2013 Debt Management Performance Assessment (DeMPA) revealed significant weakness in all areas of debt management including legal, regulatory and institutional framework, and debt management capacity. A recent IMF mission (September 2013) proposed that the authorities focus on several shorter-term actions to: (i) improve spending procedures, including through a phased elimination of the budget s complementary implementation period and the systematic regularization of spending before approval (Dépenses Avant Ordonnancement); (ii) improve the reliability of accounting through computerization; (iii) enhance the quality and frequency of budget reporting tools; and (iv) improve the treasury s management and forecasting. 16. The six CEMAC directives on Public Financial Management (PFM) from December 2011 aim to align the budget management system on international standards including the IMF 2001 IFS and the establishment of a culture of transparency, accountability, and performance. The new Organic Finance Law based on the CEMAC directives was adopted by the Parliament on January 3, 2014 and was enacted by the President of Republic on February The new Organic Finance Law will replace the Organic Finance Law from The 4

15 transposition of the CEMAC directive on the Organic Finance Law is an important step towards the establishment of a PFM system aligned to international standards. In addition to improving transparency and accountability, the law aims, in the medium term, to gradually introduce performance-based budgeting. Preparations are ongoing to transpose the remaining five CEMAC directives on PFM including: i) the Charter of Accounts; ii) the Budget Nomenclature; iii) the General Regulations of Public Accounting; iv) the Table of Fiscal Operations of the Central Government; and v) the Code of Transparency and Good Governance of PFM. Description of the Original Financing (OF) Project and Performance 17. The Original Financing Project, a grant in the amount of SDR 6.7 million/us$10 million equivalent 1 was approved by the Board on May 24, 2007 and became effective on April 22, The Project s initial Project Development Objective (PDO) was to assist the Recipient to enhance the quality and effectiveness of its public financial management system in order to contribute to the efficient and transparent use of public resources, by providing support, in coordination with other donors, to the Recipient s action plan for modernization of public financial management (PAMFIP). 18. The Original Financing Project was designed under the overall Chad-Cameroon Pipeline Program umbrella 2 and its associated Oil Revenue Management Program (ORMP). Following a protracted Bank-Chad dispute over the use of oil revenue and Chad prepayment of the loan balance, the Chad-Cameroon Pipeline Program was terminated in September 2008, resulting in the Bank s withdrawal from the oil sector. As a consequence, the Bank operations in Chad as well as IMF programs were suspended, affecting therefore the Project implementation and outcomes, since most of its expected results and activities were closely linked with the ORMP and the IMF program. Given this significant change in the Project enabling environment, project restructuring was envisaged since resumption of the Bank operations in Chad in 2009, but failed to materialize for many reasons, including lack of any concrete results in project implementation. Accordingly, the project was rated moderately unsatisfactory till June Project difficulties were addressed through a series of restructurings, including a change in the PDO, a refocusing of activities, and an extension of the closing date. The Chadian authorities adopted a Roadmap in December 2010 to address the lack of results in PFM reform activities and delays in project execution. Implementation of the Roadmap was positively assessed during the MTR mission undertaken in This led to a series of restructurings in 2012 and The PDO as defined in the Financing Agreement was revised for simplicity and alignment with what the project intends to achieve and to reflect the closure of the ORMP as part of the initial PDO, as well as associated indicators which were linked to this program. The Results Management Framework was revised to reflect the revised PDO. The restructuring also 1 SDR 6.7 million was equivalent to US$10 million at the time of Project approval. 2 In continuation of a total of IDA, IBRD and IFC assistance of US$342 million to the physical construction of the pipeline and to various capacity building projects in petroleum and environment management and public financial management sectors. 3 See: restructuring papers 63803, March 2012, TD, December 2012 and TD, April

16 involved a revision of the components, activities and implementation arrangements, as well as a reallocation of proceeds. 20. Following the restructurings, project performance has improved, and significant progress was achieved within a short time period. Consequently, the progress towards achievement of PDO improved from moderately unsatisfactory between 2011 and June 2012 to moderately satisfactory since December Project management has significantly improved and has become more pro-active. Hence, project implementation has improved from moderately unsatisfactory in June 2012 to satisfactory since June Disbursement levels reflect the improvement in project performance and improved from 30 percent in June 2012 to 80 percent in January There are no outstanding audit reports. Table 1: The OF Project (following the 2013 restructuring) Component Budget (US$ million) Component 1: Public Finance and Financial Accountability 3.9 Component 2: Integrated Financial Management Information System 3.9 Component 3: Coordination and Monitoring & Evaluation 1.9 Original Component 2: Human Resource Development* 0.3 Total 10.0 * Discontinued following restructuring. Consistency with the Interim Strategy Note (ISN) 21. The proposed AF is fully consistent with the ISN. Following the Country Assistance Strategy (CAS), an Interim Strategy Note (ISN) was prepared for the period. The ISN has three main axes of engagement: (i) strengthening governance and public financial management (a cross-cutting element); (ii) improving livelihoods and access to key social services; and (iii) improving regional integration and connectivity. A new Country Partnership Framework (CPF) is under preparation and will be delivered in FY15. It is expected that the CPF will maintain a focus on improving governance and public financial management. Rationale for Additional Financing 22. The proposed AF is fully consistent with Operational Policy Guideline OP/BP10.00 and the OPCS instructions on Additional Financing. All of the conditions for an AF are met. In particular, following the turnaround in the Original Financing Project implementation, the Original Financing Project is currently rated moderately satisfactory for progress towards development objectives and satisfactory for implementation progress. The Original Financing Project has substantially complied with financing covenants. The AF also appears economically justified given the potential positive benefits that could result from the enhancement of the systems network and the other proposed activities. The proposed activities are consistent with the development objectives of the Original Financing Project as well as with the strategic objectives of the ISN and the National Development Plan. 23. Given the recent reform dynamic, an AF is considered to be the best option to reach the Original Financing Project Development objective and will provide an opportunity to scale up the project while minimizing disruption. In particular, the advantage of an Additional 6

17 Financing is that it can build directly on the existing activities and implementation structure. Compared to a new operation, the AF can also be prepared and implemented more rapidly, thus maintaining the positive momentum of the results achieved to date. The Government of Chad is committed to pursue PFM reforms, as was demonstrated by the recent adoption of the new Organic Finance Law and the engagement to transpose CEMAC directives on PFM. The AF will build on this recent positive dynamic. Continued implementation of reforms to improve budget practices are expected to contribute to increase fiscal space and improve capacity for enhanced service delivery in the medium and long term. The AF will be complementary to the interventions by other development partners, including the African Development Bank, the European Union, the IMF, France and the United States of America. The project is expected to achieve synergies with the IMF forthcoming program under the Extended Credit Facility. Furthermore, the support to control institutions provided by the EU is complementary to the AF s support as the latter will continue support to preparing the Treasury Annual Financial Statements. 24. The proposed AF will take into account lessons learnt from the implementation of the Original Project and similar projects 4. Key lessons learnt include: i) selectivity in components and activities can contribute to increased impact; ii) involving key stakeholders is necessary to ensure and build appropriation; iii) project design needs to be in line with absorptive and project management capacity, and must include an adequate M&E arrangement at project start, as well as incorporating some flexibility to respond to changing needs and context; iv) capacity building is complex and training programs should be based on regularly updated needs assessments and include peer-exchanges; and v) close donor coordination and supervision of project implementation is necessary in a fragile country context. 25. Consequently, the AF will focus on a limited number of intervention areas adapted to the country context and absorptive capacity. These activities also take into account the support provided by other Development Partners to avoid duplication and promote complementarity. During project preparation all key stakeholders have been extensively consulted, including the project steering committee with members from all involved Ministries. Consultations with stakeholders will be continued during project implementation and the project will fund communications and dissemination activities to further increase stakeholder engagement. Project design has taken into account absorptive capacity as well as project management capacity. The AF will benefit from the experience of the existing Implementing Unit who is also the coordinating unit of the overall reform program. Furthermore, to minimize implementation delays, the M&E system has been adjusted to the Additional Financing and funds will be used to further strengthen M&E capacity. The preparation of the project has involved a wide set of consultations with Development Partners. During project implementation, strong supervision both from HQ and country office will be maintained with some flexibility to respond to emerging needs and changing context in a sub-region facing fragility risks. 4 i.e. see, Re-Building the Capacity of Public Administration in a Post-Conflict and Fragile Environment, Lessons learned from the Burundi Economic Management Support Project, World Bank,

18 III. PROPOSED CHANGES AND RESTRUCTURING 26. The PDO and the project components will be maintained under the Additional Financing. The Project Development Objective following the 2013 restructuring, to help the recipient to improve accountability in the use of resources managed through the PFM system, and project components: i) Public Finance and Financial Accountability; ii) Integrated Financial Management Information System (IFMIS); and iii) Coordination and Monitoring and Evaluation will be continued. More specifically, the project will provide financing to scale up existing activities including: i) implementation of the new Organic Finance law (LOLF) and CEMAC Directives, strengthen investment, and debt management and develop monitoring and evaluation capacity; ii) consolidate and scale up the current IFMIS (Circuit informatisé de la dépense, CID) and other Financial Management Information Systems being used or under development) and support the preparation of a new IFMIS blueprint; and iii) scale up the implementation of the communication strategy, further strengthening monitoring and evaluation capacity in the Ministry of Finance and Budget, undertake a PEFA and finance additional operational expenses as a consequence of the extension of the closing date by 30 months. The AF will fund new activities in the area of debt management and public investment management. 27. The project s Results Framework (Annex 1) has been updated and consolidated to: i) adjust the project target values considering the new implementation time frame; and ii) integrate new indicators to capture the broader scope of project activities. Two new PDO level results indicators have been introduced to monitor progress in public access to budget information and improvement in debt management capacity. One PDO level results indicator has been transferred to the intermediate results level (CID/IFMIS coverage of the public administration). One intermediate results indicator has been added to reflect the monitoring and evaluation of the PFM system (PEFA report), and two intermediate results indicators have been discontinued to reflect the modified scope of the project. 28. The Additional Financing will cover three components. The amounts listed below represents the cost of the additional activities that will be supported: Component 1 Public Finance and Financial Accountability: US$4.0 million Existing Activities under OF: This component finances establishing a system to manage public investment projects; streamlining and simplifying expenditure processes; updating and harmonizing the financial legal framework to reflect the new CEMAC Directives; updating the public accounting system and aligning it with the new functional budget nomenclature; providing Technical Assistance for the implementation of the Organic Finance Law; and enhancing control over the use of public resources by clarifying the roles and responsibilities of the audit and oversight institutions. Proposed Additional Activities under AF: The proposed AF will provide support to scale up existing activities, including Technical Assistance and training to support implementation of the new organic finance law (LOLF) and CEMAC Directives, and dissemination of its requirements and implications; as well as training of line ministries financial directorates, budget departments, public accountants, and financial controllers on the new Organic Finance Law and associated CEMAC directives. In addition, the proposed AF will support new activities in the 8

19 areas of Technical Assistance to the design of sector strategies and medium term budget framework (MTBF) for selected ministries. Debt management capacity will also be strengthened under the component as well as public investment management capacity. Capacity building for the Ministry of Economy, Planning and International Cooperation in M&E will also be covered by the AF. The latter will consist of establishing a macro-level M&E system in the Ministry of Economy, Planning and International Cooperation to further improve capacity to monitor and evaluate implementation of the National Development Plan and, later, serve as the basis of the M&E system for the Budget-Programs. Component 2: Integrated Financial Management Information System (IFMIS): US$5.4 million Existing Activities under OF: This component finances establishment of an ICT advisory committee and strategic expertise at the Ministry of Finances and Budget (MFB); development of a comprehensive multiyear ICT strategy and implementation plan; and support of the implementation and extension of the ICT strategy to selected additional institutions, through the provision of Technical Assistance, equipment, and training. Proposed Additional Activities under AF: The proposed AF will provide additional funding to scale up activities to consolidate and expand the existing CID/IFMIS including the interconnection of 23 additional Ministries and Agencies to the CID/IFMIS; upgrade the CID/IFMIS in accordance with the new Organic Finance Law requirements; an update of the IFMIS blueprint; further enhance the internal and external network for the public expenditure chain; and scale up capacity building of the ICT Unit and in Ministries and Agencies. Component 3: Coordination and Monitoring & Evaluation: US$ 0.8 million Existing Activities under OF: The component finances the development an operational Monitoring and Evaluation (M&E) system for public financial management; implementation of training plans for the MFB staff with the support of Local Training Institutes; and implementing the communication plan. Proposed Additional Activities under AF: The AF proposes financing to scale up activities in the area of Project Coordination and Management, Monitoring and Evaluation, and communication, including support to implement the PFM reform communication action plan. Strengthen M&E capacity for the STP/PAMFIP in charge of both the implementation of the project and the coordination of the implementation of the overall reform program will also be supported. Support will comprise funding for a PEFA which will include support to strengthen capacity in the MFB to undertake PEFA self-assessments. 9

20 Table 2: Project Outcome Indicators Indicator Original target Revised target /Changes with AF Indicator 1 In-Year Budget reporting Indicator 2 End-year reporting -The Treasury Annual Financial Statements Indicator 3 Aggregate expenditure out-turn compared to original approved budget Indicator 4 CID/IFMIS Coverage of the Public Administration (Moved to Intermediate results level) Indicator 5 Budget information is available to the Public Four-phase table is consistent with the approved budget, consolidates all spending paid by the domestic resources, and is issued within four weeks after end of quarter 2013 Treasury Statements submitted to COA by end of July 2014 Difference between Budget and execution is no more than 8 percent in 2014 At least 8 Ministries are connected through the IT network as of end of June 2014 New indicator Based on the CID/IFMIS, a four-phase table is issued every quarter within 4 weeks after period end automatically including salaries and including all payments. Quarterly budget execution reports are produced in a timely manner (4 weeks following the end of each quarter) 2015 documented AFS have been submitted to the Chamber of Accounts by July 2016 Aggregate expenditure turn-out compared to original approved budget is inferior to +/- 5% in 2016 At least 37 Ministries are connected through the IT network as of June 2016 All enacted FLs (since 2012) with annexes, state budget, quarterly budget execution reports and TOFE, end of year budget execution report (2015), citizens budget (2016) annual Execution report of the Plan National de Development is Published Indicator 6 Completeness and timeliness of central government debt records and Medium-term debt strategy New indicator There are complete debt records within a three-month lag for central government domestic, external, and guaranteed debt, as well as all debt-related transactions, including past debt relief and debt restructuring. Medium- term debt strategy including all typical analysis of medium term debt strategies, covering 90% of existing and expected central government debt and prepared by all concerned entities have been adopted by the Cabinet and made publicly available 29. The proposed revised financing plan reflects the cost of new project activities. Table 3 below shows changes in project cost per component and table 4 presents the proposed revised financing plan with additional financing by category of expenditure. 10

21 Table 3: Project Costs by Component (US$ Million) Component OF Budget (after 2013 restructuring) AF Amount Amount after AF Component 1: Public Finance and Financial Accountability Component 2: Integrated Financial Management Information System Component 3: Coordination and Monitoring & Evaluation Original Component 2: Human Resource Development (discontinued) Total Table 4: Proposed Revised Financing Plan with Additional Financing by Category Category Amount of the Initial Grant Allocated (in SDR) Amount of the Additional Grant Allocated (in SDR) Percentage of Expenditures to be Financed (including Taxes) (1) Goods for the 401, % Project (2) Consultants 1,715, % services (3) Training 181, % (4) Operating Costs 763, % (5) Refund of Project Preparation Advance 234,000 0 Amount payable pursuant to Section 2.07 of the General Conditions (6) Unallocated % (7) Goods, Training and consultant services under Component 1, 2 and 3, excluding Operating Costs (8) Goods, Training, Operating Costs and consultant services and non-consulting services under the Project 3,406, % 0 6,600, % TOTAL AMOUNT 6,700,000 6,600,000 Implementation arrangements 30. The current institutional arrangements, which include a Steering Committee and a Permanent Technical Secretariat, will be maintained. They have been consistently improving during the past years and they will be able to implement ongoing as well as proposed new activities using the tools in place for work programming and coordinating activities. 11

22 31. In terms of results monitoring, current arrangements of the Project have been satisfactory. The additional financing will nonetheless support activities to further strengthen the monitoring and evaluation capacity of the project. The scheduled PEFA exercise will serve as input to strengthen the PFM reform results framework. 32. Outreach and communications are important factors to the success of the project and the implementation of the overall PFM reform program. The Additional Financing will provide funding to scale up communication and outreach in the project. IV. APPRAISAL SUMMARY Economic and Social assessment 33. The impact of the project is mostly institutional. The direct beneficiaries of the project will be the Ministry of Finance and Budget, the Ministry of Economy, Planning and International Cooperation, and budget Departments in Sector Ministries. Other entities and agencies involved in the implementation of the LoLF will also benefit from the project. Indirect beneficiaries include private sector operators through expected improvements in treasury management and the consequent reduction in payment delays as well as public sector service beneficiaries through expected medium term improvements in service delivery. The direct benefits from the project include reduced leakages from improved budget management and reduced financial fees from strengthened treasury and debt management. Other benefits of budget, treasury, debt, investment, and payroll management reforms are to strengthen the Government s capability to manage public finances more effectively and efficiently. The implementation of the new PFM regulation combined with the expansion and consolidation of the CID is expected to contribute to increase the use of normal spending procedures. The support to the Treasury Department is also expected to enhance cash management. The support to the establishment of the MTBP and sectoral expenditure frameworks is expected to enhance allocative efficiency of spending. Finally, regular and timely financial reporting, to audit institutions and citizens at large are important steps to improve accountability in a challenging context. Overall, it is expected that these activities in the medium term will contribute to create additional fiscal space, and contribute to improved service delivery. Based on the specific country context, the poor quality of budget data and reporting system, economic and financial analysis (such as net profit value or internal rate of return) cannot be completed and is not appropriate in this case. However, as the CID/IFMIS will contribute to the implementation of unified PFM procedures (treasury management, budget classification, and payroll management), operational savings and efficiency gains are expected from better budget preparation and discipline, improved cash management, and close monitoring of the budget execution. Additional gains are also expected from improved debt and public investment management. Financial Management (FM), reporting, audit and disbursement arrangements 34. The FM system and performance of PCU Secretariat Technique Permanent- STP under the initial project are acceptable to IDA. The project FM performance was rated satisfactory following the last supervision mission of August Most of the key recommendations have been or are being implemented. The STP will be responsible for FM of 12

23 this Additional Financing (AF) and remains the Bank focal point. The STP is familiar with the Bank FM requirements and is currently managing the first phase of this IDA-financed project. The FM of the AF will follow the same approach as the implementation arrangements in place for the ongoing initial project. The capacity of the current FM staff is deemed acceptable and the activities of the AF do not require the hiring of additional staff. The version of the accounting software will be reconfigured to allow the recording of transactions of this AF. The existing FM procedures manual is acceptable to IDA and will be used for the purpose of this AF with some minor updates to reflect this AF. The residual FM risk after mitigation measures remains moderate. 35. There are no overdue interim un-audited financial reports (IFR) or audit reports in the project and the sector at the time of preparation of this AF. The IFR are prepared every quarter and submitted to the Bank regularly (e.g. 45 days after the end of each quarter) on time. The 2012 accounts audit report was submitted on time and the external auditor expressed an unqualified opinion. The audit report of the project accounts covering the period ended on December 31, 2013 is due on June 30, The accounts of this AF will be audited together with the initial program on an annual basis and the external audit report will be submitted to IDA within six months after the end of each calendar year. The TOR of the external auditing firm will reflect the scope of this AF. The project will comply with the Bank disclosure policy of audit reports and place the information provided on the official website within one month of the report being accepted as final by the team. 36. Upon Grant effectiveness, transaction-based disbursements will be used. The grant will finance 100 percent of eligible expenditures inclusive of taxes. A new designated account (DA) will be opened in a commercial bank acceptable to IDA. The ceiling of the DA will be established at FCFA 600,000,000 which represents 5 months of forecasted project expenditures expected to be paid from the DA. An initial advance up to the ceiling of the DA will be made and subsequent disbursements will be made against submission of Statements of Expenditures (SOE) reporting on the use of the initial/previous advance. The option to disburse against submission of quarterly unaudited Interim Financial Reports (also known as the Report-based disbursements) could be considered, as soon as the project meets the criteria. The other methods of disbursing the funds (reimbursement, direct payment, and special commitment) will also be available to the project. The minimum value of applications for these methods is 20 percent of the DA ceiling. The project will have the option to sign and submit Withdrawal Applications (WA) electronically using the esignatures module accessible from the Bank s Client Connection website. 37. Based on the current overall residual FM risk, which is moderate, the project will be supervised once a year to ensure that project FM arrangements still operate well and funds are used for the intended purposes and in an efficient way. Procurement arrangements 38. The existing procurement arrangements will be maintained under the proposed additional financing; however, the updated "Guidelines for Procurement under IBRD Loans and IDA Credit" published by the Bank in January 2011 will apply to all contracts financed under the additional financing. Procurement of consultants' services shall be governed by the 13