Document of The World Bank. IMPLEMENTATION COMPLETION AND RESULTS REPORT (Loan No: 85430) ON A LOAN IN THE AMOUNT OF US$5 MILLION

Transcription

1 Public Disclosure Authorized Document of The World Bank Report No: ICR Public Disclosure Authorized IMPLEMENTATION COMPLETION AND RESULTS REPORT (Loan No: 85430) ON A LOAN IN THE AMOUNT OF US$5 MILLION TO Public Disclosure Authorized REPUBLIC OF SEYCHELLES FOR THE SUSTAINING REFORMS FOR INCLUSIVE GROWTH DEVELOPMENT POLICY LOAN December 18, 2017 Public Disclosure Authorized Macroeconomics and Fiscal Management Global Practice AFCS2 Country Management Unit Africa Region

2 CURRENCY EQUIVALENTS Exchange Rate Effective: November 24, 2017 Currency Unit = Seychelles (SR) US$1 = SR SR 1.00 = US$0.072 FISCAL YEAR JANUARY 1 DECEMBER 31 ABBREVIATIONS AND ACRONYMS AfDB African Development Bank AIDS Acquired Immune Deficiency Syndrome ASP Agency for Social Protection CBS Central Bank of Seychelles CIS Credit Information System CPS Country Partnership Strategy DBS Development Bank of Seychelles DPL Development Policy Loan EFF Extended Fund Facility EU European Union FDI Foreign Direct Investment FY Fiscal year GDP Gross Domestic Product GoS Government of Seychelles GRS Grievance Redress Service HCA Health Care Agency HDI Human Development Index HIV Human Immunodeficiency Virus IBRD Bank International Bank for Reconstruction and Development IFC International Finance Corporation IGCSE International General Certificate of Secondary Education IMF International Monetary Fund IPSAS International Public Sector Accounting Standards ICT Information and Communications Technology M&E Monitoring and Evaluation MIS Management Information System MoE Ministry of Education MoFTBE Ministry of Finance, Trade, and the Blue Economy MoFTEP Ministry of Finance, Trade, and Economic Planning MoH Ministry of Health MSME Micro, Small and Medium Enterprises MTNDS Medium Term National Development Strategy MTS Medium-term Education Sector Strategy NDS National Development Strategy

3 OCR PEFA PEMC PER PFM PHA PIM PISA PPP PPBB PSIP PUC RAS SADC SDR SOE SME SORT SPF SR SSI STC SWA UNDP US$ VAT WTO Office of the Company Registrar Public Expenditure and Financial Accountability Public Enterprise Monitoring Commission Public Expenditure Review Public Financial Management Public Health Authority Public Investment Management Program for International Student Assessment Public Private Partnership / Purchasing Power Parity Program Performance Based Budgeting Public Sector Investment Plan Public Utilities Corporation Reimbursable Advisory Service Southern African Development Community Special Drawing Rights State Owned Enterprises Small and Medium Enterprises Systematic Operational Risks-rating Tool Seychelles Pension Fund Seychelles Rupee Société Seychelloise d Investissement (Seychelles Investment Society) Seychelles Trading Company Social Welfare Assistance United Nations Development Program United States Dollar Value added tax World Trade Organization Regional Vice President: Country Director: Sr. Practice Director: Practice Manager: Project Team Leader: ICR Team Leader: Makhtar Diop Mark Lundell Carlos Felipe Jaramillo Mathew Verghis Alex Sienaert Alex Sienaert

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5 REPUBLIC OF SEYCHELLES DEVELOPMENT POLICY LOAN: SUSTAINING REFORMS FOR INCLUSIVE GROWTH IMPLEMENTATION COMPLETION AND RESULTS REPORT CONTENTS A. Basic Information... 5 B. Key Dates... 5 C. Ratings Summary... 5 D. Sector and Theme Codes... 6 E. Bank Staff... 6 F. Results Framework Analysis... 6 G. Ratings of Program Performance in ISRs... 9 H. Restructuring (if any) Program Context, Development Objectives and Design Context at Appraisal Original Program Development Objectives (PDO) and Key Indicators Revised PDO and Key Indicators, and Reasons/Justification Original Policy Areas Supported by the Program Revised Policy Areas Other Significant Changes Key Factors Affecting Implementation and Outcomes Program Performance Major Factors Affecting Implementation Monitoring and Evaluation (M&E) Design, Implementation and Utilization Expected Next Phase/Follow-up Operation (if any) Assessment of Outcomes Relevance of Objectives, Design and Implementation Achievement of Program Development Objectives Justification of Overall Outcome Rating Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development Summary of Findings of Beneficiary Survey or Stakeholder Workshops Assessment of Risk to Development Outcome Assessment of Bank and Borrower Performance Bank Performance Borrower Performance Lessons Learned: (both operation-specific and of wide general application) Comments on Issues Raised by Borrower/Implementing Agencies/Partners Annex 1: Bank Lending and Implementation Support/Supervision Processes Annex 2: Beneficiary Survey Results Annex 3: Stakeholder Workshop Report and Results Annex 4: Summary of Borrower's ICR and/or Comments on Draft ICR Annex 5: Comments of Co-financiers and Other Partners/Stakeholders Annex 6: List of Supporting Documents Map of Seychelles

6 A. Basic Information Country: Seychelles Program Name: Sustaining Reforms for Inclusive Growth Program ID: P Loan Number: IBRD ICR Date: 12/18/2017 ICR Type: Core ICR Lending Instrument: DPL Borrower: Government of Seychelles Original Commitment: US$5.00 Million Disbursed Amount: US$5.00 Million Revised Amount: Implementing Agencies: US$5.00 Million Cofinanciers and Other External Partners: B. Key Dates Process Date Process Original Date Revised / Actual Date(s) Concept Review: 03/19/2015 Effectiveness: 12/31/2016 Appraisal: 08/26/2015 Restructuring(s): n/a Approval: 10/23/2015 Mid-term Review: n/a C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Risk to Development Outcome: Bank Performance: Closing: 12/31/ /31/2016 Moderately Unsatisfactory Moderate Moderately Satisfactory Borrower Performance: Moderately 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: Moderately Satisfactory Implementing Agency: Moderately Satisfactory Overall Bank Overall Borrower Moderately Satisfactory Performance: Performance: Moderately Satisfactory C.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments (if Indicators Performance any) Rating: Potential Problem Program at any time (Yes/No): Problem Program at any time (Yes/No): DO rating before Closing/Inactive status: No No Quality at Entry (QEA): Quality of Supervision (QSA): None None 5

7 D. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) Other Public Administration Other Education Other Non-bank Financial Institutions Health Social Protection Services Theme Code (as % of total Bank financing) Education for all Health system performance Micro, Small and Medium Enterprise support Public expenditure, financial management and procurement Regulation and competition policy E. Bank Staff Positions At ICR At Approval Vice President: Makhtar Diop Makhtar Diop Country Director: Mark Lundell Mark Lundell Practice Manager: Mathew Verghis Mark Thomas Program Team Leader: Alex Sienaert Rafael Muñoz Moreno ICR Team Leader: ICR Primary Author: Alex Sienaert Sati Achath F. Results Framework Analysis Program Development Objectives (PDO) The development objective of this operation was to raise efficiency of public expenditure and improve the business environment. To achieve these objectives, this operation supported actions that will: (i) raise efficiency of public expenditure; (ii) facilitate access to credit; and (iii) improve public investment. Revised PDO (if any, as approved by original approving authority) The Program Development Objective was not revised. 6

8 (a) PDO Indicators 1 Indicators Baseline Value (2014) Original Target Values* Actual Value Achieved at Completion or Target Years Pillar 1: raise efficiency of public expenditure 1. Reduce total spending on social assistance as percent of GDP 3.2% 3% 5.5% Target / achievement date December 2016 Comments (incl. % achievement) Not met (social assistance spending rose by 2.3 percentage points of GDP from the baseline value, compared with the targeted reduction of 0.2 percentage points of GDP). Source: 2018 National Budget. 2. Reduce spending on sickness benefit (of GDP) 0.07 % 0.06% 0.03% Target / achievement date December 2016 Comments (incl. % achievement) Exceeded (sickness benefits fell by 0.04 percentage points of GDP, and by 47 percent in nominal terms, compared with the targeted reduction of 0.01 percentage points of GDP). Source: 2018 Budget. 3. Increase percent of health budget allocated to prevention and promotion services 6% 9% 12.5% Target / achievement date December 2016 Comments (incl. % achievement) Exceeded (a 108% increase in the budget share was achieved compared with a targeted increase of 50%). Source: Ministry of Health. 4. Reduce teacher attrition as percent of total number of teachers 11% 7% 7.8% Target / achievement date December 2016 Comments (incl. % achievement) Substantially met (a 3.2 percentage point reduction in the teacher attrition rate was achieved, compared with a 4 percentage point targeted reduction i.e. 80% of target was achieved). Source: Ministry of Education. 1 The assessment scale used to assess progress against the results indicators is as follows: Not met : <50% completion vs. target, Partly met : >50% but < 75%, Substantially met : approximately 75%+, Fully met : approximately 100%; Exceeded : >100%. 7

9 Pillar 2: facilitate access to credit 5. Increase number of credit reports issued per day Target / achievement date December 2016 Comments (incl. % achievement) Not met (the number of credit reports issued daily increased from a corrected baseline of 48 per day, to 56 per day, a 16.7 percent increase, against a targeted increase of percent). Source: Central Bank of Seychelles. 6. Increase number of lenders connected to collateral registry Target / achievement date December 2016 Comments (incl. % achievement) Not met (no lenders have been connected to the central collateral registry, since it is still under implementation). Source: Central Bank of Seychelles. Pillar 3: improve public investment 7. Increase number of projects above 10 million rupees approved by the 0 All All Development Committee Target / achievement date National Budget for 2017 Comments (incl. % achievement) Fully met (the Development Committee was established in January 2017, and submits reports on a quarterly basis to the cabinet). Source: Ministry of Finance, Trade and Economic Planning. 8. Increase number of SOEs under Société Seychelloise d Investissement s (SSI s) purview which have reached their financial and non-financial performance indicators as agreed between SSI, Public Enterprise Monitoring Commission (PEMC) and the State-Owned Enterprises (SOEs) None Two-thirds of SSI portfolio companies None Target / achievement date December 2016 Comments (incl. % achievement) Not met (statements of corporate intent were produced in 2015 but did not include quantitative targets and have not been subsequently renewed in consultation with PEMC). Source: Ministry of Finance, Trade and Economic Planning. Notes: *There were no revisions to the original target values of any results indicators. 8

10 (b) Intermediate Outcome Indicator(s) No Intermediate Outcome Indicators were identified during Appraisal. G. Ratings of Program Performance in ISRs Not applicable. During implementation, there were several staff visits to Seychelles by members of the CMU, country economist, and sector teams. This resulted in continuing dialogue on reform progress and aide-memoires were prepared, which informed this ICRR. Ratings of Program performance in ISRs cannot be assessed, however, as ISRs are not required for standalone DPF operations. Details about Program performance are provided below in section 5 (Assessment of Bank and Borrower Performance). H. Restructuring (if any) Not Applicable. 9

11 1. Program Context, Development Objectives and Design 1.1 Context at Appraisal Country Context 1. Seychelles is a small island state in the western Indian Ocean, which has achieved a high income economy and eliminated extreme poverty. It has an estimated population of about 95,000, almost of all of whom live on three central islands out of a total of 115 tropical islands with a total land area of under 500 km 2. The country has a large maritime territory, including an exclusive economic zone of almost 1.4 million km 2 in one of the world s major tuna fishing grounds. With a gross national income per capita of US$14,760 in 2015, it has been classified since that year as a high income economy (currently the only one in sub-saharan Africa). Tourism, and the fishing and seafood industries, are the pillars of the economy, with tourism generating over half of aggregate demand by some estimates, and canned tuna constituting the bulk of goods exports. Commensurate with its relatively high average income level, Seychelles has achieved a high level of human development, as measured by the UN HDI (rank 63 rd /188 [2016]). Poverty in Seychelles as defined for international comparison purposes is very low: 2.1 percent at the lower middle income line ($3.20 per day, at 2011 PPP). Inequality, however, is significant (Gini coefficient for gross income: 46.8). 2. Seychelles historically had a state-led economy and politics dominated by a single party, but over the past decade the government has undertaken major reforms to secure fiscal sustainability and expand the role of the private sector, and political competition has also been increasing. Beginning shortly after independence in 1976, a high share of investment was channeled through state-owned enterprises, and social spending rates were high. The public sector came to absorb the bulk of GDP expenditures. This model proved unsustainable, culminating in an economic crisis and sovereign debt default in 2008, which led the country to embark on a path of major macroeconomic and institutional reforms. This program was successful in restoring sound macroeconomic management, supporting an expanded role for the private sector in the economy, and has been associated with consistently robust economic growth. Public sector governance has improved, measured by gains in government effectiveness and regulatory quality indicators. At the same time, political competition in Seychelles, which is a multi-party democracy, has been increasing. 3. Serious challenges to sustain and increase shared prosperity remain, some inherent to a small and remote island state. Scarce human resources constrain institutional capacity, the domestic consumer market is small, and international transport costs are high. These factors inhibit Seychelles ability to achieve efficiencies and economies of scale in production. The economy s vulnerability to external shocks remains high, due to its exposure to European tourism markets (albeit diversifying in recent years), and the heavy reliance on imports, including of food and fuel. In the social sectors, there is concern over youth issues, including a high teen-pregnancy rate and rising substance abuse, the relatively poor quality of education outcomes (particularly in science), and, in health, rising non- 10

12 communicable disease prevalence. Seychelles is also exposed to climate change due to its low-latitude, mid-oceanic location, and island topography with scarce usable land (including the narrow coastal zone and steep slopes of the main populated island, Mahé). Macroeconomic situation at appraisal 4. At the time of appraisal of this Development Policy Loan (DPL) in mid-2015, economic conditions were buoyant. Tourist arrivals were growing rapidly, ending the year up by 19 percent, and helping propel GDP growth to a robust 5.0 percent (Table 1). This economic expansion built on a recovery in income per person to pre-2008 crisis levels, which was achieved in 2012 (incomes had plunged by 20 percent during the crisis), testifying to the success of macroeconomic stabilization measures and continuing structural reforms. This reform program had most recently been supported by the World Bank through a prior, programmatic series of DPLs ( ), which were a core part of the FY Country Partnership Strategy (CPS). TABLE 1: SEYCHELLES SELECTED MACROECONOMIC INDICATORS Economic growth and income level Real GDP growth (annual %) GDP per capita (US$, Atlas method) 11,060 12,200 13,540 14,120 14,760 n/a Money and prices Inflation, consumer prices (annual %) Credit to the private sector (annual %) Nominal exchange rate (USD/SCR) Government budget (% of GDP) Revenue Expenditure Primary fiscal balance Overall fiscal balance General government debt External accounts (% of GDP) Current account balance FDI Gross official reserves (US$m) Sources: IMF; World Bank 5. Macroeconomic management was sound at appraisal and remained focused on maintaining stability, having been supported by successive IMF Standby Arrangements and Extended Fund Facilities (beginning in 2009 and active at the time of appraisal). Macroeconomic policy was anchored on the monetary side by reserve money targeting by the Central Bank of Seychelles (CBS), and on the fiscal side by a target to reduce debt/gdp to 50 percent by 2018 (from about 70 percent of GDP at appraisal in 2015). Consistent with the robust pace of aggregate spending growth in the economy at this time, inflation 11

13 pressures were significant, reaching an average annual rate of 4.0 percent in Monetary policy was responsive to these pressures, however, and there was subsequently CPI deflation of 1.0 percent in Fiscal performance was strong, reflecting rapid economic growth and the government s commitment to debt consolidation. Large primary surpluses were achieved in the years leading up to this DPL, and in the fiscal year of appraisal, 2015 (4.3 percent of GDP). The fiscal surpluses were driven by general expenditure discipline, buoyant nominal tax revenues helped by rising nominal GDP, and a sharp reduction in debt service costs (benefiting from previous debt restructuring). Sector context 6. Seychelles has a comprehensive and generous social protection system, the efficiency and sustainability of which would benefit from policies to restrain costs and improve targeting. There are both universal and means-tested programs, including a universal pension benefit and a targeted cash transfer. In addition to the universal Retirement Benefit, the Seychelles Pension Fund, financed by mandatory contributions, provides old age, disability, and survivors pensions to formal sector workers. All social assistance is administered by the Agency for Social Protection (ASP). Social programs cover approximately half of the population (measuring both direct beneficiaries and other members in their households). The government has introduced reforms in social assistance to contain cost and raise efficiency, including upgrading the management information system for Social Welfare Assistance (SWA). 7. Health outcomes in Seychelles are good, but there is scope to improve the efficiency of the system and reorient it towards modern challenges. Seychelles has universal access to primary care, which is free at the point of access. However, the population is aging and the non-communicable disease burden is rising. This creates new challenges for the healthcare system, including cost control: Seychelles needs to develop and implement strategies to contain costs, as health sector spending has already increased substantially in recent years, and cost pressures will only increase given the expensive nature of tertiary care for an aging population and treatments for non-communicable diseases. Consequently, policymakers in Seychelles are increasingly recognizing the need to shift their focus towards preventative care, and towards individuals being informed and equipped to achieve wellness beyond the institutional, treatment-oriented care setting. 8. Seychelles has made great strides in providing access to education but faces challenges to improve the quality of outcomes. There is universal access to primary education, and enrolment rates at the secondary level are comparable to those of many high-income countries. There are significant concerns remaining, however, over education quality, as manifested in a low proportion of learners leaving the system with good grade scores, especially in math and science. The high rate of teacher attrition is a major issue affecting quality of education, and strengthening teacher capacity and retention has thus emerged as a key policy priority. 9. Credit extension for new and expanding businesses is limited and expensive: the population s access to basic banking services in Seychelles is good, but aggregate credit 12

14 penetration is low, at only around 22 percent of GDP in 2015 (compared with a norm of around 50 percent of GDP for per capita income level comparators). The cost of credit is high, with lending rates at an approximately 9 percentage point over deposit rates, and secured loan rates for SMEs ranging from percent compared with annual inflation of well under 5 percent in recent years. Non-banking and non-traditional financing remain largely untapped; leasing and factoring, for example, are practically non-existent. There is thus considerable scope for the financial sector to more efficiently and cost-effectively mobilize savings for domestic business development. Rationale for Bank Assistance 10. The Development Policy Loan was provided to Seychelles in support of the government s continuing reform program. The Government of Seychelles (GoS) was strongly committed to undertaking the necessary reform actions to promote sustained economic growth and modernize its economy. This commitment had already been demonstrated by a prior programmatic series of three DPLs, running from , and DPLs had been identified as the principal instrument in the Bank s Country Partnership Strategy (CPS) for supporting the government s reform program. 2 The prior DPL series had taken a pragmatic approach to support the policy agenda over a three-year period in which realistic results could be defined and achieved in critical areas. The overarching focus was to continue to support Seychelles efforts to raise the effectiveness and ensure the sustainability of public spending, notably social transfers, and investments by SOEs, while creating a better enabling environment for inclusive, private sector-led growth. The Sustaining Reforms for Inclusive Growth DPL evaluated by this ICR aimed to support continued progress in these areas, and so can be viewed as the successor operation. 1.2 Original Program Development Objectives (PDO) and Key Indicators 11. The original PDO of this operation was to raise efficiency of public expenditure and improve the business environment. To achieve these objectives, this operation supported actions that will: (i) raise efficiency of public expenditure; (ii) facilitate access to credit; and (iii) improve public investment. 12. Key Results Indicators, as listed in Annex 1 of the Program Document, are: Pillar 1: Raise efficiency of public expenditure (a) (b) (c) (d) Reduce total spending on social assistance as percent of GDP Reduce spending on sickness benefit Increase percent of health budget allocated to prevention and promotion services Reduce teacher attrition as percent of total number of teachers 2 First Sustainability and Competitiveness DPL (P125202); Second Sustainability and Competitiveness DPL (P132425); and Third Sustainability and Competitiveness DPL (P146567). 13

15 Pillar 2: Facilitate Access to Credit (a) (b) Increase number of credit reports issued per day Increase number of lenders connected to collateral registry Pillar 3: Improve Public Investment (a) (b) Increase number of projects above SR10 million approved by the Development. Committee Increase number of SOEs under SSI s purview which have reached their financial and non-financial performance indicators between SSI, PEMC and SOEs. 1.3 Revised PDO and Key Indicators, and Reasons/Justification 13. The PDO and key indicators were not revised. 1.4 Original Policy Areas Supported by the Program 14. The DPL program supported the reform program under three core Policy Areas, or Pillars, namely: (i) Raise efficiency of public expenditure. The program sought to: (i) improve monitoring and administration of social assistance system; (ii) develop a health strategy to sustain health services for the population; and (iii) improve teacher management. (ii) Facilitate access to credit. the program focused on facilitating access to credit through a better credit information system and a collateral registry by: (i) improving reporting of the credit information system; and (ii) creating a centralized electronic collateral registry. (iii) Improve public investment. The program supported improved public investment management through (i) better oversight of major investment projects and (ii) enhancing the capacity of the government s investment holding company for SOEs (Société Seychelloise d Investissement (SSI) / 3 ) to monitor the financial and operational performance of SOEs. 1.5 Revised Policy Areas 15. The Policy Areas were not revised. 1.6 Other Significant Changes 16. There was no change in the Program s design, scope and scale, implementation arrangements and schedule, and funding allocations. 3 / Seychelles Investment Society 14

16 2. Key Factors Affecting Implementation and Outcomes 2.1 Program Performance 17. The Sustaining Reforms for Inclusive Growth DPL was a single-tranche, standalone operation of US$5 million, approved by the Board of Executive Directors on October 23, Major Factors Affecting Implementation 18. There was sound supporting analysis for the program. The evidence base for the reform program was shaped by analytical work that informed the government s reform agenda. This included Public Expenditure Reviews; a strategy for Strengthening Budget Management; a Public Financial Management Performance report; a review of Administrative Barriers to Private Sector Development and Business Environment in the Seychelles; and a Review of the Policy Regulatory and Administrative Environment. During implementation, the Bank continued to produce analytical reports, often financed by the government (through reimbursable advisory services), to inform related policy reforms, including on program performance-based budgeting (PPBB), pension sustainability, and SOE governance and operational performance. 19. Concerns over external risks helped maintain a sense of urgency to continue reforms. Although economic conditions were buoyant, significant concerns remained at the time of the DPL preparation over the outlook for the global economy, to which Seychelles is heavily exposed. Sluggish growth in the Euro Area, historically Seychelles major source of foreign earnings (through tourism and tuna), was a particular concern, even though the acute phase of the Euro Area debt crisis had passed. The fiscal position remained vulnerable to external weakness and shocks, with a public debt that was still high and the consolidation path being sensitive to a range of adverse outcomes. This highlighted the need for measures that would substantially increase public sector efficiency, bolster both the sustainability and efficacy of social protection programs, and support private sector deepening and economic resilience. Although this general sense of urgency was appropriate, program implementation was not affected negatively as the anticipated risks from external conditions did not materialize. 20. Coordination with other partners was instrumental in the continuing reform process. The sectors selected for the DPL program were identified based on continuous dialogue between the International Monetary Fund (IMF), the World Bank, the African Development Bank (AfDB), and other development partners, including with the participation of the government. The AfDB began a project in 2015 to support the government in developing a Human Resource Strategy and a statistical capacity-building program, while the United Nations Development Program (UNDP) assisted in developing a capacity development plan. Regular meetings between the Bank, IMF, and European Union (EU) took place during the preparation of the DPL series to share knowledge. World Bank staff missions were also open to, and coordinated with the visits of, other development partners (e.g. coordination with the IMF EFF review visit of March 2015). 15

17 21. Program design was broadly appropriate, particularly in view of upcoming elections. The design of the program was as a standalone DPL that aimed to improve results based on eight prior actions, supporting improvements in key government expenditures (social assistance, health, and education), the investment regime and wider public spending through SOEs, and better access to credit. In turn, this would ultimately strengthen macroeconomic resilience, by helping to contain public expenditure growth pressures and expand the private sector. A standalone operation, as opposed to a programmatic series of operations, was selected to signal the government s continuing commitment to reforms, while also recognizing implementation constraints. This design was sensible. It recognized, first, that much had already been achieved in a range of related areas by the prior threeyear programmatic series of Bank DPLs. Second, it was realistic about the fact that the political cycle was intensifying, with presidential elections due at the end of 2015 and legislative elections in late 2016 (making it harder for the government to commit to a longer-term reform program). 22. Government ownership of the reform program supported by the DPL was strong overall, but implementation in the area of social assistance was indeed impacted by increasing political competition. As with the previous DPL series, this DPL supported the government s own program of structural reforms, which recognized the need to extend the progress made to improve the efficiency and sustainability of public spending, including spending by SOEs and investment spending, and to support an expanded role for the private sector in the economy. There was a strong institutional focus at the Ministry of Finance, Trade, and Economic Planning (MoFTEP) 4 on designing and monitoring the implementation of the reform agenda. 5 However, measures taken by the then-president, early in 2016, outside of the ordinary national Budget process, reversed the progress already made to control the cost of social assistance. In January 2016, the then-president announced a major expansion in social spending (through a 40 percent increase in universal retirement benefits, and increases in other benefits linked to the minimum wage, which was increased by approximately 25 percent). In addition, a new progressive income tax (replacing a flat-rate income tax) was announced to be put in place in 2017, with a high initial income exemption. The total fiscal cost of these measures was approximately 3.2 percent of GDP. 23. This setback for the implementation of the reforms supported by the DPL can be viewed as a consequence of intensifying political competition, and had a significant effect on the government s overall reform trajectory. The measures were announced shortly after a presidential election (in December 2015) which the then-president won by just 193 votes, and ahead of legislative elections in September 2016, which were also 4 Throughout this document, the Ministry of Finance, Trade and Economic Planning (MoFTEP) is used to refer to the implementing core ministry, which was renamed from the Ministry of Finance, Trade and the Blue Economy, during implementation (in October 2016). 5 For a comprehensive evaluation of the World Bank s overall support to Seychelles efforts to improve competitiveness and support the private sector, see IEG, 2016, Cluster Country Program Evaluation on Small States, Seychelles Country Case Study (FY07 15): Enhancing Competitiveness and Private Sector Development. 16

18 widely anticipated to be unprecedentedly close. This political risk to maintaining the reform agenda had been appropriately recognized, with political and governance risks rated moderate in the approved SORT framework, though expected to be mitigated by the cabinet s stated commitment to continuing the reforms. The fiscal slippage also caused a delay in the completion of the IMF s fourth program review under an Extended Fund Facility which had been scheduled for mid Monitoring and Evaluation (M&E) Design, Implementation and Utilization M&E Design: 24. The Program s M&E design called for the government and the Bank to review the progress of the DPL program twice a year, based on the Results Framework presented in the Data Sheet. 25. Per the Results Framework, the indicators for public expenditure were: (i) reducing total spending on social assistance as a share of GDP; (ii) reducing spending on sickness benefit as a share of GDP; (iii) increasing the share of the health budget allocated to prevention and promotion services; and (iv) reducing teacher attrition. The indicators for access to credit were: (i) increasing the number of credit reports issued per day; and (ii) increasing the number of lenders connected to collateral registry. Finally, the indicators for improving public investment were: (i) increasing the number of projects above SCR 10 million approved by the Development Committee; and (ii) increasing the number of estateowned-enterprises under SSI s purview attaining their financial and non-financial objectives as agreed between SSI, PEMC and the SOEs. 26. The design of six out of the eight results indicators was sound for M&E purposes. Two out of eight of the above results indicators, however, had shortcomings: Number of credit reports issued per day: during the ICR and borrower s evaluation process, the baseline value of 120 in 2014 was determined by the Central Bank of Seychelles (CBS) to be inaccurate, making the target (250 in December 2016) also unviable. In fact, the correct baseline value for the average number of credit reports issued daily was 48, which increased modestly to 56 in December This inaccuracy suggests that the results indicator was not an operationally useful one for CBS, nor is it clear on conceptual grounds what the optimal number of credit reports (or percentage increase in such reports) ought to be for a small economy such as Seychelles, taking into account banks loan decision processes, and considering that shifting underlying economic conditions could plausibly raise or lower the demand for credit 6 In January 2017, the IMF program review was completed, after the fiscal outturn showed that the primary surplus target of 3 percent of GDP had in fact been exceeded; the final estimated outturn was 3.4 percent of GDP. The strong outturn despite the fiscal slippage was due to stronger than expected nominal GDP and revenues growth, including from SOEs, and some underspending of the capital budget. 17

19 information independently of the success of the credit information improvements supported by the program. Number of SOEs under SSI s purview which have reached their financial and non-financial performance indicators as agreed between SSI, PEMC and the SOEs: this results indicator conflates an evaluation of inputs - process improvements (the development of performance indicators and agreement of these amongst SSI, PEMC and the SOEs) and outcomes (achievement of the agreed indicators). The quantitative target of achieving this for two-thirds of SOEs, from a baseline of zero, takes no account of the varying size, economic importance, and performance, of Seychelles 22 SOEs, nor of the quality of selected performance indicators (for example, how demanding they were). M&E Implementation: 27. M&E implementation was sound towards most of results indicators, but was hampered in some areas by the above-mentioned shortcomings in two of the results indicators. 28. The required data for the results under Pillar 1 (raise efficiency of public expenditure) were available on a timely and accurate basis as part of the national Budget-related expenditure tracking and planning process overseen by MoFTEP. 29. The required data for the results under Pillar 2 (facilitate access to credit) were either not regularly compiled or evaluated by the implementing agency, the CBS (in the case of daily credit reports), or were not relevant (in the case of the number of lenders connected to the collateral registry, because the collateral registry was not yet operational). 30. M&E inputs to assess the results under Pillar 3 (improve public investment) were adequate in the case of the investment monitoring committee (the Development Committee), which is operational, but inadequate in the case of the results indicator on agreed SOE performance indicators. This can likely be attributed in part to the weakness of its initial design. M&E Utilization: 31. The data collected on the measures under the expenditure pillar are highly relevant for policy decisions and their use is expected to continue and to be sustainable as part of the regular National Budget cycle. The data and information gathered for the Development Committee (overseeing large public investments) are also playing a role in government decision-making, and this appears sustainable given that the Committee is operational and reporting regularly to Cabinet. 32. Sustained utilization of credit-related information will require that the metrics and reporting on the supply and demand for credit reports be revisited, and, once the collateral registry is operational, the data and reporting on the efficacy of this system to support credit would also need to be developed as appropriate for ongoing M&E purposes. 18

20 33. A systematic, transparent approach to SOE oversight, reflecting commitments agreed amongst the PEMC, SSI and SOEs, was not achieved by the associated results indicators of this program and remains to be put in place. However, the program did support overall improvements in SOE governance, as summarized in Section 3, below. 34. The assessment of the design, implementation and utilization of M&E is summarized for each of the program s results indicators in Table 2, below. TABLE 2: SUMMARY OF M&E ASSESSMENT BY RESULTS INDICATOR Results indicator Design Implementation Utilization Pillar 1: raise efficiency of public expenditure 1. Reduce total spending on social assistance as percent of GDP 2. Reduce spending on sickness benefit (of GDP) 3. Increase percent of health budget allocated to prevention and promotion services 4. Reduce teacher attrition as percent of total number of teachers Pillar 2: facilitate access to credit 5. Increase number of credit reports issued per day 6. Increase number of lenders connected to collateral registry Pillar 3: improve public investment Adequate Adequate Yes, as part of Budget process (including PPBB implementation). Weak (baseline was inaccurate) Adequate None Not relevant due to delayed project implementation. No, as the collateral registry is not yet operational. 7. Increase number of projects above 10 million rupees approved by the Development Committee 8. Increase number of SOEs under Société Seychelloise d Investissement s (SSI s) purview which have reached their financial and non-financial performance indicators as agreed between SSI, Public Enterprise Monitoring Commission (PEMC) and the State-Owned Enterprises (SOE) Adequate Adequate Yes, as the Development Committee is operational and reports quarterly to Cabinet. Weak (needed quality of performance indicators not specified; coordination mechanism amongst entities not specified). Not sustained (nonquantitative performance agreements were produced in 2015 but not subsequently). No, given that there is no sustained process by which PEMC, SSI and the SOEs agree and monitor progress against quantitative and nonquantitative performance indicators. 19

21 2.4 Expected Next Phase/Follow-up Operation (if any) 35. The DPL was a standalone operation which closed in December Since this time, the Bank has continued to support the implementation of related public sector reforms, including through Bank-financed ASA on social protection (P152882), and Reimbursable Advisory Services on Program Performance Based Budgeting and Performance M&E (P160603), and Financial Sector Development (P156528). A Systematic Diagnostic was completed in June 2017, informing a new Country Partnership Framework which is currently being prepared. 3. Assessment of Outcomes 3.1 Relevance of Objectives, Design and Implementation 36. The objectives of the program to raise the efficiency of public expenditure and to improve the business environment are clear and remain highly relevant to Seychelles development priorities, and to the Bank s engagement. The Bank s Systematic Country Diagnostic (SCD), completed in June 2017, identified improving the efficiency of public spending (including through SOEs), and addressing credit constraints, as clear continuing priorities for shared prosperity. The government welcomed the findings of the SCD and is using these to inform its new National Development Plan, currently under preparation. The DPL series was the principal instrument identified in the Bank s CPS for supporting the government s reform program, and was also fully aligned with the budget cycle which was the government s main vehicle for new policy initiatives. 37. The program served as an integral part of the Bank s ongoing, wider engagement in the public sector, which supports policy and institutional measures that are helping Seychelles consolidate and extend the reform progress it has made. The program complements other World Bank assistance that supports regional economic integration and private sector development, public sector efficiency, social protection, and the sustainable development of the fisheries sector. Through both Bank-financed and reimbursable advisory services, the Bank is providing technical assistance to support improvements in social protection (particularly in pensions the largest item), health sector reforms, implementation of PPBB and Results-Based Management (RBM) in the public sector, and has delivered SOE operational and governance reviews, and training to reinforce public investment management. In terms of regional economic integration efforts, supporting trade and private sector development, the Bank supported Seychelles participation in the regional Accelerated Program for Economic Integration through a DPL (P146512, effective in 2016). 3.2 Achievement of Program Development Objectives Overall Achievement of Objectives Rating: Moderately unsatisfactory 38. Overall, the operation s achievement of its objectives is rated as moderately unsatisfactory. The relevance of its objectives was high, but there were significant 20

22 shortcomings in the operation s achievement of these objectives, and in how efficiently the measures it supported facilitated progress towards them. This assessment reflects the mixed performance of the three individual pillars of the program, which is described below. Pillar 1: Raise efficiency of public expenditure Rating: Moderately satisfactory (2/4 results indicators for this pillar were exceeded, 1 was substantially met, and 1 was not met) (i) Improve Monitoring and Administration of Social Assistance System 39. Overall social assistance spending surged during the program period, rising to 5.2 percent of GDP in 2016, instead of falling to 3 percent of GDP as targeted by the first results indicator of the program. The single biggest contributor to this increase was a 40 percent increase in retirement benefits in 2016 (increasing the retirement benefit costs by 0.9 percentage points of GDP, to 2.3 percent of GDP). The other major contributors to the increase in social assistance spending were increased invalidity benefits (due to the benefit amount being brought up to par with the minimum wage), and increased home carer allowance rates (both costing about an extra 0.3ppt of GDP). 40. These measures, increasing social assistance costs, caused the key results indicator for this part of the program to be missed by a large margin, and show the need for more progress towards strategically managing social assistance. The measures can be seen as once-off, related to the electoral cycle, and were ascribed at the time as a needed policy response to new evidence that the poverty rate (as defined by the national poverty line) was a high 39.3 percent. Nevertheless, they demonstrate that there remains a major challenge to cap the overall costs of Seychelles social assistance system and ensure its long-term sustainability, and to streamline and more strategically manage the system. In support of this goal, the ASP has conducted a strategic analysis to define directions for core interventions, and prepared an action plan. Implementation of the action plan would improve coherence and efficiency of social assistance, which would contribute to strengthened administration of programs. 41. The government has clarified ASP s multiple reporting lines to reinforce accountability over social security and social assistance programs. The Social Security Act gives responsibility to the Minister responsible for Finance for the oversight of the Social Security Act. The Agency for Social Protection Act established the ASP and mandated it to administer social security benefits and social welfare programs. The ASP Act gives portfolio responsibility for the agency and its welfare programs to the Minister in charge of Social Affairs. As a result, the ASP reports to the Minister of Finance, Trade, and Economic Planning (MoFTEP), for social security benefits it administers, and to the Minister responsible for Social Affairs for the operation of the agency and the implementation of the social welfare programs. To this effect, the cabinet has already 21

23 approved a memorandum proposing the transfer of ASP s ministerial responsibility to the Minister responsible for Social Affairs Although social assistance costs have risen sharply overall, the government has also taken steps to contain the cost and raise the efficiency of some social assistance programs. The reforms included upgrading the management information system (MIS) for Social Welfare Assistance (SWA); and establishing automated cross-checks with relevant government agencies, modifying the means test for SWA and establishing a review panel to improve targeting, consolidating the home-care and family allowance program, and introducing a means test for the consolidated program. The DPL also supported the government in revising the regulations to introduce assessment of disability, based on a return to work approach, and shifting part of the cost of sickness benefit to the employers. 43. With the introduction of the Social Welfare Information System (SWIS), efficiency and effectiveness of service delivery have improved, and decision making has become more objective. This automated application process has reduced the likelihood of fraud and error. A cost analysis was conducted to recommend areas for improving the management of the ASP. The operation also supported upgrading of the monitoring and evaluation (M&E) capacity of the ASP, which has improved control of social assistance. The ASP now has adequate capacity to monitor and evaluate programs and use this information for policymaking purposes. The coverage of ASP s MIS has also been broadened to include the sickness benefit, which was previously not included. 44. Due to the above measures, the sickness benefits paid by government dropped significantly, by 48 percent between the baseline (2014) and target (2016) years. This outcome far exceeded the associated DPL results indicator target (which aimed for a 15 percent reduction in sickness benefit costs to government as a share of GDP). (ii) Develop a Health Strategy to sustain health services for the population 45. The government has implemented a National Health Policy, resulting in a clear shift towards needed prevention and wellness promotion services, as aimed for by the operation. The GoS has adopted a clear package of health services and interventions to clarify entitlements and to ensure that the most effective services, aligned with the emerging disease burden in Seychelles, are provided. The revised framework allows the government to adapt this package of services and benefits to the evolving burden of disease and new technologies over time. Furthermore, management of inputs (training, purchase of equipment and medicines) has been simplified. The new Health policy serves to reallocate resources towards the most effective interventions, and to health prevention and 7 In March 2017, after the closing date of the DPL, the Social Affairs Department was placed under a new Ministry of Family Affairs. 22

24 promotion services, which increased from 6 percent of the total health budget in 2014 to 12.5 percent by December (iii) Improve Teacher Management 46. The program supported tangible improvements in teacher management, and the results indicator (a reduced teacher turnover rate) was substantially met. The Cabinet approved a Memorandum to establish the principles of a comprehensive teacher management policy. The Memorandum established the key principles and targets of the teacher management policy reform, and guided further policy formulation and implementation focusing on quality and efficiency improvement. Consultations around the Memorandum took place with teachers, teacher trainers, school directors and MoE staff, and the content of the Memorandum reflected the views of various stakeholders. The Ministry of Education (MoE) subsequently developed a comprehensive teacher management policy that links teacher management to other policy development, including a revision of the teachers scheme of service. Teacher turnover dropped substantially to 7.8 percent in 2016, down from 11 percent in 2014, and substantially achieving the targeted improvement (7 percent turnover). Pillar 2: Facilitate Access to Credit Rating: Unsatisfactory (2/2 results indicators for this pillar were not met) (i) Improve reporting of the Credit Information System (CIS) 47. The results indicator for credit reporting (number of credit reports issued per day) has showed little improvement. The program aimed to support the average daily number of credit reports more than doubling, from 120 (baseline) to 250 (December 2016). Consultation with the CBS, however, showed that this baseline number was inaccurate, with a daily average of 48 reports in fact being produced in 2014, rising to an average of 56 per day in Although the pace of progress in increasing reporting has been slow thus far, the CBS is continuing to work on structural improvements to credit reporting. The CBS adopted regulations to ensure that institutions under its purview report more frequently to the CIS (as a prior action of the operation). As a result, the frequency of reporting to the CIS is enhanced, moving from monthly reporting to an event-based reporting (i.e. any time there is a change in the credit). CIS reporting capability has also been improved, to show specific repayment features, such as whether each individual installment (or other repayment deadline) was fully or partially fulfilled, or not repaid at all. 49. A more comprehensive legal and regulatory framework for credit reporting activities is also being developed. Participation in the CIS is being expanded to lenders currently not regulated by the CBS, including, among others, lending government agencies or programs (e.g. Small Business Financing Agency), as well as commercial companies and others that engage in hire-purchase activities and financial leasing, especially in light 23

25 of the Hire Purchase and Credit Sale Act and Financial Leasing Act. To do so, the CBS has prepared, with Bank support, a Credit Reporting Act to describe in detail the rights and responsibilities of all participants in the credit reporting system in Seychelles, including data providers, credit reporting service providers, users, data subjects, other relevant data sources and regulators. The draft Act is under review by CBS with a view to tabling it in mid (ii) Create a centralized electronic collateral registry 50. Supported by the operation, the Secure Transactions Act was enacted in 2015 and provides for a modern secured transactions system, by: (i) creating the underlying legal framework; (ii) the creation of a national collateral registry for all secured interests in movable property; and (iii) training the trainers and most important stakeholders on the use of the collateral registry. Once all three components are in place, banks and other creditors in the Seychelles will be able to use a variety of collateral (production assets, accounts receivables, etc.) and eventually provide more loans to support productive activities in the private sector. 51. The project to develop a centralized electronic collateral registry is not yet complete, and consequently the results indicator (increasing the number of lenders connected to the collateral registry) was not met. The delays faced by the project have been due both to the capacity constraints faced by the implementing agency (CBS), by technical (ICT implementation) problems, and reportedly by a lack of commitment from key stakeholders. Once the central registry is operational, CBS will also need to issue related regulations to ensure that financial institutions will be able to expand their lending operations against movable collateral (e.g. assets, inventory and accounts receivable), hence boosting access to finance for businesses. Pillar 3: Improve Public Investment Rating: Moderately satisfactory (1/2 results indicators fully met, and 1/2 not met) (i) Improve Public Investment Management 52. The Development Committee has been created and is operational, reporting quarterly to the Cabinet, and meeting fully the target under the associated results indicator. The Development Committee is formed by representatives from line ministries, SOEs, regulatory authorities and MoFTEP. It approves all screening criteria for development projects, with the Secretariat reviewing the screening conducted by ministries and agencies. As part of the implementation of PPBB, ministries and agencies, during their medium-term expenditure strategy planning process, are responsible for determining capital projects required to achieve their objectives. With Bank support, GoS has prepared detailed guidelines on project appraisal methods and standards to facilitate the assessment of the financial viability of projects, which for particularly large or complex projects would also require comprehensive cost-benefit analysis. Major adjustments to project design or 24

26 cost outside of planned agreements are to be reassessed and reapproved by the Development Committee. 53. Under this results area, the program has supported strengthened Public Investment Management (PIM), to ensure adequate assessment of all investment projects in the Public Sector Investment Plan (PSIP). As a result of this reform, the PSIP ingrains a control mechanism that would ensure that all approved and budgeted major projects have been through appropriate screening, preparation and approval processes. (ii) Enhance SSI capacity to monitor public investment by SOEs 54. With the support of this operation, the government clarified the mandate of Société Seychelloise d Investissement (SSI, government s SOE investment holding company). Its mission statement now considers the macroeconomic situation of the country, including limited savings, the high public debt level, and the high opportunity cost of new investments by SOEs. The method of selection and the composition of SSI's board of directors has been revised to improve transparency in line with international good practices. Thus, board governance has been improved, particularly the director nomination process, which would strengthen boards. 55. The government is also focusing on strengthening SSI s mandate through a shareholder policy for SSI and an investment strategy and operating guidelines. This will clarify the transfer of dividends and retained earnings, portfolio objectives and define when investments have a public interest. It will also determine the criteria to apply concerning risk, minimum projected financial and economic rates of return, and performance benchmarks, as well as the due diligences for project selection to minimize fiscal risk and impact on competition. 56. There remains a need to coordinate the functions of SSI with that of the SOE regulator, and develop suitable SOE performance indicators. There has been little progress towards agreeing to financial and non-financial performance indicators for SOEs between the SOEs, SSI, and the Public Enterprise Monitoring Commission (PEMC, the regulator), and consequently the associated results indicator (namely, that these agreements exist and have been met for 2/3 of SOEs under SSI s purview) was not met. SOEs submitted corporate statements of intent in 2015, but these were not quantitative, and have not subsequently been renewed. 3.3 Justification of Overall Outcome Rating Rating: Moderately unsatisfactory 57. The overall outcome of the DPL program is rated as moderately unsatisfactory, as its objectives were (and remain) highly relevant and it supported several important reforms, but there were also significant shortcomings in the achievement of intended outcomes. Looking across the three pillars of the program, the overall rating reflects the combination of an unsatisfactory rating for one of the pillars (credit), and moderately satisfactory ratings for two of the pillars (public expenditures and public investments). 25

27 58. In pillar 1, public expenditures, the overall progress towards the objectives was moderately satisfactory. The program supported significant, successful efforts by the government to rationalize some costs (addressing rising sickness benefit costs), take a more strategic approach to others (increasing the share of preventative healthcare spending), and address a major impediment to the effectiveness of spending in one of the largest and most critical sectors for shared prosperity (education, by addressing high teacher attrition). However, the program failed to meet its objective of stabilizing overall social assistance spending, which increased sharply. 59. In pillar 2, facilitating access to credit, the overall progress towards the objectives was unsatisfactory. The program supported putting the required legal and regulatory framework in place to improve the availability and quality of credit-related information. However, significant challenges were encountered when it came to increasing the use of the credit information system, and implementing a collateral registry. Consequently, there was little progress against either of the two results indicators in this pillar, which fell significantly short of intended achievements. 60. In pillar 3, improving public investment, overall progress towards the objectives of this pillar was moderately satisfactory. The program supported significant technical oversight and governance improvements for major projects, with good practice guidelines having been drawn up and a Development Committee now being in place. However, the program fell short of achieving its target of establishing and monitoring performance objectives for a critical mass of SOEs, as agreed amongst the stakeholders (the investment holding company, SSI, regulator, PEMC, and public enterprises). 61. Overall, whilst recognizing that there were significant shortcomings in results that necessitate rating the program s performance as moderately unsatisfactory, the DPL program has contributed to significant reforms, and its objectives remain highly relevant. Improved efficiency in social protection, health, and education attenuates upward spending pressures in these areas to meet growing needs, thus strengthening fiscal sustainability, while also improving delivery of these vital public services, and hence inclusiveness. Enhanced public investment management (encompassing both planning and oversight functions) also contributes to more efficient public spending, and to reducing fiscal risks. Finally, the program has helped to lay the groundwork for better access to credit, supporting opportunities for Small and Medium Enterprises. Overall, Seychelles is now better equipped to confront challenges that are inherent to a small island state that is highly vulnerable to external economic shocks, to provide better public services and infrastructure, and to increase the supply of credit to support inclusive economic growth. 3.4 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development 62. Poverty Impact: the operation did not support reforms aimed at having direct distributional impacts on the poor. Indirectly, the policy focus of the operation may have affected poverty and inequality in the following ways: 26

28 Raising the efficiency of public services expenditure helps protect the poor and to reduce inequalities, by better supporting, and providing opportunities to increase, human capital. For instance, the new National Health Policy aimed at addressing issues such as HIV/AIDS, Hepatitis-C, and drug addiction would help people to lead longer and more productive lives, and increase their capacity to identify and exploit better earnings opportunities. Better teacher management would be expected to improve educational outcomes, a critical channel for inclusive growth in Seychelles (which has achieved universal access to education but faces challenges to lift the quality of educational outcomes). Improved access to credit would support private sector development, including the ability of newer entrants to pursue economic opportunities. Students graduating from high schools and colleges would have better access to credit to support their pursuit of business opportunities; existing small business owners will have better opportunities to expand their businesses, supporting incomes and jobs. Enhanced efficiency in public investment helps to remove supply side constraints, addressing specific infrastructure bottlenecks constraining economic activity, and helping to contain business costs, and thus facilitate more investments and employment. 63. Gender Aspects: there were no gender aspects in the DPL. 64. Social Development: the health sector reforms have served to ensure that adequate primary health care is institutionalized in the system, ensuring that those more vulnerable enjoy sustainable health services. Seychelles social protection system continues to provide generous support, especially to the aged, including through the universal pension and home carers program. In education, improvements in teacher quality and retention are expected to improve the quality of education available to all students. (b) Institutional Change/Strengthening 65. The program contributed significantly to strengthening institutions, as demonstrated by the following: Public expenditure management: the Cabinet has approved a strategic plan for the social protection agency and transferred responsibility to the Minister for social affairs. 8 8 In March 2017, after the closing date of the DPL, a new Ministry of Family Affairs was created, and the Department of Social Affairs was moved to it, from the Ministry of Health and Social Affairs. 27

29 Health sector: functions have been separated and clarified, with clearly defined mandates, for the Ministry of Health, the Health Care Agency, and the Public Health Authority. Education sector: (i) Seychelles Institute of Teacher Education was incorporated into the Ministry of Education; (ii) pre- and in-service teacher training and professional programs were provided to MoE staff; (iii) teachers scheme of service has been improved to better define teacher careers and compensation; (iv) greater autonomy was provided to schools; (v) adult learning and distance education centers were transformed into a professional center; and (vi) capacity of MoE was improved to implement PPBB, linking learning outcomes and quality outputs with the budget. Public Investment Management: the Development Committee and Secretariat were operationalized to appraise large projects and adopt guidelines for public investment and maintenance. Further: The operation was instrumental in strengthening cooperation and coordination of the Central Bank of Seychelles (CBS) with other institutions including the Attorney General s Office, Office of the Registrar General (ORG), Department of ICT (DICT), and Seychelles Licensing Authority (SLA). The benefit of guidance, expertise, and advice from the Bank in connection with the DPL has contributed to strengthening the staff capacity of various institutions, including CBS and ORG, as well as MoFTEP, and other line ministries. Policy dialogue and several workshops conducted with the assistance of the Bank have contributed to capacity building at MoFTEP, line ministries, and other institutions. (c) Other Unintended Outcomes and Impacts (positive or negative, if any) 66. No unintended outcomes or impacts were observed. 3.6 Summary of Findings of Beneficiary Survey or Stakeholder Workshops 67. None. 4. Assessment of Risk to Development Outcome Rating: Moderate 28

30 68. While recognizing the significant economic management and institutional reform progress already achieved, the continuing risk to development outcomes supported by the DPL is moderate. The government has shown strong leadership in pursuing the reform agenda, and the country has already achieved substantial results from this and past operations. Seychelles has effectively established a decade-long track record of post-crisis macroeconomic adjustment followed by structural reforms, with the close engagement of development partners including the Bank. This has reduced the risk of political and social resistance to more reforms. However, while there appears to be a wide consensus on the need for continued reforms, increased political competition has made it more challenging to move forward in sensitive areas. In addition, there is a limited institutional capacity within sector ministries and agencies, potentially slowing continued policy reform and implementation progress. Overall, Seychelles remains a country in complex transition from having had an over-extended state sector, and remains exposed to economic shocks. 5. Assessment of Bank and Borrower Performance 5.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: Moderately Satisfactory 69. Bank performance in preparing this program was satisfactory. The program focused on critical gaps and opportunities for interventions by providing budget support to Seychelles to implement necessary reforms. The program objectives were consistent with the development priorities of the government and the Bank s CPS. The selection of program activities was guided by upstream policy dialogue with the government, and engagement with the IMF and the AfDB to ensure adequate coordination in supporting the overall reform program of the government. The preparation was also coordinated with other partners including the European Union (EU) and the UNDP. During preparation, the Bank assessed the program s risks and benefits, and the lessons learned from earlier operations and incorporated them into the design. (b) Quality of Supervision Rating: Moderately Satisfactory 70. The Bank's performance during the implementation of the program was moderately satisfactory. The task team focused on the program s development impact. The Bank has no country office in Seychelles, but allocated sufficient budget and staff resources to support regular staff visits to the country. The Bank maintained policy dialogue with the institutions involved in the implementation of reform program, and ensured the availability of staff and specialists to advise the government on all policy and technical areas involved. There was strong coordination with the IMF, which provided an Extended Fund Facility to Seychelles to reduce vulnerabilities and increase resilience to cope with unexpected shocks; the Bank participated in Fund staff review missions and the 29

31 Fund participated in relevant Bank meetings. However, the quality of Bank supervision had moderate shortcomings, as staff visits did not uncover that progress towards results under pillar 2 (credit), and implementing the mandate of the SSI (results indicator under pillar 3) fell behind schedule. (c) Justification of Rating for Overall Bank Performance Rating: Moderately Satisfactory 71. With a Satisfactory rating for quality at entry, and a Moderately Satisfactory rating for quality of supervision, the overall Bank performance is rated as Moderately Satisfactory in accordance with IEG s harmonized rating criteria. 5.2 Borrower Performance Rating: Moderately Satisfactory 72. The government s commitment to, and ownership of, the program was adequate but with moderate shortcomings. The MoFTEP, the implementing agency, took full ownership of the program development and implementation and worked very closely with the Bank team in the design and implementation of this program. The commitment and ownership by MoFTEP of the program during preparation and implementation was adequate, as evidenced by their successful implementation of the prior actions and continuing interest in implementation of the program. However, MoFTEP s role in supervising the progress towards intended results faced significant challenges, beginning shortly after the effectiveness date (December 2015) when the then-president dramatically boosted social assistance spending outside of the normal Budget process. Subsequently, supervision challenges were also experienced both internally (the responsible department was understaffed at the time of this DPL) and, particularly towards the end of the program period, externally (with coordination across relevant agencies affected by the change in President in October 2016, followed immediately by extensive changes in the national executive at Cabinet and senior staff level). Consequently, MoFTEP was not able to resolve some slippages in implementation in a timely manner, despite having a clear ongoing commitment to achieving the intended results of the program. X Click here if the Government and the Implementation Agency is the same or indistinguishable 6. Lessons Learned: (both operation-specific and of wide general application) 73. The following lessons were learned from the development and implementation of this Program: Sectoral development policy operations can be quickly mobilized to achieve results in the context of strong reform momentum. The Bank can respond quickly to provide budget support when facilitated by strong government ownership of a 30

32 reform agenda. The Bank s engagement in providing this standalone DPL, following immediately after the completion of a prior, programmatic series of DPLs, helped to sustain reform momentum, at a time when the reform agenda could have stalled due to multiple challenges then facing the government. The limited capacity of government in small countries such as Seychelles heightens the need for selectivity and realism regarding feasible objectives. The capacity of government institutions is limited in small countries like Seychelles, and it is important to be realistic about the number and scale of policy reforms and project implementation interventions that can achieved. This is particularly the case for DPLs such as this one which seek to extend reform gains across multiple sectors (as can be important to sustain overall reform momentum in the public sector). Close coordination and engagement using the range of Bank instruments, and with other development partners, is crucial. The coordination of reform support with analytical work and technical assistance (through reimbursable or trust-funded advisory services) is critical, given the limited capacity of the public sector in areas where knowledge and highly specialized skills are required. ICT project implementation in small countries like Seychelles can be very challenging. ICT infrastructure in Seychelles has developed but gaps remain, government is at a relatively early stage of digitization, and establishing connectivity across different institutions can be a challenge. Clear and specific instructions on the actions to be taken by the government s technology provider (in Seychelles case, the Department of Information and Communications Technology, DICT) are needed, so that IT systems can be developed timeously. Further, sufficient manpower resources including programmers should be allocated upfront so that implementation can progress on schedule. Also, reports, assessments, and recommendations from independent evaluators, especially ICT consultants, should be considered seriously, as they are valuable tools for strengthening institutions in a country such as Seychelles with limited human resources. Politically-driven policy reversals can affect the results of even standalone operations to provide continuing support to a well-established, credible reform program. The results of this operation were significantly, negatively impacted by the political impact of elections in 2015 and 2016, even though project preparation attempted to take this into account through the use of a standalone operation. This illustrates the need in such situations for a sharp focus on the realism of results indicators, aiming for substantive impacts within the direct control of the implementing agencies. 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/Implementing agencies 61. Not applicable. 31

33 (b) Co-financiers 62. Not applicable. (c) Other partners and stakeholders (e.g. NGOs/private sector/civil society) 63. Not applicable. 32

34 Annex 1: Bank Lending and Implementation Support/Supervision Processes (a) Task Team members Names Rafael Munoz Moreno (TTL) Mark Roland Thomas Julio Revilla Patrick Kabuya Melis Ufuk Guven Netsanet Walelign Workie Francesco Strobbe Dobromir Christow Gary J. Fine Kjetil Hansen Cristina Isabel Panasco Santos Tuan Minh Le Nneoma Veronica Nwogu Jose C. Janeiro Virendra Polodoo Madeleine Chungkong Mariella Beugue Title Senior Economist Practice Manager Program Leader Senior Financial Management Specialist Senior Social Protection Economist Senior Economist (Health) Senior Financial Sector Economist Senior Private Sector Specialist Senior Private Sector Development Specialist Senior Public Sector Specialist Program Leader Senior Economist Senior Counsel Senior Finance Officer Consultant Senior Program Assistant Program Assistant (b) Staff Time and Cost Seychelles Sustainable Reforms for Inclusive Growth Staff Time and Cost (Bank Budget Only) Stage of Project Cycle USD Thousands (including No. of staff weeks travel and consultant costs) Lending FY $86.57 Supervision/ICR FY17 - $

35 Annex 2: Beneficiary Survey Results (if any) Not applicable. 34

36 Annex 3: Stakeholder Workshop Report and Results (if any) Not applicable. 35

37 Annex 4: Summary of Borrower's ICR and/or Comments on Draft ICR The Principal Secretary, Economic Planning, at the Ministry of Finance, Trade and Economic Planning, reviewed the draft ICR and provided a clarification comment which was incorporated in this report. The from the borrower and attached draft with marked-up comment are included in a supporting document to this report. The borrower stated: Overall we are in agreement with the issues highlighted in the report and the ratings. It does provide a fair assessment of the status and of events which took place during the period and their impacts on the outcome. 36

38 Annex 5: Comments of Co-financiers and Other Partners/Stakeholders Not applicable. 37

39 Annex 6: List of Supporting Documents 1. Program Document: Report No SC (September 2015) 2. Letter of Development Policy (September 2015) 3. Loan Agreement 8543-SC (December 2015) 4. Aide Memoires / Back To Office Reports (September 2014 December 2016) 5. Borrower s comments on draft ICR (December 2016) 38

40 Map of Seychelles 39