FOR OFFICIAL USE ONLY

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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 PROJECT PAPER ON A PROPOSED ADDITIONAL GRANT IN THE AMOUNT OF US$10.0 MILLION TO THE PALESTINE LIBERATION ORGANIZATION FOR THE BENEFIT OF THE PALESTINIAN AUTHORITY FOR A WEST BANK AND GAZA CASH TRANSFER PROJECT Human Development Department West Bank and Gaza (MNCO4) Middle East and North Africa Region August 28, 2013 Report No: GZ This document is being made publicly available prior to Board consideration. This does not imply a presumed outcome. This document may be updated following Board consideration and the updated document will be made publicly available in accordance with the Bank's policy on Access to Information.

2 CURRENCY EQUIVALENTS (Exchange Rate Effective: July 31, 2013) Currency Unit = Israeli New Sheqalim (ILS) US$1.00 = ILS 3.57 ILS 1.00 = US$0.28 FISCAL YEAR January 1 - December 31 AF CTP DA EU FY GDP IBRD IDA IFR M&E MENA MIS MOF MOSA NGO ODI OM ORAF PA PCBS PCU PECS PLO PMTF PMU PNDP Q4 SHC SSNRP TFGA TFGWB UNICEF UNRWA WBG WBGCTP ABBREVIATIONS AND ACRONYMS Additional Financing Cash Transfer Program Designated Account European Union Fiscal Year Gross Domestic Product International Bank for Reconstruction and Development International Development Association Interim Financial Report Monitoring and Evaluation Middle East and North Africa Region Management Information System Ministry of Finance Ministry of Social Affairs Non-governmental organization Overseas Development Institute Operations Manual Operational Risk Assessment Framework Palestinian Authority Palestinian Central Bureau of Statistics Project Coordination Unit Palestinian Household Expenditure and Consumption Survey Palestine Liberation Organization Proxy Means Test Formula Project Management Unit Palestinian National Development Plan Fourth Quarter Special Hardship Cases Program Social Safety Net Reform Project Trust Fund Grant Agreement Trust Fund for Gaza and West Bank United Nations Children's Fund United Nations Relief and Works Agency West Bank and Gaza West Bank and Gaza Cash Transfer Project Vice President: Country Director: Sector Director: Sector Manager: Task Team Leader: Inger Andersen Mariam J. Sherman Steen Lau Jorgensen Yasser El-Gammal Samira Ahmed Hillis 11

3 WEST BANK AND GAZA WEST BANK AND GAZA CASH TRANSFER PROJECT PROJECT PAPER CONTENTS Additional Financing Data Sheet... iv I. Introduction... 1 II. Background and Rationale for Additional Financing... 1 III. Proposed Changes... 6 IV. Appraisal Summary... 7 Annex 1: Results Framework and Monitoring Annex 2: Operational Risk Assessment Framework Annex 3: Reforms and Achievements for Social Protection in West Bank and Gaza Annex 4: Activities and Expenditures to be Financed by the AF Grant - Withdrawal of Grant Proceeds Annex 5: Financial Management and Disbursements Annex 6: Implementation Support Plan

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5 Additional Financing Data Sheet West Bank and Gaza WBGCTP AF (P144967) MIDDLE EAST AND NORTH AFRICA MNCO4 Basic Information - Parent Parent Project ID: P Original EA Category: C - Not Required Revised Closing Date: December 31, 2014 Current EA Category: C - Not Required Basic Information - Additional Financing (AF) Project ID: P Additional Financing Scale Up Type (from AUS): Regional Vice President: Inger Andersen Proposed EA Category: C - Not Required Country Director: Mariam J. Sherman Expected Effectiveness October 10, 2013 Date: Sector Director: Steen Lau Jorgensen Expected Closing Date: June 30, 2016 Sector Manager: Yasser El-Gammal Report No: GZ Team Leader: Samira Ahmed Hillis Borrower: The Palestine Liberation Organization (PLO) for the benefit of the Palestinian Authority (PA) Ministry of Social Affairs (MOSA) Contact Person: H.E. Dr. Kamal Elsharafi, Minister of Social Affairs Responsible Telephone No.: Agency: Fax No.: k.sharafi(gmosa.gov.ps Key Dates Project Financing Data - Parent (in USD Million) Approval Effectiveness Original Revised Project Ln/Cr/TF Status DaeSigning Date Date Date Closing Date Closing Date P TF Effective 28-Apr May May Dec Dec-2014 Disbursements Un- % Project Ln/Cr/TF Status Currency Original Revised Cancelled Disbursed disburs Disburse ed d P TF Effective USD iv

6 Project Financing Data - Additional Financing (AF) (in USD Million) [ ] Loan [X] Grant [ ] Other [ ] Credit [ ] Guarantee Total Project Cost: 14.5 Total Bank Financing: Total Co-financing: Financing Gap: 0.00 Financing Source - Additional Financing (AF) Amount Borrower 4.5 Special Financing 10.0 Total 14.5 Expected Disbursements (in USD Million) - Additional Financing (AF) Fiscal Year Annual Cumulative Bank Staff Team Composition Name Title Specialization Unit Samira Ahmed Hillis Task Team Leader and Team Leader MNSSP Senior Operations Officer Nikolai Soubbotin Lead Counsel Legal LEGAM Maiada Kassem Finance Officer Finance CTRLA Eric Ranjeva Finance Officer Finance and Disbursements CTRLA Gustavo Demarco Lead Economist Social Protection Economist MNSSP Abdallah Awad Information Officer Information Technology MNCO4 Specialist Nadi Yosef Mashni Financial Management Financial Management MNAFM Specialist Riham Hussein Financial Management Financial Management MNAFM Specialist Basheer Jaber Procurement Consultant Procurement MNAPC Lina Fathallah Rajoub Procurement Specialist Procurement MNAPC Suha Rabah Program Assistant Program Assistance MNCO4 Paul Geli Consultant Implementation & Evaluation MNSSP Lillian Frost Consultant Operations MNSSP Stefania Rodica Consultant Data Analysis MNSSP Cnobloch V

7 Non-Bank Staff Name Title Office Phone City Locations Country West Bank and Gaza Parent (WBGCTP-P119307) First Administrative Division West Bank Institutional Data Sector Board Social Protection Sectors / Climate Change Sector (Maximum 5 and total % must equal 100) Major Sector Sector % Adaptation Mitigation Co- Co-benefits % benefits % Other social services Other social services 90 Public administration Other social services 10 Total 100 ZI certify that there is no Adaptation and Mitigation Climate Change Co-benefits information applicable to this project. Themes Theme (Maximum 5 and total % must equal 100) Major theme Theme % Social safety nets Social safety nets 100 Total 100 Additional Financing (WBGCTP AF-P144967) Sector Board Social Protection Sectors / Climate Change Sector (Maximum 5 and total % must equal 100) Major Sector Sector % Adaptation Mitigation Co- Co-benefits % benefits % Other social services Other social services 90 Public administration Other social services 10 Total 100 vi

8 ZI certify that there is no Adaptation and Mitigation Climate Change Co-benefits information applicable to this project. Themes Theme (Maximum 5 and total % must equal 100) Major theme Theme % Social safety nets Social safety nets 100 Total 100 vii

9 I. Introduction 1. This Project Paper seeks the approval of the Executive Directors to provide an additional grant in the amount of US$10.0 million from the Trust Fund for Gaza and West Bank (TFGWB) for the West Bank and Gaza Cash Transfer Project (WBGCTP) Additional Financing (AF) (P144967, TF015389). 2. The original grant (P 19307, TF099665) was approved by the Board of Directors of the World Bank on April 28, 2011 through Special Financing from the TFGWB. The proposed additional grant would finance the costs associated with scaling up this well-performing project and maximizing its impact in reducing the vulnerabilities of the poorest households in the West Bank and Gaza (WBG). It would primarily be used to scale up activities under the WBGCTP's Cash Benefits Component, which provides quarterly cash payments to households living below the extreme poverty line, in accordance with the Palestinian Central Bureau of Statistics (PCBS) poverty distribution and based on a Proxy Means Test Formula (PMTF), which is the main targeting modality for the Cash Transfer Program (CTP). This Project has become a critical safety net in WBG to help the chronic poor and vulnerable households cope with economic hardships. The AF would also support the Palestinian Authority's (PA) efforts to continue reforms of the CTP. This support includes evaluating the accuracy of the PMTF, reducing the Project's inclusion and exclusion errors, and verifying beneficiaries' eligibility through a constant monitoring and recertification process. There would be no major changes to the implementation arrangements, and the proposed AF would have the same project development objectives (PDO) as the ongoing project. 3. Partnership arrangements. The European Union (EU) is the largest donor to the CTP. In addition to financing cash payments to poor households, the EU has been instrumental in building the Ministry of Social Affair's (MOSA) technical capacity by financing short- and longterm experts in key areas such as social policy, adherence to the reform actions, and PMTF updates (e.g., updating the PMTF using more recent poverty data). The EU and the Bank remain committed to providing the necessary technical expertise to support the reform process. The June 2010 merger of the EU- and World Bank-funded cash transfer programs further strengthened the high level of coordination among donors. The World Food Programme and the United Nations Children's Fund are also involved in providing in-kind contributions such as food aid and school feeding programs to poor households. II. Background and Rationale for Additional Financing Background 4. Country Context. There has been limited progress on the Israeli-Palestinian political dialogue and peace talks. Civil unrest to demonstrate against the rising cost of living and repeated civil service strikes to protest against frequent delays in salary payments have recently added to the complex Palestinian political situation. After growing at an annual rate of eleven percent during , the Palestinian economy has recently slowed down significantly. According to PCBS, the real gross domestic product (GDP) growth rate in the West Bank and 1

10 Gaza has declined to 5.9 percent in 2012 as growth dropped in both Gaza and the West Bank. Recent growth trends in the West Bank and Gaza underscore the importance of aid in driving the economy; most of the growth witnessed over the last several years was in the public and nontradable sectors and was driven by donor-supported PA expenditures. Economic activity in the private sector has not expanded sufficiently to enable the PA to significantly reduce its dependence on donor aid. On the contrary, the restriction system put in place by the Government of Israel continues to stand in the way of potential private investment. The recent slowdown in economic growth has also been reflected in higher unemployment levels, especially among the youth. In comparison to the fourth quarter (Q4) of 2011, the overall unemployment rate in the West Bank and Gaza increased by two percentage points to reach 22.9 percent in Q In the West Bank, unemployment increased to 18.3 percent between Q and Q Gaza's unemployment rate continues to be among the highest in the world at around 32.2 percent in Q and Youth unemployment continues to be a serious concern. In the West Bank, 27.9 percent of young Palestinians aged were unemployed; in Gaza, the youth unemployment rate was 48.9 percent. The persistence of high unemployment reflects the skewed nature of growth with the expansion of the labor intensive sectors, in particular the manufacturing sector, constrained by Israeli trade restrictions. Palestinian youth are highly discouraged from joining the labor force because of the lack of opportunities. 5. In spite of the PA's reform efforts, lower than expected foreign aid is both hindering growth and putting significant stress on the PA's fiscal situation. Donor aid for recurrent spending and development projects has declined from US$1.98 billion in 2008 to US$930 million in This has been compounded by shortfalls in revenue as well as higher than expected expenditures-particularly pension payments. The PA has had to compensate for the lower than expected level of donor aid with domestic sources. This has caused frequent delays in salary payments to public employees, accumulation of arrears to the private sector, as well as increased borrowing from local commercial banks. 6. Link with the Bank's Strategy for the Middle East and North Africa (MENA) 1. The proposed AF helps to support the implementation of three out of five priorities of the MENA Regional Strategy presented to the Board of Executive Directors on January 30, 2013 as it targets the poor and vulnerable; helps strengthen governance and institutions; and helps to manage risk and prepare for crises. The proposed AF is also aligned with the strategy's cross-cutting theme of gender. 7. Link with the Palestinian National Development Plan (PNDP ). The PNDP emphasizes that the PA is mindful of the need to protect vulnerable groups and prevent them from falling behind as the economy grows. The primary objective of the PA's Social Protection Sector Strategy is to ensure a decent life "for the Palestinian citizens on the path to sustainable human development in the independent Palestinian state." This strategy has four goals: (a) poverty alleviation; (b) creating an enabling environment for weak and marginalized groups; (c) developing a comprehensive social protection system; and (d) developing an adequate legislative and institutional environment. The MENA Strategy is also referred to as 'Regional Update 2013, Middle East North Africa". 2

11 8. Link with the Bank's Interim Strategy for the West Bank and Gaza ( ). The Interim Strategy Note (ISN) Report # GZ discussed at the meeting of the Board of Executive Directors on April 6, 2012 is based on the PNDP. Pillar 1 of the ISN states that "social assistance will remain a critical element of Palestinian policy until vibrant growth is able to generate employment" and "the PNDP explicitly promises to ensure effective and well-targeted assistance to those most in need." To support this effort, the Bank is working with MOSA and PCBS to improve social assistance targeting by using the revised poverty methodology and exploring the scope for combining geographic and individual targeting. Technical assistance will enhance the next round of the expenditure and consumption surveys and develop prototype modules that can assess social assistance in the future. 9. Links to Poverty Reduction. In 2011, almost 26 percent of Palestinians lived in poverty. The overall figure at the national level masks a wide regional divergence because in Gaza the poverty rate was 39 percent, which was more than double the rate in the West Bank (18 percent). This regional contrast was driven by the severe economic shock that hit Gaza following the internal divide, which led to a dramatic increase in poverty in 2007, leaving one in two Gazans living below the poverty line. Similar to other countries, larger households in the West Bank and Gaza tend to suffer from higher poverty levels. In 2011, the highest poverty rate of 50 percent was among individuals who were part of households comprising ten or more members. Additionally, the incidence of poverty among households headed by civil servants was ten percentage points less than those headed by workers in the private sector. This is explained by the ongoing strain on private sector activity caused by Israeli restrictions. Notably, social transfers have continued to play a key role in reducing poverty levels, especially in Gaza. In 2011, in the absence of all social programs, the official poverty headcount rate would have been eleven percentage points higher. If these social payments were to be reduced or discontinued, it is expected that a large number of households would fall back below the poverty line. 10. The Original Grant. The WBGCTP (funded with US$10.0 million from the Trust Fund for Gaza and the West Bank) became effective on May 23, 2011; the Project was restructured on June 5, 2013 with the extension of the closing date from December 31, 2013 to December 31, 2014 and a reallocation of the proceeds of the Grant. The one-year extension of the closing date was necessary to allow the use of the undisbursed balances to secure MOSA's Management Information System (MIS) and update MOSA's database. The reallocation of grant proceeds involved the transfer of US$330,000 from the "Project Operating Costs" category to the "Cash Transfers" category in order to enable the Bank to continue to contribute to the payment of cash benefits to the poorest households. 11. The Project is part of the much larger Palestinian Cash Transfer Program (CTP), which was established following the 2010 merger of the EU- and Bank-funded cash transfer projects into a PA-managed, full-fledged social safety net program. The merger occurred in terms of program management and implementation, but the EU and the Bank have continued to fund the CTP separately. The CTP makes quarterly payments to about 100,000 beneficiary households through the banking system and the total cost of the Program is about US$110 million a year, which is largely financed by the EU and the PA. Although the Bank contributes only about four percent(i.e., about $4.5 million a year) to the overall Program, the Bank has leveraged its position and effectively used its technical expertise to guide the work of other donors, including 3

12 the EU (which provides significantly more funding than the Bank and other donors). This guidance has ensured that donor efforts do not overlap and encourages greater collaboration in the distribution and evaluation of benefits. Overall, the Bank has become a reliable partner for MOSA, as well as for other donors, which has helped in the coordination of donor efforts in response to MOSA's needs and has been pivotal in the continued success of the CTP. 12. Objectives of the Original Project. The PDO of the original project is "to (i) mitigate the impact of the continued socio-economic crisis on a subset of the extremely poor and most vulnerable households; and (ii) support the Palestinian Authority's efforts to continue reforms of the Cash Transfer Program." The project has two components: 13. Component 1 - Cash benefits (US$9 million). This component aims at distributing quarterly cash payments to about 5,500 households living below the extreme poverty line, in accordance with the PCBS poverty distribution. However, since the beginning of the WBGCTP, the actual number of beneficiary households financed by the Bank Grant has been about 4,500 per quarter. The CTP extremely poor beneficiary households are identified by the PMTF, which is the main targeting modality for the WBGCTP as well as for the whole Cash Transfer Program. The method used to determine the level of cash benefits is called "bridging of the poverty gap," which sets the benefit level at an agreed percentage of the poverty gap (currently it is set at 50 percent). The benefit level per household ranges between ILS per month (i.e., US$ a month), and the Bank pays around US$4.5 million a year to about 4,500 households. The money is paid directly to the bank accounts of beneficiaries. In accordance with the "Withdrawal of Grant Proceeds" in the Trust Fund Grant Agreement, this component is being co-financed by the PA, which has agreed to contribute 50 percent of the cash benefits. 14. Component 2 - Assistance with the Reforms of the Cash Transfer Program and with the Project Management and Implementation (US$1 million). This component supports MOSA in its efforts to adhere to its reform agenda by: continuing outreach for CTP targeting, working to ensure that all households living below the extreme poverty line are included in the CTP, enhancing the security of the Management Information System (MIS), and engaging in a constant monitoring and recertification process to determine a household's eligibility to remain in the Program. This encompasses provision of technical assistance and training to MOSA to continue the CTP reforms. All aspects of program implementation (e.g., payments, complaints and grievance mechanisms, controls and accountability mechanisms, etc.) are addressed in the Operations Manual dated July 3, 2013 and are closely followed up by both the EU and the Bank. The Project will use Information and Communications Technology (ICT) when possible to enhance both outreach to CTP beneficiaries and the collection of information and data for monitoring and evaluation (M&E). In addition, this component will strengthen MOSA's and the MOF's capacity for project management and M&E, including the maintenance and upgrading of MOSA's MIS, project audits, and financing of Project Operating Costs. 15. Project Performance and Implementation Progress. There have been no changes to the original objectives, design, or scope of the Project. The WBGCTP has been implemented according to schedule and is on track to achieve its development objectives. By bridging the poverty gap for all beneficiary households, the overall CTP, of which the WBGCTP is a part, 4

13 contributes to mitigating the impact of the socio-economic crisis on the extremely poor and most vulnerable households. The results of a number of assessments (the EU impact evaluation, the United Kingdom Department for International Development (DFID) Overseas Development Institute (ODI) evaluation, and the Bank's CTP Targeting Assessment Phase I) were positive and acknowledged the program's targeting efficiency as well as its impact. The original US$10.0 million grant for the WBGCTP is 100 percent disbursed (as of June 27, 2013), and the amount allocated to the cash benefits component has been fully disbursed (six months ahead of schedule). The progress toward achievement of the Project Development Objective (PDO) and the overall implementation progress are rated "Satisfactory" in the last Implementation Status and Results Report archived in February The PA is in compliance with all legal covenants and there are no unresolved fiduciary, environmental, social, or other safeguard problems. There are no audit issues and all audits are current and Procurement is currently rated satisfactory. Rationale for the proposed Additional Financing 16. The rationale for the PA to request the additional grant is the need to extend and scale-up the CTP activities in order to mitigate the negative effects of the dire economic situation in the West Bank and Gaza, which has pushed more people into poverty. The AF offers the best mechanism for supporting the expansion of cash benefits, which reduce the vulnerability of the poor. The CTP is now a well-tested safety net instrument during crises. The Program has established effective and efficient operational procedures with highly satisfactory management. The use of a repeater or new project would incur unnecessary costs on the part of the Bank as well as the Recipient and would delay realization of the benefits, given that the ongoing Project is disbursing ahead of schedule. Furthermore, the choice of the AF instrument is fully in line with the guiding principle of the WBG Interim Strategy, namely, keeping project design simple and relying on additional financings to scale up assistance to existing projects that are able to perform well under current conditions. 17. Risks. First and foremost, the country risk remains high. However, the CTP, and its predecessor, the Bank-financed Social Safety Net Reform Project (SSNRP), were designed to operate in highly unpredictable environments, and over the past ten years, have performed remarkably well in the midst of crisis situations. On the project side, the main risks pertain to the CTP's heavy reliance on donor funding and the possibility that such funding will not be available in the future. The CTP has been functioning well and donor funding has been consistent in recent years, but there is no guarantee that this will always be the case in the future. However, other aspects of sustainability, such as at the institutional level-through the Bank's support for reforms-and at the household level-through the income support that beneficiaries receivealleviate some of the overall issues related to financial sustainability. Furthermore, the PA has been working to graduate non-poor households into other relevant SSN programs (e.g., employment generation, economic empowerment, and in-kind assistance programs). The implementation risk has been rated as "Moderate" based on the Project's excellent performance in difficult conditions over the years. In accordance with the risk based approach, an Operational Risk Assessment Framework is provided in Annex 2 of this Project Paper. 5

14 III. Proposed Changes Summary of Proposed Changes Change in Implementing Agency Yes[ ] No[ X] Change in Project's Development Objectives Yes [ ] No [X] Change in Results Framework Yes [ X ] No [ ] Change in Safeguard Policies Triggered Yes [ ] No [X] Change of EA category Yes [ ] No [X] Other Changes to Safeguards Yes [ ] No [X] Change in Legal Covenants Yes [ ] No [X] Change in Loan Closing Date(s) Yes [ X ] No [ ] Cancellations Proposed Yes [ ] No [X] Change in Disbursement Arrangements Yes [ ] No [X] Reallocation between Disbursement Categories Yes [ ] No [X] Change in Disbursement Estimates Yes [ X ] No [ ] Change to Components and Cost Yes [ ] No [X] Change in Institutional Arrangements Yes [ ] No [X] Change in Financial Management Yes [ ] No [X] Change in Procurement Yes [ ] No [X] Change in Implementation Schedule Yes [ X ] No[ Other Change(s) Yes [ ] No [X] 18. The project scope would be increased, and the AF will help continue the payment of benefits to CTP beneficiaries as well as help fund new, qualified (i.e., extremely poor) beneficiaries. There would be changes in the disbursement estimates since the AF is scaling up the previous project and providing retroactive financing to support advances for the grant for eligible project expenditures (i.e., cash transfers) with a ceiling of US$1.6 million. In addition, since the closing date has changed, the AF would have a different implementation schedule. Aside from these changes, the PDO, project design, and institutional arrangements would remain unchanged. 19. Results Framework: The Results Framework will be updated to include Core sector indicators which were not included in the Results Framework for the original project and some targets have been adjusted to reflect the additional financing (see Annex 1). To better reflect the Project's progress in undertaking reforms, two indicators have been added: the number of beneficiaries in the lowest quintile and the number of beneficiaries that have been in the database for less than two years. The main change is the increase the number of beneficiary households 6

15 receiving cash payments financed by the Bank Grant from about 4,500 to about 5,500 in. The Program's Operations Manual has been updated and endorsed by MOSA's Minister. 20. Closing Date: The scaled up activities are expected to be completed by December 31, 2015; therefore, the closing date for the AF would be June 30, 2016 (the closing date for the original project was already extended by one year to December 31, 2014). 21. Components and Cost: The CTP serves as a critical safety net which continues to help chronic poor and vulnerable households cope with difficult economic conditions. The AF (US$10.0 million) would primarily be used to scale up the Cash Benefits Component (Component 1) of the WBGCTP, which aims to mitigate the impact of the continued socioeconomic crisis on a subset of the extremely poor and most vulnerable households. Approximately US$9.0 million would be used to pay quarterly cash benefits to about 5,500 households (compared to the about 4,500 households that actually received quarterly cash payments under the original project). The increased number of households that the Bank may assist would continue to be among the extremely poor as a result of the PMTF's high targeting accuracy (which was demonstrated in the Bank's 2012 CTP Targeting Assessment). The remaining US$1.0 million would be earmarked for technical assistance to continue reforms of the CTP and support project management as well as program implementation (Component 2), including continued maintenance and upgrades of MOSA's MIS and training of staff (e.g., social workers) to conduct home visits, collect updated data, add new data to the system, and revise the PMTF, which is being used by the Program to reflect beneficiary recertifications and energy affordability among the poor. In addition, several clear ICT activities are planned under Component 2. Annex 4 lists the activities and expenditures to be financed by the AF grant and includes a table on the withdrawal of grant proceeds. Table 1: Costs by component in $US million Component Original Changes Revised cost with AF cost 1: Cash Benefits : Assistance with the Reforms of the Cash Transfer Program and with the Project Management and Implementation Total The Operations Manual (OM) was approved on July 3, The PA cannot amend any provision of the OM without prior approval of the Bank and that poor and vulnerable households living below the national poverty line but above the extreme poverty line (and are therefore ineligible according to the PMTF) will account for no more than 20 percent of the total CTP beneficiaries. IV. Appraisal Summary 23. Economic and Financial. The CTP is a social safety net (SSN) operation. Since it does not finance capital investment, an assessment of economic or financial returns does not apply. 7

16 The World Bank Phase I Targeting Assessment 2 found that the CTP is performing well in terms of its coverage, targeting efficiency, reduction of extreme poverty, and cost-benefit ratio. In addition, it also demonstrated the PA's commitment to exploring potential modifications to the CTP targeting mechanism in order to combat poverty and to support vulnerable households more effectively. This study also concluded that the cost-benefit ratio indicates that the CTP is quite efficient because for each ILS 1.00 spent in transfers by MOSA, ILS 0.66 goes toward reducing the extreme poverty gap. Moreover, the CTP is clearly a priority for WBG. The PA has demonstrated its commitment to the CTP by contributing over 50 percent of all the CTP's funds (which is well over the Bank's contribution). This high level of government support reflects that the PA is not only fully committed to the Project and supportive of the AF, but also that the PA considers the CTP an important funding priority. The PA's strong interest in and commitment to the Project's objectives are driven by a concern for the deteriorating socio-economic situation in WBG, particularly affecting poor households, which is mitigated by the CTP through the bridging of the poverty gap for beneficiary households. Therefore, the objective of mitigating the impact of the socio-economic crisis on extremely poor and vulnerable households is being achieved. Furthermore, thanks to the timely receipt of cash payments, households have a higher standard of living. 24. Technical. WBG's SSN programs have been recognized as among the most effective in the region. The 2012 MENA Development Report, "Inclusion and Resilience: The Way Forward for Social Safety Nets in the Middle East and North Africa" highlights these achievements, indicating that the WBGCTP is: a. An example of best practice regarding the creation and use of a unified registry of beneficiaries; b. The only program in the region with SSN coverage above the world average; c. The only program in the region where SSN transfers have the greatest impact on the welfare of the poorest quintile and have a higher impact on poverty than is observed in the best-performing programs; and d. A program where M&E is effectively used to inform budgetary decisions and reshape programs. 25. A key reform supported by the CTP and its precursor, the SSNRP, was the introduction of an improved targeting system to be used in selecting beneficiary households. Moving away from a largely categorical approach that relied on the subjective opinion of social workers, eligibility for cash transfers is now assessed using "standardized and transparent" eligibility criteria based on a PMTF. Particularly noteworthy are the two phases of the Bank-funded technical assistance for a targeting assessment of the CTP. The first phase, completed in June 2012, found that the large majority of MOSA applicants are extremely poor and that the PMTF is efficiently and accurately identifying extremely poor households. Overall, the PMTF correctly identifies 70 percent of the cases and has exclusion and inclusion errors lower than other programs that are widely considered successful (such as Bolsa Familia in Brazil and Oportunidades in Mexico). 3 A second phase of the targeting assessment, planned to be 2 World Bank, "West Bank and Gaza Targeting Assessment of the Cash Transfer Program," Report ACS890, June Ibid. 8

17 completed by September 2013, further analyzes the household data and explores other dynamics of poverty (e.g., the electricity tariff, correlation between a household's food consumption score and poverty level, etc.). Annex 3 provides more information on reforms and achievements for social protection in the West Bank and Gaza, including the Bank's targeting assessments. 26. The Project will use ICT when possible to enhance both outreach to CTP beneficiaries and the collection of information and data for M&E. For instance, based on the recently completed poverty maps produced by PCBS, ICT is planned to be used, in conjunction with MOSA's CTP MIS, to develop a geographic information system (GIS) to represent the poverty maps and provide better targeting of localities. The GIS will be implemented in-house, inside of MOSA's premises, using the MIS's already-existing data. Only the Ministry staff members that currently have access to the MIS will be able to enter the data layers needed to produce the GIS maps. The final product will be geographical maps with project indicators that will be used for analytical and planning purposes. No personal information regarding the beneficiaries will be used by a third party. MOSA will work closely with PCBS to ensure that the CTP's coverage is consistent with the poverty maps and that such maps will guide MOSA to improve outreach and targeting in the most impoverished areas. 27. Review of the Benefit Scale. MOSA has been concerned that under the existing CTP, the specific needs of households characterized as "vulnerable" (i.e., households that have children, elderly individuals, members with disabilities, and members with chronic diseases) are not adequately met. MOSA submitted to the Bank and EU a proposal to modify the criteria for the calculation of benefit payments, replacing the PMTF mechanism with a set of allowances for the different categories of household members. The proposed change was presented as a concrete step toward creating a social protection floor for the poor and vulnerable. The essence of the proposal was to set a basic minimum benefit of ILS 250 per month for any eligible household (eligible in accordance with the PMTF), to which allowances (ILS 50 per person with disability, ILS 40 per elderly person, ILS 30 per child, and ILS 30 per patient with a chronic disease) would be added. The total benefit for any household would not exceed ILS 550 per month. Both the Bank and EU indicated to MOSA that they were concerned about the impact of the proposed changes on beneficiary households that are extremely poor because of the reduction in the maximum benefit payment from ILS 600 per month to ILS 550 per month. MOSA's proposal was discussed extensively during the pre-appraisal mission and thereafter. Consequently, the Bank carried out a detailed assessment of the impact of the proposed changes on extremely poor and vulnerable households. According to this assessment, the average per adult equivalent losses and gains (in ILS per month) for each household are inversely related to the poverty rates, which suggests that the poorest households are the biggest losers under this modified scheme. For example, the study found that under the new scheme, the poorest CTP beneficiaries, who currently receive the maximum amount of assistance, will experience an average loss of 24.4% of their current benefits and that food insecure households in Gaza will experience a loss of up to 30% of their consumption levels, making it difficult for these households to cope with daily expenditures. These changes to the benefit levels for extremely poor households are troubling since the overall aim of the CTP is to mitigate extreme poverty and since the CTP was not designed to address the diverse, specialized needs of vulnerable groups. It was agreed that no changes will be made to the benefit level and that the CTP's objectives will remain unchanged. The disability benefit will be dealt with separately and the Bank will not contribute to it. 9

18 28. Project Management. MOSA will continue to have primary responsibility for all technical aspects of project implementation, and the Ministry of Finance's (MOF) Project Coordination Unit (PCU) will be responsible for all financial management aspects of the CTP. MOSA's Project Management Unit (PMU) will oversee project implementation as well as monitoring and evaluation. The MOF PCU will work in close collaboration with the MOSA Financial Management (FM) team. The PCU is fully operational and its staff is familiar with Bank fiduciary and implementation procedures, since they have worked on a number of Bankfinanced projects, and their supervision will strengthen the CTP's FM capacity. It should also be noted that approximately 90 percent of project funds are disbursed through a well-established and effective mechanism that provides quarterly cash benefits to project beneficiaries. These benefits are paid through the banking system in close collaboration with the EU and MOF. All previous reviews, spot checks, and external audits confirmed eligibility of expenditures as well as sound Financial Management (FM) practices. 29. Financial Management and Disbursements. The FM and disbursement arrangements in place for the CTP will continue to be implemented under the AF. The MOF PCU will continue managing the financial aspects of the Project in close collaboration with the MOSA FM team. The additional financing will be provided by the World Bank and disbursed through a new U.S. Dollar Designated Account (DA), opened by the MOF at the Bank of Palestine (Ramallah) and managed by the MOF PCU. MOSA will submit payment requests with supporting documentation to the MOF PCU to ensure that there are no duplicate payments to CTP beneficiaries. The MOF Financial Controller will check the list of proposed beneficiaries, confirm their eligibility, and advise the MOF Treasury Department to transfer the cash benefits from the DA. Cash transfers will then be deposited directly into the bank accounts of individual beneficiaries. The MOF PCU will keep all supporting documentation. More information on financial management and disbursements is included in Annex Procurement. The procurement arrangements currently in place for the ongoing CTP will remain the same for the proposed CTP AF. Procurement of goods will be carried out in accordance with the "Guidelines: Procurement under IBRD Loans and IDA Credits" published by the Bank in January 2011, and the selection of consultants will be carried out in accordance with the "Guidelines: Selection and Employment of Consultants by World Bank Borrowers" published by the World Bank in January "Guidelines on Preventing and Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA Credits and Grants," dated October 15, 2006 and updated January 2011, shall apply to the Project. MOSA will be responsible for CTP AF-related procurement, through the PMU, and the procurement specialist or consultant will continue to support MOSA in implementing procurement for the CTP AF, given the weak procurement capacity of the PMU. Few procurement activities are envisaged under the AF (total allocation for goods and consultants services is estimated at US$660,000). A Procurement Plan dated June 11, 2013 for all procurement packages to be implemented during the first 18 months of the AF was prepared by MOSA's PMU and approved by the Bank. The procurement risk rating for the Project is "Moderate." 31. Implementation Support by the World Bank. The support to be provided by the World Bank during project implementation has been discussed during appraisal and agreed upon during 10

19 negotiations. Because the TTL and fiduciary staff are based in the country office, the World Bank is able to provide continuous support and respond quickly to any request for assistance. This local presence will be complemented, as required, by the involvement of Washington-based staff to deal with more specialized topics, such as targeting or the approach to be adopted regarding the specific needs of vulnerable groups. Technical assistance provided by the EU and World Bank will continue to develop MOSA's capacity to carry out the reform process. The implementation support plan is included in Annex Gender Mainstreaming. About 50 percent of project beneficiaries are from femaleheaded households for whom the CTP is often the primary source of support. In December 2012, DFID released a report based on research from ODI that focused on beneficiary and community perceptions of the CTP as well as on beneficiaries' experiences with the multidimensional nature of poverty and vulnerability, with a particular focus on female-headed households. This report found that beneficiaries regard the CTP as an important albeit limited component of their range of economic coping strategies and that, for most female-headed households, it represents a critical safety net. The indicator "Number of beneficiaries, percentage of which are female" has been added to the PDO level indicators, which already include an indicator on the number of female-headed households. 33. Social. MOSA will encounter resistance in reducing benefit levels and removing beneficiary households who, although still poor, no longer meet the CTP eligibility criteria. MOSA will continue the consultation process with beneficiaries and civil society organizations; this will include explaining the CTP eligibility requirements and targeting modalities. Households that have their benefits reduced or that are removed from the list of beneficiary households may become eligible for in-kind support or support through microenterprise or smallscale employment activities. 34. Safeguards. No environmental or social safeguards are triggered. 35. Exceptions to or waivers of Bank policies. The AF does not involve any exceptions to or waivers of Bank policies. 11

20 PDO Annex 1: Results Framework and Monitoring Additional Financing for the West Bank and Gaza Cash Transfer Project Revisions to the Results Framework Comments/ Rationale for Change Current (PAD) Proposed 1. To mitigate the impact of 1. To mitigate the impact of the continued the continued socio-economic socio-economic crisis on a subset of the crisis on a subset of the extremely poor and most vulnerable extremely poor and most households. No revisions to the PDO. vulnerable households. 2. To support the PA's efforts to continue 2. To support the PA's efforts reforms of the Cash Transfer Program to continue reforms of the (CTP). Cash Transfer Program (CTP). PDO indicators Current (PAD) Proposed change* Objective 1: * Quarterly benefit payments from * Quarterly benefit payments from proceeds of Indicator continued. However, since proceeds of Bank grant to Bank grant to approximately 5,500 extremely actual numbers of beneficiary approximately 5,500 extremely poor households that are not receiving financial households have been only 4,500 poor households that are not assistance from another funding source, with under the original project, there would receiving financial assistance the introduction of a special allowance for be an increase in the number of from another funding source. severely disabled members of the beneficiary beneficiary households. households. Objective 2: * Based on the total available * Based on the total available funding envelope Indicator revised, with a slight increase funding envelope from all from all sources, payments of cash benefits to at compared to the actual number of sources, payments of cash benefits least 120,000 poor households in the West households already receiving to at least 70,000 poor households Bank and Gaza in accordance with the payments, based on the PA's efforts to in the West Bank and Gaza in Palestinian Central Bureau of Statistics (PCBS) ensure that all extremely poor accordance with the /Palestinian Household Expenditure and households are included in the CTP. Palestinian Central Bureau of Consumption Survey (PECS) distribution Statistics (PCBS) /Palestinian between West Bank and Gaza. Household Expenditure and Consumption Survey (PECS) distribution between West Bank and Gaza. * Assessment of targeting * Revision in 2015 of the proxy means test Indicator revised. The Targeting accuracy of the proxy means test (PMT) formula based on the most recent Assessment has demonstrated that the (PMT) formula based on the PCBS/PECS data and the findings and targeting is accurate. The next step is PCBS/PECS data recommendations of the Targeting Assessment. to revise/improve the PMT formula. using the most recent PCBS/PECS data in NA Core indicators added Core indicators added. NA Number of CTP beneficiaries in the lowest New Indicator added. quintile (households) NA Number of beneficiaries that have been in the New Indicator added. database for less than two years (households) Intermediate Results indicators Current (PAD) Proposed change* Component 1: Cash Benefits * Targeting and MIS remain * Continued. Indicator continued. operational. 12

21 Revisions to the Results Framework Comments/ Rationale for Change * PA finances a percentage of the * PA finances 50% of the cash benefit paid to Indicator revised and reworded. cash benefit paid to beneficiary beneficiary households in WBGCTP. households in WBGCTP: 30% in the first year and 50% thereafter. Component 2: Assistance with the Reforms of the Cash Transfer Program and with the Project Management and Implementation * Processing at least 10,000 new * Processing at least 6,500 new applicant Indicator revised (previous target has applicant households every year. households every year in the West Bank and already been met). Gaza. * No later than Dec 31, 2011, * Recertification of at least 18,000 beneficiary New Indicators added (which were recertification of at least 31,000 households every year in the West Bank and previously legal covenants in the households in Gaza. Gaza. PAD). * No later than June 30, 2013, recertification of at least one half of all households eligible to participate in the cash transfer program. * Indicate if the indicator is Dropped, Continued, New, Revised, or if there is a change in the end of project target value 13

22 REVISED PROJECT RESULTS FRAMEWORK Project Development Objective (PDO): To: (i) mitigate the impact of the continued socio-economic crisis on a subset of the extremely poor and most vulnerable households; and (ii) support the PA's efforts to continue reforms of the Cash Transfer Program (CTP). Baseline Cumulative Target Values 7 PDO Level Results Indicators 4 Original Progress Responsibility Q UOM, Project To Date e Data Source for Data Comments Start (2013Methodology Collection (2011) Quarterly benefit payments from proceeds of Bank grant to approximately 5,500 extremely MOSA and Target refers to number poor households that are not E Number 5,000 4,500 4,500 5,000 5,500 5,500 Quarterly MOF MOSA of households and annual receiving financial assistance from (not cumulative) values. another funding source (annual value). Based on the total available funding envelope from all sources, payments of cash benefits to at least 120,000 poor households in the West Bank and Gaza (WBG) in Target refers number of accordance with the Palestinian E Number 63, , , , , ,000 Annual MO MOSA households and annual Central Bureau of Statistics (not cumulative) values. (PCBS) /Palestinian Household Expenditure and Consumption Survey (PECS) distribution between West Bank and Gaza. Revision in 2015 of the proxy means test (PMT) formula based on the most recent PCBS/PECS data and the findings andho recommendations of the Targeting Assessment. 4 Please indicate whether the indicator is a Core Sector Indicator (for additional guidance - please see 5 UOM = Unit of Measurement. 6 For new indicators introduced as part of the additional financing, the progress to date column is used to reflect the baseline value. 7 Target values should be entered for the years data will be available, not necessarily annually. Target values should normally be cumulative. If targets refer to annual values, please indicate this in the indicator name and in the "Comments" column. 14

23 Beneiciaies f Saety etstarget refers to annual Beneficiaries ofzsafety Nets Number 787, , , , , ,000 Annual MOSA MOSA (not cumulative) values programs (number) of the overall program. Beneficiaries of Safety Nets Z Number 322, , , , , ,000 Annual MOSA MOSA Target refers to annual Programs - Female (number). I N 3 (not cumulative) values Beneficiaries of Safety Nets Target refers to annual Programs - Unconditional Cash Z Number 540, , , , , ,000 Annual MOSA MOSA (not cumulative) values Transfers (number). Beneficiaries of Safety Nets Target refers to annual Programs - Other social Number 247, , , , , ,000 Annual MOSA MOSA (not cumulative) values assistance programs (number) Direct Project beneficiaries Number 540, , , , , ,000 (number) Annual MOSA MOSA Target refers to annual (not cumulative) values of which are female (percentage) Percenta 41% 48% 52% 52% 55% 55% ge Beneficiaries of Safety Nets Target refers to annual Programs - Female-headed E Number 26,000 44,584 44,584 46,000 48,000 48,000 Annual MOSA MOSA (not cumulative) values. households - Annual. Number of CTP beneficiaries in E Number N.A. 49,464 50,000 53,000 56,000 56,000 Annual MOSA MOSA Target refers to annual the lowest quintile (households) (not cumulative) values. Number of beneficiaries that have Target refers to annual been in the database for less than E Number N.A. N.A. 18,899 19,450 25,000 25,000 Annual MOSA MOSA (not cumulative) values. two years (households) Intermediate Results and Indicators Unit of Baseline Target Values Original Progress Responsibility Intermediate Results Indicators Measur Project To Date Frequency M urc for Data Comments ement Start (2013) Methodology Collection (2011) Intermediate Result 1: Component 1 - Cash Benefits Targeting and MIS remain E] Yes/No Yes Yes Yes Yes Yes - Annual MOSA MOSA operational. 15

24 Intermediate Results and Indicators Unit of Baseline Original Progress Target Values Responsibility Intermediate Results Indicators Measur Project To Date Frequency uoc for Data Comments ement Start (2013) Collection (2011) PA finances 50% of the cash benefit paid to beneficiary E Yes/No No Yes Yes Yes Yes - Annual MOF MOF households in WBGCTP. Intermediate Result 2: Component 2 -Assistance with the Reforms of the Cash Transfer Program and with the Project Management and Implementation Processing at least 6,500 new applicant households every year. New indicator (updated Pe Number N.A. N.A. 6,500 6,500 6,500 - Annual MOSA MOSA from a previous related indicator) If Recertification at les 1 0 New indicator (based on Recertification of at least 18,000 r Number N.A. N.A. 18,000 18,000 18,000 - Annual MOSA MOSA the PAD's legal beneficiary households every year. covenants) 16

25 Annex 2: Operational Risk Assessment Framework West Bank and Gaza - Cash Transfer Project Additional Financing Project Stakeholder Risks Stakeholder Risk Rating High Description: Insufficient funds to provide the level of benefits Risk Management: (a) PA meeting financing gap through internal resources; (b) PA seeking deemed necessary by Palestinian Authority (PA) could additional funds from the EU and other donors; and (c) PA initiated consultation process with civil adversely affect Bank, European Union (EU), client, and society and beneficiaries which should continue throughout project implementation. beneficiary relationship.. Due Date: June 30 Status:In 2016 progress Implementing Agency Risks (including fiduciary) Capacity Rating: Moderate Description: Ministry of Social Affairs (MOSA) financial Risk Management: The MOF PCU will continue to manage the FM arrangements. A qualified management (FM) capacity needs further enhancement. financial management specialist is assigned and will work in close cooperation with MOSA FM MOSA's procurement and contract management capacity has staff. MOSA will submit payment requests with supporting documentation to the MOF PCU for improved, but may still cause delays. review, approval, and payment, ensuring compliance with the grant agreement. The MOF PCU will ensure that there are no duplicate payments to CTP beneficiary households. The MOF's Financial Controller will check the list of proposed beneficiary households and confirm their eligibility and advise the MOF Treasury Department in West Bank to transfer the money from the DA. Procurement activities are limited in number and value and are mostly repeaters of contracts financed under the ongoing project. MOF will provide assistance to MOSA in carrying out procurement and contract management. MOSA procurement and Project Management Unit (PMU) staff have had and will continue to receive training on Bank Procurement. Resp: Client Im.lementation Due Date: June 30, Status: In Stage: Implementatrons 2016 progress Governance Rating: Low Description: The lack of an effective complaint handling and Risk Management: The complaints-handling and grievances system at MOSA will be grievances system at MOSA. strengthened and supported during implementation. Adequate controls are in place for the screening of beneficiary households-mitigation measures to enhance transparency and accountability will include external audits, verifications of lists before 17

26 payments are made, and eligibility reviews. Under the on-going project there have been no instances of fraud and corruption. The most recent eligibility review concluded the soundness and effectiveness of the CTP targeting system. The disclosure of information policy will be adhered to. In agreement with the PA, the annual audited reports and relevant documents will be available to the public, in accordance with the Bank's new access to information policy effective July 1, Project Risks Resp: Both Stage: Implementation ae ue 0 'u ttsl 2016 progress Design Rating: Moderate Description: The project design is simple since it is a follow-up Risk Management: The Bank and the EU will continue to monitor closely the reform process and to the successful SSNRP and ongoing CTP project. Key risks key undertakings will be referred to as dated covenants in the TFGA, such as the revision of the are related to the continuation of the reform process. Proxy Means Test Formula (PMTF) and the recertification of a select number of households. Implementation Due Date: June 30, Status: In R 2016 progress Social & Environmental Rating: High Description: MOSA will encounter resistance in reducing Risk Management: The PA's Social Protection Strategy commits MOSA to work with donors to benefit levels and removing beneficiary households from the entice them to include these poor households in their existing or scaled up social safety net CTP who were screened and are still poor but no longer meet programs (e.g., micro-finance, employment generation, food aid, etc.) the CTP eligibility criteria. MOSA will continue the consultation process with beneficiaries and civil society organizations. This will include, among other things, explaining the CTP eligibility requirements and targeting modalities. Resp: Client Implementation Due Date: June 30, Status: In Stage: Implementations S2016 progress Program & Donor Rating: Moderate Description: The PA has struggled to close the financing gap Risk Management: The PA will need to continue evaluating benefit payments to match available for the CTP. CTP funds as well as meet the most important needs of vulnerable and extremely poor households. The PA also plans to seek additional donor financing for the CTP. Exchange rate fluctuations could negatively (or positively) affect overall CTP funding in local currency. The PA is in the process of adjusting the benefit payments downward in order to match available CTP funds, which will likely create dissatisfaction among the poorest segment of beneficiaries. However, this will be addressed through the MOSA communications strategy. Implementation Due Date: June 30, Status: In Resp: Client S : 2016 progress Delivery Monitoring & Sustainability Rating: High Description: The CTP is not sustainable without donor Risk Management: The PA has committed to cost sharing the Bank's portion of the CTP (i.e., the 18

27 financing. The reform process aims to progress and divert WBGCTP). Efforts are on-going to remove ineligible beneficiary households from the CTP. It is ineligible households to other social safety net programs. The also necessary that the reform process continue in order to transfer beneficiaries from the CTP to CTP's coverage is improving as the PA has started taking other social safety net programs. actions toward graduating ineligible beneficiaries. Implementation Due Date: June 30, Status: In Resp: Client Stage: Implementations 2016 progress Overall Risk Overall Implementation Risk Rating: Moderate Comments: Although the country risk is substantial, the project risk is moderate based on the Project's excellent performance in difficult conditions over the years. 19

28 Annex 3: Reforms and Achievements for Social Protection in West Bank and Gaza 1. The West Bank and Gaza Cash Transfer Project (WBGCTP) continues to support reform efforts begun under the Bank-financed SSNRP. The Implementation Completion and Results Report (ICR) for the SSNRP highlighted important strides which were made by both the Bank and the Recipient during project implementation. In the West Bank and Gaza (WBG), the Bank is one actor among many donors in the Social Protection (SP) sector, and it does not provide the largest financial contribution of active donors (the European Union (EU) is by far the largest donor to the Program, and the Palestinian Authority (PA) currently funds 50 percent of the cost of cash transfers provided by the Cash Transfer Program-CTP). The Bank has, however, played a key role in leveraging its position to influence the approach of other donors. The most salient example of this was the merger of the EU's Special Hardship Cases (SHC) Program and the Bank's SSNRP into one program: the CTP. The Bank was able to encourage the EU to adopt the same targeting mechanism (based on the proxy means test formula-pmtf), method of determining benefit levels, and payment modality. These were significant shifts from the previous approach of the SHC program, which used categorical targeting and provided a standard cash transfer amount to all beneficiaries. This unified targeting system has strengthened coordination among all major actors working in the SP sector in WBG. Furthermore, within the context of this partnership, the Bank has also been instrumental in ensuring that the PA's reform efforts maintain momentum-moving the larger SP agenda forward. 2. Some of the CTP's recent major achievements include: (1) consolidating a unified targeting database (MOSA's Management Information System) that includes information on all applicants and household beneficiaries and provides transfers using a uniform payment modality as well as uniform benefit levels; (2) improving access to CTP assistance by switching from disbursing benefit payments through post offices to using more reliable bank accounts; (3) increasing the number of extremely poor households benefiting from the CTP (currently about 97,000 households in WBG); and (4) recertifying one-half of all CTP eligible households. Another important achievement includes the 2012 Phase I CTP targeting assessment undertaken by the Bank with assistance from local consultants. 3. The first phase of the CTP targeting assessment (Phase I - P129124), completed in June 2012, had several key findings. First, it showed that, in terms of model accuracy, the PMTF correctly identified more than 70 percent of all cases. Second, exclusion and inclusion errors were around 20 percent, which is well below the errors found in analyses of other successful cash transfer programs.8 Third, the cost-benefit ratio showed that the CTP is quite efficient because for each ILS 1.00 spent in transfers by MOSA, ILS 0.66 goes to reducing the extreme poverty gap. Fourth, the CTP is considered highly functional because it distributes timely payments and maintains positive interactions between the beneficiaries and MOSA social workers. 4. A second phase of the CTP targeting assessment (Phase II - P143135), expected to be completed by September 2013, aims to: (a) further explore Phase I's findings related to the CTP's targeting, administration, and implementation, with particular attention focused on better understanding: (i) households' energy and food consumption patterns as well as their correlation "West Bank and Gaza Targeting Assessment of the Cash Transfer Program," Report ACS890, June 2012, pg

29 with the current PMTF, (ii) household priorities/characteristics to help inform modifications to the PMTF, (iii) the amount and type of benefit of the cash transfers, and (iv) the effectiveness and efficiency of the program's processes; and (b) support and complement the activities of the Poverty Reduction and Economic Management Network, such as the development of a social protection module and poverty mapping efforts. 5. This second phase of technical assistance could influence the development of a comprehensive SP module in the new round of the Palestinian Expenditure and Consumption Survey (PECS) planned for 2015 and could help refine the PMTF in order to help identify areas that could improve the CTP's targeting efficiency and coverage. As part of this assessment, the Bank recommended adding questions to the upcoming 2015 PECS survey on income shocks and means to cope with them in order to explore the correlation between these shocks and the classification of beneficiaries. In addition, the Bank discussed and explored options with its counterparts on how best to provide support to vulnerable groups through the PMTF. These vulnerable populations often need a different kind of support than regular beneficiaries, and the PMTF can identify them under a different cut-off point for assistance as well as provide them with a different intervention. Furthermore, the Bank will provide technical assistance on the costing, modeling, and projections of non-contributory schemes (e.g., for the elderly and disabled) as well as discuss issues related to the region's flagship disability report, which will be completed by mid Like the first phase of the CTP targeting assessment, the second phase has been characterized by a high level of interest, coordination, and collaboration among donors and development partners, including the EU, World Food Program, United Nations Relief and Works Agency, United Nations Children's Fund (UNICEF), and United Kingdom Department for International Development (DFID). In meetings with representatives of these organizations, the World Bank team has identified important areas of collaboration and ensured that the Bank's work did not overlap with that of other partners. Several donors are carrying out studies and evaluations of the CTP. 7. In March 2013, DFID released a report prepared by the Overseas Development Institute (ODI), which is entitled "Transforming Cash Transfers: Beneficiary and Community Perspectives of the Palestinian National Cash Transfer Programme." This report deals with beneficiary and community perceptions of the CTP as well as beneficiaries' experiences with the multidimensional nature of poverty and vulnerability, with a particular focus on female-headed households. DFID's perception survey for this report followed the Bank's phase one targeting assessment, and the study design was prepared in close collaboration with the Bank and EU. Dissemination workshops took place on March 18, 2013 in Ramallah and on March 21, 2013 in Gaza, and the Bank team participated in both of these events. DFID has also expressed its willingness to help fund small gaps in the Bank's budget for MOSA to help with areas such as technical assistance and reforms. DFID reiterated its commitment to coordinating with the Bank and other partners to avoid duplication and promote program graduation as well as to improving monitoring and evaluation (M&E) systems in WBG. 8. In June 2013, the EU completed and disseminated a study entitled "Impact Evaluation of the EU Contribution to the Palestinian Cash Transfer Programme (CTP) in the Framework of the 21

30 PEGASE Programme of Support to 'Vulnerable Palestinian Families' (VPF)." The study used qualitative and quantitative methods to assess the CTP's impact on households as well as the Program's processes and procedures. The EU worked with UNICEF to combine their quantitative field research for this report, but UNICEF's work, contracted with ODI, will be used in a separate assessment concerning the child-level impacts of the CTP, including children's wellbeing across a number of dimensions and social impacts of the cash transfer. The EU report found that for the majority of indicators examined, the intervention groups throughout WBG reached the targets articulated by MOSA. These indicators included meeting some (but not all) basic needs, providing adequate care to vulnerable household members, recovering from household shocks, accessing loans, paying debts, and linking beneficiaries to other social services. 9. WBG's SSN programs have been recognized as among the most effective in the region. The 2012 Middle East and North Africa Development Report, "Inclusion and Resilience: The Way Forward for Social Safety Nets in the Middle East and North Africa" highlights these achievements, indicating that the WBGCTP is: a. An example of best practice regarding the creation and use of a unified registry of beneficiaries; b. The only program in the region with SSN coverage above the world average; c. The only program in the region where SSN transfers have the greatest impact on the welfare of the poorest quintile and have a higher impact on poverty than is observed in the best-performing programs; and d. A program where M&E is effectively used to inform budgetary decisions and reshape programs. 22

31 Annex 4: Activities and Expenditures to be Financed by the AF Grant - Withdrawal of Grant Proceeds Activities and expenditures to be financed by the Additional Financing (AF) Grant 1. Under the Cash Benefit Component - US$9.0 million (Component 1, or Part A), the AF Grant will finance the provision of quarterly cash transfers to about 5,500 beneficiary households selected in accordance with the criteria and procedures set forth in the Operations Manual (OM). The AF Grant will finance 50 percent of the amounts disbursed by the Ministry of Social Affairs (MOSA). 2. Under the Assistance with the Reforms of the Cash Transfer Program and with the Project Management and Implementation Component - US$1.0 million (Component 2, or Part B), the AF Grant will finance: a. the provision of technical assistance to MOSA to support its efforts to continue reforms of the Cash Transfer Program, including the extension of the Cash Transfer Program to all households living below the extreme poverty line, periodic updates of the proxy means test formula (PMTF), and constant monitoring and recertification of the participating households to ascertain their eligibility to remain in the Cash Transfer Program. b. the provision of technical assistance and expenditures to strengthen MOSA's and the Ministry of Finance's (MOF) capacity for project management and monitoring and evaluation, including maintenance and upgrading of MOSA's Management Information System, project audits, and financing of project operating costs. 3. Goods and consultants' services under Component 2, Part B of the Project - estimated amount: US$700, A tentative list includes the following: a. Contracts for MOSA's Project Management Unit Staff (Executive Manager, Financial Specialist, and Procurement Consultant-part time) and ICR Consultant. b. Project financial audits, including spot checks. c. Developing the complaint system. d. Updating the PMTF. e. Capacity building-e.g., continuous training of social workers. f. Updating MOSA's Website (English and Arabic). g. Film and media. h. New MOSA Centers and District Offices. i. Risk recovery plan-e.g., database back-up. 5. Project Operating Costs under Component 2, Part B of the Project - estimated amount: US$300,000 23

32 6. "Project Operating Costs" means incremental operating expenses incurred by the MOSA and MOF Project Team on account of Project implementation, management, and monitoring, including office maintenance, office supplies and utilities, rental of facilities, translation and interpretation, printing and advertising, communication costs, transportation, local and international travel, training, including training of social workers, per diems for social workers and data entry volunteers, bank charges, and any other miscellaneous costs directly associated with the Project implementation, all based on periodic budgets acceptable to the World Bank. 7. The main item will be the per diems for MOSA social workers and volunteers to update the database every year, recertification of 18,000 beneficiary households, and processing of about 6,500 new applicant households. Withdrawal of Grant Proceeds 8. The following table specifies the categories of Eligible Expenditures that may be financed out of the proceeds of the Grant ("Category"), the allocations of the amounts of the Grant to each Category, and the percentage of expenditures to be financed for Eligible Expenditures in each Category: Category Amount of the Grant Percentage of Allocated Expenditures to be (expressed in USD) Financed (inclusive of taxes) (1) Cash Transfers under Part A of he Prject9,000, % A of of amounts the Project disbursed by MOSA (2) Goods, consultants' services, including audits, 700, % under Part B of the Project (3) Project Operating Costs 300, under part B of the Project TOTAL AMOUNT 10,000, No withdrawal shall be made for payments made prior to the date of the Trust Fund Grant Agreement, except that withdrawals up to an aggregate amount not to exceed US$1,600,000 equivalent may be made for payments made prior to this date but on or after September 15, 2013, for Eligible Expenditures under Category (1). 24

33 Annex 5: Financial Management and Disbursements Financial Management (FM) 1. The overall FM performance for the ongoing Cash Transfer Program (CTP) is currently rated as "Satisfactory." The Ministry of Finance (MOF) Project Coordination Unit (PCU) is fully operational and its staff is familiar with World Bank FM and disbursement guidelines as they have worked on a number of Bank-supported projects. The accounting system is computerized and has been set up to account for and report on the Project's financial transactions per category and component. The annual audited financial statements and spot audits have been submitted on time; the auditors have issued unqualified "clean" audit opinions, and quarterly spot audit reports have not identified ineligible expenditures. 2. The same FM arrangements in place for the CTP will continue to be implemented under the additional financing (AF). The MOF PCU will continue managing the financial aspects of the Project in close collaboration with the Ministry of Social Affairs (MOSA) FM team. The AF will be provided by the World Bank and disbursed through a new U.S. Dollar Designated Account (DA) opened by the MOF at the Bank of Palestine (Ramallah), and managed by the MOF PCU. MOSA will submit payment requests with supporting documentation to the MOF PCU to ensure that there are no duplicate payments to CTP beneficiaries. The MOF Financial Controller will check the list of proposed beneficiaries, confirm their eligibility, and advise the MOF Treasury Department to transfer the cash benefits from the DA. Cash transfers will then be deposited directly into the bank accounts of individual beneficiaries. The MOF PCU will keep all supporting documentation. 3. Previous Interim Unaudited Financial Reports (IFRs) for the CTP were prepared by MOSA FM staff; such IFRs were not properly presented, did not meet quality standards, and were not submitted on a timely basis. To enhance the performance and effectiveness of the reporting process, FM duties and responsibilities have been reassigned to the MOF PCU. Accordingly, the PCU will manage all FM and Disbursement functions, while the Project Management Unit (PMU) at MOSA will only manage the technical aspects of the Project. 4. The Grant Agreement will require the submission of annual audited financial statements within six months after year-end. Project financial statements will be audited in accordance with international audit standards by an independent audit firm acceptable to the World Bank and recruited competitively based on Terms of Reference acceptable to the Bank. The auditor will also be required to carry out quarterly spot audits of cash transfers to beneficiaries. The cost of the audits will be financed from the Grant proceeds. Disbursement Arrangements 5. Disbursements from the Bank Grant will follow the transaction based method, i.e., traditional Bank procedures: Statements of Expenditure (SOEs) and Direct Payments. For certain payments, above the "Minimum Application Size," as specified in the Disbursement 25

34 Letter, Withdrawal Applications (WAs) will be submitted to the Bank for payments to suppliers and consultants directly from the Grant Account. The initial deposit into the DA will be based on a forecast of the first cash transfer to beneficiaries, which will be prepared by the MOF PCU and submitted with the WA. Subsequent disbursements into the DA will be based on SOEs, reconciled bank statements, and copies of all bank statements. The supporting documentation for requests for direct payment should include records which provide evidence of eligible expenditures (e.g., copies of receipts, supplier's invoices, etc.). Additionally, the reimbursement method may be used for expenditures pre-financed using recipient's resource. Reimbursements must be disbursed to an account of the recipient held within the Central Treasury Account (CTA) department and used for purposes consistent with the terms of the legal agreement. 6. Designated Account: A segregated designated account (DA) denominated in USD will be opened in Bank of Palestine to be used for depositing advances for the grant and to make payments for eligible project expenditures. Its ceiling is set at US$1.6 million. This is the maximum amount of grant proceeds that may be on deposit in the designated account pending the provision to the Bank of supporting documentation evidencing the use of advanced funds. Additional instructions for disbursements are provided in the disbursement letter issued for this project. 26

35 Annex 6: Implementation Support Plan 1. The strategy and approach for Implementation Support is characterized by an important staff presence in the field and great flexibility to provide support from experts in more specialized fields. Because the task team leader and fiduciary staff are based in the country office, the World Bank is able to provide continuous support and respond quickly to any requests for assistance. This local presence is complemented, as required, by the involvement of Washington-based staff and consultants to deal with more specialized topics, such as targeting or the approach to be adopted for taking care of the specific needs of vulnerable groups. 2. Partnership arrangements between the European Union (EU) and the Bank are significant. In addition to financing cash payments to poor households, the EU has been instrumental in building the Ministry of Social Affair's (MOSA) technical capacity by financing a number of short- and long-term experts in key areas such as social policy, statistics, adherence to the reform actions, and proxy means test formula (PMTF) updates (e.g., updating the PMTF using more recent poverty data). The EU and the Bank remain committed to providing the necessary technical expertise to support the reform process and to build MOSA's capacity. The high level of coordination between the EU and the Bank is now being extended by the establishment of close working relationships with the World Food Programme, United Nations Relief and Works Agency, and United Nations Children's Fund. 3. The implementation support and supervision by the Bank will continue to focus on targeting and fiduciary control on the use of the proceeds of the World Bank grant; more specifically, the Bank's team will ensure that cash benefits are being paid to those living below the extreme poverty line. The Bank contribution will be concentrated on statistical analysis and continued review of the PMTF, particularly the revision planned for It will support and complement the activities of the Bank's Poverty Reduction and Economic Management Network, such as the development of a social protection module to better understand social assistance needs and poverty mapping efforts. As part of these supervision efforts, the Bank team will work closely with the country economist to follow up on triggers pertaining to reforms of the social safety net. The Bank has approved the MOSA Operations Manual on July 3, 2013 and will ensure that it is complied with and being kept up to date. 4. The Bank is well-placed to provide technical assistance based on the institution's worldwide experience with social safety net and cash transfer programs for poor households. Focus Skills Needed Number of staff weeks Resource and trips Estimate Policy Reform Overall experience in design and 50 weeks, and two semi- US$100,000 (including targeting). implementation of effective annual supervision annually Fiduciary aspects social safety nets. missions for headquarters- (ensuring proper Technical knowledge on based staff. utilization of funds, with statistics and targeting With Bank team in the benefits paid to poorest mechanisms (PMTF). field, project is under households). continuous supervision. 27