IN THE AMOUNT OF US$5.0 MILLION

Transcription

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 AN EMERGENCY ADDITIONAL FINANCING GRANT Report No UNDER THE GLOBAL FOOD CRISIS RESPONSE PROGRAM IN THE AMOUNT OF US$5. MILLION TO THE PALESTINIAN LIBERATION ORGANIZATION (FOR THE BENEFIT OF THE PALESTINIAN AUTHORITY) FOR THE SOCIAL SAFETY NET REFORM PROJECT (SSNRP) Human Development Sector Middle East and North Africa Region October 31,28 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

2 CURRENCY EQUIVALENTS (Exchange Rate Effective September 1, 28) Currency Unit = NIS US$l = 3.6 FISCAL YEAR January 1 - December 3 1 ABBREVIATIONS AND ACRONYMS AF DA ESSP EU FA FMRs FPCR TF FPCR AF FY GFRP IBRD IDA IFRs Implementation Guidelines MDTF MoF MoSA PA PEGASE PCU PMT PMU SHC SSNRP SSNRP-AF TFGA TFG WB UNRWA WBG WFP Additional Financing Designated Account Emergency Service Support Project European Union Food and Agricultural Organization Financial Management Reports Food Price Crisis Response Trust Fund Food Price Crisis Response Additional Financing Fiscal Year Global Food Crisis Response Program International Bank for Reconstruction and Development International Development Agency Interim Financial Reports Guidelines for the Implementation of $5 million Additional Financing from the Global Food Crisis Response Program which are in Annex 1 1 of the SSNRP Operations Manual Multi Donor Trust Fund Ministry of Finance Ministry of Social Affairs Palestinian Authority Mdcanisme Palestino Europden de Gestion et d Aide Socio-Economique Project Coordination Unit Proxy Means Test Project Management Unit Special Hardship Case Program Social Safety Net Reform Project Additional financing to the SSNRP Trust Fund Grant Agreement Trust Fund for Gaza and West Bank United Nations Relief Works Agency West Bank and Gaza World Food Program Vice President: Country Director: Sector Director: Sector Manager: Task Team Leader: Ms. Daniela Gressani Mr. A. David Craig Mr. Steen Jorgensen Ms. Roberta Gatti Ms. Samira Hillis

3 FOR OFFICIAL USE ONLY WEST BANK AND GAZA Global Food Price Crisis Response Program Additional Financing to Social Safety Net Reform Project (SSNRP) Table of Contents 1. Introduction Background and Rationale for Additional Financing Proposed Changes Consistency with the CAS Appraisal of Scaled-up Project Activities Expected Outcomes Benefits and Risks Financial Terms and Conditions for Additional Financing Annex 1: Results Framework Annex 2: Arrangements for Results Monitoring Annex 3: Revised Project Costs Annex 4: Revised Table for Withdrawal ofthe Proceeds ofthe Grant Annex 5: Risks Identification Worksheet Annex 6: Project Preparation and Appraisal Team Annex 7: Documents in the Project File Annex 8: West Bank and Gaza Portfolio Annex 9: Statement of Loans and Credits This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not be otherwise disclosed without World Bank authorization... 11

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5 WEST BANK AND GAZA Global Food Price Crisis Response Program Additional Financing to Social Safety Net Reform Project (SSNRP) PROJECT PAPER DATA SHEET Date: October 29, 28 Country Director: A. David Craig Sector ManagerDirector: Roberta GattiBteen Jorgensen Lending instrument: Emergency Additional Financing to the Social Safety Net Reform Project Team Leader: Samira Hillis Sectors: MNSHD Themes: Social Protection (P), Education (S), Health (S) Environmental screening category: C Project ID (s): P Type of Operation: New Operation [ 3 Additional Financing [X ] Existing Financing (restructuring) [ ] Financing type: Loan [ 3 Credit [ ] IDA Grant [ ] Other [XI Project ID: P Proposed terms: Grant from the Food Price Crisis Response (FPCR) Trust Fund Expected effectiveness date: January 1, 29 Recipient: The Palestinian Liberation Organization for the benefit of the Palestinian Authority (PA) I Total Amount: US$5. million Expected implementation period: January 1, through June 3,29 Expected closing date: December 3 1, 29 Responsible agencies: Ministries of Finance and Social Affairs Development Objective: The Project Development Objective (PDO) will remain the same. The objectives of the project are to: (i) mitigate the impact of the continued socio-economic crisis on a subset of the poorest and most vulnerable households; and (ii) strengthen MOSA s institutional capacity to manage cash transfer programs. Short Description: The proposed additional financing (FPCR-AF) grant gives the Palestinian Authority (PA) the Dpportunity to scale up its existing safety net instruments to demonstrate its commitment to the poorest and most vulnerable population groups in the West Bank and Gaza. The Grant would finance one payment of US$2 to each of the approximately 25, poorest households that have Seen adversely affected by the recent increase in food prices. These households will be selected ising the SSNRP poverty targeting database through proxy means test (PMT) to determine iousehold eligibility. The proceeds of this additional financing grant will finance only cash benefits :o poor households under component 1 of the on-going SSNRP.

6 Financing Plan (US$ m) Source I Local I Foreign I Total Annual Total 1 5.O I Estimated disbursements (Bank FY/US$ m,) 29 FPCR TF Annual Cumulative 5. 5.O Does the Additional Financing operation require any exceptions from Bank policies? The blanket waiver to OP 13.2 granted by the Managing Directors will be applied for this Additional Financing as the project implementation rating was only recently upgraded to satisfactory. Have these been approved by Bank management? According to the resolution that established the Food Price Crisis TF, all Contribution Funds shall be used exclusively to finance grants in support of the objectives of the Trust Fund to or for the benefit of (i) low income member countries of IDA that are negatively impacted by rising food prices, and (ii) low income non-members negatively impacted by rising food prices in respect of which the Executive Directors of the Bank shall have determined that assistance from the Trust Fund is in the interests of the membership as a whole. After consultations with OPCS and LEG it was confirmed that no additional Board approval would be needed for West Bank and Gaza, a non-member country, since the Board has previously determined that Bank assistance to the West Bank and Gaza is in the interested of the membership as a whole. Therefore, the same procedure as for member countries applies for this financing. Are there any critical risks rated substantial or high? The country risk is rated high due to the volatile political and security situation. What safeguard policies are triggered, if any? Yes [XI No [ ] Yes [XI No [ ] Yes[x] No[] None Significant, non-standard conditions, if any: Negotiations. Guidelines for the Implementation of the GFRP AF were agreed upon and adopted by the Recipient s delegation during negotiations. The Recipient has formally confirmed adoption of these Implementation Guidelines in Annex 1 1 of the SSRNP Operations Manual. Prior to effectiveness, assurances satisfactory to the World Bank will be sought that MOSA Project Team in the West Bank and Gaza is adequately staffed, including with a Project Manager, with terms of reference acceptable to the Bank, and the Implementation Guidelines must have been adopted by the Recipient. Prior to disbursement, assurances satisfactorv to the World Bank will be sought through an Global Food Crisis Response Trust Fund 2

7 eligibility review that beneficiary households (based on a sample of 1 percent) were selected in accordance with the proxy means testing formula and are eligible to receive cash benefits from the FPCR TF. In addition, the World Bank will need to be satisfied by the assurances provided by the auditor that the 25, households eligible to receive SSNRP cash benefits from the FPCR TF are not receiving duplicate benefits through the EU funded PEGASE program. 3

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9 1. INTRODUCTION 1. This Project Paper seeks the approval of the Executive Directors to provide an emergency additional financing grant in the amount of US$5. million to the West Bank and Gaza Social Safety Net Reform Project (SSNRP) (PI ) to help the Palestinian Authority respond to the global food crisis, which continues to have an adverse effect on the Palestinian population. 2. The Bank proposes support through an additional financing grant for the SSNRP. The funding will be from the Food Price Crisis Response Trust Fund (FPCR TF) administered by the Bank. The support would consist of providing a one time cash payment of US$2 to approximately 25, poor households that have been negatively affected by this recent food crisis. These households will be selected using a proxy means test (PMT) formula. 3. The proposed Grant gives the PA the opportunity to scale up its recently created cash assistance mechanism to respond to this food crisis shock by supporting the poorest and most vulnerable population groups in West Bank and Gaza (WBG). 4. Food crisis and rationale for urgent need of funds. Soaring food prices, falling incomes and growing unemployment are jeopardizing the livelihoods of Palestinians, leading to heavy debt and changes in family eating habits. The Palestinian Central Bureau of Statistics (PCBS) estimates that the consumer price index for food has risen from March 27 to the end of April 28 by 14.6 percent in the West Bank and 16.3 percent in Gaza. Moreover, the price of wheat flour increased by 73 percent in the West Bank and 68 percent in Gaza. Thirty eight percent of the population is food insecure (compared to 34 percent in 26). Households are highly dependent on imported food items for their consumption. Moreover, prices of locally produced fresh foods have skyrocketed and most poor families can no longer afford them. The recent food shock is compounded by two additional shocks over the past months: the closure of Gaza and the late frost and on-going drought leading to large fluctuations in the price of locally grown products. A third of Palestinians have reported a fall in income this year - the poor suffered most with a 4 percent drop in income. Thirty seven and 27 percent of breadwinners are unemployed in Gaza and the West Bank respectively. Consequently, the dependence ratio is high (8.6 dependents per employed person in Gaza and 5.6 in the West Bank). Economic conditions continue to deteriorate, especially in Gaza, which has been virtually closed off from the outside world since June The World Food Program (WFP) safety nets study carried out in June-July 28 looked at the main external and internal factors related to food security. This study concluded that the hazard of global food price rises is very big because of the high 'pass-through percentage' of changes in global food prices onto domestics markets. All staple foods like cereals and pulses are imported. The high import dependency for staple foods is compounded by high transportation costs and the fact that the most economical transport routes are often cut off due to closures and other Israeli restrictions. Most complementary food commodities are of domestic origin. Inputs for the production of these foods are quickly getting more expensive (a combined effect of the global price increases and the closure regime). Although over the past few years consumption levels still remained strong, the current rapid price increases threaten the resilience of the more vulnerable in the society. The findings of WFP regular market price monitoring surveys show that food prices are on the rise. For instance, the price of wheat flour has gone up by about 9 percent, white bread by 5 percent and chick peas and olive oil by around 2 percent. Last May, the proportion of the household budget for non-refugees that was spent on food reached 56 percent in the West Bank and 66 percent in Gaza Strip. Food insecurity is similar in urban and rural areas in West Bank and Gaza. There was a clear downward trend in rural areas (presumably due to a shift to subsistence agriculture), while food insecurity is slightly rising in urban areas.

10 6. Coping mechanisms are eroding. Households are using excessive negative coping mechanisms. Having already sold disposable assets, 59 percent of households are now relying on credit to buy food. However, this coping mechanism is increasingly diminishing and only available to those with steady incomes. Palestinians are eating less. Many parents have reduced their food intake to allow for their children to eat. Half of the surveyed population decreased their spending on food. Families cannot afford to compensate for the lack of protein and vitamins. Considering the high anemia prevalence and other micro-nutrient deficiencies, this will undoubtedly have health consequences in the long term. 7. SSNRP has become the PA s main coping mechanism. The SSNRP has become one of the PA s main safety net instruments that can be scaled up during crisis situations such as this one to provide quick support to poor people. As a result, the proposed FPCR AF is not a stand alone initiative, but is an effort to help the PA scale up and capitalize on its existing safety net instruments to respond to the food crisis situation and provide support to poor households. 8. Functional food market. Despite the Israeli closures, the food markets in West Bank and Gaza continue to function. In the West Bank, the internal checkpoints and other restrictions have not affected the food market, which remains competitive with most food freely imported from Israel and other countries. In Gaza, Israel has maintained a tight economic blockade. However, basic food stuffs and other packaged foods are entering Gaza regularly. As a result, cash assistance is likely to elicit a supply response with increased imports, and should not contribute to food inflation. In addition, an injection of US$5 million from the FPCR TF is not likely to have a large impact on food prices in a market of 3.7 million people. 9. The proposed operation will follow the Bank guidelines on Additional Financing (OP/BP 13.2). Since the ISR ratings for SSNRP were upgraded to satisfactory only recently, the blanket waiver to OP 13.2 granted by the Managing Directors will be applied. 1. Partnership arrangements with donors such as the European Union (EU), the World Food Program (WFP), United Nations Refugee and Works Agency (UNRWA), and the Food and Agricultural Organization (FAO) continue. These partnership arrangements are the underpinnings of on-going and future discussions with the PA to support and reform the social safety net. Most information on the food crisis in the West Bank and Gaza was obtained from the Joint Rapid Food Security Survey in the Occupied Palestinian Territory undertaken by WFP, FA and UNRWA in May 28. The EU has gone on to fund key technical assistance for the Ministry of Social Affairs (MOSA). With the move towards preparation of a social protection strategy, families at risk are likely to receive better and more timely assistance. 2. BACKGROUND AND RATIONALE FOR ADDITIONAL FINANCING 11. The SSNRP Grant of US$1 million (TF53793) was approved by the Bank s Board of Directors on June 3, 24 and became effective on August 4, 24. The grant was intended to help reform MOSA s Social Hardship Case (SHC) program and strengthen its institutional capacity. However, with the deteriorating political and economic situation and the advent of the Hamas Government, the expected donor co-financing did not materialize and implementation of the conditional part of the program, including strict adherence to education and health conditionalities, did not prove feasible. As a result, the Bank s Board of Directors approved a restructuring of the SSNRP in mid-june 27 to address issues hampering implementation of the original project. The restructured project promotes the reforms of the social safety net in tandem with the creation of a PA administered cash assistance scheme. Between 4, and 5, very poor households with school aged children receive benefits. The benefit 2

11 conditionality was adjusted to encourage, rather than mandate, attendance, and the benefit payment system was redesigned to allow more timely benefit payment. Institution-building in the MOSA was maintained. 12. Reforms of the social safe& net. In April 28, the Bank s Board of Directors approved an additional financing grant of US$1 million for the SSNRP to reiterate its commitment to the Palestinian Reform and Development Program (PRDP) which has strong emphasis on poverty alleviation and reform of the social safety net. The SSNRP has two key complementary functions. First and foremost, the SSNRP has become the driving force behind the on-going policy reforms. Secondly, the SSNRP has become the PA s main safety nethoping mechanism that can be scaled up during crisis situations. Reforms of the social safety net are on-going. The PA is currently exploring options of instituting a uniform payment level (depending on household size) for all cash assistance programs, regardless of funding source. The PA is also trying to rationalize donor resources by asking donors and other stakeholders to use the SSNRP funded poverty targeting database to select households eligible for cash assistance and other related programs. The SSNRP poverty targeting database now comprises 32, households which have already been home visited, most of which are eligible for cash benefits.* The SSNRP has become the PA s copinglsafety net mechanism of choice and as such preliminary discussions are underway to begin merging the various on-going cash assistance programs into a PA administered program to make more effective use of resources. 13, Institution building at MOSA. Institution-building aspects have become a key priority. The EU has taken the lead and is providing international expertise to the MOSA and other PA agencies as they move forward with the reform process. The EU technical assistance team will assess MOSA s capacity considerations taking into account the orientations of the upcoming reforms by analyzing core functions and key shortcomings to strengthen MOSA management and staff capacity. This is likely to give MOSA the capacity to formulate sector policies and to take strategic decisions to reform the Palestinian social safety net system. 14. SSNRP progress and effectiveness of SSNRP AF. The Ministry of Finance (MOF) and MOSA have put in place a system that pays poor households bi-monthly. Over the past 6 months, three payments have been made to about 5, households. Thus, the disbursement condition for the AF of US$lO million (namely, that 6 percent of the funds allocated to the cash assistance disbursement category in the original project have been paid) was fulfilled in August 28. At present, 64 percent of funds allocated to the cash assistance disbursement category in the original project have been paid. The fulfillment of this condition was made possible as the PA advanced funds out of its own resources and then sought reimbursement from the Bank to help expedite the process. An MIS expert has been recruited under terms and conditions satisfactory to the Bank. The Ministry of Social Affairs has designated the Director of its Aid and Rehabilitation Department to oversee project activities in the West Bank. Despite the EU funded technical assistance in MOSA, the Bank s team opted for a more conservative approach and is still recommending the recruitment of a Senior Project Manager in the West Bank (expected to be on the job in early November 28) to oversee the day to day management of the project and work on the preparation of the social protection strategy. 15. SSNRP ratings. The SSNRP is on track to meet the project development objectives and related outcomes. The most recent ISR indicates that the number of households receiving cash assistance has doubled over the past 6 months from 2,2 to over 5, (M&E target 4,). Implementation problems have been overcome, and performance has improved. The ratings in the ISR, including those for implementation progress and achievement of development objectives, are satisfactory. On the policy side, the poverty targeting database is now operational, including home visits to over 32, poor An average of 5, additional home visits are carried out every month.

12 households (target for 28 is 4, and is likely to be met). Policy reforms discussed above are underway. 16. The PA is in compliance with all grant covenants. 17. Donor coordination on the food crisis response. Key donors such as the EU, WFP, FAO, Spain and UNRWA have met to discuss their programs in response to the food crisis. This response consists of interventions in the areas of cash transfers, food assistance to needy households, scaled up school feeding programs, nutrition, and support to poor farmers and fishermen to increase production. The Bank s support through the FPCR TF is complementary to the interventions of other donors, as there is a coordinated effort to avoid duplication and improve the targeting mechanisms in place. Key donors are monitoring on a monthly basis the prices of basic foodstuffs and sharing this information as needed. 18. Rationale for additional$nancing. The PA is keen on using the Bank s further financial support to capitalize and scale up its innovative coping mechanisms to address the food crisis. Cash benefits to households are becoming increasingly important as poverty is on the rise and an increased number of households have fallen into deep poverty. Providing a one time transfer to offset the impact of a crisis such as this one sends the signal to all concerned parties (e.g., Government, poor households, banks, etc.) that this is an unusual situation requiring immediate action. Most importantly, expectations of poor households will be better managed and fiscal implications will be very limited. MOSA will distribute a flyer (with the payment voucher) to beneficiaries explaining that this is an extraordinary payment to partially offset the recent increases in food prices, and that this extraordinary payment will not be repeated. The FPCR AF financing would meet funding needs directly. The FPCR AF carries an important signal to the PA of Bank commitment to helping the PA institutionalize and operate its safety net and capitalize on its poverty targeting database. This becomes particularly important as plans to merge the various safety net programs mature - the aim being to end up with a single cash assistance program managed by the PA. The Government has requested Bank support in a letter dated June, 3, 28. In response to the Government s request, on July 3, 28, the Global Food Crisis Response Program (GFRP) Steering Committee approved US$5 million for the West Bank and Gaza. 19. According to the Guidance for Responses from the Human Development Sectors to Rising Food Prices - HDN dated June 21,28, targeted cash transfers have several advantages: Cash transfers distort markets and incentives less than other programs; They give households the greatest sovereignty over their resources and empower them to spend resources on what the household believes it needs most; They have lower administrative cost than most other targeted programs; They can convey quite substantial benefits if needed, and can be differentiated by the households poverty, size and composition; In many cases (such as this one), payments are made through the banking system, which reduces the possibility of funds being diverted from registered participants. 2. This additional financing is consistent with the poverty focus of the PRDP. In it, the PA emphasizes its commitment to the social sectors, in particular the need to have a coping mechanism that can be scaled up during crisis situations to support poor households. The PRDP signals the PA s intention to have its targeting database fully operational by end 28, including a ranking of up to 4, poorest households on the basis of a proxy means test (PMT) formula. This objective is likely to be met as the database currently includes a ranking of over 32, households at end August 28. The poverty ranking of poor households is a first step towards initiating a gradual merger of the various cash benefit programs, including the SHC with the Bank-funded SSNRP 4

13 3. PROPOSED CHANGES 2 1. The SSNRP provides an opportune mechanism for the Bank to respond in a quick and flexible manner to the PA s request for financing in response to the food price crisis. 22. Project components are as follows: The additional financing from the FPCR TF will only be used to pay cash benefits to poor households through the first component. Component 1 - Cash Transfers: This component will be funded using proceeds from (a) the ongoing project, (b) the SSNRP- AF, and (c) the FPCR AF. The FPCR AF will make a one time payment of US$2 to eligible households. This amount is approximately 3 percent of the monthly poverty line and 4 percent of the deep poverty line. While this one time payment will not lift families out of poverty, it will provide temporary relief to the poorest households that will enable them to purchase additional food stuffs and other necessities during the current crisis. Component 2 (funded through the on-going project)- Capacity Building: The component is being funded using proceeds of the on-going project to strengthen the institutional and human resources capacity of MOSA to plan, formulate, manage and administer safety net program. Component 3 - Project Management (funded through the on-going project): This component is being funded using proceeds from the on-going project and will include: (i) project management, including consultants and audit; (ii) monitoring and evaluation to monitor project implementation and measure intervention outputs and outcomes; and (iii) incremental operating costs to finance operational expenses associated with the SSNRP such as: rent, insurance costs, maintenance costs, office supplies, banking charges, communication costs, and domestic travel. Project costs are as follows: Component Component 1 - cash benefits Original Additional Additional project Financing Financing from FPCR TF _-- -_ US$ Million I Total 22.5 Component 2 - MOSA capacity building Component 3 - Project management Total Implementation arrangements. These will remain the same as for the original on-going project and the SSNRP AF. The Ministry of Finance Project Coordination Units (PCU) in the West Bank and Gaza which are managing the Emergency Services Support Project (ESSP) will be responsible for ensuring that timely and accurate payments are made to beneficiaries. The MOSA will continue to be 5

14 responsible for identifying eligible beneficiaries and for providing them with vouchers to receive funds through the Bank of Palestine. The MOSA continues to maintain a project team in Gaza headed by the Project Manager and including the MIS Specialist and a Finance/Procurement Specialist. Furthermore, the MOSA project team headed by the Director of Aid and Rehabilitation in the West Bank in the interim has taken on some activities that no longer can be carried out in Gaza due to border closures, including day-to-day interactions with the PA, donors and other stakeholders on the implementation of the safety net reforms. The Bank s team will continue to monitor closely these implementation arrangements and will suggest enhancements that take into account the evolving situation in Gaza. 24. The SSNRP Operations Manual (OM) was revised in March 28 to reflect the restructured project design that encourages rather than mandates conditionality, while at the same time leaving open the possibility of re-introducing conditionalities at a latter stage. This OM was updated to include Implementation Guidelines for the FPCR AF. Any modifications to the OM will be subject to the Bank s prior approval. 25. The Closing Date of the FPCR AF Grant will be December 31, 29. The Closing Date of the SSNRP is June 3, Procurement arrangements. No procurement is envisaged under this proposed additional financing. The project management team and audit costs will be financed through the on-going project. 27. Outcome and output targets. The Results Framework and the Arrangements for Results Monitoring for this proposed additional financing are set out in Annex 1 and 2, respectively, of this Project Paper. 28. Project costs. A revised project cost table is set out in Annex Revised table for withdrawal of the proceeds of the grant. Category 1 of the withdrawal of the proceeds of the grant in Schedule 2 of the Trust Fund Agreement has been revised, as set out in the revised table in Annex CONSISTENCY WITH THE CAS 3. While no formal Country Assistance Strategy (CAS) exists for West Bank & Gaza, the Executive Directors in April 28 approved the Interim Strategy for West Bank and Gaza for the period FY8- FY 1 and Request for Replenishment for the Trust Fund for Gaza and West Bank. The document sets out the Bank s assistance strategy to the PA. The goal of the strategy and assistance program, both on policy and financial aspects, is to support the PRDP, and reflects the outcome of consultations with stakeholders in the West Bank and in Gaza. One of the main pillars in the Strategy is support to the social safety nets. The Bank monitors social and economic developments in WBG and provides policy advice; finances development projects where feasible; and provides emergency assistance to mitigate the deterioration in the provision of essential public services and support to households living below the poverty line, as well as to help maintain Palestinian institutions. 5. APPRAISAL OF SCALED-UP PROJECT ACTIVITIES 3 1. Economic and financial analyses. The proposed additional financing is expected to further strengthen the economic and financial impact of the SSNRP by increasing the efficiency and effectiveness of resource use through better targeting of cash benefits, and through better management and 6

15 administration of the safety net. This will occur as a result of stronger institutions and enhanced skills in MOSA. This is in addition to an MIS that is based on a new targeting mechanism for filtering poor households that should allow a significant reduction in targeting errors. The project will also expand cash benefits to a greater number of households and could attract additional donor resources, as the framework is in place to consolidate benefit programs into a single PA administered cash benefit program. 32. While economic benefits have not been quantified, they are likely to be important. To the extent that additional cash to households has a positive effect on meeting basic needs, this should lead to positive development outcomes through reduced family dysfunction that otherwise might contribute to negative externalities arising from the social exclusion that often accompanies persistent poverty. The introduction of conditionality into the benefit payment system should further strengthen these efficiency gains. While adverse labor supply effects often are associated with cash benefits, these are unlikely to be a serious issue in the WBG context. This is a one time benefit that would not discourage work opportunities. 33. Targeting. The proxy means test (PMT) scoring formula was prepared for the SSNRP to determine the monthly consumption level per household. More specifically, the formula was designed according to information provided by the World Bank and the Palestinian Central Bureau of Statistics on variables that are needed to calculate the consumption level of Palestinian households. A proxy means test formula was developed from data from the 24 Palestinian Housing Expenditure and Consumption Survey. 34. The SSNRP scheme targets the poorest 1 percent of the Palestinian population in the West Bank and Gaza Strip and includes especially vulnerable groups (including elderly, handicapped and permanently ill) from the poorest 3 percent of the population. Under this program, special focus is given to the economic situation of the entire household, which are eligible to receive cash assistance from the program if they are: (a) extremely poor and therefore from the first consumption decile that receive no assistance or only minor assistance from other programs; (b) very poor and therefore belong to the first three consumption deciles that fulfill special conditions, e.g. the head of household is a woman, a disabled or permanently ill person, an elderly person (above 65 years); the household receives no assistance or minor assistance from other programs. 35. According to the Operations Manual, the maximum monthly payment for each household is 5 NIS (approx. US$14), corresponding to US$1,7 every year. If anything, a one time payment of US$2 to the next 25, poorest households is on the low side. A quantitative analysis of eligible households in the database was carried out in November 26 for the SSNRP. As expected, it showed that households in the lower consumption (and income) levels are larger. For example, among the poorest 3 percent (the third percentile), the average household size is 1.6, whereas it is 7.9 among the poorest 4 percent (the 4th percentile = 4th decile) and 6. among the poorest 9 percent (the 9th percentile = 9th decile). Accordingly, the 25, households are likely to be most food insecure as a result of the higher number of children (5 children on average per household). 36. New application forms, new software and new enrollment forms were specifically developed to target, select and enroll the beneficiaries of the SSNRP. According to the proxy means test formula and applying the eligibility criteria, the score for each household is calculated through the MIS. After developing the scoring formula, two cut off points are calculated. If the score is found (a) below the first (1 percent) cut off point or (b) below the second (3 percent) cut off point and meets the eligibility criteria, the household is declared eligible for the program. For a household with score less than the first cut-off point, it means that this household is highly likely to be within the poorest 1 percent of the population. The first (1 percent) and the second (3 percent) cut off points will be adjusted according to the availability of funds for the program. 7

16 37. The enrollment process is followed by an in-depth field verification process. This includes obtaining MIS data on the lists of selected applicants per governorate. MOSA then in turn sends those lists to the Verification Committee created in each governorate for their revision. The committee meets and determines if there are gross inclusion and exclusion errors in the selection of eligible applicants. In other words, the Committee identifies whether applicants apparently not poor were selected and whether applicants apparently very poor were not selected. In such cases, it makes its recommendations and informs the concerned Muderia (districts) offices to take action. 38. An ex-post review was carried out in June-July 28 to ascertain, on a sample basis, whether the selection of the 5, beneficiary households was carried out in accordance with SSNRP procedures. The review concluded that households in the selected sample are eligible to receive assistance. 39. Technical aspects. The SSNRP design meets the minimum requirements for a cash transfer program. The first and most important requirement is that the program be effectively targeted. In addition, it should have reliable and accurate payment mechanisms. The benefit payment should be far enough above the recipient s transaction costs to raise welfare, but not so high as to induce serious disincentives to work or to create major issues of fairness between recipients and non-recipients. Finally, such programs should be well-managed with a good monitoring program of operations and substantial disclosures of information with respect to processes and outputs. 4. Institutional aspects. The MOF will be responsible for administering the proceeds of the FPCR TF Grant to pay cash benefits to poor households. This has been the practice so far. The MOSA will continue to be responsible for the identification of beneficiaries through its poverty targeting database. On the technical side, the MOSA has designated its Director of Aid and Rehabilitation to oversee the program. The EU has also provided three technical experts in the field of management information systems and targeting, financial management and project management and policy reforms. MOSA s capacity over the past six months has significantly increased. 41. Fiduciary aspects. Due to the prevailing security difficulties and the Bank s limited access to Gaza, the financial management assessment was based on documentation included the Financial Monitoring Reports (FMRs) and annual audited financial statements. This was followed by discussions with MOF and MOSA staff based in Gaza. This financial management system was assessed as moderately satisfactory. 42. The quarterly FMRs and annual audit reports for the on-going SSNRP which included the 27 audit report were submitted on time. The auditor issued an unqualified opinion to the 27 audit report. The Bank recommended that the auditor submit a revised 27 audit report that conforms to Bank guidelines in terms of audit quality. The content of this audit report were not questioned. 43. Twenty five thousand households are expected to receive a US$2 payment in one installment. The Bank will need to disburse $5 million in one installment to the Designated Account. This disbursement is contingent on receipt of a satisfactory eligibility review confirming the eligibility of households to receive benefits. The MOF internal auditor will check the list of proposed beneficiary households and confirm eligibility and advise the MOF Treasury Department in West Bank to transfer the funds from the DA to the Bank of Palestine. These funds in turn will transfer funds to its 16 branches in the West Bank and Gaza. The MOF in Gaza will maintain custody of the supporting documentation. 44. The financial management arrangements for the proposed additional financing will be the same as those for the on-going SSNRP project. The Project Management Unit (PMU) based in the MOSA Gaza will continue to be responsible for the project implementation, financial recording, and the preparation of financial reports. 8

17 45. The MOF will continue to manage the Designated Account. MOSA submits payment requests with supporting documentation to MOF for review, approval and payment ensuring compliance with the grant agreement. 46. The SSNRP Financial Procedures Manual was revised and is satisfactory to the Bank. The control processes for cash benefit payments to beneficiaries are described in the Financial Procedure and Operations Manuals. This Operations Manual comprises an Annex, which describes the implementation guidelines related to this FPCR AF. 47. Interim Financial Reports (IFRs) arrangement. IFRs will be prepared and submitted to the Bank monthly. The IFR reporting will be from effectiveness through the project closing date of December 3 1, 29. IFRs will be submitted to the Bank no later than 2 weeks after the end of the previous month. The IFR will consist of (a) sources of funds and uses of funds by branchhegion and number of beneficiaries, (b) a reconciliation of the DA and the remaining unpaid funds, and (c) a progress report on implementation - the progress report should include clear and detailed status on the payment to the 25, beneficiaries; reflecting the unpaid and remaining balance in the DA, and the amount of paid and unpaid (returned) cash transfers to beneficiaries by region. The draft IFR format was discussed and agreed upon during negotiations. 48. Audit Arrangements. The Closing Date for the AF Grant will be December 3 1, 29. The Project will submit one interim audit report and one final audit report (Annual Audited Financial Statements). The final audit will rely on the interim audit work performed and findings. Audit arrangements are as follows: The Interim Audit will cover a period of six months from the date of payment of the Grant from the Bank to the Recipient. The interim audited report will be submitted to the Bank no later than 3 months after the end of the six month period. The Annual Audited Project Financial Statements will be submitted to the Bank no later than 3 months after the closing date of December 3 1,29. This final audit shall cover the period from grant effectiveness through grant closing. The terms of reference for the audits and the required Project Financial Statements are summarized in the SSNRP OM implementation guidelines for this FPCR AF The external audit will be funded under the on-going project. 49. Disbursements as of October 15, 28 from the original SSNRP Grant total US$6.8 million from the total Grant of US$1 million. 5. Environmental aspects. The scaled up SSNRP will remain Category C. No safeguard policies are triggered. 51. Social aspects. The proposed additional financing from the FPCR TF addresses one of the principal issues often cited in household surveys in WBG -the lack of money and its detrimental effects on the family and on children - in terms of family dysfunction, delinquency, health and nutritional deficiencies, etc. The experience gained with the implementation of the SSNRP and the preparation of the GFRP additional financing (in particular, the Joint Rapid Food Security Survey in the Occupied Palestinian Territory, dated May 28) have provided insights in the following areas: (i) inflation and 9

18 food price increases; (ii) socio-economic decline and livelihood crisis; (iii) erosive coping mechanisms; (iv) increased reliance on humanitarian aid; and (v) rising food insecurity. 6. EXPECTED OUTCOMES 52. The proposed additional financing gives the PA an opportunity to demonstrate that it has a sound safety nethoping mechanisms in place that can be scaled up in crisis situations to provide support to a larger number of poor households. It sends signals to donors that the PA is increasingly capable of administering larger scale cash assistance schemes in a more efficient manner. This is consistent with the PRDP orientations to gradually merge the various cash assistance schemes into a PA administered cash assistance scheme. 53. The proposed FPCR TF Grant will mitigate the impact of the food crisis on 25, poor households. By targeting poor households, the project will ensure that money will be spent on food since the Recent Rapid Food Security Survey carried out by WFP, FAO, and UNRWA in May 28 shows that over 6 percent of the budget of poor households is spent on food. 7. BENEFITS AND RISKS 54. Project benefits. Project benefits directly relate to the outcomes of the project: (i) the PA will have an opportunity to show that it can administer benefit payments to a fairly large number of households; and (ii) donors could be more willing to support the safety net when they can expect that their moneys are effectively used. Moreover, the existence of a comprehensive database on poor households will facilitate strategic planning and policy-making for further development of the social safety net and, more broadly, encourage increased poverty focus in policy development in other sectors. Already, plans are underway to use the poverty targeting database to select households eligible for electricity benefits in the context of the PA s efforts to reduce the overall electricity subsidy. 55. Project risk. The main foreseeable risk factors are the country context and the still limited capacity of the MOSA. Another risk is that poor beneficiary households could be selected based on political affiliations. These may act as deterrents to donor engagement on a broader scale which, in turn, may affect the number of poor households that can be covered. Given the situation in the West Bank and Gaza, the team carried out a full risk identification for the project which includes assessing country issues, sector governance policies and institutional issues and project specific risks (Annex 5). 56. While the political and security situation remains beyond the control of the project, there are mitigating factors that should allow the project to achieve its objectives: Improved institutional capacity. The SSNRP continues to increase the capacity of the PA to administer larger scale cash programs efficiently. In addition, MOSA s capacity has been strengthened through the recruitment of additional staff. MOSA staff were been trained to use the MIS web based system. While the Project Manager will remain in Gaza (where most of the poor households reside), the MOSA will recruit a senior project manager for the West Bank to take the lead on policy issues pertaining to the rationalization of the various cash benefit programs to help move the reform process forward. There are no indications that beneficiary households so far have been selected according to political affiliations. Stronger donor interest. The December 27 pledging conference for Palestine was eminently successful in mobilizing financial support for the PA. With the strong commitment to poverty that the PA indicated during the conference, it is likely that donors will be encouraged to channel 1

19 resources into the safety net, especially when it is accompanied by a stronger institutional framework and, increasingly, PA counterpart resources. Donors, including FAO, the EU, WFP, UNRWA and the Bank, have been meeting to discuss complementarities and linkages between upcoming programs to respond to this food crisis. Sustainability. Sustainability remains a key concern. One of the options would be to use the leverage of the budget support discussions to ensure that the PA is allocating some of these funds for the cash benefits programs. The MOSA is making preliminary arrangements to merge the various cash assistance programs into a PA administered program. At that point, sustainability would become a lesser concern as the PA could allocate some of its own resources for this. In the meantime, it is expected that only donor funding will support cash benefits programs. 8. FINANCIAL TERMS AND CONDITIONS FOR ADDITIONAL FINANCING 57. This proposed Additional Financing would be provided as a grant from IDA acting as Trustee for the FPCR TF. All disbursement categories will be financed at 1 percent. This is consistent with the Country Financing Parameters for West Bank and Gaza approved on March 1, Negotiations. The Implementation Guidelines for this FPCR AF which figure in Annex 11 of the SSNRP Operations Manual were discussed and agreed upon during negotiations. The Recipient has formally adopted these Implementation Guidelines. 59. Effectiveness condition. Prior to effectiveness, assurances satisfactory to the World Bank will be sought that MOSA Project Team in the West Bank and Gaza is adequately staffed, including with a Project Manager, with terms of reference acceptable to the Bank. The Implementation Guidelines were also adopted by the Recipient. 6. Disbursement condition. Prior to disbursement, assurances satisfactory to the World Bank will be sought through an eligibility review that beneficiary households (based on a sample of 1 percent) were selected in accordance with the proxy means testing formula and are eligible to receive cash benefits from the FPCR TF. In addition, the World Bank will need to be satisfied by the assurances provided by the consulting firm that the 25, beneficiary households are not receiving duplicate payment through the EU funded PEGASE program. 11

20 Annex 1: Results Framework WEST BANK AND GAZA Global Food Price Crisis Response Program Additional Financing to Social Safety Net Reform Project (SSNRP) PDO To mitigate the impact of the continued socio-economic crisis on a subset of the poorest and most vulnerable households. Project Outcome Indicators Beneficiaries confirm improved food consumption (through before and after home visits to households to confirm proxy means test formula results Use of Project Outcome Information Increased use of evidence to confirm that beneficiary households have used proceeds to purchase food and/or other priority goods. tcome One time cash transfer delivered to eligible households selected in accordance with proxy means test formula and proceeds used to purchase food. Beneficiaries are in the lowest twenty five percent of applicants based on the proxy means test results. To verify accuracy of proxy means test formula in selecting households eligible for cash assistance. 12

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29 Annex 6: Project Preparation and Appraisal Team WEST BANK AND GAZA Global Food Price Crisis Response Program Additional Financing to Social Safety Net Reform Project (SSNRP) Samira Hillis Eileen Murrav Suhair J.D. Musa Suha Rabah Phillippe George Leite Julie Rieger Kirsten Burghardt Propost Hyacinth Brown Paul Geli Task Team Leader Lead OPerations Officer MNSHD MNSHD I Ahmed Merzouk I Sr. Procurement Specialist I MNAPR I Financial Management Specialist Program Assistant Monitoring & Evaluation Specialist Counsel Counsel Sr. Finance Officer Consultant MNAFM MNC4 HDNSP LEGEM LEGEM LOAFC MNSHD I MahaBali I Program Assistant I MNC4 I 21