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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Document of The World Bank IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA-44000, TF-99140) ON A CREDIT IN THE AMOUNT OF SDR 1.2 MILLION (US$ 1.9 MILLION EQUIVALENT) TO THE GOVERNMENT OF GRENADA FOR A GRENADA TECHNICAL ASSISTANCE PROJECT (GD TAC) December 19, 2012 Poverty Reduction and Economic Management Department (LCSPR) Caribbean Country Management Unit (LCC3C) Latin America and Caribbean Region (LCR) Report No: ICR2501

2 CURRENCY EQUIVALENTS (Exchange Rate Effective 31 October 2012) Currency Unit = Eastern Caribbean Dollar EC$1.00 = US$0.37 US$ 1.00 = EC$2.70 FISCAL YEAR January 1- December 31 ABBREVIATIONS AND ACRONYMS ASYCUDA BOS CARTAC CAS EU FIAS GDP GIDC GOG IDA IMF IRD ISR M&E MOF OECS PAD PCU PDO SEMCAR SIGTAS GDTAC TTL UNCTAD VAT Automated System for Customs Data Bureau of Standards of Grenada Caribbean Regional Technical Assistance Center Country Assistance Strategy The European Union Foreign Investment Advisory Service Gross Domestic Product Grenada Industrial Development Corporation Government of Grenada International Development Association International Monetary Fund Inland Revenue Department Implementation Status Report Monitoring and Evaluation Ministry of Finance Organization of Eastern Caribbean States Project Appraisal Document Project Coordination Unit Project Development Objective Supporting Economic Management in the Caribbean, project Standard Integrated Government Tax Administration System Grenada Technical Assistance Credit Task Team Leader United Nations Conference on Trade and Development Value Added Tax Vice President: Hasan Tuluy Country Director: Rodrigo Chaves Sector Manager: Arturo Herrera Project Team Leader: Kathy Lalazarian ICR Team Leader: Svetlana Proskurovska

3 GRENADA Grenada Technical Assistance Credit (GDTAC) CONTENTS Data Sheet A. Basic Information i B. Key Dates i C. Ratings Summary i D. Sector and Theme Codes..ii E. Bank Staff..ii F. Results Framework Analysis ii G. Ratings of Project Performance in ISRs viii H. Restructuring. viii I. Disbursement Graph.x 1. Project Context, Development Objectives and Design Key Factors Affecting Implementation and Outcomes Assessment of Outcomes Assessment of Risk to Development Outcome Assessment of Bank and Borrower Performance Lessons Learned Comments on Issues Raised by Borrower/Implementing Agencies/Partners Annex 1. Project Costs and Financing Annex 2. Outputs by Component Annex 3. Economic and Financial Analysis Annex 4. Bank Lending and Implementation Support/Supervision Processes Annex 5. Beneficiary Survey Results 32 Annex 6. Stakeholder Workshop Report and Results Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders Annex 9. List of Supporting Documents MAP.40

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5 A. Basic Information Country: Grenada Project Name: GD TAC Project ID: P L/C/TF Number(s): IDA-44000,TF ICR Date: 12/18/2012 ICR Type: Core ICR Lending Instrument: TAL Borrower: Original Total Commitment: Revised Amount: XDR 1.20M Environmental Category: C Implementing Agencies: Ministry of Finance Co-financiers and Other External Partners: EUROPEAN UNION B. Key Dates GOVERNMENT OF GRENADA XDR 1.20M Disbursed Amount: XDR 1.15M Process Date Process Original Date Revised / Actual Date(s) Concept Review: 04/23/2007 Effectiveness: 01/29/ /29/2009 Appraisal: 01/31/2008 Restructuring(s): 10/07/2011 Approval: 03/13/2008 Mid-term Review: 11/08/2010 Closing: 10/31/ /30/2012 C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Risk to Development Outcome: Bank Performance: Borrower Performance: Moderately Satisfactory Moderate Moderately Satisfactory Moderately Satisfactory C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Moderately Unsatisfactory Government: Moderately Satisfactory Quality of Supervision: Satisfactory Implementing Agency/Agencies: Moderately Satisfactory Overall Bank Overall Borrower Moderately Satisfactory Performance: Performance: Moderately Satisfactory i

6 C.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments Indicators Performance (if any) Potential Problem Project No at any time (Yes/No): Problem Project at any time (Yes/No): DO rating before Closing/Inactive status: Yes Moderately Unsatisfactory Quality at Entry (QEA): Quality of Supervision (QSA): None None Rating D. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) Central government administration Theme Code (as % of total Bank financing) Export development and competitiveness Other Private Sector Development Tax policy and administration Trade facilitation and market access E. Bank Staff Positions At ICR At Approval Vice President: Hasan A. Tuluy Pamela Cox Country Director: Francoise Clottes Yvonne M. Tsikata Sector Manager: Arturo Herrera Gutierrez Mauricio Carrizosa Project Team Leader: Kathy Lalazarian Errol George Graham ICR Team Leader: Svetlana I. Proskurovska ICR Primary Author: Svetlana I. Proskurovska F. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) The project development objectives are: (i) to improve the efficiency and effectiveness of Customs; (ii) to improve the efficiency of tax administration and decrease transaction costs of paying taxes and consequently increase tax compliance; (iii) to enhance the Government's support for exports through improving access to trade information and the strengthening the capacity of the Bureau of Standards to provide conformity assessment and quality assurance; and (iv) to modernize investment promotion. ii

7 Revised Project Development Objectives (as approved by original approving authority) The project development objectives are: (i) to improve the efficiency and effectiveness of Customs; (ii) to improve the efficiency of tax administration and decrease transaction costs of paying taxes and consequently increase tax compliance; (iii) to enhance the Government's support for exports through improving access to trade information and the strengthening the capacity of the Bureau of Standards to provide conformity assessment and quality assurance; and (iv) to modernize investment promotion. (a) PDO Indicator(s) Indicator Indicator 1 : Value quantitative or Qualitative) Baseline Value Original Target Values (from approval documents) Improved Client perception of Customs Operations Not established at entry. Introduced at restructuring Perception , Servqual Improvement of Perception Above the Baseline Formally Revised Target Values Above the baseline values for Perception ; and Servsqual Actual Value Achieved at Completion or Target Years Perception ; Servqual Date achieved 10/07/ /30/ /30/ /30/2012 Both customer perception and Servqual score increased above the baseline Comments indicating the growing satisfaction with the Customs services provided. The (incl. % perceptions improved by 3% in the short time after ASYCUDA World system achievement) was made operational. Indicator 2 : The average time for customs clearance reduced from 4 days to 1.5 days Value quantitative or Qualitative) 4 days 1.5 days 1.5 days Date achieved 03/13/ /30/ /29/2012 Comments (incl. % Achieved achievement) Indicator 3 : Improved Client perception of tax administration Value quantitative or Qualitative) Introduced at restructuring: Client Perception , Servqual Improved client perception above the baseline Improved score above the baseline for Client Perception ; Servqual score Client Perception ; Servqual Date achieved 10/07/ /30/ /30/ /29/2012 Comments (incl. % achievement) Perceptions of Inland Revenue Department improved, while expectations of the service quality increased, resulting in a higher gap between the expectation and perception. iii

8 Indicator 4 : Time taken to pay all taxes reduced from 140 to 100 hours Value 140 hours, as measured quantitative or by Doing Business Report 50 hours hours Qualitative) (DBR) Date achieved 03/13/ /30/ /30/ /29/2012 Comments (incl. % achievement) The target value not achieved, judging by the DBR This indicator at approval was an intermediate indicator. During the restructuring the indicator was moved to the PDO indicators. Indicator 5 : Percent of non-filer in the corporate tax category reduced from 59% to 20% Value 41% for corporate quantitative or 59% 20% tax Qualitative) Date achieved 03/13/ /30/ /30/2012 Comments (incl. % achievement) Indicator 6 : Value quantitative or Qualitative) Partially achieved: The project could not meet the targeted value due to the weak enforcement; the project did not directly support improvement of tax enforcement mechanisms. Improved investors' perception of service delivery from GIDC Perception of service quality (out of 5.00); Servqual score Perception of service quality increased above Above the baseline iv (out of 5.00); Servqual score increased above Perception of service quality (out of 5.00); Servqual score Date achieved 10/07/ /30/ /30/ /29/2012 Comments Overall, the perception deteriorated, as the client expectations increased from (incl. % (2011) to (2012). The Servqual score improved. achievement) Rate of conformity assessments and number of quality assurance certificates for Indicator 7 : exports Value quantitative or Qualitative) No conformity assessments conducted 95% of response to request of conformity assessment 100% compliance. In three months before project closure 57 conformity certificates issued Date achieved 03/13/ /30/ /29/2012 Comments (incl. % Achieved. Exceeded the target achievement) Indicator 8 : Number of days to process investment consents reduced from 215 to 70 days The new procedures for Value quantitative or Qualitative) 215 days 70 days investment consent establish various values below 70 days, depending on the sector

9 Date achieved 02/13/ /30/ /29/2012 Comments The number of days to process investment consent has been reduced (incl. % considerably. Target achieved. achievement) (b) Intermediate Outcome Indicator(s) Indicator Indicator 1 : Value (quantitative or Qualitative) Baseline Value Original Target Values (from approval documents) v Formally Revised Target Values Actual Value Achieved at Completion or Target Years The percentage of consignments subject to physical examination reduced from 60% to 30% 18% of commercial 60% of consignments cargo is subject to 30% physically examined physical examination Date achieved 03/13/ /30/ /29/2012 Comments (incl. % The target was largely exceeded for commercial cargo consignments achievement) Indicator 2 : Customs' capacity for classification and valuation of goods improved More than officers trained Value No capacity to perform officers trained (45 in valuation, no (quantitative classification and in valuation and 30 officers trained in or Qualitative) valuation in classification) classification Date achieved 03/13/ /30/ /29/2012 Comments (incl. % achievement) 60% achieved. The number of officers trained reflects the reduced financing for the training, as the funds were allocated to implement of the ASYCUDA World system. Training in classification of goods was not organized; is now planned under SEMCAR Field audit capacity in Customs improved Indicator 3 : Value No professional field (quantitative auditors in Customs or Qualitative) 8 trained auditors Date achieved 04/01/ /30/ /29/2012 Comments (incl. % The target exceeded by 50%. All auditors deployed achievement) Indicator 4 : Value (quantitative or Qualitative) Customs Information Technology upgraded to ASYCUDA World ASYCUDA 2.7 installed in 1999, operational but lacking functionality Upgrade to ASYCUDA World 12 officials trained in procedural audit Upgrade completed. ASYCUDA WORLD operational Date achieved 03/13/ /30/ /29/2012 Comments The new system is operation, available for use by importers, custom brokers, etc. (incl. % on line. achievement)

10 Indicator 5 : Value (quantitative or Qualitative) Planning and Monitoring capacity within IRD/unit established and preparing a corporate plan The Planning and Planning and Monitoring Unit No substantial planning Monitoring Unit legally established and monitoring capacity fully functional and will be within the Internal and preparing a financed in Revenue Department three year Officers trained in corporate plan corporate planning Date achieved 03/13/ /30/ /29/2012 Comments Partially achieved. Is expected to be fully achieved in 2013, when the selection (incl. % of officers for the Unit will have been finalized and financing allocated. achievement) Indicator 6 : IRD Systems (SIGTAS) Upgrade Operational Value (quantitative or Qualitative) 1998 year SIGTAS lacked audit module Upgrade of income and property tax modules, debt management modules, advanced risk management module vi SIGTAS upgrade operational Partial upgrade completed: audit module added. Audit systems operational, but overloads the whole system Date achieved 03/13/ /30/ /30/ /29/2012 Comments (incl. % achievement) Target only partially met (30%). However, the IT platform is old and the new audit module causes server performance overload. SEMCAR program will address the required system improvements Indicator 7 : Corporate Tax arrears reduced Value (quantitative or Qualitative) Corporate tax arrears are at 62% and income tax arrears are 39% Corporate tax arrears reduced to 25%, income tax arrears reduced to 20% Indicator dropped due to lack of funds to support the target Not measured. Arrears continue to be significant Date achieved 03/13/ /30/ /29/2012 Comments Project did not include activities to support this target. The taxpayer database (incl. % needs cleaning to enable enforcement process. achievement) Indicator 8 : National Investment Promotion Strategy adopted and being implemented Value (quantitative or Qualitative) No National Investment Promotion Strategy National Investment Promotion Strategy under implementation National Investment Strategy approved in 2011 Date achieved 03/13/ /30/ /29/2012 Comments (incl. % The indicator is fully achieved. The Strategy is approved and being implemented achievement) Indicator 9 : Business model and process for investment approvals clearly established in relevant agencies supported by the investment network Value No explicit business The GDIC and Establishment Manual for

11 (quantitative or Qualitative) model or investment network in place relevant agencies are better empowered to implement the Investment Strategy vii of investment facilitation network to support business model and processes investment facilitation developed that outlines the process of investment approval. The approval processes established, the IT network could not be financed under the project. Date achieved 03/13/ /30/ /30/ /29/2012 Comments Partially achieved. The EU finances the portal linking relevant agencies, (incl. % expected to be launched January achievement) Indicator 10 : Starting a business in 12 days Value (quantitative or Qualitative) Starting business takes 20 days on average according to Doing Business Report 2008 Reduce the time to start business to 12 days Starting business reduced to 15 days on average according to the Doing Business Report 2013 Date achieved 03/13/ /30/ /29/2012 Comments Partially achieved. No activities to support this target were implemented under (incl. % GDTAC. Target is addressed under the Public Sector Modernization Project. achievement) Number of days to process investment applications reduced from 90 days to 21 Indicator 11 : days Value (quantitative or Qualitative) 90 days 21 days 30 working days to process investment application/consent at GIDC Date achieved 03/13/ /30/ /29/2012 Comments (incl. % achievement) Indicator gives average approval time. Some applications are cleared by the Cabinet which adds at least 10 days to the clearance process. Unless the procedure is changed, achievement of 21 days target is not feasible. Indicator 12 : Capacity within the Bureau of Standards to provide quality assurance certification for food products increased Value (quantitative or Qualitative) No equipment or personnel capacity The acquisition and installation of equipment for testing All exports, for which compulsory standards exist, tested and certified. Verified through a number of certificates issued Calibration and certification is done on the equipment procured and installed. 20 quality assurance for rum and food exports issued in the last 12 months, which makes 12% of total certificates.

12 Date achieved 03/13/ /30/ /30/ /12/2012 Comments The indicator is fully met. The Bureau of Standards sets new service standards (incl. % building on the achievements under the project. achievement) Improved technical skills at the Bureau of Standards and other public and private Indicator 13 : industry laboratories Value (quantitative or Qualitative) Limited skills Number of officers All relevant from public and staff in BOS private labs trained are trained in in ISO ISO staff trained in quality management systems, 2 trained in material testing, 8 trained in microbiology and conformity assessment Date achieved 03/13/ /30/ /30/ /29/2012 Comments Indicator fully met. Training is provided by BOS to colleagues in St. Vincent, (incl. % Dominica and St. Lucia. achievement) G. Ratings of Project Performance in ISRs No. Date ISR Archived DO IP Actual Disbursements (USD millions) 1 06/20/2008 Satisfactory Satisfactory /24/2008 Satisfactory Satisfactory /18/2009 Satisfactory Satisfactory /09/2009 Moderately Satisfactory Moderately Unsatisfactory /28/2010 Moderately Satisfactory Moderately Satisfactory /15/2010 Moderately Satisfactory Moderately Satisfactory /11/2011 Moderately Unsatisfactory Moderately Satisfactory /24/2012 Moderately Unsatisfactory Satisfactory /30/2012 Moderately Satisfactory Satisfactory 1.81 H. Restructuring (if any) Restructuring Date(s) Board Approved PDO Change ISR Ratings at Restructuring DO IP Amount Disbursed at Restructuring in USD millions Reason for Restructuring & Key Changes Made 10/07/2011 MU MS 1.00 Type II restructuring. The viii

13 Restructuring Date(s) Board Approved PDO Change ISR Ratings at Restructuring DO IP Amount Disbursed at Restructuring in USD millions Reason for Restructuring & Key Changes Made restructuring includes the following : (i) revision of some of the results indicators and target values to better align with project activities and reflect what can realistically be observed and measured at exit; (ii) streamline components to focus on project activities with the most value -added to the Project Development Objective; (iii) revision of the financing plan to reflect the increased requirements for the Customs Modernization component and consequent reallocation of funds across components; (iv) reallocation of Credit proceeds to accommodate revised activities and financing plan; (v) a nine month extension of the closing date (from October 31, 2011 to June 30, 2012) to facilitate achievement of desired outcomes at exit; and (vi) update of the procurement plan. The original Project Development Objective is maintained. ix

14 I. Disbursement Profile x

15 1. Project Context, Development Objectives and Design During project preparation Grenada was recovering from two disastrous hurricanes (Ivan in 2004 and Emily in 2005), which caused damages equivalent to approximately 220 percent of the country s GDP. The economy contracted by 5.7 percent in 2004 following a robust growth of 7 percent in Exports plummeted, reflecting the devastation to the agricultural sector and the nutmeg industry an important export item was hard hit. The volume of exports declined by 26 percent in 2005, while imports grew by 22.6 percent as a result of strong demand for building materials for reconstruction. The current account of the balance of payments deteriorated, pushing the deficit from 13.5 to 37.1 percent of GDP from 2004 to Context at Appraisal A strong inflow of grants, which reached 11 percent of GDP in 2005, protected Grenada from deterioration of its fiscal position immediately after the hurricanes. However, the public debt stood at a high mark of percent of GDP in Slowing in the inflow of external grants to 8 percent of GDP in 2006 resulted in difficulties for the Government to sustain the public expenditure and especially capital spending at the level of previous years. Facing growing fiscal pressures, the Government formulated an economic reform program for focused on achieving macroeconomic stability and enhancing growth and poverty alleviation. Along with the measures to restore fiscal and debt sustainability, reduce vulnerabilities, and reduce poverty, the program had a goal of promoting sustained high economic growth through improving the investment climate. The Government program was supported by the IMF Poverty Reduction and Growth Facility since April However, the Government faced challenges with implementing this program because of the lower than projected tax collection and higher than projected public expenditure, caused by higher utility costs and increased transfers to households. Moreover, public sector growth was hampered by governance weaknesses, including, as highlighted in the 2007 Doing Business Survey, relatively weak performance in: (i) starting a business; (ii) dealing with licenses; (iii) registering property; (iv) paying taxes; (v) trading across borders; (vi) enforcing contracts; and (vii) closing a business. The Government demonstrated willingness to address these weaknesses by modernizing the company registration and improving start up business procedures through the Public Sector Modernization Technical Assistance Credit (Credit No GRD) financed by the World Bank. Additionally, the Government identified strategic areas focused on improving the business environment, including: (i) strengthening Customs capacity in risk management and reducing the processing time of exports and imports; (ii) strengthening tax administration through upgrading information systems and developing planning capacity; (iii) facilitating trade through provision of adequate trade information and building capacity for providing quality assurance for export goods; and (iv) strengthening investment promotion capacity. 1

16 The World Bank s 2008 CAS Progress Report 1 supported initiatives aimed at (i) stimulating growth and improving competitiveness, (ii) reducing unemployment, and (iii) modernizing the public sector to improve efficiency. The lack of fiscal space to address development needs in Grenada, the clarity of the Government s objectives in supporting the private sector-led growth through strengthening institutions that facilitate trade and investments, and the adequacy with the CAS framework were the key elements for supporting the Bank s decision to provide a technical assistance credit to the Government of Grenada. The Bank IDA Credit of US$1.9 million equivalent was supplemented by a grant of Euro 500,000 provided by the European Commission to finance the activities aimed at strengthening institutions that would improve the business environment in Grenada. 1.2 Original Project Development Objectives (PDO) and Key Indicators The project development objectives were (i) to improve the efficiency and effectiveness of Customs; (ii) to improve the efficiency of tax administration and decrease transaction costs of paying taxes and consequently increase tax compliance; (iii) to enhance the Government's support for exports through improving access to trade information and the strengthening of the capacity of the Bureau of Standards to provide conformity assessment and quality assurance; and (iv) to modernize investment promotion. 1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification On October 7, 2011 the project was restructured (type II restructuring) without amending the Project Development Objective. Some of the result indicators were changed to better align expected results with project interventions that were re-focused to maximize value added to the PDO. The revised result framework is presented in Table 1, below. Table 1. Revised Project Results Framework Original Result Indicator Project Outcome Indicators 1. Improved Client perception of Custom Operations 2. Customs administrative cost as % of custom revenue reduced from 2% to around 1.5% 3. The average time for customs clearance reduced from 4 days to 1.5 days 4. Improved client perception of tax administration Amended Result Indicator Dropped at restructuring Comment, Indication of Achievement at Closure Maintained. Result achieved The project did not directly address this indicator. Maintained. Result achieved. Maintained. Result achieved. 1 Organization of Eastern Caribbean States CAS Progress Report 2008/09/23, Board Document Number R ; IDA/R Report Number

17 5. Tax administration costs as a % of tax revenue collected reduced from 2.1% to around 1.5% 6. New indicator, introduced at restructuring. Formerly an intermediate result indicator 7. % of non-filer in the corporate tax category reduced from 59% to 20% 8. Increased access to trade information from 0.51 index 9. Response to conformity assessment requests at least 95%, and number of quality assurance certificates for exports increased above baseline. 10. Improved investors perception of service delivery from GIDC 11. Number of days to process investment consents reduced from 215 days to 70 days Intermediate Indicators 12. The % of consignments subject to physical examination reduced from 60% to 30 % 13. Customs capacity for classification and valuation of goods improved 14. Field Audit Capacity in Customs/ the number of auditors trained total of Custom Information Technology upgraded from ASYCUDA 2.7 to ASYCUDA World 16. Planning and Monitoring capacity within IRD established and the P&M Unit is preparing a corporate plan Dropped Time taken to pay all the taxes reduced from 140 to 100 hours 17. New indicator The Tax IT system SIGTAS is upgraded and operational 18. Corporate tax arrears reduced from 62% to 25% and income tax arrears reduced from 39% to 20% Dropped The Inland Revenue Department has no direct control of planning or executing its budget. The project did not address this indicator. The 2012 Doing Business Report measures time to pay taxes as 140 hours. The original target was 50 hours, the value was increased to 100 hours at the restructuring Maintained. Partially achieved (41% of non-filer in the corporate tax category) Maintained. Achieved. Trade portal launched. Index improved to Maintained. Fully achieved. 100% response to conformity assessment. 58 certificates issued in three months before the project closure. Maintained. Partially achieved. The service quality index slightly decreased against the considerably higher expectations Maintained. Achieved. Although the investment consent procedures differ by sector, the current standard response time applied take from 1-5 days to a maximum of 123 days for construction permits, reported in the 2013 Doing Business Report. Maintained. Achieved and surpassed the target for commercial cargo. Maintained. Partially achieved (60%). 30 officers trained and deployed. Maintained. Target surpassed (150%). 12 officers trained in procedural audits and deployed Maintained. Practically achieved. The outstanding step in to connect to ASYCUDA World all relevant agencies. The work continues after the closure Maintained. Partially achieved. Legally the unit is established and staff of IRD trained. The unit is expected to be staffed in Q The upgrade of SIGTAS completed. The system requires further upgrades of the server to deal with increased demand for higher performance The project has not addressed the issue through stronger tax enforcement procedures. 3

18 19. National Investment Promotion Strategy adopted and being implemented 20. Business model and process for investment approvals clearly established in relevant agencies, supported by the investment network 21. Starting a business time reduced from 20 to 12 days 22. Number of days to process the investment applications reduced from 90 to 21 days 23. Improvement in the technical capacity of the Bureau of Standards to facilitate exports: the acquisition and installation of equipment for testing 24. Improved technical skills at the Bureau of Standards and other public and private industry laboratories. Number of officers trained in ISO Trade portal established and operational in key public and private sector agencies. Revised: Capacity within the Bureau of Standards to provide quality assurance certification for food products improved Revised: Technical skills at the Grenada Bureau of Standards testing and calibration laboratories improved Maintained. Fulfilled. The strategy is being implemented. Maintained. Partially achieved. The Business model developed and approved. The network is being implemented through additional EU financing. The Launch is expected in January Maintained. Partially achieved (80%). The current indicator is 15 days, as reported in the 2013 Doing Business Report. Maintained. Partially achieved (70%). The current indicator is 30 business days for processing business applications. Fully achieved. The equipment purchased, installed and operational. 20 quality certificates issued for rum and food products Achieved. All the relevant staff trained in ISO (19 persons in total). Achieved. Trade portal launched in June The portal is hosted by the developers. The Government needs to procure a virtual server for hosting the portal. 1.4 Main Beneficiaries The primary project target group includes key public sector institutions that contribute to improving the environment for private sector-led growth. These include: the Customs Department, the Inland Revenue Department, the Grenada Industrial Development Corporation, the Bureau of Standards, and the Trade Office of the Ministry of Environment, Foreign Trade and Export Development. The broader beneficiary circle includes the Grenada Chamber of Commerce, the Ministry of Finance, Planning, Economy, Energy and Co-operatives, investors, exporters, and tax payers. Improvements in trade and investments through better targeted policies, more transparent and efficient institutions, clear and user-friendly procedures for approvals of investment applications and clearance of trade will benefit the economy in general and entrepreneurs with interest to trade and invest in Grenada. 1.5 Original Components 4

19 Project components, as originally approved and maintained throughout the project, are presented in Table 2. The allocation of financing across the various components was revised, when the project was restructured, as shown below. Table 2. Summary of GDTAC Components at Approval Component Title Original US$ amount in million (IDA Credit) Revised US$ amount in million (IDA Credit) 1. Customs Modernization Tax Administration Modernization Modernization of Investment Promotion Implementation of Export Strategy Project Management These components were aimed at achieving the following results: 1. Custom Modernization Objective: To improve the efficiency and effectiveness of Customs through modernization of the administration. Intermediate Objectives: (i) improving customs systems and procedures; (ii) upgrading information technology; and (iii) capacity building of management and staff in Customs. 2. Tax Administration Modernization Objective: To modernize critical areas of tax administration to increase the overall efficiency and effectiveness of tax administration and decrease the transaction cost of paying taxes, and thus increase the level of tax compliance. Intermediate Objectives: (i) improving the registration process for taxpayers; (ii) cleaning up the taxpayer registry; (iii) strengthening the detection of non-registered taxpayers; (iv) improving taxpayer services; and (v) examining the feasibility of using Tax Compliance Certificates. 3. Modernization of Investment Promotion Objective: to modernize investment promotion in Grenada through the strengthening of the strategic and institutional environment for attracting investment into Grenada. Intermediate Objectives: (i) preparing an investment promotion strategy; (ii) implementing the Investment Promotion Strategy for Grenada; (iii) establishing an Investment Facilitation Network; and (iv) achieving institutional strengthening to enhance preparedness to process investment allowances. 4. Implementing Export Strategy Objective: implementing the comprehensive export strategy of Intermediate Objectives: (i) improving access to trade information; and (ii) strengthening the Bureau of Standards. 5. Project Management 5

20 Objective: managing contractual, financial and procurement aspects of the project; supporting the project Steering Committee by monitoring results, including conducing client surveys. 1.6 Revised Components The components remained the same as above, with a reallocation of funds from all sources (IDA Credit, EU Grant and Government Counterpart Co-financing). The Tax Administration Modernization Component was significantly reduced and refocused to support two sub-components: (i) improving the organization and management of the Inland Revenue Department (IRD); and (ii) upgrading the information technology within the IRD. The reason for the reduction of the scope Tax Administration Modernization Component was based on two pragmatic considerations: (i) a possibility to benefit from a newly approved Regional Bank-administered SEMCAR Program that supports strategic planning and institutional strengthening of the tax administration function in the Caribbean states; and (ii) the need to increase budget for implementation of the customs system s upgrade within the limited IDA envelope. The Customs Modernization Component was quite advanced at that stage, and initiated information system upgrade was critical to achieving measurable improvements in customs performance and trade facilitation. The Bank team explored options to attract additional financing from the contributing donor, the European Union, but this was not successful due to financial planning constrains. Savings were identified through consolidation of activities under other components as well, however, without significantly impacting the attainment of planned results. 1.7 Other significant changes The project restructuring (of type II) approved on October 7, 2011 addressed the following three issues: (i) the extension of the project closing date by nine months to allow for the completion of the main project activities, such as the upgrade of the information technology systems in the Customs and the Inland Revenue Department; (ii) the revision of the results indicators to align them to better reflect areas over which the project had reasonable control and to remove the indicators to which the project was not contributing (such as the reduction of cost of tax and customs administration as a share of the revenue collected); and (iii) the reallocation of funds to reflect the actual higher costs of inputs for customs modernization. After implementation of ASYCUDA World significant improvements in services provided to the training community have been achieved, such as reduction of time for custom clearance, automated processing of customs proceedings, real time information on the status of clearance. These anticipated improvements justified the strategic choice for funds reallocation in order to achieve results contributing to the Project Development Objective. The initial cost estimates for the project activities were lower than actual costs. No contingency funds were reserved at design to account for rising prices. The total actual project financing was equivalent to US$2.766 million, comprising the following contributions from three sources: IDA, EU and the Government of Grenada. 6

21 Table 3. Actual GDTAC Fund Disbursements from various sources Source of Funding Disbursed in US$ million IDA Credit EU Grant Government of Grenada (GOG) Sub Total (administered by GDTAC) GOG parallel financing Total As seen from Table 2, the project budget was amended during restructuring to accommodate for the implementation of the upgrade of the Customs Information Communication Technology (ICT) system to the latest web-based version of ASYCUDA World (AW). However, increasing the allocation for Component 1 by 34 percent was not sufficient to cover the costs of the equipment for relevant offices, including hardware (computers, servers, and network equipment). To cover the financial gap, in parallel to the project, the Government contributed an additional US$287,392 through direct procurement by using government procedures. Although the main functionality and the core modules of ASYCUDA were implemented during the project, there is still an outstanding task of ensuring that relevant agencies, such as Statistics Office, Internal Revenue Department, Health and Agriculture authorities use the system. Physical connections have been put in place, and the training activities to access and operate the ASUCYDA World System are ongoing. The Customs Department will require support to assure an adequate access of these agencies to the system in order to fully automate customs procedures. Reallocation of funds caused some cancellations or reductions in the scope of activities in other components, namely, reductions in the scope of training for classification of export goods and in the financing for establishing a network for investment promotion, as well as abandoning the services of a long-term tax consultant. Regretfully, planned project financing was insufficient for attaining ambitious project objectives. Limited financing led to a substantial reduction in the scope of the SIGTAS upgrade for the tax administration. While the planned audit module, as envisaged by the project, was developed, installed and made operational in the Inland Revenue Department (IRD), the new module created much higher requirements for server performance. In the absence of sufficient resources, the IRD abandoned other important system upgrades of SIGTAS. As a result, this impacted the concurrent access of IRD officials to the system, thus resulting in inefficiencies in IRD performance. The Bank team decided to use SEMCAR Program s resources to support necessary improvements in tax administration information system. 2. Key Factors Affecting Implementation and Outcomes 2.1 Project Preparation, Design and Quality at Entry 7

22 In 2007, the first Doing Business report was issued for the OECS 2, identifying problems in the business environment that constrained growth. The Bank team used this report as an entry point for discussing measures for improving growth through trade facilitation, attraction of investments and improving the business environment in Grenada with the Government. The Government identified the needs to modernize their Customs and Tax Offices to ensure effective and efficient revenue collection, as well as address such weaknesses as the lack of conformity assessment for exported goods, and the lack of information for investors, lengthy procedures for clearing investment requests which hindered trade, as well as weaknesses in supporting investment and revenue collection in Grenada. During preparation, the Bank team coordinated with the Customs and Tax advisors of the IMF s Caribbean Technical Assistance Center (CARTAC) to identify priority areas for technical assistance. The project design was informed by the lessons from similar project implementation in Grenada and other Caribbean Countries (particularly Dominica, which was implementing a similar project). The project design focused on capitalizing on strong reform ownership, achieving early results, nurturing private and public sector partnership, and supporting institutional capacity strengthening through direct involvement of related officials - reform champions in implementation. Given the limited IDA borrowing envelope for the OECS, the Bank took a strategic approach which involved leveraging additional resources for technical assistance from such sources as the European Union and the Government of Grenada. In addition to the SDR1.2 million of IDA credit, the European Union contributed EUR0.5 million for project implementation. The project design identified two operation-specific high risks: one related to the project s multi-sector nature; and the second related to implementation capacity and sustainability. The first risk was mitigated through the design of an implementing structure that relied on the leadership of the Ministry of Finance and was supported by the Steering Committee, and on ownership from technical teams of the beneficiary departments. These arrangements served well, as the Steering Committee through its monthly meetings, prepared by the Project Manager, provided good supervision, direction and the coordination necessary to keep the beneficiary departments focused on the achievement of results. Similarly, the second high level risk (related to the capacity of multiple beneficiary departments) was mitigated through consultancy support and the effective functioning of the Steering Committee. The risks of insufficient financing of the project activities, as well as the risk of slow mobilization of the project implementing structure, caused in part by the electoral change in government, were not identified at the project design stage. These factors proved to play a significant, negative role in the ability of the Government of Grenada to complete all the planned activities in full and in time. The arrangements for government counterpart funding through the counterpart fund accounts were not analyzed or described in detail at the design stage and no conditions 2 OECS stands for Organization of East Caribbean States 8

23 (covenants) regarding the government counterpart financing obligations were agreed upon. This caused problems with financing project activities, as in the wake of the global financial and economic crisis the Government co-financed US$14,741 worth of project activities, or only 6% of the planned US$250,000. However, facing the need to implement the ASYCUDA World upgrade, the Government directly financed US$ 287,392 for works and hardware purchase, as part of the government contractual obligation with the vendor in order to enable system implementation. This amount, equivalent to 115 percent of the pledged amount, was not originally planned under the project design and thus was not included in the project procurement plan. 2.2 Implementation The project was approved by the Board on March 13, 2008, but did not become effective until January 29, The delay was due to the general elections in Grenada that took place on July 8, 2008, during which the National Democratic Congress (formerly in opposition) succeeded the New National Party. The Financing Agreement was signed on December 19, 2008, nine months after the Board approval. Although the project was declared effective on January 29, 2009, further delays with setting up project management arrangements continued until the project launch on October 20, The project Steering Committee was appointed on May 22, 2009, following a Bank supervision mission in April However, Project Manager was selected by the Ministry of Finance only in August 2009 (17 months after the Board approval), which ultimately enabled the Government of Grenada to start implementation. It took some three more months for the Project Coordination Unit, Project Management Unit and implementing agencies to develop a set of 12 terms of references to initiate procurement of consulting services, which were sent to the Bank on February 4, The late mobilization of the implementing agency, impacted by the arrival of the new government and insufficient project management capacity, led to the project s extension by nine months beyond the original closing date of October 31, 2011 to June 30, The upgrade of the Customs information system from ASYCUDA 2.7 to a web-based ASYCUDA World cost about 34% more than estimated at the appraisal stage, not counting the network and hardware upgrade financed by the Government. The strategic decision to reallocate project resources to achieve this upgrade proved to be the right thing to do, as this led to a cardinal improvement of the quality and speed of services provided to the trading community, modernized the work processes and improved timeliness, access, and accuracy of customs information. To mitigate the high risks of resistance to institutional changes in multiple beneficiary institutions, a robust project management structure led by the Steering Committee was implemented. The Steering Committee that involved all major stakeholders from the public and private sector strongly contributed to the achievement of project results. Apart from the late mobilization of the project management structure and especially the hiring of the Project Manager, which caused significant delays, the project management structure proved to be effective in ensuring coordination and close oversight on behalf of the Ministry of Finance. To address resistance to change, key officials in the beneficiary agencies were involved as components technical leaders. A robust communication 9

24 program created high expectations among the ultimate project beneficiaries the business community - thus creating pressure to modernize key institutions: the Customs Office, the Grenada Investment Development Corporation, the Grenada Bureau of Standards and to a lesser extent the Inland Revenue Department. The risk of the late and slow start up, brought about by the change in the administration after project approval, had not been identified at design and no proactive measures had been planned in this regard. Additionally, the departure of the original TTL soon after project signing introduced some follow up delays on the Bank side. 2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization M&E Design. The M&E system was quite extensive, reflecting the multi-sector nature of the project. The project measured institutional and service quality changes in such distinct areas as customs and tax administration, investment promotion and export promotion. The original results framework was adjusted during the project restructuring in October Efficiency indicators for tax and customs operational costs, as well as indicators on tax arrears were removed, as the design of project activities did not allow project inputs to be directly attributed to attainment of these indicators. Other revisions were not significant (they were mostly editorial), as the majority of the original indicators had been well chosen. Implementation. The numerical indicators, such as client satisfaction with the quality of services provided, were measured through the update of the Doing Business Survey and through client surveys. The baseline for some indicators was established during the appraisal stage, while the baseline for others was determined during the baseline surveys in The reason for the late establishment of the baseline is that client satisfaction with the service, chosen as an indicator at the design stage, could be only determined through a client survey which was not possible at the approval stage because of the absence of financial resources. Two surveys were commissioned and implemented during the project by the implementing agency: one baseline survey was conducted early in 2011, and the final survey that measured exit indicators was conducted in May-June 2012, prior to project closure. Utilization. Regretfully, the response to a structured questionnaire used for the final survey was not statistically significant in certain cases (e.g., only six out of some 130 respondents returned data on measuring the time taken to pay taxes). For such cases of inconclusive measurement, the achievement of the final objective will be judged based on the Doing Business 2013 update. Some indicators applicable to several distinct procedures were generalized to a single indicator, thus creating ambiguity in measurement. For example, it was difficult to accurately assess the number of days taken to process investment consent, as depending on the specific area of investment the number of days would be different. According to the procedure developed during project implementation, the requirements for review by government agencies depend on the type of the investment, and can be as low as 1 day or as many as 10 days. Valid responses for this indicator were not received in spite of the repeated survey. The Ministry of Finance 10

25 awaits the update of the Doing Business survey to verify project results for reducing the number of days for issuing investment consent. The Project ISRs had been dully reflecting achievement of intermediate results starting from 2011, when project activities started yielding results. 2.4 Safeguard and Fiduciary Compliance The project did not trigger any of the Environmental or Social Policy Safeguards. 2.5 Post-completion Operation/Next Phase The beneficiaries of the project have been actively involved in implementation, which is a foundation of results sustainability. The project has helped develop institutional capacity through training, implementation of upgrades of information systems, and the purchase and installation of equipment and advisory services that helped develop plans and manuals. The Customs Office upgraded its information system from ASYCUDA 2.7 to a web-based ASYCUDA World application, which is being used by the trained Customs officers, Custom brokers, tariff clearers, and exporters. This is a sustainable institutional change that reduced physical inspection of the commercial cargo and customs clearance time below the set target, and introduced a more efficient custom processing culture. However, the project has not supported the consolidation of the changes introduced, as some of the relevant agencies, such as Ministry of Agriculture, Ministry of Health, Department of Licensing, and Department of Trade have not yet been connected on line for processing the customs procedures. A local team of information specialists continues working in those agencies to enable their online access. Training related to the classification of the imported goods has not been implemented during the project. However, an agreement was reached with the Customs Office that a Bank-administered SEMCAR Program, supporting customs modernization in the Caribbean Region, will provide necessary training support. As for the tax administration information system s SIGTAS upgrade, the project contribution was constrained by the lack of resources (time and money) to implement a comprehensive system upgrade, including that of the operational system platform (first established in 1998) and the capacity of servers. The implemented taxpayers audit module created a system overload which limited the use of the system by concurrent users during initial attempts to run an audit search. It is likely that for an effective use of the SIGTAS software application, further system upgrades would be required. As in the previous case of Customs, it is possible for the SEMCAR program to support the analysis and possibly an upgrade of the tax administration information system. Given that the SIGTAS upgrade was completed in June 2012, just before the project closure, no resources or time were available to address the SIGTAS system s slow performance. One of the objectives for tax modernization was strengthening the capacity of the Internal Revenue Department (IRD) in planning and monitoring. Although the project provided assistance to developing planning capacity through training, the planning capacity was 11