IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA-H2620) (IDA-4520) (IDA-46610) (IDA-47750) ON A GRANT AND THREE CREDITS

Transcription

1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Document of The World Bank IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA-H2620) (IDA-4520) (IDA-46610) (IDA-47750) ON A GRANT AND THREE CREDITS IN THE AMOUNT OF SDR 24.3 MILLION (US$37 MILLION EQUIVALENT) TO THE REPUBLIC OF SIERRA LEONE FOR A SERIES OF Report No: ICR1761 GOVERNANCE REFORM AND GROWTH OPERATIONS GOVERNANCE REFORM AND GROWTH GRANT-1 AND GOVERNANCE REFORM AND GROWTH CREDITS 2-3 AND A SUPPLEMENTAL January 31, 2012 Poverty Reduction and Economic Management 4 Country Department AFCW1 Africa Region

2 CURRENCY EQUIVALENTS (Exchange Rate Effective as of January 30, 2012) Currency Unit = Leone US$1 = Le 4,421 FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS AGD AfDB BSL CAS DfID EC FSAP GRG GRGG-1 HIPC ICR IDA IMF ISR JAS M&E MDAs MDBS MDGs NPA NPPA PDO PRGF PRSP Accountant General s Department African Development Bank Bank of Sierra Leone Country Assistance Strategy Department for International Development (United Kingdom) European Commission Financial Sector Assessment Program Governance Reform and Growth First Governance Reform and Growth Grant Highly Indebted Poor Countries Implementation Completion and Results International Development Association International Monetary Fund Implementation Status and Results Joint Assistance Strategy Monitoring and Evaluation Ministries, Departments and Agencies Multi Donor Budget Support Millennium Development Goals National Power Authority National Public Procurement Authority Program Development Objective Poverty Reduction and Growth Facility Poverty Reduction Strategy Paper Vice President: Obiageli Katryn Ezekwesili Acting Country Director: Sergiy Kulyk Sector Manager: Miria Pigato Task Team Leader: Douglas Addison ICR Team Leader: Cyrus Talati

3 REPUBLIC OF SIERRA LEONE IMPLEMENTATION COMPLETION AND RESULTS REPORT ON THE GOVERNANCE REFORM AND GROWTH SERIES (GRANT-1, CREDIT 2-3 AND SUPLLEMENTAL Data Sheet A. Basic Information B. Key Dates C. Ratings Summary D. Sector and Theme Codes E. Bank Staff F. Results Framework Analysis G. Ratings of Program Performance in ISRs H. Restructuring CONTENTS 1. Program 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 on Issues Raised by Borrower/Implementing Agencies/Partners List of Annexes Annex 1: Bank Lending and Implementation Support/Supervision Processes Annex 2: Beneficiary Survey Results Annex 3: Stakeholder Workshop Report and Results Annex 4: Summary of Borrower s ICR and/or on Draft ICR Annex 5: of Cofinanciers and Other Partners/Stakeholders Annex 6: List of Supporting Documents List of Tables Table 1: GRG Series Tranche Amounts and Release Dates Table 2: Prior Action and Status for GRCG-1, GRGC-2 and GRCG Table 3: Comparative M&E Framework ofdraft agenda. GRG Operations Table 4: Budgetary Performance on Poverty Reducing Programs under HIPC, Leone Billion Table 5: ICR Rating Scale for Objective 1: Preserving the Fiscal Space Needed for Poverty Reduction Table 6: Rating of Key Risks Likely to Affect Outcome of GRG Series MAP 74

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5 A. Basic Information Program 1 Country Sierra Leone Program Name Program ID P L/C/TF Number(s) IDA-H2620 ICR Date 02/21/2012 ICR Type Core ICR Lending Instrument DPL Borrower Original Commitment Programmatic Governance Reform & Growth GOVERNMENT SIERRA LEONE Total XDR 6.80M Disbursed Amount XDR 6.80M OF Implementing Agencies Ministry of Finance and Economic Development Cofinanciers and Other External Partners Program 2 Country Sierra Leone Program Name Program ID P L/C/TF Number(s) IDA ICR Date 02/21/2012 ICR Type Core ICR Lending Instrument DPL Borrower Original Commitment Second Government Reform & Growth Credit GOVERNMENT SIERRA LEONE Total XDR 6.40M Disbursed Amount XDR 6.40M OF Implementing Agencies Ministry of Finance and Economic Development Cofinanciers and Other External Partners Program 3 Country Sierra Leone Program Name Governance Reform and Growth Grant - 3 Program ID P L/C/TF Number(s) IDA-46610,IDA ICR Date 02/21/2012 ICR Type Core ICR Lending Instrument DPL Borrower GOVERNMENT SIERRA LEONE Original Total XDR 6.40M Disbursed Amount XDR 11.10M OF i

6 Commitment Implementing Agencies Ministry of Finance and Economic Development Cofinanciers and Other External Partners Program 4 Country Sierra Leone Program Name Program ID P L/C/TF Number(s) ICR Date 02/21/2012 ICR Type Core ICR Lending Instrument DPL Borrower Original Commitment GRGC-3 Supplemental Credit REPUBLIC SIERRA LEONE Total USD 0.00M Disbursed Amount USD 0.00M OF Implementing Agencies Ministry of Finance and Economic Development Cofinanciers and Other External Partners B. Key Dates Programmatic Governance Reform & Growth - P Process Date Process Original Date Revised / Actual Date(s) Concept Review: 11/10/2005 Effectiveness: 12/21/2006 Appraisal: 06/26/2006 Restructuring(s): Approval: 12/14/2006 Mid-term Review: Closing: 06/30/ /30/2007 Second Government Reform & Growth Credit - P Process Date Process Original Date Revised / Actual Date(s) Concept Review: 08/10/2007 Effectiveness: 12/11/ /11/2008 Appraisal: 09/02/2008 Restructuring(s): Approval: 10/07/2008 Mid-term Review: Closing: 06/30/ /30/2009 ii

7 Governance Reform and Growth Grant P Process Date Process Original Date Revised / Actual Date(s) Concept Review: 09/01/2009 Effectiveness: 12/11/2009 Appraisal: 09/28/2009 Restructuring(s): Approval: 11/24/2009 Mid-term Review: Closing: 07/15/ /30/2011 GRGC-3 Supplemental Credit - P Process Date Process Original Date Revised / Actual Date(s) Concept Review: Effectiveness: 06/23/2010 Appraisal: 05/18/2010 Restructuring(s): Approval: 06/11/2010 Mid-term Review: Closing: C. Ratings Summary C.1 Performance Rating by ICR Overall Program Rating Outcomes Risk to Development Outcome Bank Performance Borrower Performance Satisfactory Substantial Satisfactory Satisfactory C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Overall Program Rating Bank Ratings Borrower Ratings Quality at Entry Satisfactory Government: Satisfactory Quality of Supervision: Satisfactory Implementing Agency/Agencies: Satisfactory Overall Bank Overall Borrower Satisfactory Performance Performance Satisfactory iii

8 C.3 Quality at Entry and Implementation Performance Indicators Programmatic Governance Reform & Growth - P Implementation QAG Assessments Indicators Performance (if any) Potential Problem Quality at Entry Program at any time No None (QEA) (Yes/No): Problem Program at any Quality of No None time (Yes/No): Supervision (QSA) DO rating before Closing/Inactive status Rating: Second Government Reform & Growth Credit - P Implementation QAG Assessments Indicators Performance (if any) Potential Problem Quality at Entry Program at any time No None (QEA) (Yes/No): Problem Program at any Quality of No None time (Yes/No): Supervision (QSA) DO rating before Satisfactory Closing/Inactive status Rating: Governance Reform and Growth Grant P Implementation QAG Assessments Indicators Performance (if any) Potential Problem Quality at Entry Program at any time No None (QEA) (Yes/No): Problem Program at any Quality of No None time (Yes/No): Supervision (QSA) DO rating before Closing/Inactive status Rating: iv

9 GRGC-3 Supplemental Credit - P Implementation Performance Indicators Potential Problem Program at any time No (Yes/No): Problem Program at any No time (Yes/No): DO rating before Closing/Inactive status QAG Assessments (if any) Quality at Entry None (QEA) Quality of None Supervision (QSA) Rating: D. Sector and Theme Codes Programmatic Governance Reform & Growth - P Sector Code (as % of total Bank financing) Original Actual Central government administration General industry and trade sector Mining and other extractive Sub-national government administration Theme Code (as % of total Bank financing) Decentralization Other environment and natural resources management Public expenditure, financial management and procurement State-owned enterprise restructuring and privatization Second Government Reform & Growth Credit - P Original Actual Sector Code (as % of total Bank financing) Central government administration General finance sector General industry and trade sector Mining and other extractive Sub-national government administration v

10 Theme Code (as % of total Bank financing) Administrative and civil service reform Decentralization Other public sector governance Public expenditure, financial management and procurement Regulation and competition policy Governance Reform and Growth Grant P Original Actual Sector Code (as % of total Bank financing) Central government administration Power Sub-national government administration Theme Code (as % of total Bank financing) Administrative and civil service reform Legal institutions for a market economy Municipal finance Public expenditure, financial management and procurement GRGC-3 Supplemental Credit - P Original Actual Sector Code (as % of total Bank financing) Central government administration Power Sub-national government administration Theme Code (as % of total Bank financing) Administrative and civil service reform Legal institutions for a market economy vi

11 Municipal finance Public expenditure, financial management and procurement E. Bank Staff Programmatic Governance Reform & Growth - P Positions At ICR At Approval Vice President: Obiageli Katryn Ezekwesili Obiageli Katryn Ezekwesili Country Director: Sergiy V. Kulyk Ishac Diwan Sector Manager: Miria A. Pigato Robert R. Blake Task Team Leader: Cyrus P. Talati Douglas M. Addison ICR Team Leader: Cyrus P. Talati ICR Primary Author: Yusuf Bob Foday J. Matthew Mitchell Second Government Reform & Growth Credit - P Positions At ICR At Approval Vice President: Obiageli Katryn Ezekwesili Obiageli Katryn Ezekwesili Country Director: Sergiy V. Kulyk Ishac Diwan Sector Manager: Miria A. Pigato Antonella Bassani Task Team Leader: Cyrus P. Talati Douglas M. Addison ICR Team Leader: Cyrus P. Talati ICR Primary Author: Yusuf Bob Foday J. Matthew Mitchell Governance Reform and Growth Grant P Positions At ICR At Approval Vice President: Obiageli Katryn Ezekwesili Obiageli Katryn Ezekwesili Country Director: Sergiy V. Kulyk Ishac Diwan Sector Manager: Miria A. Pigato Antonella Bassani Task Team Leader: Cyrus P. Talati Douglas M. Addison ICR Team Leader: Cyrus P. Talati ICR Primary Author: Yusuf Bob Foday J. Matthew Mitchell vii

12 Second Government Reform & Growth Credit - P Positions At ICR At Approval Vice President: Obiageli Katryn Ezekwesili Obiageli Katryn Ezekwesili Country Director: Sergiy V. Kulyk Ishac Diwan Sector Manager: Miria A. Pigato Antonella Bassani Task Team Leader: Cyrus P. Talati Cyrus P. Talati ICR Team Leader: Cyrus P. Talati ICR Primary Author: Yusuf Bob Foday J. Matthew Mitchell F. Results Framework Analysis Program Development Objectives (from Program Document) The program development objectives were to: (i) preserve fiscal space for poverty reduction; (ii) promote efficiency, transparency and accountability in the use of public resources; and (iii) improve the investment climate and promote exports. Revised Program Development Objectives (as approved by original approving authority) The third element was revised in GRGC-3 in light of the severe fiscal challenges imposed by the rental of emergency electricity generators to state, improve the investment climate through provision of electricity in a fiscally sustainable manner. (a) PDO Indicator(s) Programmatic Governance Reform & Growth - P Original Target Formally Actual Indicator Baseline s (from Revised Achieved at approval Target Completion or documents) s Target Years Indicator 1: 1. Deviation between planned and actual expenditures for poverty reduction. (quantitative or 9% 11% Date achieved 12/31/ /31/2006 (incl. % achievement) Calculation excludes personnel and development expenditures financed from abroad. Across the board shortfalls in budgetary receipts in 2006 led to increase in deviation. viii

13 Indicator 2: 2. Number of HIPC AAP benchmarks met. (quantitative or 7 Date achieved 12/31/2004 (incl. % HIPC AAP discontinued, and new PEFA based indicators adopted (see below). achievement) Indicator 3: 3. PEFA PI-1 Aggregate Expenditure Out-turn. (quantitative or 7.6% 1.1% Date achieved 12/31/ /31/2006 Not strictly comparable to HIPC AAP. In 2004, actual expenditures were lower (incl. % than budgeted expenditures, and in 2006 actuals were higher than budgeted. achievement) Indicator 4: 4. PEFA PI-2 Composition of Expenditure Out-turn. (quantitative or 5.7% 13.3% Date achieved 12/31/ /31/2006 (incl. % achievement) Not strictly comparable to HIPC AAP. Indicator 5: 5. Number of public entities producing procurement plans for MOF approval (2006). (quantitative or Date achieved 12/31/ /31/ /31/2006 (incl. % achievement) Indicator 6: 6. Percent share of funds actually expended for the purposes designated in approved plans. (quantitative or Date achieved (incl. % Indicator was abandoned as monitoring this exceeded existing capacity achievement) ix

14 Indicator 7: 7. Percent share of actual procurement using the procurement methodology of the proposed plans (quantitative or Date achieved (incl. % Government systems for monitoring not operational in time. achievement) Indicator 8: 8. Actual procurement no more than 15 percent higher than in the procurement plan. (quantitative or Date achieved (incl. % Government systems for monitoring not operational in time. achievement) Indicator 9: 9. Number of qualified staff at Accountant General s Department. (quantitative or Date achieved 12/31/ /31/ /31/2006 (incl. % achievement) Indicator 10: 10. Reduction of backlog in production of public accounts (most recent accounts completed). (quantitative or Accounts for 2001 Accounts for 2005 Date achieved 12/31/ /31/2006 (incl. % achievement) Indicator 11: 11. Timely publication of transfer formulas and transfers. (quantitative or Not published. Published. Date achieved 12/31/ /31/2006 (incl. % achievement) Gazetted. x

15 Indicator 12: 12. Clear, transparent procedures for privatization. Procedures (quantitative or No procedures in place established. Date achieved 12/31/ /31/2006 National Commission for Privatisation established clear procedures for sale, (incl. % transfer, or disposal of equity assets. achievement) Indicator 13: 13. Exports of rutile (thousand tons). (quantitative or 0 70 Date achieved 12/31/ /31/2006 (incl. % achievement) Indicator 14: 14. Exports of bauxite (thousand tons). (quantitative or Date achieved 12/31/ /31/2006 (incl. % achievement) Indicator 15: 15. Number of mining licenses. (quantitative or 0 10 Date achieved 12/31/ /31/2006 (incl. % achievement) Indicator 16: 16. Number of operating rutile mines. (quantitative or 0 >0 1 Date achieved 12/31/ /31/ /31/2006 (incl. % achievement) Indicator 17: 17. Number of operating bauxite mines. (quantitative or 0 >0 1 Date achieved 12/31/ /31/ /31/2006 xi

16 (incl. % achievement) Indicator 18: 18. Number of operating gold mines. (quantitative or 0 >0 Date achieved 12/31/ /31/2006 (incl. % achievement) Indicator 19: 19. Revenues collected from mining licenses, fees and surface rents ( US$ million). (quantitative or (2006) 6.0 (2007) Date achieved 12/31/ /31/2007 (incl. % achievement) Second Government Reform & Growth Credit - P Original Target Baseline s (from Indicator approval documents) Indicator 1: (quantitative or Formally Revised Target s Actual Achieved at Completion or Target Years The difference between the ratio of actual to budgeted spending on HIPC/PRSP priorities and the ratio of actual to budgeted e xpenditures for all other discretionary primary expenditures. HIPC: 57% Other: 72% difference: -15% >=0 HIPC: 101% Other: 114% difference: -13% Date achieved 12/31/ /31/ /31/2008 (incl. % achievement) Number of HIPC PFM benchmarks met using HIPC AAP scoring. Indicator 2: Note: This indicator not well designed. HIPC AAP has been repla ced by PEFA. In 2004, Sierra Leone >7 HIPCC AAP (quantitative or met 7 HIPC AAP Benchmarks benchmarks. Date achieved 12/31/ /31/2008 (incl. % HIPC AAP was replaced by PEFA system. achievement) xii

17 Indicator3 : Percentage of funds that are expended for the purposes in the approved plans. Note: This indicator exceeded authorities cap acity to monitor. (quantitative or >=65% Date achieved 12/31/2008 (incl. % This indicator exceeded authorities capacity to monitor. achievement) Indicator 4: Percentage of procurements that use the methodology in approved plans. (quantitative or 59% >=65% Date achieved 12/31/ /31/2008 (incl. % This indicator exceeded authorities capacity to monitor. achievement) Indicator 5: Percentage of procurements that are no more than 15% higher than amounts in approved plans. (quantitative or n.a. >=50% n.a. Date achieved 12/31/ /31/ /31/2008 (incl. % This indicator exceeded authorities capacity to monitor. achievement) Indicator 6: Number of public entities producing 2009 procurement plans for MOF approval. (quantitative or Date achieved 12/31/ /31/ /31/2008 (incl. % achievement) Indicator 7: Share of total procurement above the national small purchase threshold that was conducted through open competition in (quantitative or >=10% >30% 69% Date achieved 12/31/ /31/ /31/2008 (incl. % achievement) xiii

18 Indicator 8: (quantitative or Ability to verify payroll entries % of payroll entries in the 2008 civil service to be authenticated. 100 % verification, led to reduction of 2,302 entries (14 %) resulted in savings of Le 0.5 billion monthly. Date achieved 12/31/ /31/ /31/2008 (incl. % achievement) Indicator 9: Budgetary funds actually transferred to local councils, expressed as a share of total discretionary non-salary, non-interest recurrent spending. (quantitative or 62% 15.8% 13.3% Date achieved 12/31/ /31/ /31/2008 Note, the target was designed only to measure performance through first three (incl. % quarters of achievement) Indicator 10: Percentage growth in number of new firms registered annually. (quantitative or 41% >5% annually. 14% Date achieved 12/31/ /31/ /31/2008 The baseline figure for 2005 represents the so-called Post conflict bounceback. (incl. % achievement) Indicator 11: Exports, Rutile ('000 mt) (quantitative or 70 >70 ('000 MT) annually Date achieved 12/31/ /31/ /31/2008 (incl. % Target introduced under GRGC-2. achievement) Indicator 12: Exports, Bauxite ('000 mt). 1,000('000 MT) (quantitative or 971 annually 815 Date achieved 12/31/ /31/ /31/2008 (incl. % Target introduced under GRGC-2. achievement) 71 xiv

19 Indicator 13: Exports, Gold ('000 ounces) (quantitative or 2.6 >=6 10 Date achieved 12/31/ /31/ /31/2008 (incl. % Target introduced under GRGC-2. achievement) Governance Reform and Growth Grant P Original Target Baseline s (from Indicator approval documents) Indicator 1: (quantitative or Formally Revised Target s Actual Achieved at Completion or Target Years Planned vs. actual expenditures: The difference between the ratio of actual/budgeted spending on HIPC/PRSP priorities and the ratio of actual to budgeted expenditures for all other discretionary primary expenditures. HIPC: 101% Other: 114% Difference: -13% >=0 HIPC: 102% Other: 114% Difference: -12% Date achieved 12/31/ /31/ /31/2009 (incl. % achievement) Indicator 2: Number of public entities producing procurement plans for MOF approval. (quantitative or Date achieved 06/29/ /31/ /31/2009 (incl. % achievement) Share of total procurement above the national small purchase threshold Indicator 3: conducted through open competition, with the share defined in terms of number of procurements or value of procurements. (quantitative or 69% >=75% 58% Date achieved 12/31/ /31/ /31/2009 (incl. % achievement) xv

20 GRGC-3 Supplemental Credit - P Indicator Baseline Original Target s (from approval documents) Formally Revised Target s Actual Achieved at Completion or Target Years Indicator 1 : Public provision of electricity to Freetown (GWH). Generation: 138 GWH (quantitative or Sales: 79 GWH Date achieved 12/31/ /31/2010 (incl. % achievement) Generation: 174 GWH Sales: 102 GWH Indicator 2 : NPA sales collection (Le billion) (quantitative or Date achieved 12/31/ /31/ /31/2010 (incl. % achievement) (b) Intermediate Outcome Indicator(s) Programmatic Governance Reform & Growth - P Original Target Indicator Baseline s (from approval documents) Indicator 1 : n.a. (quantitative or Date achieved (incl. % achievement) Formally Revised Target s Actual Achieved at Completion or Target Years xvi

21 Second Government Reform & Growth Credit - P Indicator Baseline Original Target Formally s (from Revised approval Target s documents) Indicator 1 : n.a. (quantitative or Date achieved (incl. % achievement) Actual Achieved at Completion or Target Years Governance Reform and Growth Grant P Original Target Indicator Baseline s (from approval documents) Indicator 1 : n.a. (quantitative or Date achieved (incl. % achievement) Formally Revised Target s Actual Achieved at Completion or Target Years Governance Reform and Growth Grant P Original Target Indicator Baseline s (from approval documents) Indicator 1 : n.a. (quantitative or Date achieved (incl. % achievement) Formally Revised Target s Actual Achieved at Completion or Target Years xvii

22 G. Ratings of Program Performance in ISRs Programmatic Governance Reform & Growth - P No. Date ISR Archived 1 07/21/ /11/2012 DO Moderately Unsatisfactory Moderately Unsatisfactory IP Moderately Unsatisfactory Moderately Unsatisfactory Actual Disbursements (USD millions) Second Government Reform & Growth Credit - P No. Date ISR Archived DO IP Actual Disbursements (USD millions) 1 06/18/2009 Satisfactory Satisfactory /11/2012 Satisfactory Satisfactory 9.97 Governance Reform and Growth Grant P Actual Date ISR No. DO IP Disbursements Archived (USD millions) 1 02/11/2012 Satisfactory Satisfactory H. Restructuring (if any) xviii

23 All fields in the Data Sheet could not be completed as the IT System would not permit it. This includes: DO rating in Section C3 for the First (Moderately Unsatisfactory), Third and Supplemental Operations (both Satisfactory); and the Closing Date for the Supplemental Credit which was 06/30/2011. xix

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25 1. Program Context, Development Objectives and Design 1.1 Context at Appraisal Background The Governance Reform and Growth (GRG) operations supported Sierra Leone s transition from post-conflict recovery to a major drive for poverty reduction. By 2006, when the Bank appraised the first GRG operation1, the country had successfully restored peace and security following a decade of armed civil conflict that had resulted in more than 50,000 deaths, displaced one-third of the country s population, and destroyed much of the nation s infrastructure. Prior to the GRG operations, the Bank had financed four policy-based operations supporting the post-conflict recovery process through Sierra Leone s National Recovery and Rehabilitation Program. Notably the GRG series of operations came to be designed and implemented during an unexpectedly challenging and uncertain period for Sierra Leone. Economic prospects were adversely affected by a weakening of international commodity prices, especially for diamonds, the principal export, and other minerals which are the principal foreign exchange earners for the country. Deferred and delayed investments in the minerals sector aggravated the situation and coincided with declines in remittance income. Exchange rate pressures emerged which were compounded by inflationary pressure due to rapidly rising prices of key imports including food and fuel. This in turn placed considerable pressure on the fiscal position. Sierra Leone looked to high economic growth to achieve the Millennium Development Goals (MDGs). In 2006, Sierra Leone ranked near the bottom of the Human Development Index, with about 70 percent of Sierra Leone s total population of 5.5 million living below the national poverty line, defined at Le 2,111 (less than US$1) per day. The Government s overarching MDG was to reduce this share to 40 percent by The Government s First Poverty Reduction Strategy Paper (PRSP), prepared in 2005, had indicated that in order to meet this MDG by 2015, the economy would have to grow by about 8-9 percent annually from about 7.4 percent in In addition to higher economic growth, poverty reduction required better public financial management focused on priority pro-poor expenditures. Government 1 In this report, GRG refers to the series of three growth and reform operations and a supplemental credit for the third operation, which took place between 2006 and The first operation, referred to as GRGG-1 was a grant. The second and third governance reform and growth operations were credits, the Second Governance Reform and Growth Credit (GRGC-2) and the Third Governance Reform and Growth Credit (GRGC-3), including the supplemental credit for the GRGC-3. 21

26 capacity to protect these expenditures had weakened, according to a review of public expenditures between 2001 and The weighted average of the absolute deviation between actual and planned spending was high, having increased from 12 percent in 2001 to 16 percent in Most of the variance had resulted from under-spending due to shortfalls in external budget support. In contrast, spending in other categories was consistently over budget. The inability to meet expenditure targets threatened to impede progress in poverty reduction. Economic growth estimates referenced in GRG operations were lower than in the PRSP and declined substantially between the first and third operation. When the Bank appraised GRGG-1, average real GDP growth rate was forecast to start out at 7.4 percent in 2006 and gradually taper off to 6.1 percent by This rate, though strong by international standards, was far below what the PRSP had determined necessary to meet the MDGs. And prospects worsened due to the global economic recession. By the time of the appraisal of the Supplemental Credit for the GRGC-3 in early 2010, economic growth had declined to 5.5 percent in 2008 and plummeted further to 3.2 percent in Nevertheless, Sierra Leone was, by and large, able to meet its obligations with respect to policies and targets agreed to under an arrangement with the IMF through its Poverty Reduction and Growth Facility (PRGF), designed to maintain macroeconomic stability. 2 At the outset of GRGC-3, shortfalls in domestic revenue and delays in the disbursement of budget support had begun to challenge fiscal policy. As a result, the fiscal outcome in 2008 had departed from an improving trend, with the growing negative balance reaching -4.8 percent of GDP compared to -2.7 percent in The decline had resulted from lower economic growth and diminished collection of import duties, excise taxes, mining taxes, and non-tax revenues. Also, only 71 percent of programmed budget support was disbursed in 2008 (a shortfall of 1.8 percent of GDP) due to delays in meeting agreed benchmarks associated with budget support. These shortfalls prompted the authorities to curtail recurrent expenditures by 0.6 percent of GDP. Key Issues Addressed The lack of a transparent, competitive procurement process was inhibiting the efficiency of public resource management. An expenditure review had shown that between April 2003 and January 2004, only 10 percent of contract awards had been subject to an open-tender process. With about 90 percent of government procurement not subject to competitive bidding and widespread perceptions of corruption, lack of transparency was a major impediment to efficient public resource management. By the time of the appraisal of the first GRG operation, however, the Government had demonstrated its commitment to address this by approving interim rules and regulations 2 The GRG grants/credits were prepared in a manner consistent with IMF s PRGF, following the agreed institutional division of labor with the IMF taking the lead on the macroeconomic issues while the Bank took the lead on structural and social issues. The IMF agreed in May 2006 on a medium-term economic program which was supported under the PRGF in an amount equivalent to SDR million (30 percent of quota). 22

27 for procurement and established the National Public Procurement Authority (NPPA), responsible for procurement reform under the then Ministry of Finance. 3 The Government had determined that decentralization of budget authority was a key element of good governance and peacekeeping. A major concern of the Government was that a key factor leading to the civil war was the disaffection of a large segment of the rural population, essentially cut-off from political representation as a result of the elimination of local government which had occurred in In particular, rural areas were physically isolated from Freetown, the capital, by the lack of a functioning road infrastructure. Furthermore, there was an enormous disparity in the level of poverty in rural areas compared to Freetown. An analysis of a 2003 household survey had shown that 79 percent of the rural population was living below the poverty line compared to 22 percent in Freetown. Therefore decentralization was seen as a fundamental element in poverty reduction. Compared to most other countries, the business environment in Sierra Leone ranked low, constraining opportunities for growth to meet development objectives. According to the World Bank s Country Policy and Institutional Assessment (CPIA) for out of 76 International Development Association (IDA) member countries scored higher than Sierra Leone on the quality of the regulatory environment for business. And Doing Business 2006, a World Bank Group publication that focuses on business law and regulation, had ranked Sierra Leone 136 out of 155 countries surveyed. This unfavorable business environment was likely responsible for the fact that nearly 80 percent of all economic activity was in the informal sector. Dependence on an insufficiently diversified mining sector with structural constraints was impeding potential export revenues. Sierra Leone depended considerably on diamond exports for foreign exchange. The production of other minerals and metals had ceased during the conflict period. Under normal industry practice, exploration licenses are gradually converted to production licenses or withdrawn for lack of results. However, in the non-competitive framework that had prevailed in Sierra Leone, a single firm had obtained exclusive prospecting licenses covering nearly half of the country. These holdings had neither been officially converted to production, nor reduced. The Government was collecting about US$3-4 million in annual license fees, far below what a competitive fee structure would have generated an estimated US$16 million annually. Limited access to electric power, due in part to the high cost, and unreliable power supply were constraining economic activity and poverty reduction. In 2005, there were no more than 44,581 registered customers for the National Power Authority (NPA), most of them in Freetown. Electricity consumption in 2004 from the NPA was estimated to be only 55 kilowatt-hours per-capita compared to the regional average of 495 kilowatt- 3 In early 2010, the Ministry of Finance became known as the Ministry of Finance and Economic Development, following its merger with the Ministry of Economic Planning. 23

28 hours per-capita and 8,503 kwh per capita in member countries of the Organization for Economic Cooperation and Development. Yet Sierra Leoneans were paying some of the highest tariff rates per kilowatt-hour in the region, between US 19 and US 28. And even with such high tariffs, revenues were insufficient to cover the system costs of US 37 per kilowatt-hour and contribute to investments in the expansion of the power system. Rationale for Bank Assistance The Program supported the Government s poverty reduction strategies, the foundation for all development assistance. GRGG-1 and GRGC-2 took place within the framework of the first PRSP, which had established three pillars to support higher growth: (i) good governance, security and peace building; (ii) pro-poor, sustainable growth for food security and job creation; and (iii) human development. 4 GRGC-3 also supported the second PRSP (2008 to 2012), which maintained the same pillars as the first, but focused more on development of infrastructure and priority productive sectors. The Bank had committed, together with other development partners, to help Sierra Leone improve governance and enhance growth prospects. In July 2006, the Bank had entered into the Improved Governance and Accountability Pact with three other development partners: the African Development Bank (AfDB), the European Community (EC) and the United Kingdom s Department for International Development (DfID). 5 This Pact reasserted the commitment of the Government to good governance and defined a number of activities to enhance government transparency and accountability, create a more conducive investment climate for private sector development and improve public service delivery in the health and education sectors. For the monitoring and evaluation of budget support activities, the four development partners had agreed to multi-donor budget support (MDBS) framework which set out clear goals and monitorable performance indicators. The Pact also committed the four development partners to harmonization of their activities with government programs. The World Bank and AfDB focused on 4 The program for good governance consisted of a strengthened anti-corruption agenda; improved public financial management, better public service delivery through capacity building, decentralized service delivery, and better statistics for monitoring outcomes. To support sustainable growth, the PRSP emphasized maintenance of macroeconomic stability through appropriate fiscal and monetary policies and effective debt management; support for key productive sectors and investments in infrastructure needed for these sectors to thrive. Finally, the pillar for advancing human development covered improvements in health and education services along with affordable housing, greater gender equality and improved environmental management. 5 This Pact asserted the Government s commitment to good governance, establishing three sets of activities based on each of the three pillars in the first PRSP. In support of PRSP Pillar One, the activities included: free and fair elections, anti-corruption, anti-money laundering, procurement reform, strengthening the Office of the Auditor-General, civil service reform, and decentralization in the management of public resources. The activities under Pillar Two activities focused on creating a conducive investment environment and greater transparency in Sierra Leone s extractive industries. Under Pillar Three, activities focused on better public service delivery in health and education. The Pact also committed the four donor agencies to harmonizing their budget support with the Government's program. This was subsequently superseded in 2010by a revised framework for harmonizing budget support with the Government s program. 24

29 different policy areas of public financial management while DfID and EC gave particular attention to policies and actions concerning human development, particularly improvements in health care and education. The Bank had financed four policy based operations for the recovery and rehabilitation of the economy, contributing to the restoration of the country s platform for growth. These operations, which took place between 2001 and 2006, had financed imports of essential commodities, enabling the Government to channel resources to priority expenditures for the rehabilitation of physical, social and economic infrastructure. The provision of financing for imports under these operations was linked to policy actions designed to improve governance, enhance macroeconomic stability and advance human development. Implementation completion and results reports (ICRRs) had rated the performance of all of these operations as satisfactory. The Government of Sierra Leone had shown substantial commitment to governance reform to support economic growth and human development. Government commitment to reform was firm as evidenced through implementation of the previous series of operations, which had supported economic recovery and rehabilitation. The Government had also recognized the need for budget support to uphold its commitment to poverty reduction and maintain macroeconomic stability. The Government also planned a gradual increase in poverty-related expenditures from three percent of GDP in 2007 to six percent of GDP by The Bank joined other donors in coordinating a program of budget support linked to achieving the MDGs. 1.2 Original Program Development Objectives (PDO) and Key Indicators Objectives The development objectives, directly aligned with the policy areas, were: (i) preserve fiscal space for poverty reduction; (ii) promote efficiency, transparency and accountability in the use of public resources; and (iii) improve the investment climate and promote exports through policies for the development of mining sector (GRGG-1 and GRGC-2) and the provision of electricity in a fiscally sustainable manner (GRGC-3). Outcome Indicators The outcome indicators listed below, by objective, were used to access the results of the policy actions taken. The Datasheet provides the details on results compared to benchmarks and targets. Section 3.2 discusses the extent to which the program achieved the objectives taking account of prior actions and actual results for outcome indicators. Objective 1: Preserve the fiscal space needed for poverty reduction Ratio of actual to planned expenditures for poverty reduction compared to a similar ratio for other expenditures. Reduction of non interest-bearing securities at the Bank of Sierra Leone (BSL). 25

30 Poverty-reduction expenditures not to fall below the floor set by IMF. Objective 2: Promote efficiency, transparency and accountability in the use of public resources Number of Highly Indebted Poor Countries Assessment and Action Plan (HIPC AAP) Initiative benchmarks met. Number of public entities producing procurement plans for Ministry of Finance approval. Percent share of funds spent for purposes designated in procurement plans. Actual procurement no higher than 15 percent of plan. The number of qualified staff in the Accountant General s Department. Reduced backlog of public accounts not published. Timely publication of budget formulas and transfers. Share of procurement above the national, small-purchase threshold subject to competitive bidding. Ability to verify government payroll entries. Budgetary funds transferred to local councils as a percent share of discretionary, non-salary, non-interest spending. Objective 3: Improve the investment climate and promote exports Clear, transparent procedures for privatization. Exports of rutile. Exports of bauxite. Exports of gold. Number of operating rutile mines. Number of operating bauxite mines. Number of operating gold mines. Revenues collected from mining licenses, fees and surface rents. Growth in the number of new firms registered annually. Amount of electricity provided by the NPA to Freetown. NPA s sales collections. 1.3 Revised PDO and Key Indicators, and Reasons/Justification There was no revision of the Program s development objectives. 1.4 Original Policy Areas Supported by the Program GRGG-1 covered a subset of the policy areas supported by the Multi Donor Budget Support (MDBS) partners, comprising the African Development Bank (AFDB), European Commission (EC), the United Kingdom s Department for International Development (DfID) and IDA. These consisted of macroeconomic risk management, 26

31 monitoring and evaluation of the poverty reduction strategy, and the three pillars of the PRSP: Good Governance (Pillar 1), Pro-Poor Growth and Job Creation (Pillar 2) and Human Development (Pillar 3). The subset, under the governance and growth pillars, were to: (i) preserve the fiscal space needed for poverty reduction; (ii) promote efficiency, transparency and accountability in the use of public resources; and (iii) improve the investment climate and promote exports. The GRG operations grouped all prior actions for tranche release and related impact indicators under these policy areas, which also became the common objectives. Policy Area 1: Preserve the fiscal space needed for poverty reduction The priority action for all three operations was to improve the ratio of actual to planned priority expenditures for poverty reduction. Also, GRGG-1 required the Ministry of Finance to adopt regulations to protect poverty-reduction expenditures in the event of budget shortfalls. Complementing these regulations was Government agreement to strengthen the portfolio of the BSL by converting non-interest bearing securities to interest-bearing assets. Policy Area 2: Promote Efficiency, Transparency and Accountability in the use of public resources The focus of GRG actions was on improving procurement planning and building government capacity for better public resource management. Policy actions called for increasing the number of ministries producing approved procurement plans. Under GRGG-1, NPPA was required to hire qualified core staff. GRGC-2 and GRGC-3 provided for actions to reform the civil service. Both GRGC-2 and GRGC-3 established benchmarks for the share of procurement conducted through open competition in order to enhance transparency. Finally, all three GRGC operations contained prior actions to decentralize government operations for greater efficiency and local autonomy, through the transfer of budgetary resources to local councils. Policy Area 3: Improve the Investment Climate and Promote Exports GRG operations focused on policies to enhance prospects for expanding private sector development, privatization, improve infrastructure and support the development of key extractive industries. Policy actions supported an improved legal framework for privatization and business start-ups. The operations also promoted the advancement of the cadastral system for expanding mining licenses along with increased staff for extension services in the mining sector. Regarding infrastructure for growth, GRGC-3 included a policy action to improve revenue collection by the NPA in order to enhance the financial viability of the utility and increase electricity supply, particularly in Freetown. 1.5 Revised Policy Areas There were no revisions in policy areas supported. 27

32 1.6 Other significant changes GRGC-3 required additional financing to meet objectives, as discussed in Section 2 below. 2. Key Factors Affecting Implementation and Outcomes 2.1 Program Performance All GRG programs were single-tranche operations, with a total disbursement of US$37 million over a four-year period ( ), as shown in Table 1. Table 1: GRG Series Tranche Amounts and Release Dates Operation Tranche Amount Tranche Release Date (US$ million) GRGG December 21, 2006 GRGC December 18, 2008 GRGC December 17, 2009 GRGC-3 Supplemental 7.0 June 28, 2010 Table 2 shows the prior actions and implementation status for the release of funds for all three GRG operations. While a number of prior actions were modified relative to the original wording of triggers to take account of various operational difficulties encountered during implementation that could not have been anticipated, it should also be noted that a few were modified to give credit for better than anticipated performance. 28

33 Table 2: Prior Action and Status for GRCG-1, GRGC-2 and GRCG-3 Table 2 : Prior Actions and Status for GRGG-1, GRGC-2 and GRGC-3 GRGG-1 Prior actions Status Adoption of a satisfactory implementation plan for Implemented. Government adopted an acceptable revision of regulations in conformance with the implementation plan for the revision of regulations Government Budgeting and Accountability Act in conformance with the new legislation in April (2005) Core staff with acceptable functions and qualifications have been hired by the National Public Procurement Authority to serve the Authority, its Secretariat and the Independent Review Panel. The ministries responsible for agriculture, defense, education, health, mineral resources and transport as well as the Sierra Leone Police have adopted acceptable procurement plans for the 2006 budget year that have been approved by the MOF. Acceptable procurement regulations have been adopted and published in the Sierra Leone Gazette. Government has appointed a qualified Accountant- General and at least one qualified deputy. Government has adopted acceptable procedures protecting priority poverty reducing expenditures while restricting non-priority spending in the event that revenues or net external assistance fall short of budget targets. Government has adopted acceptable regulations governing local government transfer formulas; and published in the Sierra Leone Gazette the details of the transfer formulas and the details of the central government transfers to each local council. The NCP has published acceptable clear and transparent procedures to be followed for the sale, transfer or disposal of public equity. Implemented. NPPA provided the Bank with acceptable terms of reference, letters of appointment and letters of acceptance for 4 core positions and 7 additional positions 2006 in September Implemented. Acceptable procurement plans for 2006 were completed by each of the required ministries and agencies by May Additional plans were completed by the Ministry of Works and by the SLRA. Implemented. Acceptable procurement regulations were adopted by the NPPA in April The regulations were published in the Sierra Leone Gazette in September Implemented. The MOF sent letters of appointment to the best candidates for Accountant General and two deputies. The new Accountant-General accepted. One Deputy accepted and one declined, citing inadequate remuneration. MOF reported seeking a second Deputy. Implemented. MOF adopted acceptable procedures that protect priority poverty reducing expenditures in September Implemented. The regulations were adopted by Government and subsequently published in the Sierra Leone Gazette in May Implemented. The procedures were adopted by the Commission of the NCP in March 2006 and published in the Sierra Leone Gazette in April

34 Table 2 : Prior Actions and Status for GRGG-1, GRGC-2 and GRGC-3 GRGG-1 Prior actions Status Government has implemented the action plans for Implemented. The Ministry of Mineral Resources the cadastre and extension services in a satisfactory began to administer mining licenses through the manner. The Ministry of Mineral Resources has: (a) cadastral system in Kono District in late July begun to administer mining licenses in the Kono MMR has provided evidence that the number of District through the cadastre system and (b) has mining extension staff serving the Kono District increased the number of mining extension service have been increased to 37 in staff, relative to the 2005 baseline of 7, to 37 in the Kono District

35 Table 2: Prior Actions and Status for GRGG-1, GRGC-2 and GRGC-3 (continued ) GRGC-2 Prior actions Status Development Objective One: Preserve the Fiscal Space Needed for Poverty Reduction Minimize risk to BSL and Government Trigger specified in GRGG-1 The government will agree on an acceptable plan that minimizes adverse fiscal and monetary consequences for converting non- interest bearing securities held by the BSL to interest bearing assets. Implemented. A MOU was signed in October The first phase of implementation was completed in the fourth quarter of 2006 when Le50 billion in non- interest bearing securities were converted into treasury bills. Another Le2.5 million were converted in May Agreed Prior Action: Same as trigger. Improve budget execution Trigger specified in GRGG-1 The Government will ensure that the weighted aggregate variance between planned and actual spending for HIPC PRSP priorities, excluding wages, donor financed development expenditures and debt service, will improve relative to the 2005 baseline of 10.5 percent. Implemented as revised. The ratio of actual to budgeted spending on HIPC PRSP priorities for poverty reducing programs in the second half of 2007 was 69 percent compared to 59 percent for all other discretionary primary spending. Section 25(4) of the GBAA was complied with for the first quarter of Agreed Prior Actions The ratio of actual to budgeted spending on HIPC PRSP priorities in the second half of 2007 is not smaller than the ratio of actual to budgeted expenditures for all other discretionary primary expenditures. In addition, any spending from miscellaneous budget head 501, or any other budget head for unallocated expenditures, will be made in full conformity with sections 25(4) and 25(5) of the Government Budgeting and Accountability Act (2005) starting from January 2008 and verified on a quarterly basis. Reason for change: excessive spending through the miscellaneous budget (head 501) and delayed donor financing resulted in below target expenditures on poverty reducing programs. The revised prior action reflects improved protection of poverty reducing expenditures in the second half of