AFRICAN DEVELOPMENT BANK GROUP GUINEA-BISSAU ECONOMIC AND FINANCIAL GOVERNANCE STRENGTHENING SUPPORT PROJECT (PARGEF)

Transcription

1 Public Disclosure Authorized Public Disclosure Authorized AFRICAN DEVELOPMENT BANK GROUP GUINEA-BISSAU ECONOMIC AND FINANCIAL GOVERNANCE STRENGTHENING SUPPORT PROJECT (PARGEF) OSGE/GECL DEPARTMENTS July 2015 Translated Document

2 TABLE OF CONTENTS I STRATEGIC THRUST AND RATIONALE Project Linkages with Country Strategy and Objectives Rationale for Bank Intervention Aid Coordination... 3 II PROJECT DESCRIPTION Project Component Technical Solutions Adopted and Alternatives Explored Project Type Project Cost and Financing Arrangements Project Area and Beneficiaries... 8 III PROJECT FEASIBILITY Economic and financial performance Environmental and social impact Climate change IV IMPLEMENTATION Implementation Arrangements Monitoring Governance Sustainability Risk Management Knowledge Building V LEGAL FRAMEWORK Legal Instrument Conditions Associated with the Intervention of the Bank and the Fund Compliance with Bank Policies VI RECOMMANDATION Annex 1: Comparative Socio-Economic Indicators of the Country Annex 2: Status of AfDB Portfolio Annex 3: Reasons for Requesting a Waiver Allowing Bank Financing of the Full Project Cost Annex 4: Map of Project Area LIST OF TABLES No. Title Pages 2.1 Project Components Alternatives Considered and Reasons for Rejection Estimated Cost by Component Project Cost by Expenditure Category Expenditure Schedule by Component Expenditure Schedule by Expenditure Category Lessons Learned from Previous Bank Operations in the Country Monitoring Milestones and Feedback Loop Risks and Mitigation Measures 15

3 Currency Equivalents February 2015 UA 1 = CFAF UA 1 = EUR UA 1 = USD Fiscal Year 1 January 31 December Weights and Measures 1 metric tonne = 2204 pounds 1 kilogramme (kg) = metre (m) = 3.28 feet 1 millimetre (mm) = inch 1 kilometre (km) = 0.62 mile 1 hectare (ha) = acres Abbreviations and Acronyms ADF AfDB ANP BCEAO CA CC CEDAW CEM CFE TSA CPIA CSP CSP DGB DGCF DGCI DGD DGED DGP DGT ECF ECOWAS ENA EU GAP GDP GII GPN HIPC African Development Fund African Development Bank National Popular Assembly Central Bank of West African States Central Procurement Office Court of Auditors Convention on the Elimination of All Forms of Discrimination Against Women Country Economic Memorandum Centre for the Formalisation of Enterprises - One-Stop Shop Treasury Single Account Country Policy and Institutional Assessment Country Strategy Paper Country Strategy Paper Directorate General of the Budget Directorate General of Finance Control Directorate General of Contributions and Taxation Directorate General of Customs Directorate General of Economy and Development Directorate General of the Plan Directorate General of the Treasury Extended Credit Facility Economic Community of West African States National School of Administration European Union Strategic Framework and Governance Action Plan Gross Domestic Product Gender Inequality Index, General Procurement Note Heavily Indebted Poor Country i

4 IGF IMF MAE MEF MTEF NPO NPRSP OHADA PARCA PCE PECA PEFA PEMFAR PFM PFS PIU PPP PRCGE PUARB PUAREF RAF RCU SBDs SIGFIP SNFO SPN TFPs TSF UA UAM UNDP WADB WAEMU General Finance Inspectorate International Monetary Fund Ministry of Foreign Affairs Ministry of Economy and Finance Medium-Term Expenditure Framework National Programme Office National Poverty Reduction Strategy Paper Organisation for the Harmonisation of Business Law in Africa Public Administration Capacity Building Support Project State Accounting Plan Economic Development and Aid Coordination Support Project Public Expenditure and Financial Accountability Public Expenditure Management and Financial Accountability Review Public Finance Management Public Finance Support Project Project Implementation Unit Public-Private Partnership Economic Management Capacity Building Project Fiscal Reform Emergency Support Programme Emergency Support Programme for Economic and Financial Reforms Administrative and Financial Officer Reforms Coordination Unit Standard Bidding Documents Integrated Public Finance Management System Senegal Field Office Special Procurement Notice Technical and Financial Partners Transition Support Facility Unit of Account Millions of Unit of Account United Nations Development Programme West African Development Bank West African Economic and Monetary Union ii

5 PROJECT INFORMATION SHEET Client Information BORROWER: EXECUTING AGENCY: Republic of Guinea-Bissau Ministry of Economy and Finance Financing Plan Source Amount (UA million) Instrument TSF 5.00 Grant TOTAL COST 5.00 Key AfDB Financial Information Grant Currency Interest Type* Interest Rate Margin* Commitment Fee* Other Costs* Maturity Grace Period FRR, NPV (baseline scenario) ERR (baseline scenario) UA N/A N/A N/A N/A N/A N/A N/A N/A *if applicable Timeframe Key Milestones (expected) Identification NA Preparation December 2014 Concept Note Approval January 2015 Evaluation February 2015 Country Team March 2015 Project Approval April 2015 Effectiveness June 2015 Last Disbursement June 2019 Completion July 2019 Last Repayment N/A iii

6 Project Summary Overall Project Overview Needs Assessment and Relevance Expected Outcomes Target Beneficiaries Bank s Comparative Advantages and Value Added Institutional Development Project Name / Number: Economic and Financial Governance Strengthening Support Project (PARGEF)/ SAP Id. P-GW-K Geographical Reach: Nationwide General Schedule: 48 months, from July 2015 to June 2019 Financing: UA 5.00 million (TSF Grant) Operational Instrument: Institutional Support Project For more than a decade, Guinea-Bissau was dogged by political instability, a situation which led to a deeply dysfunctional public administration. Institutional capacity in terms of public finance management was thus severely weakened and Guinea-Bissau's performance in the area of governance and anti-corruption efforts was very weak. The latest financial management assessments pointed to the need to embark on major reforms, particularly in the monitoring of budget execution and modernization of financial services. In this context, the country s main challenge is to emerge from fragility and it is, therefore, important to strengthen the rule of law and State institutions. To that end, improving governance is deemed critical to buoying up private sector dynamism and potential as well as fostering the participation in reform and public spending control. Increased involvement of non-state actors offers an opportunity to strengthen resilience. PARGEF is part of a concerted and urgent effort by the international community to restore the rule of law and promote economic recovery. The expected outcomes of this project are (i) reduced impunity through easy access to justice, civil society organisations (CSOs) trained to better play their role as watchdogs, strengthened and operational Court of Auditors following the amendment of its Organic Law, the drafting decrees of implementation of this Court and the training of 34 employees (including 10 women); (ii) a full and correct implementation of WAEMU directives on the oversight exercised by State authorities, particularly over the DGCF, IGF, DGP and ARMP; (iii) increased tax revenue that would raise the tax burden from 7.5% in 2013 to 13% in 2018; and (iv) economic empowerment of women through the formulation and implementation of a female entrepreneurship development strategy, the establishment of incubators and support tools; and (v) updating of the Code on Private and State-Owned Land and the training of officers in 2016 on its use. The main beneficiaries of the project are: (ii) the population in at large and more specifically State entities, given that their institutional capacity will be restored, their structures strengthened and their resources increased; and (ii) civil society organisations: they will benefit from capacity building in the fight against corruption and women's associations will be involved in economic activities with the adoption of a women's entrepreneurship development strategy. Generally, the positive impacts of the fight against corruption and impunity will benefit the entire population of Guinea-Bissau. The Bank already has a good reputation in Guinea-Bissau and proven experience in the design and implementation of institutional capacity building projects in emergency contexts and post-conflict situations (especially in the sub-region: Mali, Guinea and Liberia). This operation will enable the Bank to play a pioneering role in this country, in the areas covered by the operation (justice, impunity and corruption) and in coordinating the efforts of Technical and Financial Partners (TFPs). Indeed, many findings and assumptions have already been made concerning the targeted areas, but very little action has been initiated. In the face of the often criticized impunity, corruption, drug trafficking, etc., Bank-supported operations will be a step forward, which should strengthen the perception of the Bank as an institution that is in touch with the realities of the beneficiaries. The implementation of PARGEF will enable the development of tools and good practices in public finance management and the fight against impunity and corruption. These tools will be disseminated within the administration through training and procedure manuals. iv

7 OUTPUTS OUTCOMES IMPACT INDICATIVE RESULTS-BASED LOGICAL FRAMEWORK Country and Project Name: Guinea-Bissau Economic and Financial Governance Strengthening Support Project (PARGEF) Project: Contribute to building capacity for controlling and combating corruption and to the creation of conditions conducive to the rapid economic recovery. RESULTS CHAIN Promote strong and inclusive growth by strengthening budget discipline, the anticorruption effort and ensuring the revival of economic activity Outcome I: The State s effectiveness particularly in strengthening the anti-corruption effort and the management of the State cash flow Outcome II: The State mobilises more domestic revenue and the tax base is broadened PERFORMANCE INDICATORS Indicator (including CSI) Baseline situation Target Annual average GDP growth rate 2.6% in 2014 More than 5% in 2018 Incidence of poverty 69.3% in % in 2018 Corruption Perception Index 19 in or more in 2018 PI-26: Scope, nature and follow-up of external audit PEFA - PI 1 (actual expenditure compared to the initial budget) PI-19. Competition, value for money and controls in procurement Tax revenues relative to GDP D in 2013 C in 2018 C in 2013 B in 2018 D+ in 2013 C+ in % of GDP in PIB in 2013 More than 13% in 2018 Component I: STRENGTHENING OF CONTROL AND ANTI-CORRUPTION EFFORT 1.1 Strengthening of budget management and internal oversight institutions Manual updated and The DGCF Finance oversight decentralized Financial procedures manual is procedures manual illadapted Control (FC) services in revised five key ministries The IGF procedures manual is harmonised with WAEMU directives The IGF procedures manual is harmonised with WAEMU Directives IGF procedures manual harmonised and executives trained Accountants are trained in the functioning of the WAEMU State Accounting Plan (SAP) and the Single Treasury Account (STA) mechanism Procedures manual noncompliant with WAEMU directives WAEMU SAP and STA non-existent 1.2 Support the fight against corruption, impunity and strengthening of citizen oversight The Higher Anti-Corruption Inspectorate is operational The anticorruption tools are in place The statutory asset reporting framework is established The operation the Court of Auditors is improved The Higher Anti- Corruption Inspectorate is strengthened Establishment of the statutory framework for fighting organised crime, impunity and corruption The statutory asset reporting framework is established Strengthening of the status and capacity of the Court of Auditors No qualified staff, own premises and equipment Framework non-existent Framework non-existent Status non-compliant with WAEMU directives Limited number of staff and capacity building needs Manual ready in 2016, Financial Control (FC) services in five ministries and 37 controllers (including 15 women) trained in IGF is equipped, manual made WAEMU-compliant, 15 inspectors (including 4 women) trained in SAP and STA mechanism in place. Sixteen (16) accountants (including five women) trained Training of 10 ISLCC staff members (including three women) before 2018 Implementation of the anticorruption legal framework in 2017 The legal framework for the mandatory reporting of assets is prepared and adopted in 2016, then implemented from 2018 The revised Organic Law is enforced in The Court of Auditors is strengthened and operational Recruitment of local consultants, training of 34 staff members (including 10 women) in MEANS OF VERIFICATION MEF (DGP and DGB) data Report by Transparency International PEFA MEF and IMF data Data from MEF, DGCF and IGF, Quarterly project report UNDP report, Project progress report Court of Auditors reports RISKS/ MITIGATION MEASURES Risk 1: Risk 1: Worsening political situation and the attendant institutional instability. Mitigation: Strengthening of the measures being implemented by the current authorities to ensure proper control of social groups in the country through the on-going social consultation and national reconciliation. International community efforts for the coordination and support of security reforms. Risk 2: Lack of skilled human capacity by beneficiary structures to ensure the implementation of project activities Mitigation: Capacity building programmes provide for technical assistance (TA), training and provisions of procedures manuals Risk 3: On account of the fiduciary risk the timely conduct of audits and processing by PIUs remains a challenge. Mitigation: The CSP provides for capacity building through regular training of the staff of projects and ministries on the Bank's rules and procedures. In addition, given the fragile state of the country, close supervision might be considered, if need be. v

8 KEY ACTIVITIES Component 2: SUPPORT FOR RESOURCE MOBILISATION AND ECONOMIC RECOVERY 2.1 Improvement of Public Procurement Fiscal resource mobilisation strategy adopted DGCI has a multiyear strategy and a communication plan Strategy non-existent Strategic Plan adopted in 2016 / the population s awareness is raised concerning tax payment MEF data 2.1 Public procurement services are strengthened 2.1 Capacity building for public procurement actors Support Domestic Resource Mobilisation Low institutional capacity DGMP is equipped, 147 staff members (including 22 women) trained, 10 procurement audits performed by the ARMP in 2018 DGMP progress report Equipment of DGCI and staff training Land ownership and registration law is updated DGI equipped. Number of centres equipped and staff trained Secure access to registered land is strengthened Centres within the country are not equipped/ low HR capacities Code outdated and illadapted Bissau and five regions are equipped and 165 staff (30% of them women) are trained in 2017 Code updated and staff trained in its use in 2016 DGCI progress report Land Commission report 2.3 Support of Women s Entrepreneurship Promoting and supporting women's entrepreneurship Women's entrepreneurship development strategy is in place Women entrepreneurs with access to integrated services (training, legal and social protection services) Non-existent Non-existent Strategy prepared in 2016, incubators and assistance tools in place at the Chamber of Commerce in 2017 About beneficiaries per year between 2016 and 2019 Data from UN Women Components Component: Strengthening budget management and budget discipline: technical assistance, equipment and training: Higher Anti-Corruption Inspectorate, Directorate General of Financial Control, Court of Auditors/ Component II: Capacity building for domestic resource mobilisation Directorate General of Taxation, UN Women, AMAE, Women s CSOs, Chamber of Commerce Component III: Reform Coordination and Monitoring Support Total Project Cost RESOURCES UA 2.37 million UA 1.86 million UA 0.77 million UA 5 million vi

9 Project Implementation Schedule Years Activities/Month A M J J A S O N D O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D Conditions precedent to start-up Board presentation Grant effectiveness Installation of PIU staff Setting up of the PIU Preparation of procedures manual Project launch mission Equipment and supplies Preparation of bidding documents Launching of invitations for bids Award and signing of contracts Delivery of goods and installations Consultings Services Preparation of ToR and EOI Shortlisting Publication of requests for proposals (RFP) Delivery of consultant services DGCF+IGF Technical Assistance Implementation of DGCI Communication Plan Technical Assistance to Court of Auditors Tech. Assist. ARMP and DGMP Tech. Assist. Reform Coordination Unit (CCR) National consultants Training Local training Sub-regional training Study tours Management Operating expenses Mid-term review Monitoring and evaluation Reform Coordination Unit (CCR) meeting Annual accounts audit Final accounts audit vii

10 REPORT AND RECOMMENDATION OF THE MANAGEMENT TO THE BOARDS OF DIRECTORS ON THE PROPOSED GRANT TO GUINEA-BISSAU FOR THE ECONOMIC AND FINANCIAL GOVERNANCE STRENGTHENING SUPPORT PROJECT (PARGEF) Management submits the following Report and Recommendation on a proposed grant of UA 5 million to the Republic of Guinea-Bissau to finance the Economic and Financial Governance Strengthening Support Project (PARGEF) in Guinea-Bissau. I STRATEGIC THRUST AND RATIONALE 1.1. Project Linkages with Country Strategy and Objectives In 2011, Guinea-Bissau completed the preparation of its second National Poverty Reduction Strategy, DENARP II , through an open and inclusive process involving all development stakeholders. Based on this, Guinea-Bissau recently prepared a strategy document vision Terra Ranka, presented to the international community on March 25, 2015 at the donor roundtable for the country. This vision aims for a politically stable Guinea-Bissau through inclusive development and good governance. It is supported by an operational and strategic plan in which the promotion of good governance is a central pillar. Guinea-Bissau has also endorsed the principles of the New Deal for fragile States under the G7 + (see Annex VI). PRAGEF is consistent with the guidelines of the New Deal, in particular through the focus areas relating to the strengthening of justice, the State's capacity to generate and manage revenue and economic fundamentals. PARGEF is also in line with the policy statement of the newly elected Government which puts forward an action plan for achieving the results of NPRSP II. This project is particularly consistent with the second part of this plan, dubbed Contingency, which includes, among others, actions related to the creation of conditions necessary to improve governance (technical assistance). The third part labelled Development is under elaboration and will be presented at a donor round-table in the course of The Bank's Country Strategy Paper (CSP) is based on the first and third focus areas of NPRSP II and comprises two pillars ( Strengthen governance and the foundations of the State and Develop infrastructure that promotes inclusive growth ). The project, through its operations aimed at strengthening institutional capacity and mobilising internal resources of the State, is consistent with the guidelines of the first pillar of the CSP as well as those of the Bank s Strategy for , especially those relating to the strengthening of governance. It is also in line with the guidelines of the Governance Strategic Framework and Action Plan (GAP II) through the first pillar (Public Sector Management and Economic Management) and the third pillar (Investment and Business Climate). The project, through its Support for Women s Entrepreneurship component is linked to Pillar 2 on Women's Economic Empowerment of the Bank's Gender Strategy and the Bank's Strategy for Addressing Fragility and Building Resilience in Africa, and draws on the economic and sector works conducted by the Bank, including in particular the 2014 Gender Profile Rationale for Bank Intervention Economic and Social Context: Guinea-Bissau s economy remains fragile and vulnerable to external shocks. Indeed, the coup d état of April 2012 ended nine consecutive years of growth and the economic disruption that ensued caused GDP growth to drop from 5.3% in 2011 to - 1.5% in Although slightly positive, the growth rate of 0.9% recorded in 2013 concealed structural problems and endemic weaknesses related to the institutional capacity of the public 1

11 Quality of budgetary and financial management administration that have only worsened since the 2012 coup d état. In 2013, inflation stood at 0.6%, against the backdrop of sluggish domestic demand. In view of the rebound in demand, this rate is projected to increase to 2.6% in Fiscal balance recorded a deficit of 4.7% in GDP growth was estimated at 2 6% in 2014 and projected at 3.9% in 2015, based on the prospects of an upturn in cashew prices and the expected recovery in economic activity following the return to constitutional order. In the social sphere, there is a significant deterioration in all indicators. Indeed, the country has stagnated for more than 10 years in the last decile of the Human Development Index (HDI), with an index of 0.364, and ranked 177 th out of 187 countries in In 2010, over 70% of the population lived on less than USD 2 a day, and 30% on less than USD 1. In 2013, these figures were projected to soar, with absolute poverty affecting over 40% of the population Governance: Guinea-Bissau's performance in terms of governance and fighting corruption is very poor. According to Transparency International's 2013 Corruption Perceptions Index, the country is ranked 163 rd out of 177 countries. Impunity, military interference in politics, weak non-state actors and the absence of a real corruption and financial crime policy seem to underlie the proliferation of corruption. In addition, Guinea-Bissau's overall score in the Bank Group's Country Policy and Institutional Assessment (CPIA) for 2014 was 2.7 on 6, whereas the score on Indicator 12 (Transparency, Accountability and Corruption) was 2.2, highlighting the major constraints in this area It is clear from the above context analysis that the main challenge facing the country is to exit from the situation of fragility. Therefore, it is important to strengthen, among others, the rule of law and state institutions in order to mitigate institutional weaknesses. Regarding public finance management (PFM), the situation deteriorated drastically with the 2012 crisis. The 2013 PEFA report showed the various weaknesses of the system, especially in the area of fiscal credibility and internal and external oversight. Challenges remain concerning the transposition into national law of the six directives of the West African Economic and Monetary Union (WAEMU) on PFM. In 2010, the Government adopted a new Procurement Code that ensures greater transparency and efficiency, but the bodies set up to implement it (Procurement Regulatory Authority, Directorate General of Public Procurement, Central Procurement Agency) lack the required capacity. In this context, greater involvement of non- State actors provides an opportunity to build resilience Moreover, Guinea-Bissau needs to have the institutional capacity to mobilise more domestic resources to consolidate and deepen its achievements, guaranteeing economic recovery and emergence from the state of fragility. However, the tax base remains extremely small and the tax burden very limited; tax revenue accounted for only 7.5% of GDP in 2013, well below the WAEMU convergence criterion of 17%. This is largely due to the major challenges faced by financial services and which adversely affect their performance. As for the Directorate General of Contributions and Taxes, the main constraints are: (i) inadequate means of actions and misuse of human resources; (ii) ignorance of tax regulations and tax procedures; (iii) fraud and corruption; (iv) lack of IT resources and facilities for transport within the country; (v) limited number of taxpayers; and (vi) the need to revise the General Tax Code in line with the tax 2 Graph 1: Quality of budgetary & financial management and economic management performance GNB Economic Management Sources: CPIA 2013 Scores, AfDB

12 measures issued as part of the annual budget laws. In a context of weak budgetary and financial management and economic management performance (Graph 1), the limited tax base imposes significant limitations on the conduct of budgetary policy. This is the context that not only underpins, but forms the rationale for the Bank's involvement Lastly, the project is justified by the need to assist reform programmes through institutional support aimed at building the capacity of entities responsible for their implementation. PARGEF, which was appraised concurrently with the Emergency Fiscal Reform Support Programme (PUAREF), is an initiative intended to implement this recommendation, notably by supporting the alignment of the PFM legal framework with WAEMU directives and strengthening the entities responsible for the implementation and coordination of reform measures Aid Coordination The aid consultation and harmonisation process was initiated in April 2006 by a joint initiative of the Delegation of the European Commission and the United Nations Development Programme (UNDP), both of which established, in line with the Paris Declaration, a Guinea-Bissau Partners' Group open to all bilateral and multilateral donors. However, since the coup d état of 2012, thematic groups were abandoned pending the resumption of operations by PTFs with the return to constitutional order. Since then, there has been little progress in the reorganisation of the consultation process and ad-hoc mechanisms were put in place. Overall, aid coordination and monitoring mechanisms are still ineffective because of structural weaknesses in public administration. As part of the Bank's targeted support, the Ministry of the Economy and Finance (MEF) receives technical assistance in the mobilisation, coordination and monitoring of external aid, particularly through the establishment of a data base on externally financed projects Project activities were designed in coordination with other donors so as to take into account the various levels of intervention and ensure the effectiveness of development assistance. Public finance receives many forms of support from technical and financial partners (TFPs), including the European Union which supports payroll control and the World Bank which intervenes under the Public Finance Support Project aimed at building the capacity of the Directorate General of the Budget (DGB) in public resource management. The area of justice and the fight against impunity is supported by United Nations specialized agencies. TFP assistance in areas covered by the project is detailed in Technical Annex A3 of this appraisal report. Table 1.1 Summary table of the intervention of Technical and Financial Partners (TFPs) Name of Operation Area Amount TFP Targeted Support (PECA 2) Public Administration Reform Support Project (PARAP) Public Administration Capacity Building Support Project (PARCA) Economic Good Governance Project NPRSP M &E, MTEF, resource mobilisation strategy, coordination Public administration reform, payroll computerization (SIGRAP) Public Service (ENA), computerization of the expenditure chain, financial services Public finance governance (GFP), support to MEF, communication strategy. Reform Programmes USD 4.6 million EUR 6.5 million UA 6.5 million USD 1, 625,000 Budget Support Programme Budget support EUR 20 million EU AfDB EU AfDB World Bank Justice Support Project Access to Justice, Infrastructure, training N/A UNDP 3

13 II PROJECT DESCRIPTION The overall objective of the project is to help build corruption control and prevention capacity and create conditions conducive to the rapid recovery of the economy. The specific objectives are: (i) improving State efficiency, particularly by strengthening the fight against corruption and fiscal discipline; and (ii) supporting resource mobilisation and activities to support economic recovery. 2.1 Project Component The project has three components: (i) strengthening corruption control and prevention; (ii) supporting resource mobilisation and economic recovery; and (iii) supporting reform coordination and monitoring. Component 1 includes the following two sub-components: Strengthening internal oversight and treasury institutions; and Supporting the fight against corruption, impunity and strengthening citizen control. The subcomponents of the first component are closely related in that increased transparency and efficiency in public finance management helps channel public spending towards structuring investments that would create conditions conducive to rapid economic recovery. In addition, the activities of Component 2 will help promote the revival of economic activity and allow the State to increase the revenue pool that it could use to address the priority needs of the population. The following table provides their estimated cost and the list of sub-components: 4

14 Table 2.1: Project Components # Component Name Strengthening oversight and the fight against corruption Supporting Resource Mobilisation and Economic Recovery Supporting Reform Coordination and Monitoring Estimated Cost UA 2.37 million UA 1.86 million UA 0.77 million Component Description 1.1 Strengthening Internal Oversight and the Treasury Strengthening of the Directorate General of Financial Control; technical assistance (TA) for revision of the procedures manual, decentralization of financial control (FC) services in 5 key ministries, equipment, training Strengthening the General Inspectorate of Finance (IGF): TA for the development of WAEMU-compliant procedures manual, institutional support Securing of revenue by taking the necessary steps to facilitate the Treasury Single Account system and the State's management accountability: establishment of the State Accounting Plan (PCE), training of accountants, equipment, study on interconnection with financial services 1.2 Support for the fight against corruption and impunity, and enhancement of citizen oversight Support for the establishment of a functional mechanism for cooperation between PNA/ Ethics Commission, the Court of Auditors, the investigative teams on (economic and blood) crimes and the Higher Anti-Corruption Inspectorate Preparation of a study on corruption and helping the country to develop a country strategy Development of a legal framework for mandatory asset reporting by certain state officials and a public anonymous whistleblowing system Support for the implementation of legislative reform and the establishment of structures, mechanisms, and international standards in the fight against organised crime, impunity and corruption Institutional Support for the Court of Auditors 2.1 Improvement of public procurement efficiency DGMP capacity building: TA for the development of procedure manuals, conduct of study to better redefine the role of actors, equipment ARMP capacity building: equipment, training, procurement audits Training of contracting authorities and non-state actors 2.2 Support for the mobilisation of domestic resources Support for the development and adoption of a DGCI multi-year strategic plan Technical assistance for DGCI institutional building Building of domestic tax collection capacity in Bissau and the regions Support for the establishment of a communication plan and development of taxpayer compliance Support for the revision of the Land Law to secure access to land and ensure control of the land registration system 2.3 Support for Women s Entrepreneurship Support for the establishment of a women's entrepreneurship promotion mechanism Capacity building for the Reform Coordination Unit (RCU) Project Management Support Project Audit Technical Annex B2 of this report provides the detailed cost of component activities and a comprehensive list of works, goods and services to be procured under the project. In addition, Technical Annex C4 presents a detailed description of the project components. 5

15 2.2 Technical Solutions Adopted and Alternatives Explored In preparing the project, we were faced with several options concerning, in particular, the anchoring of the project, the number of entities to be supported, the scale of the investment to be made and the management of constraints relating to the entities that would be selected. In view of these problems, we had to make trade-offs in order to steer the project objectives towards targets compatible with the available funding and take into account synergies with the interventions of other TFPs. The effectiveness sought by the multi-sourced support stems from the unwavering concern to boost state revenue, streamline public spending and promote transparency. Table 2 below analyses the alternatives considered and the reasons for their rejection. Alternative Solution Decentralization of SIGFIP Improvement of the customs revenue collection framework Project management Table 2.2 Alternatives Considered and Reasons for Rejection Brief Description Reason for Rejection The decentralization of SIGFIP was to be done concurrently with the creation of the post of financial controller in four priority ministries Establishment of an interface between ASYCUDA and SIGFIP; linking of border customs clearance centres to the ASYCUDA++ system; and preparation of a customs procedures manual It was envisaged that a Project Implementation Unit (PIU) would be established at the Ministry of Economy and Finance (MEF), which would ultimately ensure the management of all PTF capacity building projects PARCA 1 is a Bank-financed project that seeks to support the extension of SIGFIP. The public finance (PF) support from the World Bank (PFS) also provides for upgrade of the IT system and training at the Ministry of Finance (MINFI). It is important to ensure that SIGFIP is properly mastered at central level before considering its decentralization. The sites of the ministries concerned are far from one another and deployment of SIGFIP in these ministries has implications in terms of telecommunications systems that are not yet fully under control (security and cost). The customs service has already received multi-sourced support: the Bank and ECOWAS for the establishment of ASYCUDA++, Portugal for the translation of WAEMU texts, technical assistance from France, the World Bank and Africa Regional Technical Assistance Centres (AFRITAC). These PTF's plan notably to recruit customs procedures experts for the implementation of the medium-term action plan and the training. To avoid overlap, it is advisable to wait for the outcomes of this support before considering any Bank intervention. This solution was abandoned due to technical and legal difficulties involved in setting up such a PIU in the context of Guinea-Bissau where aid coordination is still in its infancy and the labour market lacks qualified executives who could be maintained in a Unit on a permanent basis. Conversely, with donor support, it is planned to establish a Project Implementation Unit; Furthermore, to comply with the Paris Declaration on aid effectiveness, preference was given to the use of a permanent structure for project management, in coordination with the World 2.3 Project Type It is an institutional support project assisted by a grant from the Transition Support Facility (TSF). This type of operation was chosen because of its relevance to the implementation of capacity building activities in government agencies with limited experience in project execution. 2.4 Project Cost and Financing Arrangements The total project cost, excluding custom duties and taxes, is estimated at UA 5.0 million (or about CFAF 3.91 billion at the exchange rate of February 2015), of which UA 3.69 million (73.7%) in foreign exchange and UA 1.31 million (26.3%) in local currency. These costs include a 2% provision for physical contingencies and 2% per year for price escalation for both foreign exchange and local currency. The table of detailed costs is provided in Technical Annex B2 to this report. The following is a summary table of the overall project cost by component: 1 Public Administration Capacity Building Support Project 6

16 Table 2.3 Estimated Cost by Component [in UA million] Components/Sub-Components Costs in CFAF million Costs in UA million % F.E. F.E. L.C. Total F.E. L.C. Total 1. Strengthening of oversight and the fight against corruption % 1.1 Strengthening of internal oversight and the treasury % 1.2 Support for the fight against corruption, impunity and enhancement of citizen oversight % 2. Support for resource mobilisation and economic recovery assistance % 2.1 Improvement of public procurement efficiency % 2.2 Support for domestic resource mobilisation % 2.3 Support for women s entrepreneurship % 3. Support for reform coordination and monitoring % 3.1 Capacity building for the Reform Coordination Unit % 3.2 Support for Project Management % TOTAL BASE COST % Provision for price escalation (2%) % Provision for physical contingencies (3%) % TOTAL PROJECT COST % Note: The exchange rates used are indicated in the introduction of the report (page (i)) The TSF supports all foreign exchange and local currency costs following the Eligible Expenditure Policy. Indeed, on the basis of the financial parameter analysis, Guinea-Bissau is considered eligible in view of the fact that, despite the progress made in the management of public finances, the country's financial situation is still fragile (cf. Appendix 3). 7

17 Table 2.4 Project Costs by Expenditure Category [in UA million] EXPENDITURE CATEGORIES F.E. L.C. Total % F.E. WORKS % GOODS % SERVICES % TRAINING % OPERATION % TOTAL BASE COST % Physical contingencies % Price escalation % TOTAL COST OF COMPONENT A % Table 2 Expenditure Schedule by Component [amounts in UA million] COMPONENTS Total 1. Strengthening of oversight and the fight against corruption Support for resource mobilisation and economic recovery assistance Support for reform coordination and monitoring TOTAL COST Table 2.6 Schedule of Expenditure by Category [amounts in UA million] EXPENDITURE CATEGORIES Total WORKS GOODS SERVICES TRAINING OPERATION TOTAL Project Area and Beneficiaries The project area is the Republic of Guinea-Bissau as a whole. Indeed, PARGEF activities will concern public administration services in Bissau, as well as DGCI regional offices in Bafata, Gabu, Cacheu, Oio and Buba, which are responsible for tax revenue collection within the country. The main project beneficiaries are: (i) the State of Guinea-Bissau through institutional capacity building for the entities responsible for economic and financial management and increased public resources; (ii) enterprises, particularly SMEs and women's microenterprises, which will operate in a more conducive institutional environment. Improvement in the quality of services consequent on the project will benefit, in general, the people of Guinea-Bissau as a whole in that they will be the primary beneficiaries of the jobs created, notably through improved public sector efficiency and secure access to land resources. 2.6 Participatory Approach for Project Identification, Design and Implementation The project preparation was characterized by broad consultation of stakeholders of the public sector (economic and financial services), private sector, Guinea-Bissau's civil society and technical and financial partners. These consultations continued during the appraisal mission. The approach as well as the use of the diagnostic studies on public finances management (PEFA and CEM 2 ), the Bank's economic and sector works and the development of domestic public 2 Country Economic Memorandum, prepared by the World Bank in

18 resources, including the study on the evaluation of the tax system s organisation, conducted in 2014 with the support of UNDP, enabled the appraisal team to have a better grasp of the constraints and challenges faced by the project s beneficiary entities and to better address their capacity building needs in the design and formulation of project components. In addition, a joint consultation framework will be set up for budget support (PUAREF) and this project. This will include civil society representatives. 2.7 Consideration of the Bank Group's Experience and Lessons Learned from the Project Design The Bank s active portfolio on March 15 th 2015 comprises five (5) projects under execution for a total approved amount of UA million. The overall rating under the latest review undertaking in 2014 was 1.8 (on a 0 to 3 scale), that is an overall performance not deemed very satisfactory. Details on the portfolio are presented in Annex 2. To date, the Bank has approved two institutional support projects that have been completed 3. The Project Completion Report (PCR) on the Economic Management Capacity Building Project (PRCGE), which ended in December 2010 with an overall score of 2 out of 4, provides a number of lessons to be learned from the implementation of this project, including: (i) the need to promote better complementarity of the projects being implemented by various PTFs at the time of project design and to ensure coordinated project implementation; (ii) ensure the establishment of a suitable project monitoring and evaluation mechanism; (iii) ensure greater ownership of project results, particularly by assuming the recurrent costs; and (iv) ensure the availability of skills and capacities at national level In addition to the projects already completed, the Bank has financed two other on-going capacity building projects: (i) the Economic Development and Aid Coordination Support Project (PECA II), which is a support operation targeting Pillar III of the TSF, co-financed by UNDP and was to be completed by end-2015; and (ii) the Public Administration Capacity Building Support Project (PARCA). PECA II supports the monitoring and evaluation of NPRSP, preparation of the overall MTEF and two sector-based MTEFs, as well as preparation of the Resource Mobilisation and Aid Coordination Strategy. PARCA aims to raise the level of administrative managers, to support the computerization of budget preparation and execution as well as provide technical assistance to financial authorities. The PARGEF appraisal team not only took into account the lessons learned from completed projects, but also held discussions with the implementation units of PARCA and PECA in order to include in this project s design the experience gained from implementation of the two operations Based on the lessons learned from previous operations, the new institutional mechanism provided for enough innovation to improve the effectiveness of project implementation, especially with the empowerment of a permanent structure (the Reform Coordination Unit) for project management, while ensuring the implementation of technical assistance to support the implementation of project components. 3 Institutional Support Project at the Ministry of Planning approved in August 1989 (ADF loan of UA1.97 million and ADF grant of UA 3.8 million) and the Economic Management Capacity Building Project (PRCGE) approved in 2005 (ADF grant 1.35 million). 9

19 Table 2.7 Lessons learned from previous Bank operations in the country Key Lessons The need to be realistic in the choice of type and number of activities (selectivity depending on the objectives, limited number of frameworks, feasibility of the proposed support, etc.) to avoid overburdening the institutions, already constrained by their very limited project implementation capabilities. The need to strengthen coordination between PTFs and the Government to support and ensure synergy between their respective operations in a fragile context. The need to closely link capacity building operations to the Bank s Budget Support Programme to ensure synergy between these two types of operation and complementarity with the Bank's institutional support in Guinea-Bissau. Taken into Account in PARGEF The Government and the Bank reached a consensus on the need to be realistic in the choice of components and conditions, particularly the formulation of conditions precedent to first disbursement. TFPs in Guinea-Bissau worked in close collaboration in formulating the project and also included capacity building for the internal system for the coordination and monitoring-evaluation of projects and programmes. The planned capacity building operation (PARGEF), intended as a response to the weak capacity, is a catalyst for reform implementation. Also worth noting is the existence of other institutional support projects, including the Bank-financed targeted support and PARCA programmes and the planned support from other PTFs. 2.8 Key Performance Indicators Progress towards achieving the project s key results for the beneficiaries will be measured using the logical framework based on indicative results. The executing agency will be responsible for collecting and analysing data to produce indicators for measuring the said results. Performance indicators (progress being achieved from 2015 to 2019) are summarized in the following table: Output Indicators Box 1 Key Performance Indicators The DGCF procedures manual is updated in 2016 and executives are trained in Financial Control (FC) is decentralized in 5 ministries and 37 controllers (including 15 women) trained in The IGF is equipped, has a WAEMU compliant manual, 15 inspectors (including 4 women) trained in The DGMP and ARMP are equipped, 147 staff members (including 22 women) trained, 10 contract audit performed by the ARMP in 2018 Organic Law of the Court of Auditors revised in 2016 and implemented. The Court of Auditors is strengthened and operational Regional tax collection centres are strengthened and equipped in 2016, 165 DGCI staff members (30% of them women) are trained in Entrepreneurship development strategy formulated in 2016, incubators and support tools in place at the Chamber of Commerce in 2017 Number of microenterprises owned by women entrepreneurs in rural areas and the informal sector, high-quality integrated services (training, legal and social protection services) The land law is updated in 2016 and 30 staff members (including 8 women) are trained in 2016 for its use Outcome Indicators Guinea-Bissau moves from the 163 rd to the 150 th position out of 177 countries in 2018 in the ranking of the Corruption Perceptions Index Guinea-Bissau's score on PEFA PI-1 relating to aggregate expenditure out-turn compared to original approved budget moves from C in 2013 to B in 2018 The tax burden should go from 7.5% in 2013 to 13% in 2018 The score on PEFA PI-26 relating to the scope, nature and follow-up of external audit should rise from C in 2013 to B

20 III PROJECT FEASIBILITY 3.1 Economic and Financial Performance Given that this is an institutional support project, analysis in terms of rate of return does not apply. However, it should be noted that by strengthening the country's domestic resource mobilisation capacity, intensifying the fight against corruption and economic crimes, the project will help increase the State's tax revenue, allowing Guinea-Bissau to sustainably enhance economic and financial performance of the State and public procurement beneficiaries Environmental and Social Impact The works to be performed under the project are light development and finishing works on existing buildings. Therefore, the project will have no adverse environmental impacts. No safeguard measure is therefore required for this project which is classified as Category Climate Change Project activities aimed at strengthening human and institutional capabilities have no adverse impacts on the environment, nor on the climate change process Gender In government services, women account for 25% of the staff, but hold less than 2% of decision-making positions. It is planned that TSF resources will be used to acquire the services of an international consultant in social development who will be tasked with preparing the project s training programme. In designing this programme, special attention will be given to the mainstreaming of gender into the proposed activities. Therefore, PARGEF will ensure that in the planned training, women are given a more substantial role and that the executing agency gives equally skilled female candidates preference in the selection of experts for the project team. Moreover, the support that will be provided to women s entrepreneurship under PARGEF will enable women to take advantage of the conditions conducive to the creation of new job opportunities, and that will positively impact their lives. Thus, between 2016 and 2019, about to women entrepreneurs will benefit annually from high-quality integrated services (training, legal and social protection) and appropriate supervision Social PARGEF will have a positive impact on social indicators and poverty. First of all, in the face of a difficult socio-economic context (the crises of 2008, 2009 and 2011, political instability, scarcity of budget support inflows, etc.), the implementation of project activities should help increase the delivery of essential public services, ease their accessibility and improve their quality, by enhancing the mobilisation of public resources and ensuring their efficient use. These changes would lead to greater use of own resources for public investment financing. Also, the revival of growth and job creation will have a positive impact on social indicators. Indeed, in the social sphere, given that the share of social spending in the budget increased from 17.1% of GDP in 2010 to 22% in 2014, the decentralization of internal oversight and the increased tax revenue to be brought about by PARGEF will improve budget implementation and enable the allocation of more substantial resources to priority sectors such as health and education, as well as facilitate access to social services. In addition, support for SMEs and training in the field of women's 11

21 entrepreneurship will enable women to enjoy conducive conditions for the creation of new job opportunities which will positively influence their lives Generally, reduced corruption in the country should, in the long run, have a positive impact on political stability, insofar as political and institutional disturbances are highly correlated with the corruption levels (Graph 1). Also, PARGEF should have an impact on financial services. Indeed, the establishment of an administrative or budgetary process without provision for oversight and penalties cannot have the desired effect. In this regard, PARGEF links the work performed regarding economic management to efficiency, given that it will strengthen the justice-related institutions required for the proper functioning of public and private economic institutions. Socially, PARGEF will help fight against a scourge that has been identified as a stumbling block to development, especially among women as highlighted in Guinea-Bissau s Country Gender Profile for Forced Resettlement The project will entail no population displacement. IV IMPLEMENTATION 4.1. Implementation Arrangements Institutional Arrangements: The project s institutional anchor is the Ministry of the Economy and Finance (MEF). The Reform Coordination Unit (RCU), attached to the Office of the Minister of the Economy and Finance will be responsible for the coordination of PARGEF. The Project Implementation Unit (PIU), established under the supervisory authority of the RCU, will be responsible for implementing the planned activities of governance and institutional capacity building support projects, including PARGEF, and the World Bank-funded institutional support project. The Unit comprises a project manager, a procurement officer, a training expert and a monitoring and evaluation specialist, an administrative and financial officer (AFO), a driver and a messenger. It will have the necessary material resources and will be strengthened according to the projects under its responsibility. The PIU will, among other project management tasks, be responsible for the administrative, accounting and financial management of projects and will produce summary annual financial statements and organise audits. A project Technical Coordination Committee (TCC) will be set-up, presided by the project coordinator and comprising the project team as well as the focal points of the beneficiary structures. It will meet at least once every two months to take stock of activities execution and coordinate actions within beneficiary structures. A detailed description of execution modalities are presented in the technical annexe B Procurement: The procurement of goods, works and services financed by the Bank will be done in accordance with the Bank rules of procedure for the procurement of goods and works, edited in 2008 and revised in July 2012, or the Bank s rules and procedures for the use of consultants, edited in 2008 and revised in July 2012 as the case may be, using appropriate Bank bidding documents. The procedure for procurement of works, goods and services financed by the Bank, the PIU resources and capacities and the procurement plan are presented in Annex B5. The Bank will cooperate with UNDP to support justice and the anti-corruption effort, and with UN Women to support the establishment of a women's entrepreneurship promotion mechanism. This cooperation will be based on delegated project management agreements. 12

22 Disbursement: Disbursements are subject to Bank disbursement procedures. The following methods will be used: (i) the special account method for the disbursement of operating costs, field missions and training activities; (ii) direct payment method for the disbursement of contracts for the procurement of goods or services and works; (iii) the reimbursement method will be used for eligible expenditure pre-financed with prior Bank agreement For the special account method, a special account will be opened with a local commercial bank acceptable to the Bank to receive the grant resources. The account's transactions will jointly signed by the PIU Coordinator and the Project Accountant (bearing in mind that each project funded by a partner will hire an accountant exclusively for itself). The administrative and financial officer (RAF) will keep the cheque books and will endorse the stump of each cheque issued. The opening of the special account to receive the Grant resources will be a condition precedent to first disbursement Financial Management: The financial management system of the executing agency of the above-mentioned operation was reviewed, leading to the conclusion that the system does not provide any guarantee that funds provided by the Bank will be used properly, nor that reporting and accountability will be satisfactory. Indeed, the project executing agency has not yet been set up and the structures of the line Ministry designated for its anchoring are still being put in place. It is a new Ministry established by the new Government that emerged from the elections held in April and May The Ministry is still being organised and the documents and tools relating to its functioning (organisation chart, powers and responsibilities of the various technical directorates, etc.) are still awaited. Also, PEFA 2013 notes significant weaknesses in Guinea- Bissau's public finance management system which provides no mechanism for the management and monitoring of donor-financed projects and programmes. A parallel financial management system in line with international standards and Bank reporting and accountability requirements is essential for implementing this project. An autonomous accounting system will be set up, centred on (i) an integrated management software configured according to private-type commitment accounting rules and according to the standards of the West African Accounting System (SYSCOA), tailored to project management; and (ii) an administrative, accounting and financial procedures manual with a clear separation of tasks Audit: The accounts will be audited by an independent private external audit firm. This firm will be recruited on the basis of terms of reference previously agreed upon with the Bank and according to Bank rules and procedures, no later than six (06) months following the entry into force of the financing agreement. His/her contract will be for a one-year period, renewable on the basis of the performance quality and for a period not exceeding three years. These reports, prepared according to the International Standards on Auditing (ISA), will be forwarded to the Bank for approval no later than six months after the audited period. 4.2 Monitoring The physical implementation of the project spans a 48-month period, from July 2015 to June This schedule is deemed reasonable and takes into account the assistance from the UNDP Office in Bissau designed to accelerate the implementation of the Anti-Corruption and Impunity Support component, as well as the support from UN Women for implementation of the project component that aims to provide Support for the establishment of a women's entrepreneurship promotion mechanism. In addition, the use of project funds for the recruitment of a procurement expert and a monitoring and evaluation specialist to support the executing agency is expected to reduce procurement time and ensure proper monitoring of the implementation of project components. The procurement of a monitoring and evaluation 13

23 software and the training of the Reform Coordination Unit (RCU) staff are also planned. The PIU will ensure the establishment and management of the project monitoring and evaluation system, including the selection of relevant and easily quantifiable performance indicators, the collection of baseline data as well as the measurement of the project s progress towards achieving the impacts and interim targets The project team will be responsible for monitoring the implementation of the project on the basis of the logical framework indicators. Once the Grant Protocol Agreement becomes effective, a launch mission will be organised to train the project implementation staff in the use of Bank procedures. Supervision missions will be organised at least twice a year. A mid-term project review mission is also planned, to be scheduled before the end of the second year of implementation. In addition, quarterly and annual progress reports will be prepared and forwarded to the Bank. The AfDB Senegal Regional Office (SNFO) will play an important leadership role in supporting the executing agency, in supervision missions and in monitoring the implementation of relevant recommendations The major indicative stages are presented in the table below: Table 4.1 Monitoring milestones and feedback loop Schedule Milestones Monitoring Activities / Feedback Loop June -15 Board approval of the grant, Notification to the Government July-15 Grant effectiveness Signing of the grant agreement and fulfilment of conditions precedent to first disbursement July -15 Grant effectiveness and project launch Training of project officers July-15 General Procurement Note (GPN) and Special Procurement Note (SPN) UNDB; national and regional newspapers Sept.-15 Fulfilment of conditions precedent to the first disbursement Opening of the special account, establishment and training of the members of the Project Team July-15 Launch of the first activities Preparation of the work and training programmes Sept-15 Preparation and launch of bid invitations Preparation by beneficiary structures and DGED Dec.-15 Bid assessment and contract awards Evaluation by DGED and approval by the authorities May-16 Implementation of development works By the contractors, verified by the project team and the focal points Implementation of other project activities Quarterly and annual progress reports Supervision missions and mid-term review mission (June 2017) Mission reports Annual project audits Project completion July-19 Project completion Project completion 4.3. Governance Project implementation may encounter governance problems (fraud, corruption, misuse of funds, ineligible expenditure, etc.), mainly in procurement and financial management process. The procurement-related risk will be mitigated by: the Bank's oversight over the procurement process exercised through the issue of no-objection notification in respect of bid invitation documents and bid proposals, as well as through the supervision and audit of project procurement. Regarding the financial governance of the project, the executing agency will maintain separate accounts for the project, which will enable identification of expenditure by component, category and source of funding. Project accounts will be audited annually by a firm hired for this purpose. Financial reports and audit reports will be submitted to the TSF within six months of the end of the accounting period. 14

24 4.4. Sustainability The sustainability of the project impacts will be ensured firstly by the commitment and political will of the authorities by assuming ownership of the project objectives. Indeed, the project funding was requested by the Government. The beneficiary entities were actively involved in the project preparation and appraisal. Project activities are aligned with on-going economic and financial reforms and are supported, among others, by the International Monetary Fund (IMF), the World Bank and the EU. In addition, the establishment and implementation of training and development programmes for the benefit of these entities as well as the transfer of specialized knowledge through the training provided by high-level experts, constitute a guarantee of sustainability of the expected impacts of institutional capacity building in the country. Lastly, thanks to the greater mobilisation of tax revenue and the increased stringency in the management of public expenditure, the Government will gradually meet with recurrent expenses by allocating the necessary resources in the budget Risk Management The project will be implemented in a fragile State. The overall risk (implementation, outcomes, and impacts) is high. The table below gives an idea of the residual risks (exclusive of risks related to governance and sustainability) and mitigation. These risks should be weighed against the risk of not providing assistance to the country in this difficult situation. Table 4.2 Risks and mitigation measures Risks Mitigation measures Level 1. The deteriorating political situation and its attendant institutional instability 2. The lack of skilled human capacity by beneficiary entities for ensuring the implementation of the project activities 3. Fiduciary risk: The weakness of internal oversight resources and procurement and PFM capacities increases fiduciary risks, as well as the risks related to conflict of interest and corruption 4.6. Knowledge Building Strengthening of the measures being implemented by the current authorities (extension of banking services, gradual integration of soldiers in payroll, setting up of a social fund, etc.) for the proper control of social groups in the country through the on-going social dialogue and national reconciliation. Coordination support by the international community in respect of security reforms. Capacity building programmes provide for technical assistance, training and provision of procedure manuals. The measures for mitigating these risks are described in Section 4.1 and in the technical annexes. Thus, the project funds will be managed in a transparent manner by implementing the Bank's rules and procedures on financial management and procurement. The risk will also be mitigated through Bank monitoring and supervision in close collaboration with the other PTFs. The types of knowledge that should emerge from the project implementation include: (i) best practices on internal budget oversight; (ii) the harmonisation of national legislation with WAEMU directives on external oversight, with as upshot jurisdictional control and effective reporting of actual account by the Court of Auditors; (iii) the modernisation of the tax system, the legal framework for business and investment promotion in fragile states. The practices will be disseminated within the administration by circulating the documents produced and procedure manuals, as well as through the training sessions that will be organised as part of the project. Knowledge will be acquired through processes involving the production of the following reports: technical assistants reports, activity reports prepared by the executing agency, supervision reports, project completion report and the discussions and working papers of the Department. The knowledge acquired and lessons learned will be disseminated in the Department, the Bank and in the host country by the Bank, through seminars and OPEV reports. Moderate Average Average 15

25 V LEGAL FRAMEWORK 5.1. Legal Instrument The proposed financial instrument is a protocol agreement for a grant of UA 5.0 million from the Transition Support Facility (TSF) to the Republic of Guinea-Bissau Conditions Associated with the Intervention of the Bank and the Fund Implementation conditions: Effectiveness of the Grant Protocol Agreement is conditional on the signing of the protocol agreement between the TSF and the Republic of Guinea-Bissau Conditions precedent to the first disbursement: In addition to effectiveness of the Grant Agreement, the Bank and the Fund will subject the first disbursement of the grant to the fulfilment by the Donee, to the satisfaction of the Bank and the Fund, of the following conditions: Provide evidence of opening of a special bank account in a commercial bank acceptable to the Fund, to receive payments from the Transition Support Facility (TSF); Provide evidence of the recruitment of the Coordinator and the Administrative and Finance Officer; and Provide evidence of assignment of functional premises to the Project Implementation Unit (PIU) Other conditions: In addition the conditions for effectiveness and the conditions precedent to first disbursement, the following conditions must be met within six (6) months of the first disbursement: Establishment of a computerized management system (accounting and financial management software) and training of staff in its use; and Preparation of an administrative, accounting and financial procedures manual and training of project staff in its use. 5.3 Compliance with Bank Policies This project complies with all applicable Bank policies. VI RECOMMANDATION Management recommends that the Boards of Directors approve the proposed grant of UA 5.0 million to the Republic of Guinea-Bissau for the purpose and under the conditions set out in this report. 16

26 Annex 1 Comparative Socio-Economic Indicators of the Country Year Guinea- Bissau Africa Developing Countries Developed Countries Basic Indicators Area ( '000 Km²) Total Population (millions) , ,9 6,0 1,3 Urban Population (% of Total) ,0 39,9 47,6 78,7 Population Density (per Km²) ,3 37,8 73,3 24,3 GNI per Capita (US $) Labor Force Participation - Total (% ) ,4 66,1 67,7 72,3 Labor Force Participation - Female (% ) ,0 42,8 52,9 65,1 Gender -Related Development Index Value ,381 0,801 0,506 0,792 Human Develop. Index (Rank among 187 countries) Popul. Living Below $ 1.25 a Day (% of Population) ,9 39,6 17,0... Demographic Indicators Population Growth Rate - Total (% ) ,4 2,5 1,3 0,4 Population Growth Rate - Urban (% ) ,9 3,4 2,5 0,7 Population < 15 years (% ) ,3 40,8 28,2 17,0 Population >= 65 years (% ) ,9 3,5 6,3 16,3 Dependency Ratio (% ) ,3 62,4 54,3 50,4 Sex Ratio (per 100 female) ,9 100,4 107,7 105,4 Female Population years (% of total population) ,0 24,0 26,0 23,0 Life Expectancy at Birth - Total (years) ,5 59,6 69,2 79,3 Life Expectancy at Birth - Female (years) ,1 60,7 71,2 82,3 Crude Birth Rate (per 1,000) ,1 34,4 20,9 11,4 Crude Death Rate (per 1,000) ,4 10,2 7,7 9,2 Infant Mortality Rate (per 1,000) ,9 56,7 36,8 5,1 Child Mortality Rate (per 1,000) ,9 84,0 50,2 6,1 Total Fertility Rate (per woman) ,9 4,6 2,6 1,7 Maternal Mortality Rate (per 100,000) ,0 411,5 230,0 17,0 Women Using Contraception (% ) ,3 34,9 62, Guinea-Bissau Africa Population Growth Rate (%) 3,0 2,5 2,0 1,5 1,0 0,5 0, GNI Per Capita US $ Guinea-Bissau Africa 2014 Health & Nutrition Indicators Physicians (per 100,000 people) ,0 46,9 118,1 308,0 Nurses (per 100,000 people)* ,5 133,4 202,9 857,4 Births attended by Trained Health Personnel (% ) ,0 50,6 67,7... Access to Safe Water (% of Population) ,6 67,2 87,2 99,2 Healthy life expectancy at birth (years) ,0 51, Access to Sanitation (% of Population) ,7 38,8 56,9 96,2 Percent. of Adults (aged 15-49) Living with HIV/AIDS ,7 3,7 1,2... Incidence of Tuberculosis (per 100,000) ,0 246,0 149,0 22,0 Child Immunization Against Tuberculosis (% ) ,0 84,3 90,0... Child Immunization Against Measles (% ) ,0 76,0 82,7 93,9 Underweight Children (% of children under 5 years) ,1 20,9 17,0 0,9 Daily Calorie Supply per Capita Public Expenditure on Health (as % of GDP) ,1 2,7 3,1 7, Life Expectancy at Birth (years) Guinea-Bissau Africa Education Indicators Gross Enrolment Ratio (% ) Primary School - Total ,2 106,3 109,4 101,3 Primary School - Female ,3 102,6 107,6 101,1 Secondary School - Total ,5 54,3 69,0 100,2 Secondary School - Female ,6 51,4 67,7 99,9 Primary School Female Teaching Staff (% of Total) ,8 45,1 58,1 81,6 Adult literacy Rate - Total (% ) ,7 61,9 80,4 99,2 Adult literacy Rate - Male (% ) ,8 70,2 85,9 99,3 Adult literacy Rate - Female (% ) ,9 53,5 75,2 99,0 Percentage of GDP Spent on Education ,3 4,3 5,5 Environmental Indicators Land Use (Arable Land as % of Total Land Area) ,7 8,8 11,8 9,2 Agricultural Land (as % of land area) ,6 43,4 43,4 28,9 Forest (As % of Land Area) ,2 22,1 28,3 34,9 Per Capita CO2 Emissions (metric tons) ,3 1,1 3,0 11, Infant Mortality Rate ( Per 1000 ) Guinea-Bissau Africa Sources : AfDB Statistics Department Databases; World Bank: World Development Indicators; last update : UNAIDS; UNSD; WHO, UNICEF, UNDP; Country Reports. Note : n.a. : Not Applicable ; : Data Not Available. juin 2015 I

27 Annex 2 Status of AfDB Portfolio In 2014, the overall score of the portfolio assessment was 1.8 (on a scale of 0 to 3), that is, a performance deemed unsatisfactory and lower than the score awarded at the end of the last portfolio review in 2010 (2.15). The political crisis that led to the suspension of disbursements adversely impacted the portfolio performance in Guinea-Bissau. Due to the suspension, on-going projects could not be supervised regularly and activities were put on hold. The average age of operations increased from 3.4 years in 2012 to 5 years in March The Bank s active portfolio in Guinea-Bissau comprises an operation ranked in the aged projects category, namely the Education Project III. This project is also considered potentially problematic (PP). Sector / Operation 1 Administrative Capacity Building Project (PARCA) Table of AfDB Portfolio in the Country as at 15 March 2015 Source Approval date Approved amount (UA m) Disb. amount (UA m) Disb. rate (%) ADF 15-Jul Education III Project ADF 2- Jul Institutional Capacity Building Programme (PECA II) 4 PRESAR Results Capitalization, Optimization and Dissemination Support Project (USD ) Closing date 31-Dec Dec.-15 NTF 2-Jul Dec.-15 FSS 9-Dec FFCSS 21-Dec Jun Dec Technical support for PRESAR in the area of climate change and development of FFCSS 21-Dec renewable energy (USD USD) TOTAL Dec.-15 II

28 Annex 3 Reasons for Requesting a Waiver Allowing Bank Financing of the Full Project Cost A. Introduction 1. A. Introduction 1. The main objective of the project is to strengthen institutional resilience by improving budget discipline, combating financial crimes, mobilising domestic resources and supporting the revival of economic activity. This objective is in line with the Second National Poverty Reduction Strategy Paper (NPRSP II) and particularly its strategic focus areas relating to (i) strengthening of the rule of law and state institutions; (ii) establishment of a stable and stimulating macroeconomic environment. 2. However, given the state of fragility that has prevailed in the country since independence, the programme is also in line with the principles of the New Deal for fragile states as set forth in the G7 +. Led by 19 States that are said to be fragile and/or in conflict, the New Deal establishes the main objectives of consolidating peace and strengthening the State as proposed by the countries themselves. It focuses on new ways of getting committed and identifies commitments for strengthening mutual trust. In this context, the Member States take ownership of the actions by committing themselves to undertaking reforms to consolidate peace and strengthen the State, including through: (i) strengthening the security of people; (ii) establishing inclusive political agreements; (iii) strengthening justice, (iv) improving the State's capacity to generate and manage revenue; and (v) strengthening economic fundamentals. 3. Indeed, the Bank's analyses highlight the fact that Guinea-Bissau is plagued by many vectors of fragility, giving it the characteristics of a post-conflict country, hence: the need to reconstruct the State, provide basic infrastructure, reform the army and the justice system and lay the foundations for inclusive and sustainable growth. As a result of these vectors, the country recently drifted into a difficult socio-economic and political situation in the wake of the coup d état of April 2012, followed by a transition period that lasted until mid In view of the end of the transition period and the return to constitutional rule, the main challenge for the country is to strengthen institutional resilience in order to mitigate the risk brought about by the vectors of fragility. In the short term, the country's decline towards greater fragility will need to be prevented. In the medium term, it will be necessary to lay the groundwork for greater resilience of the State as advocated by the New Deal, which highlights peace building and state building as prerequisites for any sustainable development in the country. B. Recent Trends in the Economic and Financial Situation 4. The return to constitutional order after a transition period paved the way for the return to growth. In 2012, the year of the coup d état, GDP declined by around 1.5%, and was followed by a weak performance, with a growth rate of 0.9% in In 2014, the economic growth rate was estimated at 2.6%. However, this return to growth remains fragile given the structural problems, the low level of infrastructure and human capital, and the fragility of economic governance. For 2015, the rate of economic growth could reach 3.9%, but will depend on the socio-political climate, the performance of the crop season (food and cashew nuts), as well as the progress achieved in terms of improving economic and fiscal governance. Regarding inflation, it will be on the uptrend against a backdrop of increasing demand, to stabilize at 2.6% in III

29 5. In terms of the budget, the normalization of constitutional order allowed some improvement. Indeed, the effective return of donors who had withdrawn from the country since the coup d'état reactivated trade agreements such as fishing agreements with the European Union (EU), and led to the grant of general budget support in 2014 by the EU and East Timor, as well as specific support from the World Bank for the payment of wages. This added to a certain improvement in revenue from 6.5% of GDP in 2013 to 7.1% in On this basis, and with the issuance of State bonds in July 2014, the Government managed to balance the annual budget and pay arrears owed to civil servants. 6. Despite these commendable advances, the foundations of a structural imbalance are still in place. The budget deficit worsened to 2.7% of GDP in 2012 and 4.7% of GDP in Moreover, the country is heavily dependent on foreign aid as well as its limited sources of revenue. Indeed, the tax base remains very narrow with a very low number of taxpayers and tax base mainly concentrated on a limited number of revenue sources as customs duties on imports, cashew exports and fishing agreements. The tax burden remains very low at 7.1%, below the WAEMU convergence criterion of 17%. In a context where the quality of budget and financial management and economic management performance are weak, the narrow tax base imposes significant limitations on the conduct of fiscal policy. In addition, the budget structure remains inflexible, particularly with a high proportion of salary-related expenditures (75.2% of fiscal revenue at end-2014, compared with a WAEMU maximum target of 35%). In 2014, the primary balance is expected to stand at -2.0% of GDP. 7. Guinea-Bissau s debt became unbearable since the attainment of the completion point of the Highly Indebted Poor Countries (HIPC) Initiative in It remains nevertheless relatively high, although it has been brought down to a level below the WAEMU convergence criterion. The public debt stock rose to 59.7% of GDP in 2014 after reaching 164% in 2009 (BCEAO). According to the IMF debt sustainability assessment of 2014, the public debt burden is deemed moderate. Various IMF scenarios report a debt/exports shortfall in the event of an external shock due to a very limited export base since it consists mainly in cashew trade. C. Conclusion and Recommendation 8. In order to enhance the progress recorded in the area of growth and public finance management, Guinea-Bissau is committed to implementing structural reforms. The country began by negotiating the basis for a programme with the IMF for the disbursement of a Rapid Credit Facility before end In this context, progress was noted, such as the establishment of a Cash Flow Committee, the end of a number of exemptions on diesel, or efforts in the customs sector. In 2015, the Government wants to continue down this path by negotiating new measures for promoting governance, and its efforts in this regard will be bolstered by the budget support from the Bank well as the activities of this project. Given the situation of public finances, the fragile context and the importance of the post-transition period and the selective approach advocated by the New Deal, as well as the new Bank strategy on fragility and the strengthening of resilience in Africa, it is recommended that the Bank should waive the rule on counterpart funding and finance the full project cost. IV

30 Annex 4 Map of Project Area V