Document of The World Bank
FOR OFFICIAL USE ONLY
Public Disclosure Authorized Report No: 57441-GT
EMERGENCY PROJECT PAPER
ON A
Public Disclosure Authorized PROPOSED LOAN
IN THE AMOUNT OF US$100 MILLION TO
THE REPUBLIC OF GUATEMALA
FOR AN
EMERGENCY SUPPORT TO SOCIAL SERVICES PROJECT
Public Disclosure Authorized November 18, 2010
Central America Country Management Unit Poverty Reduction and Economic Management Latin America and Caribbean Region
This document is has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World
Public Disclosure Authorized Bank authorization. CURRENCY EQUIVALENTS (Exchange Rate Effective November 16, 2010) Currency Unit = Quetzal (QZ) QZ 8.01 = US$1
FISCAL YEAR January 1 – December 31
ABBREVIATIONS AND ACRONYMS
CAPRA Central America Probabilistic Risk Assessment CAT-DDO Catastrophe Deferred Draw Down Option CCT Condicional Cash Transfer CEPAL Comisión Económico para América Latina (Economic Commission for Latin America) CEPREDENAC Central American Coordination Center for Natural Disaster Prevention CFAA/CPAR Country Fiduciary Accountability Assessment/Country Procurement Assessment Report C-GAC Country-Governance and Anti-Corruption CGR Contraloría General de Cuentas (Comptroller’s General Office) CONRED National Coordinator for Disaster Reduction CoST Construction Sector Transparency Initiative CPS Country Partnership Strategy CPS-PR Country Partnership Strategy Progress Report CTR Controller’s Unit DA Designated Account DCP Dirección de Crédito Público (Public Credit Office) DIPLAN Dirección de Planificación Ejecutiva (Executive Planning Office) DPL Development Policy Loan DR-CAFTA Dominican Republic - Central American Free Trade Agreement EMF Environmental Management Framework ERL Emergency Recovery Loan EUR Euro FM Financial Management FMS Financial Management Specialist GDP Gross Domestic Product GFDRR Global Facility for Disaster Risk Reduction GoG Government of Guatemala HFA Hyogo Framework for Action IADB Inter-American Development Bank IBRD International Bank for Reconstruction and Development IDA International Development Association IEG Independent Evaluation Group IFR Interim Unaudited Financial Reports ILO International Labor Organization IMF International Monetary Fund IPP Indigenous People’s Plan MINEDUC Ministry of Education MINFIN Ministry of Finance MSPAS Ministry of Health MTSA Treasury Account System M&E Monitoring and Evaluation System LCSFM Latin American and the Caribbean Financial Management Sector LOP Ley Orgánica de Presupuesto (Organic Budget Law) OAS Organization of American States ORAF Operational Risk Assessment Framework PFM Public Financial Management PIU Project Implementation Unit PNPMD National Program for Disaster Prevention and Reduction SDR Special Drawing Rights SEPREM Secretaría Presidencial de la Mujer (Presidential Secretariat for Women) SIAF Sistema Integrado de Administración Financiera (Financial Administration Integrated System) SIAM Mesoamerican Environmental Information System SICOIN Sistema de Contabilidad Integrada (Integrated Accounting System) SOE Statement of Expenses ToRs Terms of Reference TTL Task Team Leader UDAF Unidad de Administración Financiera (Finance Administration Unit) UN United Nations UN/ISDR United Nations International Strategy for Disaster Reduction VAT Value Added Tax WB The World Bank WMO World Meteorological Organization US$ United States Dollar
Vice President: Pamela Cox Acting Country Director: Laura Frigenti Sector Director: Marcelo Giugale Sector Manager: Rodrigo A. Chaves Country Manager: Anabela Abreu Sector Leader: J. Humberto López Task Team Leaders: David M. Gould and Rashmi Shankar
GUATEMALA EMERGENCY SUPPORT FOR SOCIAL SERVICES
TABLE OF CONTENTS
A. Introduction ...... 1 B. Emergency Challenge: Country Context and Recovery Strategy ...... 2 1. Country Context ...... 2 2. The Government’s Recovery Plan ...... 5 C. Donor and IBRD Response and Rationale for the Proposed Emergency Project ...... 6 1. Donor and IBRD response ...... 6 2. Rationale for the Proposed Operation ...... 7 D. The Proposed Project ...... 8 1. Project Components, Objectives, and Expected Outcomes ...... 8 2. Eligibility for Processing under OP8.0 ...... 9 3. Consistency with the Country Partnership Strategy ...... 9 E. Appraisal of Project Activities ...... 10 1. Appraisal of Project Activities ...... 10 2. Lessons Learned from Previous Operations ...... 12 3. Exceptions and Safeguards Policies...... 13 F. Implementation Arrangements and Financing Plan ...... 14 G. Key Risks and Mitigating Measures ...... 16 H. Terms and Conditions for Project Financing ...... 16 Annex 1: Results Framework and Monitoring...... 17 Annex 2: Summary of Estimated Project Costs ...... 18 Annex 3: Operational Risk Assessment Framework (ORAF) ...... 19 Annex 4: Financial Management and Disbursement Arrangements ...... 23 Annex 5: Procurement Arrangements ...... 28 Annex 6: Implementation and Monitoring ...... 29 Annex 7: Project Preparation and Appraisal Team Members ...... 30 Annex 8: Environmental and Social Safeguards Plans ...... 31 Annex 9: Economic and Financial Analysis ...... 34 Annex 10: Statement of Loans and Credits ...... 38 Annex 11: Country at a Glance ...... 42 Annex 12: Major Development Partner Support Provided or Pledged For Government Plan ..... 44 Annex 13: Guatemalan Municipalities in Extreme Poverty ...... 45 Annex 14: Map (IBRD #33413R1)...... 47
LIST OF TABLES Table 1: Population affected by Natural Disasters between May and September 2010 ...... 3 Table 2: Consolidated Losses Due to the Natural Disasters ...... 3 Table A4.1: Disbursement Table by Expenditure Category ...... 27 Table A4.2: Schedule of Audit and Financial Reports ...... 27 Table A9.1: Guatemala Key Economic Indicators 2007-2014 ...... 35 Table A9.2: Public Debt - Baseline Medium-Term Projections ...... 36
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GUATEMALA EMERGENCY SUPPORT TO SOCIAL SERVICES PROJECT PAPER LATIN AMERICA AND CARIBBEAN
Basic Information Date: November 18, 2010 Team Leaders: David Gould and Rashmi Shankar Country Director: Laura Frigenti Sectors: Other social services (100%) Sector Manager: Rodrigo A. Chaves Themes: Other economic management (100%) Project ID: P122370 Environmental category: C Lending Instrument: Emergency Joint IFC: No Recovery Loan Joint Level: N/A Project Financing Data [X] Loan [ ] Credit [ ] Grant [ ] Guarantee [ ] Other:
For Loans/Credits/Others: Total Bank financing (US$m): 100.00 Proposed terms: The Government of Guatemala selected an IBRD flexible loan with fixed spread denominated in US dollars. The repayment schedule will be linked to commitment with a final maturity of 26.5 years (including 8.5 years of grace period) and level repayments of principal. Financing Plan (US$m) Source Local Foreign Total Borrower 0.00 0.00 0.00 International Bank for Reconstruction and 100.00 0.00 100.00 Development Total: 100.00 0.00 100.00 Borrower: The Republic of Guatemala Responsible Agency: Ministry of Finance and Economy 8va Avenida 20-87, Zona 1 Edificio Finanzas Publicas Guatemala Tel: (502) 2248-5029 Fax: (502) 2248-5005 Director of Public Credit, Mayra Palencia Prado ([email protected])
Estimated disbursements (Bank FY/ US$m) FY FY11 FY12 Annual US$90 m US$10 m Cumulative US$90 m US$100 m Project implementation period: Start: January 3, 2011 End: January 31, 2012 Expected effectiveness date: January 3, 2011 Expected closing date: June 30, 2012
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Does the project require any exceptions from Bank policies? [ ]Yes [ X]No Does the project include any critical risks rated “substantial” or “high”? [ ]Yes [ X]No Project Development Objective and Description Project development objective: The objective of the Project is to preserve health and education services following severe flooding and other natural disasters that took place in Guatemala between May and September 2010. Project description: The Emergency Recovery Loan (ERL) includes three components: (a) Component 1 (US$70 million): Preserving Basic Education Services for Vulnerable Children; (b) Component 2 (US$29.65 million): Preserving Coverage of Health Care Services for Vulnerable Groups; and (c) Component 3 (US$100,000): Project Management and Monitoring. Safeguard policies triggered: Environmental Assessment (OP/BP 4.01) [x ]Yes [ ] No Natural Habitats (OP/BP 4.04) [ ]Yes [x ] No Forests (OP/BP 4.36) [ ]Yes [x ] No Pest Management (OP 4.09) [ ]Yes [x ] No Physical Cultural Resources (OP/BP 4.11) [ ]Yes [x ] No Indigenous Peoples (OP/BP 4.10) [x ]Yes [ ] No Involuntary Resettlement (OP/BP 4.12) [ ]Yes [x ] No Safety of Dams (OP/BP 4.37) [ ]Yes [x ] No Projects on International Waterways (OP/BP 7.50) [ ]Yes [x ] No Projects in Disputed Areas (OP/BP 7.60) [ ]Yes [x ] No
Does the project require any exceptions from Bank policies? [ ]Yes [x ] No Have these been approved by Bank management? [ ]Yes [ ] No Conditions and Legal Covenants: Loan Agreement Reference Description of Date Due Condition/Covenant Article IV, Section 4.01 The Borrower has issued the Prior to effectiveness Operational Manual. (condition of effectiveness) Section IV.B.1 of Schedule 2 No withdrawal shall be made for After effectiveness payments made prior to the date of this Agreement, except that withdrawals up to an aggregate amount not to exceed $40,000,000 equivalent may be made for payments made prior to this date but on or after May 27, 2010 (but in no case more than one year prior to the date of this Agreement), for Eligible Expenditures under Categories (1) and (2). Section I.D.1(a) of Schedule 2 The Borrower shall include December 31, 2010 specific activities in the
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Operational Manual ensuring that indigenous peoples will have access to health and education services in a culturally appropriate manner. Section I.D.1(b) of Schedule 2 The Borrower shall adapt the December 31, 2010 EMF, in a manner satisfactory to the Bank, including, inter alia: (i) the mechanisms to strengthen compliance with national standards for health care waste management; (ii) the development of action plans to ensure compliance with the Borrower’s regulations; and (iii) measures to address the gaps in implementation or quality of implementation of the EMF.
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GUATEMALA: EMERGENCY SUPPORT TO SOCIAL SERVICES PROJECT
A. Introduction
1. This project document seeks the approval of the Executive Directors to extend an Emergency Recovery Loan of US$100 million to the Republic of Guatemala. The proposed loan would provide emergency assistance to preserve social expenditures in education and health as Guatemala devotes significant fiscal resources to recovery and reconstruction after severe flooding and other natural disasters suffered between May and September 2010. The proposed loan would be a reallocation of financing from within the existing country lending envelope, taking funds from a previously planned third phase DPL that would have supported continued progress on governance, transparency, and fiscal reform.
2. Guatemala was hit by a series of natural disasters between May and September 2010 that caused severe humanitarian and economic costs. On May 27, 2010, Guatemala's Pacaya Volcano erupted forcing over 2,000 people to evacuate and causing the closing of the main international airport. Two days later, Hurricane Agatha struck bringing torrential rain and widespread floods and landslides across Guatemala affecting over 500,000 people and causing over 200 fatalities and many unaccounted victims. During the four months since the initial impact of Agatha, unusually strong tropical storms buffeted Guatemala reducing the ability to initiate reconstruction efforts, compounding flooding, and complicating already difficult humanitarian efforts. A recently published evaluation of the economic cost and humanitarian extent of the disasters was undertaken by CEPAL in collaboration with the Government of Guatemala, the World Bank, the IMF, the UN, and the IADB using globally accepted methodology. The initial conservative estimates of the financial cost of the damage alone are about 4 percent of GDP (approximately US$1.6 billion). Given the severity of the situation, President Colom launched a formal appeal to the international community for support on Monday, October 11, 2010.
3. These natural disasters have further aggravated a fiscal situation already rendered precarious by the global crisis of 2008-2009. Tax revenues as a share of GDP in Guatemala, already the lowest in the region, were severely affected by the global economic downturn, and fell from over 12 percent in 2007 to around 10 percent in 2010. The seriousness of the fiscal situation is highlighted by the doubling of the fiscal deficit between 2008 and 2010 to 3.1 percent of GDP. This excludes the costs of the Government's reconstruction plans, which are conservatively estimated at US$1 billion over the next three years, and which are expected to be covered through a reallocation of current expenditure, spending cuts, donor funds, and additional deficit financing (adding about 0.3 percent of GDP to the fiscal deficit per year).
4. In recent months increased humanitarian needs after relentless flooding have led to large unanticipated gaps in the provision of social services. Two years of slow growth during the global economic crisis increased the need for social assistance as jobs and remittances declined sharply. The urgency of the current fiscal crisis has put such social spending at risk and has obliged the Government to seek additional financing and donor support. In particular, available funding to cover education and health services is dangerously low.
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5. As part of Guatemala's appeal to the international community for support, the Government has requested World Bank assistance to preserve social spending in health and education. Without sufficient resources to respond to the urgent needs caused by the disaster, critical social spending may be cut. The proposed project's development objective is therefore to preserve health and education services following severe flooding and other natural disasters that took place in Guatemala between May and September 2010. The Bank is also proposing to restructure an existing World Bank financed Rural Development Project to provide US$15 million for reconstruction of bridges in addition to an approved World Bank financed project, Expanding Opportunities for Vulnerable Groups. Other bilateral and multilateral donors are providing emergency humanitarian assistance as well as funds for infrastructure, rural development, climate change risk mitigation, and disaster risk management.
B. Emergency Challenge: Country Context and Recovery Strategy
1. Country Context
6. On May 27, 2010 the eruption of Guatemala’s Pacaya volcano started one of the most damaging periods of natural disasters ever seen in Guatemala. Guatemala is the fifth most vulnerable country to natural disasters in the world and is located in one of the regions of the world most severely affected by climate change.1 The latest series of disasters was unusually harsh and ranks as the third most severe out of 62 disasters over the past three decades. Pacaya’s eruption, located 25 km southwest of Guatemala City, sent ash raining down on the most populated metropolitan areas in the country. Around 2,000 people were forced to evacuate their homes and the international airport was closed for several days. Hurricane Agatha struck just two days after Pacaya’s eruption, on May 29, 2010, causing torrential rains, floods and landslides. After the loss of life and damages mounted, the authorities were forced to declare a state of national emergency. Compounding the impact of Hurricane Agatha and the eruption of Pacaya, were unusually strong rains and storms in the following months, including Hurricane Earl in August and two additional tropical storms in September that generated large rainfalls across most the country.
7. The effects of the incidents that occurred between May and September were substantial in terms of economic and human losses. There were 235 deaths and it is estimated that thousands of people have been forced to evacuate and have lost their homes (Table 1). In terms of economic losses, the largest damages in the social sector were to housing and education, estimated to be about 0.6 percent of GDP (Table 2). In the productive sector, agriculture was the most affected as rains and flooding either destroyed crops, or prevented their harvesting and delivery to markets. Infrastructure, particularly transport and water and sanitation, suffered the largest damages of over 2 percent of GDP. In total, damages and economic losses amount to nearly 4 percent of GDP.
1 Evaluation of Sectoral Damage and Loss and Estimation of Needs due to Natural Disasters in Guatemala between May and September, 2010, Report prepared by the Government of Guatemala with support of the International Community, September 13, 2010. 2
Table 1: Population affected by Natural Disasters between May and September 2010
Population TOTAL Affected 559,923 Evacuated 207,845 In temporary shelters 142,775 Missing 42 Wounded 223 Dead 235 Percent of total population affected 3.9% Source: National Coordinator for the Reduction of Natural Disasters
Table 2: Consolidated Losses Due to the Natural Disasters Sub-Sector Cumulative impact of disasters between May and September 2010 (millions of Quetzales) Losses Damages TOTAL Public Private (income) SOCIAL 1,570.6 276.8 1,847.4 845.8 1,001.6 Housing 846.6 149.0 995.6 0.0 995.6 Health 33.4 108.6 142.0 136.0 6.0 Education 665.6 15.8 681.4 681.4 0.0 PRODUCTIVE SECTOR 250.1 1,078.6 1,328.8 25.6 1,303.2 Agriculture and Fisheries 101.8 760.9 862.6 25.6 837.0 Industry 123.3 194.3 317.6 0.0 317.6 Commerce 11.9 28.9 40.9 0.0 40.9 Tourism 13.1 94.6 107.7 0.0 107.7 INFRASTRUCTURE 5,841.4 784.3 6,625.7 6,377.1 248.6 Transport 5,408.0 718.7 6,126.7 5,945.5 181.3 Energy 90.2 28.2 118.4 54.4 64.0 Water and Sanitation 343.2 37.4 380.6 377.2 3.4 OTHER PRIORITY SECTORS 712.5 1,906.4 2,618.9 2,071.0 547.9 Environment 340.5 1,778.6 2,119.1 1,920.3 198.8 Impact on Women 236.0 127.8 363.8 16.0 347.8 Risk Management 136.0 0.0 136.0 134.7 1.3 Total Quetzales (million) 8,374.6 4,046.2 12,420.8 9,319.5 3,101.2 Total US$ (million) 1,046.8 505.8 1,552.6 1,164.9 387.7 Source: Joint Assessment by CEPAL-World Bank- UN-IADB, September 2010, based on official figures.
8. The impact on indigenous groups and women is expected to be severe. Tropical storm Agatha and subsequent storms devastated the whole country, although a relatively larger economic and social impact was seen in the indigenous communities. The indigenous populations suffered disproportionately high damages given their dependency on agriculture and subsistence farming. According to estimates of CEPAL, most indigenous people lost infrastructure and livestock. The departments that suffered the greatest losses to life and productive capacity are home to more than 70 percent of the indigenous population. After
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Hurricane Agatha in June 2010, a survey was conducted by the Presidential Secretariat for Women (SEPREM) on how the storm affected various economic groups, by age, sex, and ethnicity. While the results are informative, they likely underestimate the total costs of the disasters as the survey was conducted prior to the flooding in August and September 2010. Although a little over half of the initially estimated 626,531 persons suffering losses were women, this number is expected to rise. Given that most of these women are dependent on household productive activities, particularly agriculture, and that agriculture was severely hit by the disasters, the poverty index is expected to rise. The number of vulnerable women below the poverty line is also expected to increase. After Hurricane Agatha, women’s employment and income outside the home fell, more or less across all sectors. Furthermore, the survey found that the average time women spent in domestic activities after the storm increased from 13.6 hours to 16.3 hours. Meaning that, on average, women worked two additional hours a day devoting unpaid time to reconstruction and recovery activities. The largest damages and losses were in agriculture and livestock, accounting for over half of all damages and losses. Clothing and loss of other household items also were quite costly.
9. The impact of the disasters has been particularly severe on Guatemala given high levels of poverty and inequality and an already precarious economic situation coming out of the global financial crisis. About 51 percent of Guatemala’s population of 13.5 million lives in poverty.2 Important impediments to gains in reducing poverty and inequality are the lack of consistent and broad-based growth as well as programs and spending that specifically target the poor. While Guatemala had started showing weak recovery from the global crisis of 2008-09, the series of natural disasters that struck between end-May and September has set this recovery back significantly. Growth, which had fallen to 0.6 percent in 2009 from 3.3 percent in 2008, reflected a decline in export performance, tightening domestic credit markets (and lower domestic investment) and falling remittances. The decline in remittances especially affected poorer households, which are the main beneficiaries.3 While growth is expected to be about 2.1 percent in 2010, this improvement depends on recovery in both internal and external demand, tourism, and remittances. In particular, recovery will depend on the domestic recovery and growth in Guatemala’s most significant commercial partners, particularly the US and other Central American countries, (See Annex 9 for a more detailed discussion of the macroeconomic and debt situation).
10. Given the weak economic context, mitigating the impact of the recent disasters on the poor will require urgent resource mobilization. Public finances were already strained by the economic slow-down, and low tax collections. To mitigate the difficult choice that needs to be made between reconstruction and other essential spending, particularly the provision of social services, support from multilaterals and donors will be essential. Preservation of ongoing health and education services is perhaps one of the most important functions of Government and needs to be supported. For instance, recent studies have shown that lack of adequate education and health services at critical junctures in child developmental has life-long adverse impacts.4
2 This figure is based on the overall poverty headcount according to the 2008 Guatemala Poverty Assessment. 3 See Remittances and Development: Lessons from Latin America, edited by Fajnzylber and Lopez, The World Bank 2008. 4 See, for example, Health and Growth Thematic Paper. The Commission on Growth and Development. World Bank, 2009. (www.growthcommission.org). 4
11. Despite a history of fiscal prudence and low debt ratios, fiscal space is especially tight in Guatemala, as highlighted by the doubling of the fiscal deficit between 2008 and 2010 to 3.1 percent of GDP (Annex 9, Table 1). This reduction in fiscal space implied fewer resources for pro-poor spending even before the natural disasters struck and reflects a sharp fall in tax revenues as a share of GDP—already the lowest in the region—which fell from over 12 percent in 2007 to around 10 percent in 2010. Guatemala has attempted to implement a tax reform several times, but has been impeded by economic slowdown, the natural disasters, and political deadlock. In the aftermath of the disasters, managing public policy formulation and implementation have become more difficult. Nonetheless the Government has committed to pushing forward on fiscal reform in order to support the sustainability of much needed development spending. Indeed, in requesting donor assistance with the recovery and reconstruction efforts, the Government has integrated fiscal reform as a necessary part of its recovery plan.
2. The Government’s Recovery Plan
12. The Government's Recovery Plan is designed to support recovery and reconstruction in a manner that will allow the country to continue to pursue its medium- term development objectives. The Plan has four pillars: (1) humanitarian assistance and rehabilitation; (2) recovery of means of living and of the economy; (3) adaptation to and mitigation of climate change; and (4) institutional strengthening. The plan is to be implemented with the support of the international community and is fully consistent with the medium and longer term objectives of achieving security, reliable livelihoods for households, improved growth and productivity, and capabilities for mitigation of risks posed by natural disasters.
13. The four components of the Government's “Plan for Recovery and Reconstruction with Transformation,” will cost approximately US$1.92 billion to implement.5 Pillar I, on humanitarian assistance and rehabilitation, will focus on creating basic and humanitarian conditions for families affected by the disasters, providing them with temporary access to food and potable water, and providing families with adequate temporary housing. This component, which includes the reconstruction of basic infrastructure, is estimated to cost a total of US$538 million of which US$85 million has already been financed by the CAT-DDO (Project no. P112544, Loan no. 7683-GT) approved by the World Bank for Guatemala on April 14, 2009. Pillar II, which supports economic recovery, will guarantee access to food and essential public services water, sanitation, housing, education and public health to all affected, while creating necessary conditions to reactivate economic growth. This component will focus on investment in public services and infrastructure and is estimated to cost US$947 million. The proposed ERL would support activities under this pillar. Pillar III, on mitigation of, and adaptation to, climate change, aims to promote more efficient responses to climate-change induced natural disasters through improved capacity to adapt to climate changes focused on territorial planning. This component is estimated at US$340 million. Pillar IV, on strengthening institutions, will focus on
5 The cost of the ‘Plan for Recovery and Reconstruction with Transformation’ exceeds the aforementioned estimate of damages and losses caused by the disasters by approximately US$370m. This discrepancy stems primarily from the Plan’s inclusion of climate change adaptation and mitigation measures as well as the excess of replacement costs over asset values for infrastructure in use. 5
building technical and scientific capacity to develop effective responses to climate disasters and will cost US$79 million. In addition, US$16 million will fund monitoring and evaluation, transparency and communication of the Plan.
C. Donor and IBRD Response and Rationale for the Proposed Emergency Project
1. Donor and IBRD response
14. The Guatemalan Government is coordinating with a range of development partners, including the IBRD, in its response to the natural disasters. Over thirty donors – with the UN system and the U.S. Government taking the lead – supported initial humanitarian assistance efforts; approximately US$14 million were made available for emergency relief goods, food assistance, shelters, satellite images, air logistics, and disease control, among others. The Guatemalan Government’s efforts were complemented by donor emergency efforts via, for instance, rapid evacuations, shelters and key social and productive infrastructure rehabilitation financed, in part, by the IBRD’s US$85 million Catastrophe Draw-Down Option (CAT-DDO). Parallel to initial humanitarian assistance, IBRD joined other donors on missions in June and September to assist the GoG in undertaking an assessment of the damages, losses and needs generated by the natural disasters. An informed and immediate Government response was thereby facilitated by the joint needs assessment, initiated within two weeks of the storm and financed by a GFDRR grant, as well as previous strengthening of the country’s general disaster risk management capacity via, for example, support to the National Program for Risk Reduction, municipal planning to reduce disaster risks and the Central America Probabilistic Risk Assessment (CAPRA) platform. This was followed-up by the ‘International Cooperation Conference for Reconstruction with Transformation’ organized by the Government in Guatemala City in October 2010. Delegates of 106 donors, including IBRD, pledged US$788 million in support of the Government’s reconstruction plan, thus covering approximately 52 percent of the US$1.49 billion financing gap for the plan. Of this amount, US$674m was committed in loans and grants, US$64m in technical assistance and US$40m in restructurings. 15. Much of the assistance pledged to date has focused on areas of climate change as well as infrastructure and food security. In this regard, the Inter-American Development Bank (IADB) is preparing a US$250 million climate change operation, while Spain pledged US$45 million in financing for water and climate change activities; the Central American Bank for Economic Integration announced a total of US$265 million for bridge infrastructure rehabilitation and productive activities, among others, while Japan is preparing a US$120 million loan for road infrastructure; to strengthen food security, the European Union will provide a total of US$53m in loans and grants, while Sweden will support recovery of livelihoods with US$25 million. As illustrated in Annex 12, these pledges were complemented by a number of smaller or more general loans and grants, including US$45 million in grants by UN organizations and US$28 million in financing from Italy for the plan as a whole. 16. To support the Government’s longer-term ‘Reconstruction with Transformation’ Plan, IBRD is also adapting its integrated approach to rural development in the country to respond to the post-disaster needs. The Rural Economic Development Project (Project no. P094321; Loan no. 73740-GT) is currently undergoing a proposed restructuring to provide US$15 million in financing for the reconstruction of 98 bridges damaged or destroyed by the natural disasters. In addition, the country’s Rural and Main Roads (Project no. P055085; Loan
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no. 71690-GT), Maternal and Infant Health (Project no. P077756; Loan no. 73570-GT), and Education Quality (Project no. P089898; Loan no. 74300-GT) projects are rehabilitating roads, constructing health centers and enhancing secondary education access, respectively, in areas affected by the natural disasters. In addition, a US$114.5 million Expanding Opportunities for Vulnerable Groups Project (Project no. P107416; Loan no. 77830-GT), which currently awaits Congress approval, will benefit the poor in areas affected by the natural disasters by supporting the country’s CCT program. The execution of the Government’s ‘Reconstruction with Transformation’ Plan will also benefit from enhanced efficiency and transparency provided by the Integrated Financial Management Project—which has provided key support to the country’s financial management and e-procurement systems—as well as the support to the country’s Auditor General and the Construction Sector Transparency Initiative (CoST) pilot in the country—which will focus its activities in part on reconstruction projects. 17. Going forward, Guatemala has strong political commitment to disaster risk management and has built up its institutions to support the needed coordination in this context, as evidenced by the strong response immediately after the disasters. The institutional setup for disaster risk management in Guatemala is organized around the National Coordinator for Disaster Reduction (CONRED). Learning from recent disasters, Guatemala has made progress towards a more proactive disaster risk management system with a firm legal basis. The National Program for Disaster Prevention and Reduction (PNPMD) is a coordination mechanism aimed at addressing disaster risk reduction in a comprehensive manner. The current Government has placed disaster risk management firmly among its development priorities. The Plan de la Esperanza 2008-2012, the policy program of the administration, focuses on increasing growth and reducing poverty and inequality. It articulates disaster risk management as a self- standing policy issue in this context.
2. Rationale for the Proposed Operation
18. The proposed Project was prepared under OP/BP 8.0. It provides rapid response in support of preserving essential services (BP 8.0 4 c). The focus of much of the support to date has centered on climate change mitigation, infrastructure and food security in the reconstruction and recovery process, which puts a premium on this IBRD emergency operation to ensure preservation of health and education in the poorest 130 municipalities. As the global financial crisis significantly reduced economic activity, cut jobs, and curtailed the flow of wage remittances, the risk of a greater number of people falling into poverty has increased and pro- poor policy actions have become even more critical. Nonetheless, given the emergency situation, slow growth, and weak tax collections, the Government is faced with the difficult financial decision of whether to fully fund the recovery and reconstruction at the cost of reducing key social services or to push back reconstruction into the future to maintain services in the near term. The Government’s current strategy is to devote over 1 percentage point of GDP of the Central Government's budget for reconstruction and recovery related spending. This increased need for resources is expected to be spread between 2010 and 2012 and, in the absence of multilateral and donor support, may lead to deep cuts in spending that may affect the provision of much needed social services in health and education. The Government has committed to medium to long run financing of basic education and health services, but has requested the ERL to support the provision of social services in the near-term as reconstruction begins and fiscal resources are severely stretched.
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D. The Proposed Project
1. Project Components, Objectives, and Expected Outcomes
19. The project’s development objective is to preserve health and education services following severe flooding and other natural disasters that took place in Guatemala between May and September 2010. Given the emergency situation, slow growth, and weak tax collections, the Government is faced with the difficult financial decision of whether to fully fund the recovery and reconstruction at the cost of reducing key social services or to push back reconstruction into the future to maintain services in the near term. The project's contribution will be to assist the Republic of Guatemala in maintaining priority health and education social services in the wake of its severe natural disasters as the Government implements its emergency recovery and reconstruction program. 20. The operation includes three components: (a) Preserving Basic Education services for Vulnerable Children; (b) Preserving Coverage of Health Care Services for Vulnerable Groups; and (c) Project Management and Monitoring. These components fall under Pillar II of the Government’s Recovery Plan, namely “Recovery of Means of Living and of the Economy.” An important objective of Pillar II of the Recovery Plan is to preserve the provision of basic services so that all groups, particularly the most vulnerable, remain covered during the recovery. The three components described below serve the same purpose by supporting the Government’s plan to preserve basic social services in education and health. This support will finance teachers’ and health workers’ salaries in the poorest municipalities of Guatemala. The Bank will closely coordinate its engagement in support of the Reconstruction with Transformation Plan with the Government and other development partners through its participation in the high-level donor harmonization Dialogue Group as well as the technical-level sector coordination groups, including the education group, which it chairs.
a) Component 1 Preserving Basic Education services for Vulnerable Children (US$70 million): Supporting the Recovery Plan by preserving Basic Education services for vulnerable children living in selected municipalities, through the financing of salaries of teachers and facilitators. This component would assist the Government in providing ongoing public school services by funding qualified teachers’ salaries in the poorest 130 municipalities, where approximately 2.8 million vulnerable children receive basic education (See Annex 13 for list) and salaries of Telesecundaria facilitators in rural and isolated areas. Basic education is defined as grades one through nine. This proposed component of the Emergency Support for Social Services Project would allow the Ministry of Education to sustain education coverage as other budgetary resources are devoted to infrastructure rebuilding after the natural disasters of 2010.
b) Component 2 Preserving Coverage of Health Care Services for Vulnerable Groups (US$29.65 million): Supporting the Recovery Plan by preserving the three levels of health care and emergency services (primary, secondary and tertiary) in selected municipalities, through the financing of salaries of health care workers. This component would assist the Government in preserving ongoing health care and emergency services in the poorest 130 municipalities of the country by funding salaries of qualified health workers. Preserving adequate resources to keep health facilities open supports health care services, particularly maternal-infant health care for the most vulnerable groups. 8
c) Component 3 Project Management and Monitoring (US$100,000): Supporting the Government in the coordination of the administrative and financial management aspects of the project, through the financing of consultants’ services, including the financing of project audits. The project will have a component to support the Ministry of Finance in the coordination of the administrative and financial management aspects of implementation, through the financing of consultants for the management, monitoring and review of the execution of the project.
21. The project envisages two main expected outcomes. The outcomes measure the progress on achieving the development objective of the proposed ERL as captured by the Government’s ability to preserve basic social services in the education and health sectors, especially for the poorest segments of Guatemalan society: To help preserve basic education services in the poorer municipalities, as measured by the number of teachers and Telesecundaria facilitators providing education services. To help preserve primary health services in the poorer municipalities, as measured by the number of health care workers providing medical services.
2. Eligibility for Processing under OP8.0
22. The proposed Project is being processed under OP/BP 8.0 because it provides rapid response in support of preserving essential services (BP 8.0 4 c). The project represents the Bank’s rapid response to the emergency caused by a series of natural disasters that hit Guatemala between end-May and September 2010. The objective of the proposed Emergency Support to Social Services Project is to support the preservation of basic services in health and education in the poorest 130 municipalities of Guatemala. This operation supports Pillar II of the Government’s Recovery Plan. An important objective of Pillar II of the Recovery Plan is to help facilitate the provision of basic services to all groups, particularly the most vulnerable, in spite of the emergency.
3. Consistency with the Country Partnership Strategy
23. The proposed ERL is consistent with the objectives identified in the IBRD's FY09- 12 Country Partnership Strategy (CPS) for Guatemala (Report No. 44772-GT) discussed by the Executive Directors on September 23, 2008, as well as the Country Partnership Strategy Progress Report (Report No. 55573-GT) dated July 28, 2010. These objectives emphasize the expansion of opportunities for vulnerable and at-risk groups. Supporting the Government response to the food, fuel and global economic crises, IBRD has, over the CPS period, shifted resources from investment to development policy operations. The objective of the DPLs has been to protect social expenditures and prevent a reversal of social gains made in recent years, while supporting reforms aimed at improved economic management, governance, and transparency. While the Government remains committed to good economic management and other goals—as evidenced, for instance, by the progress in the CoST Initiative—it has refocused attention on the more urgent social and reconstruction needs in the aftermath of the natural
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disasters. This contingency was foreseen in the July 2010 CPS Progress Report, which noted a potential necessity of adjustments to the FY11-12 program in view of the still uncertain impact of Hurricane Agatha. Shifting from an anticipated Governance and Transparency DPL to the proposed US$100 million Emergency Recovery Project would address more urgent near-term social needs and foster the sustainability of previous operations aimed at safeguarding the progress made on social indicators.
E. Appraisal of Project Activities
1. Appraisal of Project Activities
24. In order to preserve critical social services in education and health in the context of the weak economic recovery, low fiscal space, and the Government's natural disaster recovery efforts, the proposed operation will support key social sector programs. The project will support ongoing provision of health and education services, by financing the salaries of teachers, facilitators, and health care workers, for the poorest 130 municipalities in Guatemala as the Government devotes resources toward natural disaster recovery. The operation includes three components:
25. Component 1 Preserving Basic Education services for Vulnerable Children (US$70 million): Supporting the Recovery Plan by preserving Basic Education services for vulnerable children living in selected municipalities, through the financing of salaries of teachers and facilitators. This component would help the Government to provide ongoing public basic education services by funding salaries of approximately 38,000 teachers and facilitators attending to an increasing number of vulnerable children (approximately 2.8 million children) in the poorest municipalities. From 2000 to 2009, Guatemala drastically increased the net primary school enrollment rate from 85.4 percent in 2000 to 98.6 in 2009. The presence of qualified teachers and reliable uninterrupted educational services is critical for the ongoing success of the program, particularly in poorest and most isolated regions of the country. These regions are, to large extent, populated by indigenous populations with a subsistence economy based on agriculture which was particularly affected by Hurricane Agatha and subsequent hurricanes, making the indigenous populations predominantly vulnerable. Indigenous children are therefore acutely dependent on uninterrupted primary school services. Without uninterrupted quality education at public schools, it is unlikely students will have success in later years. Moreover, the possibility of reaching the millennium development goal of universal primary school for all by 2015 would be at risk. Supporting teachers’ services is not the only factor that is required for successful educational outcomes, but it is a key component.6
26. This component would finance payment of teacher salaries serving public schools from the 130 poorest municipalities in the country for about 3 months. In addition to primary school teachers, the component will also finance Telesecundaria facilitators in poor and isolated rural areas. Telesecundaria utilizes alternative resources to reach students in isolated areas with audio visual aids, TVs, educational DVDs and sometimes computer technology, combined with teaching facilitators to provide access to a wide range of lower secondary
6 See, for example, Health and Growth Thematic Paper. The Commission on Growth and Development. World Bank, 2009. (www.growthcommission.org). 10 subjects. Thanks to the Telesecundaria modality, net lower secondary school enrollment has increased from 24.6 percent in 2000 to 40.2 percent in 2009. Under the Education Quality and Secondary Education Project (Project no. P089898; Loan No 74300, approved in 2007), the Bank supported the initial financing of Telesecundaria facilitators, but was programmed to phase out its financing over several years (1720 facilitators in 2010, 1010 in 2011 and only 300 in 2012). This proposed component of the Emergency Support to Social Services Project would allow the Ministry of Education to sustain basic education—defined as grades one through nine—coverage as other budgetary resources are devoted to infrastructure rebuilding after the natural disasters of 2010. The operation could retroactively finance up to 40 percent of teachers’ and Telesecundaria facilitators’ salaries since May 27, 2010 (the start of the natural disasters). 27. Component 2 Preserving Coverage of Health Care Services for Vulnerable Groups (US$29.65 million): Supporting the Recovery Plan by preserving the three levels of health care and emergency services (primary, secondary and tertiary) in selected poor municipalities, through the financing of salaries of health care workers. This component would help the Government to provide ongoing health care and emergency services in the poorest health districts of the country by funding in the wage bill for approximately 1,900 health care workers in the 130 poorest municipalities for about 15 months. Preserving adequate resources to keep health facilities open would help maintain health care services, particularly maternal-infant health care, immunizations and nutrition services in 130 of the poorest municipalities in the country. Unavailability of health service procedures would imply that monthly more than one million primary health services would not be provided including maternal and neonatal services, critical epidemiologic treatments, and access to medicines to treat an increasing number of illnesses as a result of the constant occurrence of floods and other natural disasters. This possibility would have a devastating impact on the health situation of the poor, particularly poor children who are the most vulnerable, as well as the indigenous populations. Moreover, the possibility of reducing the gap to reach the millennium development goals on child mortality and maternal health by 2015 would be less likely. Under the Maternal-Infant Health and Nutrition Project (Project No. P077756; Loan no. 73570-GT, approved in 2005), the Bank is already financing health services but only in a limited number of targeted municipalities. 28. This proposed component of the Emergency Support to Social Services Project would allow the Ministry of Health to sustain this important health coverage as other budgetary resources are devoted to infrastructure rebuilding after the natural disasters of 2010. The operation could retroactively finance up to 40 percent of medical staff wages since May 27, 2010 (the start of the natural disasters). The objective is to preserve health and education services following severe flooding and other natural disasters that took place in Guatemala between May and September 2010. As is the case with the provision of teachers’ services, while supporting the provision of healthcare professional services is not the only factor that determines successful health outcomes, it is a key component. 29. Component 3 Project Management and Monitoring (US$100,000): Supporting the Government in the coordination of the administrative and financial management aspects of the project, through the financing of consultants’ services, including the financing of project audits. The project will have a component to support the Ministry of Finance in the coordination of the administrative and financial management aspects of implementation, through the financing of consultants for the management, monitoring and review of the execution of the project.
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2. Lessons Learned from Previous Operations
30. Strengthening coordination of multi-sector interventions is key to successful outcomes. In multi-sector interventions there are several risks that may delay implementation, including: (i) poor coordination across sectors; (ii) excessive centralization of investment decisions; and (iii) unnecessary layers for approving allocation and disbursement of funds. In Guatemala, recent portfolio performance indicates that capacity to implement projects is limited. While issues of coordination pose risks to this Emergency Support to Social Services Project, they should be manageable due to the simple and straight-forward nature of this operation (i.e., payment of teacher and health care worker salaries and procurement of consultant services and audits for project management). Moreover, to facilitate project coordination, all relevant agencies—the Ministry of Finance, the Ministry of Health and the Ministry Education— participated in the preparation of this project. To facilitate implementation, the Public Credit Directorate (Dirección de Crédito Publico—DCP) in the Ministry of Finance will be the implementing and coordinating agency. A full capacity assessment of DCP was carried out while preparing the Expanding Opportunities for Vulnerable Groups Project and, given the limited number of procurement processes to be executed under this project, the DCP’s installed capacity is more than sufficient. 31. The design of this operation has taken into account the lessons learned from previous disasters in the country, and lessons from many years of Bank operations and programs in response to disasters. The World Bank Independent Evaluation Group (IEG) report, "Hazards of Nature, Risks to Development: An Evaluation of World Bank Assistance for Natural Disasters" (2005), recommends that the Bank assist its clients most vulnerable to natural disasters to shift from focusing entirely on disaster response to implementing programs and policies for comprehensively managing disaster risk. While this Emergency Support to Social Services Project is solely a project that responds to a natural disaster and does not address managing disaster risk, it is part of a broader country program that includes disaster risk management. Guatemala has acknowledged that hazard risk is a manifestation of development that is not adequately adapted to the environment, and that managing disaster risk is good practice to achieve sustainable development. It has consequently included disaster risk management in its national development program and long-term development vision. This comprehensive risk management strategy is supported both by the Guatemala CAT-DDO (2009) and ongoing technical assistance for the assessment of damages caused by recent disasters (2010), projects to which this proposed operation is complementary.
32. The Bank also maintains an ongoing dialogue with various agencies dealing with disaster risk management in Central America in order to facilitate coordination of strategic advice and support. These agencies include the Central American Coordination Center for Natural Disaster Prevention (CEPREDENAC), the Organization of American States (OAS), the United Nations International Strategy for Disaster Reduction (UN/ISDR) in Central America, the Inter-American Development Bank (IADB), the World Meteorological Organization (WMO), and the Prevention Consortium. Key initiatives supported through these collaborations include the Central America Probabilistic Risk Assessment (CAPRA) and the Mesoamerican Environmental Information System (SIAM). 33. Another key lesson learned from previous Bank experience is that donor coordination—both in needs assessment and in financing—is essential to mitigate the 12
impact of disasters on the economy and vulnerable sections of the population. This proposed Emergency Support to Social Services Project will complement coordinated donor assistance requested by the Government of Guatemala as noted earlier. The Bank was also part of a team including CEPAL, the IADB, the IMF, and the UN, which prepared an assessment of humanitarian and economic losses due to Volcano Pacaya and Hurricane Agatha and its aftermath.
3. Exceptions and Safeguards Policies
34. No exceptions are being requested. 35. The proposed operation has an environmental rating of “C” (minimal or no adverse impact). It triggers the safeguards on Environmental Assessment (OP 4.01) and Indigenous Peoples (OP 4.10). OP 4.01 is triggered as the Project will support existing small health centers that produce some health care waste that should be properly managed via a health waste management protocol. OP 4.10 is triggered because the project will be implemented in departments in Guatemala where the overwhelming majority of beneficiaries from the Project, are indigenous peoples. Due to the potential minimal adverse impacts and because the project is mainly beneficial, this project is classified as an environmental Category C. 36. To comply with the requirements of each of these safeguards, the Government has prepared strategies for completing environmental management and management of indigenous people’s issues. It is not necessary to prepare a separate Indigenous People’s Plan as the Project will be implemented in areas where the beneficiaries are pre-dominantly indigenous and the measures will be mainstreamed throughout the Project to ensure that indigenous peoples are accessing benefits in socio-culturally appropriate ways (possibly through ongoing IPPs from other complimentary projects). These strategies will be included in the Operations Manual as described in Annex 8 (Environmental and Social Safeguards). As the operation is being processed under emergency procedures, the two plans will be completed after appraisal but no later than December 31, 2010. The completion of the Operations Manual is a condition of effectiveness for the loan. 37. Environmental Assessment (OP 4.01): Due to this minimal environmental impact that requires proper management in the health care centers supported, this project is classified as Category C. This project will adopt within its Operational Manual, the existing protocols developed under the Environmental Management Plan (EMP) for the ongoing Maternal and Infant Health and Nutrition Project in Guatemala that is under implementation in all of the 130 municipalities to be supported also through this Project. These protocols include training of health staff, translation of procedures deemed adequate into clinic-level action plans, and spot compliance checks. This Project will coordinate with the ongoing Maternal and Infant Health and Nutrition Project to ensure that proper implementation of these Protocols is being carried out, and will support enhancements if gaps in implementation or implementation quality are identified during supervision. 38. The Indigenous Peoples Policy (OP 4.10): Whereas the project is simply supporting existing services and not introducing new services, and the overwhelming majority of beneficiaries of the project are indigenous, key access barriers may remain. OP 4.10 (paragraph 12) requires therefore that there are strategies in place to ensure that the education and health services supported by this project are accessible in a socio-culturally appropriate manner.
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39. Social Safeguards Instrument for this Project: Ensuring that the benefits derived from preserving social expenditures in health and education are culturally appropriate, entails an assessment of existing project activities in the health and education sectors. The Bank is supporting ongoing health and education projects in Guatemala that have already assessed existing access barriers and designed, consulted and are implementing Indigenous Peoples Plans (IPPs) with concrete measures to overcome these barriers. Therefore, to the extent that there is significant overlap in terms of municipalities covered and beneficiary schools and health facilities, the existing methodologies will be applied and extended as needed. For example, the project overlaps with all 15 departments and 122 municipalities covered by the Maternal-Infant Health and Nutrition Project. There is overlap with the Education Quality and Secondary Education as well, in all 15 departments. 40. Since the overwhelming majority of Project beneficiaries are indigenous, a separate IPP is not necessary for this Project as strategies to ensure access will be adopted in the Project’s overall design. The Operations Manual will include a framework to screen beneficiary health clinics and schools to ensure that either: (i) they are currently implementing the IPPs already adopted for the other two projects, or (ii) where gaps exist in coverage or implementation quality, that measures are designed and consulted with affected Indigenous beneficiaries under this Project, to ensure the delivery of socio-culturally appropriate benefits. 41. Agreements, Calendar, and Disclosure of the EMF. Since the Project is being processed under OP 8.00, Rapid Response to Crises and Emergencies, preparation, consultation and disclosure of safeguards instruments, or in this case safeguards chapters of the Operations Manual, will be carried out subsequent to Board approval per OP 4.01, para 12, but prior to December 31, 2010. Any adaptations, extensions in coverage or revisions to the EMF and related health protocols and IPPs from the ongoing health and education project, will be completed, consulted with key stakeholders in the Project area, and disclosed after the Board presentation and approval. It will also be disclosed on appropriate websites where the public will have one month to comment prior to finalization of the plan and disclosure of the final product. A gap analysis of implementation coverage of the existing EMF and IPPs is currently being carried out and strategies to fill these gaps that will be outlined in the Operations Manual will be reviewed and agreed upon during negotiations. In line with the Operational Policy on Environmental Assessment, the EMF will be disclosed in Guatemala in English and Spanish and on the World Bank’s website.
F. Implementation Arrangements and Financing Plan
42. Procurement: Bank procurement procedures (including the "Guidelines for Procurement under IBRD Loans and IDA Credits" and "Guidelines for Selection and Employment of Consultants by World Bank Borrowers" dated May 2006 and revised on October 2006 and May 2010) will apply for project financed activities. The project will finance, through its first two components, payment of teachers salaries serving pre-primary and primary school levels from the 130 poorest municipalities in the country, and salaries of qualified health workers, respectively; being these activities considered as recurrent costs, no procurement processes are foreseen in their implementation. The third component of the project will support the coordination of the administrative and financial management aspects of implementation through the financing of consultants for the management, monitoring and review of the execution of the project. Selection of consultants to this end shall follow Bank’s
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Consultant Guidelines. Procurement of Goods, Works and Non-Consulting Services are not foreseen to be financed with this project.
43. Financial Management: The Ministry of Finance is the main counterpart of the Bank for this operation, which will coordinate with the Ministry of Education and the Ministry of Health. The responsibility for consolidating financial reporting and audit arrangements will be with the Ministry of Finance. The flow of funds will be channeled through reimbursement of incurred eligible expenditures into the Single Treasury Account for Multilateral Financing which uses Guatemala's budgetary system, SIAF, which will be the base for financial recording and which will enhance the expenditure control framework and financial recording. The Ministry of Education and the Ministry of Health have fully functional operational and administrative units with a proper complement of staff to manage this emergency operation and will have the responsibility for keeping supporting documentation. They also have well organized information systems and monitoring and evaluation mechanisms to produce information for reporting purposes. The Bank has two ongoing loans in each of the ministries (Health: Loan no. 73570-GT approved in 2005 and Education: Loan no. 74300-GT approved in 2007) which have acceptable administrative and financial operations. The current financial reporting used to monitor the ongoing Bank's loans is comprehensive and has been sufficient to adequately track active projects. This operation will use these existing procedures to produce required financial and administrative reports.
44. Disbursement Arrangements: The project will be able to disburse up to 40 percent of the value of the loan retroactively on eligible salary expenditures already incurred by the Government over a period up to 12 months preceding loan signing but after May 27, 2010—the start of the disasters. Disbursements will be made on the basis of certified Statement of Expenditures (SOEs). For all expenditures financed under Statement of Expenditures (SOEs) full documentation in support of the SOEs will be retained in the PIU for at least two years after the project closing date. This information will be available for review by Bank missions during project supervision and by the project’s auditors. SOEs will be audited in conjunction with the semi-annual audit of the project. Further instructions on the size of the Minimum Application and on how funds will be withdrawn from this Credit/Grant will be provided in the Disbursement Letter.
45. Implementation and Monitoring: The Ministry of Finance will play the primary role in coordinating monitoring and evaluation of program implementation. The Government and the Bank will take advantage of several important data sources to monitor the project, including: Central and nonfinancial public sector budget monitoring from the Ministry of Finance Data from Ministry of Health and Education Bank, IMF and IADB supervision missions and reports Audit reports
46. The Bank team will visit Guatemala on a quarterly basis to monitor the outcomes of the project and will undertake field visits to the beneficiary municipalities during these missions.
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G. Key Risks and Mitigating Measures
47. As indicated in the ORAF, (Operational Risk Assessment Framework, Annex 3), the overall risk of the operation during preparation is low. During implementation it is medium risk. The medium risk of the operation during implementation is due primarily to the risk of future natural disasters, economic uncertainty, as well as the political risk in the run-up to elections in 2011. Slower growth and higher inflation are possible given damage to agriculture and high fuel prices. This increases downside risks to forecasts of medium-term economic and fiscal recovery and therefore to restoration of fiscal resilience. International donor and IFI support and the proposed fiscal reform will mitigate the risk to public finances and priority spending. The risk of future natural disasters is mitigated to some degree by the Bank’s support of the country’s development of its disaster risk mitigation strategy through the CAT-DDO.
48. While the country has unified together in support of the reconstruction plan, political risks remain, especially to the proposed re-launch of the fiscal reform and spending decisions in the run-up to elections in 2011. The current administration has a minority in Congress and has faced considerable challenges in pushing through legislative reforms. The Government is mitigating this risk through regular communication and consensus- building exercises. The involvement of the international donor community in the recovery plan has been helpful to this consensus-building effort.
H. Terms and Conditions for Project Financing
49. The Government of Guatemala selected an IBRD flexible loan with fixed spread denominated in US dollars. The repayment schedule will be linked to commitment with a final maturity of 26.5 years (including 8.5 years of grace period) and level repayments of principal. The Borrower selected February 15 and August 15 of each year as debt service payment dates and decided to pay the Front-end Fee from the loan proceeds. Finally, Guatemala whishes to maintain all financial risk management options embedded in the IBRD loan, including the Automatic Rate Fixing Option.
50. The Government selected an IBRD loan with fixed spread in order to better manage interest rate risk by fixing the interest rate on the loan immediately upon disbursement. With respect to the maturity and grace period selected, their intention is to smooth out the maturity profile of Guatemala's public debt stock, which currently has payment concentrations during the 2011 - 2018 period.
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Annex 1: Results Framework and Monitoring GUATEMALA: Emergency Support to Social Services Project
Baseline Expected* Source of Project Development Objectives Project Outcome Indicators 2010 Outcome Information October end-2011 The objective of the proposed project is (a) Maintain basic education services Ministry of to preserve health and education services (grades 1 through 9) in the 130 poorest Finance following severe flooding and other municipalities, as measured by the 37,982 37,980 (MINFIN) natural disasters that took place in number of teachers and Telesecundaria
facilitators providing education Guatemala between May and September Ministry of services. 2010. 1,915 1,910 Education (b) Maintain the three levels of health care (MINEDUC) service in the 130 poorest municipalities, as measured by the Ministry of number of health workers providing Health medical services. (MSPAS)
*Note: Expected outcomes are rounded down from baseline indicators
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Annex 2: Summary of Estimated Project Costs GUATEMALA: Emergency Support to Social Services Project
Activities Estimated Cost (US$ mil)
Component 1. Preserving Basic Education Services for Vulnerable Children 70.00 Reimbursement of teachers salaries (for salaries paid up to 12 months prior to loan signing and after the occurrence of the natural disasters i.e. May 27, 2010) in the poorest 130 municipalities and Telesecundaria facilitators in isolated rural areas
Component 2. Preserving Coverage of Health Care Services for Vulnerable Groups 29.65 Reimbursement of healthcare workers’ salaries (for salaries paid up to 12 months prior to loan signing and after the occurrence of the natural disasters i.e. May 27, 2010) Component 3. Project Management and Monitoring and Front-end Fee 0.100 Supporting DCP in the coordination of the administrative and financial management aspects of the Project, through the financing of consultants for the management, monitoring and review of the execution of the project. Front-end Fee 0.250 Total 100.00
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Annex 3: Operational Risk Assessment Framework (ORAF) GUATEMALA: Emergency Support to Social Services Project
Project Development Objective: The project development objective is to preserve health and education services following severe flooding and other natural disasters that took place in Guatemala between May and September 2010. PDO Level Results a. Maintain basic education services (grades 1 through 9) in the 130 poorest municipalities, as Indicators measured by the number of teachers and Telesecundaria facilitators providing education services.
b. Maintain the three levels of health care service in the 130 poorest municipalities, as measured by the number of health care workers providing medical services.
Risk Rating Risk Category Risk Rating Proposed Mitigation Measure Explanation
1. Project Stakeholder Risks Medium – I 1.1 Stakeholder Medium–I There is strong Bank is maintaining ongoing discussions with a consensus across wide a range of country stakeholders on emergency
political parties and recovery measures and long-run development groups about the objectives importance of the
recovery plan as well as within the international The Government has already secured nearly US$800 community. million in additional donor commitments to support its recovery plans. Nonetheless, elections are only one year away and the Government faces strong opposition. This may delay Congressional approval
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Risk Rating Risk Category Risk Rating Proposed Mitigation Measure Explanation
of measures to finance recovery efforts. 2. Implementing Agency Risks Medium-I (including FM & PR) 2.1 Capacity Low The Ministry of Finance A detailed Draft Operations Manual is being has experience working prepared by the Government for review during the within the World Bank’s negotiations/appraisal for this operation. This guidelines and Manual will document the processes to be followed procedures and has well including implementation, financial management, established processes as procurement, supervision, monitoring, and documented in the text safeguards plans’ implementation. (See Annex 4 for
details). There is no procurement of goods and services envisaged (except consultant services). 99.65% of the loan will be disbursed through country systems for salaries of teachers and health workers in the poorest municipalities and rural areas. 2.2 Governance Medium – I The main counterpart Counterparts at all levels from all three ministries will be the Ministry of are being engaged in dialogue by the Bank and will Finance, but participate in the Bank’s appraisal mission. communication with line ministries, health and
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Risk Rating Risk Category Risk Rating Proposed Mitigation Measure Explanation
education may pose a challenge.
2.3 Fraud & Corruption Low Disbursement will be The Operations Manual will specify the output against salaries of needed from the SIAF system.
teachers and health workers in the 130 poorest municipalities. These salaries are monitored and verifiable through the SIAF system (See Annex 4 for details). There is no procurement of goods and services envisaged, expect consulting services in project management. 3. Project Risks 3.1 Design Low Low risk envisaged from supporting the provision of ongoing basic social services. 3.2 Social & Environmental Low Indigenous people and The safeguards actions proposed will be supervised environmental as part of regular supervision missions safeguards will be
triggered by the operation. These
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Risk Rating Risk Category Risk Rating Proposed Mitigation Measure Explanation
safeguards will be Ongoing safeguards actions will be appraised during managed through actions the appraisal mission. that build on similar Required safeguards activities will be specified in approaches successfully the Operations Manual to be reviewed with the implemented under other Government as part of the Negotiations Package for projects in Guatemala. the operation. 3.3 Program & Donor Low There is strong donor support for the
Government’s efforts to provide basic social services to the poor segments of Guatemalan society Low There is strong 3.4 Delivery Quality commitment on the part of the Government to preserve social service delivery
Overall Risk Rating at Overall Risk Rating During Comments Preparation Implementation Low Medium-I
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Annex 4: Financial Management and Disbursement Arrangements GUATEMALA: Emergency Support to Social Services Project
4.1 This annex documents the updating of the Financial Management (FM) Assessment of the proposed Financial Management arrangements for the project that will be implemented by the Government of Guatemala, through the Public Credit Directorate (Direccion de Crédito Público – DCP) of the Ministry of Finance (MINFIN). The DCP will coordinate its implementation of the project with the Ministry of Education and Health (MINEDUC and MSPAS). The assessment was conducted by a Bank FMS in accordance with OP/BP 10.02 and FM guidelines. It also takes into account the experience of Bank financed operations in Education and Health sectors and the Public Credit directorate that were object of a FM assessment for the Expanding Opportunities for Vulnerable Groups Project (Project no. P107416). DCP will act as main responsible for the FM functions for this project.7 4.2 The entity’s FM arrangements are considered acceptable if the FM system provides reasonable assurance that: i) all transactions and balances relating to the project will be properly and completely recorded; ii) accurate, reliable and timely financial reports will be produced; iii) external auditing arrangements are acceptable to the Bank; and iv) the project assets will be adequately safeguarded. 4.3 The assessment conclusion is that FM arrangements proposed for this operation that combines country system budgetary control and accounting system SICOIN, and complementary FM arrangements will comply with Bank requirements; and financial audit reports and Bank supervision result from acceptable. 4.4 The components will be coordinated by the DCP with each sector agency of the Government with expertise in the relevant sector as follows:
a. Preserving Basic Education Services for Vulnerable Children provided in selected municipalities and lower secondary education through Telesecundaria facilitators by the Ministry of Education (MINEDUC) b. Preserving Basic Health Services provided in selected municipalities by the Ministry of Health (MSPAS), and; c. Project Coordination and Monitoring and Supervision of internationally financed projects through Dirección de Crédito Público (DCP) of the Ministry of Finance for this proposed project.
4.5 During project preparation was taken into account the use of the Single Treasury Account for Multilateral Execution in place in Guatemala, and the experience and lessons learned from other multi-sectoral projects in Guatemala. The basic underlying principle is the project execution under budgetary rules in place in Guatemala, and the control framework for the use of public resources including budgetary execution and recording that are subject to the ex post scrutiny of the Guatemala’s supreme audit institution (Contraloría General de Cuentas - CGR).
7 Similar to FM arrangements of “Expanding Opportunities for Vulnerable Groups Project” complemented by Country budgetary system arrangements trough SICOIN. 23
Specific arrangements have been designed for producing the project financial reports, external financial audit for the program and consolidation of the interim unaudited financial reports. 4.6 The project will finance salaries of qualified teachers and qualified health workers in the 130 poorest municipalities and salaries of telesecundaria facilitators. To this purpose the proposed FM arrangements look to streamline FM arrangements within the project to facilitate execution and avoid unnecessary incremental operational arrangements looking to rely as much as possible on Public Financial Management (PFM) country systems. 4.7 The operations will follow Government rules and regulations pertaining budgetary execution and payroll system controls as well. The few incremental arrangements to be performed by DCP including disbursement, accounting, financial reporting, and financial audit will be outlined in a brief Operational Manual that will contain reference to other regulation and norms applicable. 4.8 Project supervision scope will follow-up on the implementation FM performance to help support adequate functioning of FM arrangements, indicate additional mitigation measures if necessary, and monitor fiduciary risk. 4.9 Fiduciary Risks have been identified and mitigated as reflected in the ORAF matrix in Annex 3.
Description and Assessment of Project FM arrangements
Country Issues
4.10 The 2007 Update of the Country Fiduciary Assessment (CFAA/CPAR) indicates that the fiduciary environment in Guatemala is adequate, as evidenced by the improvements in the public expenditure management systems made over the previous decade and the actions being taken by the Government to continue to increase transparency. 4.11 While challenges remain, the current administration is moving ahead to strengthen its public fiduciary control framework further and has shown strong commitment to tackling fiduciary issues in many key areas identified by the Country Fiduciary Assessment. The recent Bank Operation the “Second Fiscal and Institutional Development Policy Loan” has included certain key actions and selective milestones have been identified to help track the public financial management reform progress. 4.12 The present administration has identified governance as one of its top priorities and has announced the implementation of comprehensive actions to tackle the governance issue in the country. Guatemala is a C-GAC (Country-Governance and Anti-Corruption) pilot country. The passage of the new Access to Public Information Law (Ley de Acceso a la Información Pública) in September 2008 was a significant step forward as was the creation of the Vice-Ministry of fiscal transparency and evaluation within the Ministry of Finance. 4.13 Implementation arrangements. The teachers and health workers salaries payment is processes through the payroll module (GUATENOMINA) of Guatemala Integrated Financial Management System (SIAF). The system is used to process payments to public officers and keeps record on the payments processed. Although there are some areas of improvements for
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GUATENOMINA, as the use of the personnel file included in the system, is accurate and keeps adequate registry on the salary payments made on the implementing agencies. 4.14 MINEDUC and MSPAS will pay the eligible salaries through their own budgetary system. The Loan agreement will provide definition of what is considered an eligible salary as the salary paid in the budgetary line for salaries, inciso 011 and 022, to workers through GUATENOMINA or their complementary payroll administrative system backed by SICOIN records, DCP will consolidate the financial information, keep track of cumulative figures on loan currency, prepare and submit project support documentation for withdrawal and will hire the external audit firm that will cover the financial execution with a specific scope to determine eligible salaries paid related to eligible municipalities and withdrawal applications are consistent with sector support documentation. 4.15 The overarching approach to project implementation will be to use existing capacity in the Guatemalan institutions involved, rather than creating new Project Implementation Units (PIUs). The project will be implemented under the general coordination of the DCP that will be the first contact point in FM matters with the Project and will carry out financial consolidation, disbursement management, and external audit hiring for the project. In DCP the FM functions will be under the responsibility of the Administrative chief of the office with the addition of few specialized incremental staff to manage the day to day FM processes. 4.16 Budgeting arrangements. Budget will be formulated, executed and monitored through the Government’s budget execution system SIAF, the SIAF system and its accounting module SICOIN and payroll system, GUATENOMINA, that provides details on the budgetary allocation commitment and execution with a system of classification that will provide details on the execution of each component where each co executing agency that will be used through budget lines under their annual budget envelope, for identification of eligible salaries for financing and project financial reporting purposes. 4.17 Project activities will be coordinated and implemented using structures and staff of sector agencies MINEDUC and MSPAS and respective project units in each agency in charge of existing Bank financed project implementation.8 The relevant administrative ministries units UDAF, will be responsible of executing payroll payments on the budgetary system and providing support documentation supported by project units on the payments made and any other financial information required for project audit, monitoring and supervision as well. 4.18 Accounting Policies and Procedures. The main FM regulatory framework for the proposed Project will consist of: (i) the Organic Budget Law (LOP) and its Regulations, which norm the public sector FM systems, i.e. budget, accounting, treasury, and public credit; (ii) the annual Law of the General State Budget; and (iii) the executing agency's manuals based upon the cited laws. Project-specific FM arrangements that are not contemplated in the documents cited above will be documented in a concise FM section of the project's operational manual. Among others, specific reference will be made to: (i) the role of DCP to consolidate financial reports and; (ii) the inter-institutional internal controls and the capacity and scope of the external financial audit and the responsibility of executing agencies to submit required financial information to DCP. DCP will use as Chart of Accounts for the Project reflecting sources of
8MSPAS: Guatemala Maternal and Infant Health and Nutrition Project (34315-GT); and MINEDUC: Education Quality and Secondary Education Project (36712-GT). 25
funding, disbursement categories and project components the current budget classification that will be presented summarily in project financial reports. 4.19 DCP will also prepare, based on Budgetary execution records, to be submitted to the Bank semiannually for project reporting: Interim Unaudited Financial Reports (IFR), as follows: i) Sources and uses of funds (uses by disbursement category), for each quarter and cumulative, and; and uses by component accompanied by a statement of movements in the designated account; a customized form to document eligible outputs; ii) Physical progress: providing a comparison between actual and estimated number of outputs for the period. 4.20 The transactions using advance method of financing that are under the Multilateral Single Treasury Account System (MTSA) that is used for Bank financed execution will be recorded into the Government's system for processing payments as it’s established in the MSTA manual issued by MINFIN. 4.21 Treasury System. It is important to note that with the use of country systems (SIAF) is applied in Guatemala where is established a system under the treasury of a dedicated of multilateral financed projects single treasury account (MTSA). The system has been assessed by Financial Management and Disbursement departments (LCSFM and CTR) and approved in 2008. Performance of the system has been satisfactory since its inception and no specific issues have arisen, the MTSA account, and therefore the designated accounts (called “Cuentas Secundarias” – secondary accounts) are held in dollars in the Central Bank of Guatemala (BANGUAT). Under the MTSA system the executing agencies process within the Government budget execution system SICOIN-WEB the payments as expenditures/commitments arise, they are recorded in budgetary system, and paid by Treasury in the MINFIN through the commercial banking system to suppliers, contractors or consultants. 4.22 Flow of Funds – Disbursement Arrangements. As per established on the assessment of the execution of other programs in Guatemala and taken into consideration the establishment and functioning of the MTSA, the project will have in place a designated account to execute its component expenditures under DCP management in US dollars and maintained in Banco Central de Guatemala (BANGUAT) under the MTSA system in the name of the project. Funds deposited into the DA as advances, will follow Bank’s disbursement policies and procedures, as described in the Disbursement Letter and Disbursement Guidelines. It is expected that only the Project Management and audit category will use this method of disbursement. The Designated Account ceiling is estimated in US$ 100,000. All the other categories will be disbursed based on reimbursement and retroactive financing. 4.23 WB Disbursement Methods. Considering the results of the assessments, the following disbursement methods may be used by the co executing agencies to withdraw funds from the loan account: (a) reimbursement, (b) advance, and (c) direct payment. 4.24 The Ministry of Finance will make salary payments under the project that will be reimbursed by the Bank to the Treasury under customized Statement of Expenditures (SOE) on the currency and applicable exchange rate as determined by the disbursement letter. In the case of reimbursement, DCP will request the Bank for the reimbursement of eligible salaries to the general Treasury Account and provide to the auditors and Bank supervision the support documentation to the Bank for withdrawals made.
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Table A4.1: Disbursement Table by Expenditure Categories GUATEMALA: Emergency Support to Social Services Project
Category Amount of the Loan Percentage of Expenditures to Allocated be financed (expressed in US$) (inclusive of Taxes) (1) Salaries of teachers and 70,000,000 100% Facilitators under Component 1 of the Project (2) Salaries of Health Care 29,650,000 100% Workers under Component 2 of the Project (3) Consultants’ services under 100,000 100% Component 3 of the Project (4) Front-end Fee 250,000 Amount payable pursuant to Section 2.03 of the Legal Agreement in accordance with Section 2.07 (b) of the General Conditions TOTAL AMOUNT 100,000,000
4.25 Internal and External audit. The project annual financial statements will be audited under Terms of Reference prepared in line with Bank Guidelines to be performed by independent auditor and following auditing standards acceptable to the Bank. The ToRs of reference will provide specifications for a preliminary audit report with opinion on the retroactive expenses made. DPC, which will be responsible for the hiring process that will be completed not later of four months of effectiveness to be submitted as soon as available to the Bank, but in any case not later than six months after the end of each audited year/period. The project will be subject to Government internal control framework and internal audit function that eventually could perform audit work through institutional Internal Audit Units on project execution, in which case its reports will be available to the Bank.
Table A4.2: Schedule of Audit and Financial Reports Due Date 1) Audited Project Specific Financial Statements June 30 and Complementary Financial Information 2) Audit Special Opinions . Preliminary report on retroactive financing Eight months after effectiveness . Designated Account (Special Account) June 30 3) Unaudited Interim Unaudited Financial Reports Semi Annually
4.26 Supervision Plan. The FM supervision will focus on implementation capacity providing training to FM staff at DCP, MINEDUC and MSPAS agencies prior to effectiveness and follow project supervision strategy on the project with the project team. The supervision will include review of interim reports and audit reports, visits to municipalities and review of sample of salaries support documentation as well. FM supervision scope will be adjusted by the assigned FMS according to the fiduciary performance and updated risk.
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Annex 5: Procurement Arrangements GUATEMALA: Emergency Support to Social Services Project
5.1 Bank procurement procedures (including the "Guidelines for Procurement under IBRD Loans and IDA Credits" and "Guidelines for Selection and Employment of Consultants by World Bank Borrowers" dated May 2006 and revised on October 2006 and May 2010, will apply for project financed activities.
5.2 The project will finance, through its first two components, payment of teacher salaries serving pre-primary and primary school levels from the 130 poorest municipalities in the country, and salaries of qualified health workers, respectively. Because these activities are considered as recurrent costs, no procurement processes are foreseen in their implementation. The third component of the project will support the coordination of the administrative and financial management aspects of implementation through the financing of consultants for the management, monitoring and review of the execution of the project. Selection of consultants to this end shall follow Bank’s Consultant Guidelines. No processes to finance procurement of Goods, Works and Non-Consulting Services are foreseen to be financed with this project.
5.3 Procurement activities described above will be carried out by the Public Credit Directorate (Dirección de Crédito Público – DCP) within the Ministry of Finance. A full capacity assessment of DCP was carried out while preparing the Expanding Opportunities for Vulnerable Groups Project (Report no. 49498-GT) and, given the limited number of procurement processes to be carried out with under this project (one or two processes to select consulting firms for estimated contract amounts of under US$100,000), it is concluded that DCP’s installed capacity is acceptable to successfully implement procurement related activities for those processes.
5.4 Consultant selection processes shall be carried out using Bank’s Standard Request for Proposals and Short lists of consultants for services estimated to cost less than US$200,000 equivalent per contract may be composed entirely of national consultants in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines. Given the limited number of processes, these processes will be subject to prior review by the Bank.
5.5 A simplified procurement plan for the project was agreed to between the Bank and the Public Credit Directorate of the Ministry of Finance on November 10, 2010, prior to negotiations of the Legal Agreement.
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Annex 6: Implementation and Monitoring GUATEMALA: Emergency Support to Social Services Project
6.1 In view of the importance of rapid disbursements against the urgent emergency needs being faced by the country, the operation has been designed to make full use of the implementation arrangements that are already in place and which have been used under earlier Bank-financed projects. The proposed project will be implemented by the Public Credit Directorate within the Ministry of Finance and will coordinate with the Ministry of Health and the Ministry of Education.
6.2 To enhance the efficiency of World Bank supervision, monitoring and evaluation, the core team will consist of Guatemala Country Office staff, (including the operations officer, HD specialist, and a procurement specialist), experienced task team leaders and FM specialist from headquarters. As part of the Bank’s supervision efforts, additional efforts will be made to monitor the progress and the results of the project intensively. Adequate provisioning will therefore be made in the Bank’s supervision budget for this. Consistent with OP/BP 8.00 operations, supervision funding for the emergency operations are often at levels above standard regional budgets.
6.3 Monitoring efforts will include evaluating the maintenance of education and health services. Project progress will be monitored primarily through the use of results indicators (see Annex 1) that will be captured from administrative data that is tracked in the Ministry of Finance’s management information systems (SIAF). Results of the Project will be evaluated per the outcome indicators shown in the Results Framework. The implementation of the Environmental Management Framework and safeguards related to indigenous peoples will be monitored jointly with the ongoing health and education projects and under the supervision of safeguards experts.
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Annex 7: Project Preparation and Appraisal Team Members GUATEMALA: Emergency Support to Social Services Project
Team Members:
David Gould and Rashmi Shankar (co-TTLs)
Antonio Blasco (Senior Financial Management Specialist)
Carlos Perez-Brito (Social Specialist)
Luisa Felino (Research Analyst)
Silvia Gulino (Program Assistant)
Ricardo Hernandez (Senior Environmental Specialist)
Patricia De La Fuente Hoyes (Senior Finance Officer)
Kristine Ivarsdotter (Senior Social Development Specialist)
Alvaro Larrea (Senior Procurement Specialist)
Monica Lehnhoff (Procurement Specialist)
Catalina Marulanda (Senior Environmental Specialist)
Viviana Maya (Legal Counsel)
Fernando Paredes (Country Operations Officer)
Christian Schuster (ETC Economist)
Ricardo Tejada (Financial Officer)
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Annex 8: Environmental and Social Safeguards Plans GUATEMALA: Emergency Support to Social Services Project
Environmental and Social Safeguards
8.1 This Annex describes how the proposed Project triggers environmental and social safeguards, and the Government strategy for completing environmental management and implementation of strategies to ensure that the indigenous people will benefit from the project in a meaningful way. OP/BP 4.01 (Environmental Assessment) and OP/BP 4.10 (Indigenous Peoples) are the Bank safeguard policies that apply to this operation. However, because the Project beneficiaries are overwhelmingly indigenous peoples, it is not necessary to prepare a separate indigenous peoples plan. The project will build on the two Indigenous Peoples Plans that have been prepared for the Education Quality and Secondary Education and the Maternal-Infant Health and Nutrition projects. The Environmental Screening Category for this Project is C, with limited or no adverse impact.
8.2 The Project is expected to have positive environmental and social impacts for the target communities and their immediate environment. Component 1 of the Project, Preserving Basic Education Services for Vulnerable Children, and Component 2, Preserving Coverage of Health Care Services for Vulnerable Groups, will be implemented in 15 departments (Santa Rosa, Solola, Totonicapan, Quetzaltenango, Suchitepequez, Retalhuleu, San Marcos, Huehuetenango, Quiche, Baja Verapaz, Alta Verapaz, Peten, Chiquimula, Jalapa and Jutiapa). The 130 municipalities in these departments are the poorest municipalities in Guatemala. The municipalities in the 15 departments overlap to a large extent with those that are included project areas in the Education Quality and Secondary Education and the Maternal-Infant Health and Nutrition projects.
A. Indigenous Peoples Policy (OP 4.10)
The Project
8.3 OP/BP 4.10 on Indigenous Peoples applies to Component 1 and Component 2 of the Project. Both components, (Preserving Basic Education Services for Vulnerable Children and Preserving Coverage of Health Care Services for Vulnerable Groups) will be implemented in 130 of Guatemala’s 332 municipalities. These are the municipalities with the highest poverty index, and which are predominantly populated by indigenous people who are dependent on agriculture for subsistence and commercial purposes. These municipalities were also those that were most strongly affected by the recent natural disasters, because of their dependency on agriculture. The need to help enable uninterrupted educational services is particularly important in isolated and remote regions of the country because it is unlikely that poor students will otherwise be successful in terms of education and professional development later in life. Likewise, it is important to support ongoing health care and emergency services in these areas which are the poorest health districts in the country. Especially it is important to maintain open and functioning health care centers to support the maternal-infant health care, immunizations and nutrition services. A separate Indigenous Peoples Plan will not be needed because the
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beneficiaries of the Project are pre-dominantly indigenous people. Measures will be mainstreamed throughout the Project to ensure that indigenous people are accessing benefits in socio-culturally appropriate ways, through ongoing IPPs from Education Quality and Secondary Education and the Maternal-Infant Health and Nutrition projects. Indigenous Peoples in Guatemala
8.4 According to the last national census (2002), 41% of the Guatemalan population is indigenous. Guatemala identifies 25 linguistic groups which are, in turn, classified under four ethnic groups: Ladino, Maya, Garifuna and Xinca. The majority of the indigenous people are Mayan (81%) and the population is concentrated in the northwest of the country. The departments with the highest number of indigenous people are Totonicapan, Solola, Alta Verapaz, Peten and Quinche, of which the project will be implemented in the last three (in addition to 12 other departments).
8.5 Over half of the Guatemalan population live in poverty, with a strong correlation between poverty and education achievements. Malnutrition rates among Guatemalan children is among the worst in the world. Four fifths of malnourished children are poor, again showing the correlation between poverty and malnutrition. These are but a few background numbers to emphasize the importance of maintaining uninterrupted educational and health care services in the selected municipalities which are the poorest in the country.
National Legislation related to Indigenous Peoples
8.6 National legislation pertaining to indigenous people’s issues is substantial in Guatemala, both with regard to national and international laws. The national legal framework relates extensively to intercultural bilingual education. The two most important national accords are probably the Agreement on the Identity and Rights of Indigenous People and the Socio- economic and Agrarian Accord. Guatemala has also ratified several international conventions, for example the ILO Convention 169 on Indigenous Peoples and Tribal groups and ILO Convention on Worst Forms of Child Labor.
B. Environmental Assessment (OP 4.01)
8.7 The proposed Project has potentially adverse environmental impacts that suggest its classification as category C; accordingly it would trigger the Bank’s environmental safeguard policy (OP 4.01). The proposed emergency operation will support, through the funding of salaries of essential health care staff, facilities that provide access to all three levels of health care and emergency services, which generate health care wastes that must be properly managed. The regulatory framework pertaining to the Disposal of Hospital Solid Waste in Guatemala is adequate, as determined in 2006 during the preparation of the Bank's Maternal Infant Health Project (Report no. 34315-GT), which also concluded that compliance with regulations was weak, particularly in rural areas.
8.8 The Project will use assessment instruments and other measures to avoid or mitigate any adverse environmental impacts. The project will work with the Government in the update of the 32
existing assessment of the regulatory framework and in an evaluation of the level of compliance in the municipalities covered under the operation, using existing documentation and field surveys. Based on the results of this evaluation an Environmental Management Framework will be developed, which will focus on measures to strengthen compliance with national standards for healthcare waste management, including: i) the development of action plans to ensure compliance with the country’s regulations; and (ii) measures to address the gaps in implementation or quality of implementation of the EMF.
C. Agreements, Calendar, and Disclosure of the EMF
8.9 Since the Project is being processed under OP 8.00, Rapid Response to Crises and Emergencies, preparation, consultation and disclosure of safeguards instruments, or in this case safeguards chapters of the Operations Manual, will be carried out subsequent to Board approval per OP 4.01, para 12, but prior to December 31, 2010. Any adaptations, extensions in coverage or revisions to the prior EMF and related health protocols and IPPs from the ongoing health and education projects, will be completed, consulted with key stakeholders in the Project area, and disclosed after the Board presentation and approval. It will also be disclosed on appropriate websites where the public will have one month to comment prior to finalization of the plan and disclosure of the final product. A gap analysis of implementation coverage of the existing EMF and IPPs (from the ongoing health and education projects) is currently being carried out and strategies to fill these gaps that will be detailed in the EMF and outlined in the Operations Manual. A condition for effectiveness of the Loan is the completion of the Operations Manual. In line with the OP on Environmental Assessment, the EMF will be disclosed in Guatemala in English and Spanish and on the World Bank’s website.
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Annex 9: Economic and Financial Analysis GUATEMALA: Emergency Support to Social Services Project
A. MACROECONOMIC DEVELOPMENTS
9.1 While economic growth slowed significantly during 2008 and 2009, Guatemala has shown signs of recovery in 2010. The Guatemalan economy began to slow initially in 2008 due to the impact of oil and commodity price increases and then was subsequently hit by the impact of the global financial crisis and the contraction of the economy in the US and neighboring Central American countries (Guatemala's main commercial partners). Despite Guatemala's limited exposure to toxic subprime assets, the impact of the crisis was felt through a drop in credit lines from international to Guatemalan banks, a decline in export performance, tightening domestic credit markets (and lower domestic investment) and falling remittances. After surging to 9.4 percent at the end of 2008 year-on-year, inflation fell back to -0.28 percent at the end of 2009 due to the contraction in domestic demand. As the global environment begins to stabilize, a recovery of 2.1 percent is projected in 2010, which reflects the impact of natural disasters like tropical storm Agatha in May 2010 and recovery spending.
9.2 Sound macroeconomic management laid the basis for solid growth in Guatemala prior to 2008. Prudent macroeconomic policies kept inflation and public debt manageable, while avoiding fiscal imbalances that have plagued much of the region. Reforms to improve the investment climate and reduce borrowing costs contributed to accelerating private consumption and investment. The economy grew 4.5 percent on average from 2004 to 2007 with a growth rate of 6.3 percent in 2007, its highest growth in three decades. In terms of sectors, transport/communication and financial services grew fastest, followed by tourism, energy and commerce. Domestic demand was the primary driver of economic growth in this period with private consumption and investment contributing on average 91 and 21 percent to annual growth respectively. In contrast, public consumption played a subordinated role, explaining about 1 percent of growth on average. On the back of favorable external conditions and following the implementation of DR-CAFTA in 2006 export growth contributed on average 27 percent to growth annually from 2004-2007. The domestic demand driven growth was financed through strong remittance inflows and other net capital inflows.
9.3 The Government's prudent fiscal policy stance, moderate crisis response, and low debt levels notwithstanding, the economic slow-down strained public finances, causing Guatemala to turn to multilateral support. The overall public sector deficit widened from 1.6 percent of GDP in 2008 to 3.1 percent of GDP in 2010, even without accounting for costs of reconstruction, on the back of a drop in VAT and import tax collections. In reaction to the tightening domestic credit conditions, the Central Bank eased the requirements on banks' accounting of reserves, established a temporary US-dollar fund facility for banks, and cut the policy rate. Guatemala has one of the lowest debt ratios in the region, which gave it ample headroom to borrow without endangering sustainability.
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Table A9.1: Guatemala Key Economic Indicators 2007-2014 (Percentage of GDP, unless otherwise indicated) 2007 2008 2009 2010 2011 2012 2013 2014 GDP growth (% change) 6.3 3.3 0.6 2.1 2.8 3.2 3.5 3.5 GDP per capita (% change) 3.7 0.7 -1.9 0.0 1.1 1.1 1.1 1.0 Inflation (CPI end of period % change) 8.8 9.4 -0.3 5.5 5.0 4.5 4.0 4.0
Gross domestic investment 19.6 17.9 13.6 16.1 17.4 17.9 18.4 18.9 Gross domestic savings 14.4 13.3 13.0 13.2 13.8 13.7 13.9 14.2
Total revenues and grants 12.8 12.0 11.1 11.3 11.5 11.7 11.8 11.9 Total tax revenues 12.1 11.3 10.4 10.6 10.8 11.0 11.0 11.2 Total expenditure 14.3 13.6 14.2 14.7 14.8 14.6 14.6 14.6 Current 9.5 9.2 10.1 10.6 11.1 10.8 10.8 10.8 Capital 4.8 4.5 4.1 4.1 3.7 3.8 3.8 3.8 of which reconstruction n.a. n.a. n.a. 0.3 0.4 0.5 n.a. n.a. Primary balance 0.1 -0.3 -1.7 -1.5 -0.9 -0.7 -0.7 -0.6 Overall balance -1.4 -1.6 -3.1 -3.4 -3.3 -2.9 -2.9 -2.8 Overall balance without reconstruction n.a. n.a. n.a. -3.1 -3.0 -2.4 n.a. n.a.
Current account balance -5.2 -4.5 -0.6 -2.9 -3.6 -4.2 -4.5 -4.7 Trade balance -16.1 -14.2 -8.8 -10.5 -11.6 -13.7 -14.2 -14.8 Exports (including maquila) 20.5 20.0 19.5 20.1 20.8 19.4 19.5 19.7 Imports (including maquila) -36.6 -34.3 -28.2 -30.6 -32.4 -33.1 -33.8 -34.5 Foreign direct investment 2.1 1.9 1.4 1.6 1.6 1.6 1.7 1.9 Remittances 12.3 11.2 10.6 10.2 10.5 12.5 13.0 13.4 Public Debt - NFPS Baseline Scenario 21.3 19.9 23.0 24.5 26.1 26.5 27.4 28.2 NFPS o/w External 12.1 11.0 13.0 13.8 14.5 14.0 14.3 14.1 Key variables are at their 10 -year historical averages 23.2 23.1 24.5 25.9 26.6 27.2 No policy change (constant primary balance) 23.2 23.6 26.9 29.5 31.9 34.3 Real GDP growth is at baseline minus permanent one-half standard deviation 23.2 24.7 28.0 30.4 32.9 35.5 Me morandum ite m: Nominal GDP (billions of US dollars) 34.1 39.1 37.3 40.0 41.7 43.8 46.1 48.4 Source: Ministry of Finance, Central Bank and IMF and World Bank staff estimates.
9.4 The Guatemalan economy is expected to continue to moderately recover in the medium-term - provided that the currently sound macro policy framework stays in place (see Table 1). As the international situation improves slowly, GDP growth is projected to increase to 2.1 percent in 2010 and then to average 3.3 percent over 2011-2014, as business and consumer confidence recovers post-crisis. The overall Government fiscal deficit is expected to peak in 2010 (3.4 percent once reconstruction costs are accounted for) and then to slowly revert to 2.8 percent of GDP starting in 2014. The current account deficit is forecast to average 4.2 percent of GDP over 2010-2014 relative to an average of 3.3 percent over 2007-2009 on the assumption that remittances will start to recover slightly by 2011.
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B. DEBT SUSTAINABILITY ANALYSIS
9.5 Despite the recent adverse effects generated by the global economic crisis, Guatemala’s BB+ rating9 remains stable though an increase in public debt is forecast over the next 4 years. Guatemala’s public and external debts are among the lowest in Latin America as well as within the group of lower middle-income countries. However, due to the impact of the recent global crisis on next exports, tourism, remittances, and tax revenues, he fiscal deficit will increase from 1.6 percent of GDP in 2008 to 3.1 percent of GDP in 2010 (3.4 percent once the costs of the crisis are accounted for).
9.6 Under baseline assumptions, Guatemala’s public debt is sustainable in spite of the widening fiscal deficit. Even though we project an increase of the ratio from 2009 to 2014, all vulnerability indicators remain within prudent ratios (Table 2). In the baseline, total public debt increases to 28.3 percent of GDP by 2014 from 20.2 in 2008. Primary deficit-to-GDP ratio spikes in 2009, but decreases to 0.3 percent of the GDP in 2014.
Table A9.2: Public Debt - Baseline Medium-Term Projections Actual Projections 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Public sector debt/GDP 20.8 21.8 21.7 20.2 23.8 26.0 26.9 27.5 27.9 28.3 o/w external debt 15.8 14.0 13.4 12.1 14.2 15.7 15.7 15.6 15.1 14.8 Identified debt-creating flows/GDP -0.4 0.0 -0.7 -0.7 2.6 2.1 0.9 0.3 0.3 -0.1 Primary deficit/GDP 0.3 0.6 0.3 0.3 1.2 1.1 0.6 0.3 0.3 0.3 Public sector debt-to- revenue ratio 173.4 171.3 168.5 168.3 210.6 225.9 222.6 226.5 227.9 230.5
C. FINANCIAL AND ECONOMIC ANALYSIS OF THE PROJECT
9.7 Due to the short-term emergency nature of the support to salaries in education and health in this operation, traditional financial analysis does not lend itself to this project. The economic rationale for this project is based on the likely benefit of preserving health and education services compared to the long-term developmental costs of an interruption in these services.
9.8 Investment in health and education are two of the most important actions countries can take to reduce poverty, particularly among the younger population. As recent economic research shows, the most cost-effective human capital interventions occur among young children. Investing in health and education at early stages can enable children to grow into healthy and more literate citizens who can have more positive contribution to society. Unfortunately, lack of stable or uninterrupted health and education services becomes an obstacle to future success even before a child is even born. Since poor and rural women are more likely to depend from public health services, lack of services can prevent them from receiving proper prenatal care and children from getting critical vaccinations that can eventually lead to physical
9 Fitch ratings 36
and developmental delays that cause a child to lag behind other children with access to proper services.
9.9 Uninterrupted provision of educational services is critical to promoting development. Schools located in rural and isolated areas depend more from student-teacher interactions because parents tend to struggle more to provide assistance to their children. In this context, uninterrupted provision of educational services among poor populations in Guatemala can have a long-lasting effect in the advancement of people’s careers, because now more than ever economic development is highly dependent on good quality of education and educational attainment. Sustaining social expenditures in Guatemala are critical to maintaining outcomes in basic education. From 2000 to 2009, net enrollment rate has increased in primary education from 85 percent in 2000 to 99 percent in 2009 and 25 to 40 percent in lower secondary (MINEDUC, Anuario Estadístico, 2009 and DIPLAN, 2010). For this reason, it is critical to sustain educational services provided by the Ministry of Education (MINEDUC) that is the public institution concentrating most of the programs that support the development of children and youth’s skills and nutrition. MINEDUC offers several incentives for families to enroll their children in school and to promote their attendance, for example, scholarships, school supplies, text books and a school meals-snack program.
9.10 In terms of coverage and incidence, a standard incidence analysis of individual health and education programs and services in Guatemala show important returns to poor populations. For example, primary education is pro-poor as well as services provided by the health centers, health posts and community centers that are also pro-poor. In summary, Guatemala must sustain public services to improve human capital in the form of health and education particularly for the poor in order to reduce poverty and ensure economic growth.
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Annex 10: Statement of Loans and Credits GUATEMALA: Emergency Support to Social Services Project
Difference between expected Original Amount in US$ and actual Millions disbursements Project FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig. Frm. ID Rev’d P107416 2010 GT Expanding Opport. 114.50 0.00 0.00 0.00 0.00 114.50 0.00 0.00 Vulnerable Groups P087106 2007 GT (APL2)LAND 62.30 0.00 0.00 0.00 0.00 57.47 30.60 -0.80 ADMINISTRATION P089898 2007 GT (CRL1) Education 80.00 0.00 0.00 0.00 0.00 62.57 22.73 9.43 Quality and Sec. Edu P077756 2006 GT-Maternal & Infant Health 49.00 0.00 0.00 0.00 0.00 16.41 16.41 0.00 & Nutrition P094321 2006 GT-Support Rural Econ.Dev. 30.00 0.00 0.00 0.00 0.00 27.57 23.90 0.48 Program P055085 2003 GT SECOND RURAL AND 46.70 0.00 0.00 0.00 0.00 14.82 14.82 0.00 MAIN ROADS PROJ. P066175 2002 GT INTEGRATED 49.75 0.00 0.00 0.00 0.01 9.96 - 7.97 FINANCIAL MNGT III -TA 10.03 Total: 432.25 0.01 303.30 17.08 0.00 0.00 0.00 98.43 Guatemala STATEMENT OF IFC’s Held and Disbursed Portfolio In Millions of US Dollars Committed Disbursed IFC IFC FY Company Loan Equity Quasi Partic. Loan Equity Quasi Partic. Approval 2006 Banco Industrial 0.00 0.00 30.00 0.00 0.00 0.00 15.00 0.00 2003 Cuscatlan Guatem 0.00 0.00 10.00 0.00 0.00 0.00 10.00 0.00 2000 Frutera 1.40 0.00 0.00 0.00 1.40 0.00 0.00 0.00 2002 GDO 12.29 0.00 0.00 9.67 12.29 0.00 0.00 9.67 1998 La Fragua 9.47 0.00 0.00 0.00 9.47 0.00 0.00 0.00 2004 Montana 45.00 0.00 0.00 0.00 45.00 0.00 0.00 0.00 2006 Muni Guatemala 6.65 0.00 0.00 0.00 6.65 0.00 0.00 0.00 1997 Orzunil 7.48 0.00 0.00 5.04 7.48 0.00 0.00 5.04 2000 Orzunil 1.14 0.00 0.00 0.00 0.88 0.00 0.00 0.00 Total portfolio: 83.43 0.00 40.00 14.71 83.17 0.00 25.00 14.71
Approvals Pending Commitment FY Company Loan Equity Quasi Partic. Approval
Total pending 0.00 0.00 0.00 0.00 commitment:
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EDUCATION QUALITY AND SECONDARY EDUCATION Loan No. 7430.0 Approval date: March 6, 2007 Effectiveness date: June 23, 2008 Closing date: December 31, 2013 Loan amount (US$): 80 million Undisbursed amount (US$): 62.8 million (78.5%) Amount disbursed to date (US$): 17.2 million (21.5%) Disbursed during fiscal year 2011 (US$): 4.0 million
Project Description The objective of the Education Quality and Secondary Education Project for Guatemala is to improve access to a quality lower secondary education for low income students, especially indigenous communities, through improved primary education completion rates for overage students, strengthened flexible lower secondary education modalities and school management. There are component to the project. Component one: primary education completion and quality: This component will support an integrated strategy for Basic Education (primary and lower secondary cycles) to increase primary education retention and completion of overage students, and promote their continued education at the lower secondary education level. The component will also support proposed reforms to the Pre-Service Teacher Training system. Component two: access and quality of lower secondary education: This component will support integrated strategies to increase the quality and access to lower secondary education (grades 7-9). It will include support for: (i) the curricular reform of secondary education; (ii) strengthening and expansion of existing lower secondary education modalities; and (iii) strengthening education demand programs. Component three: school management in support of education quality. This component will advance the lessons learned on school management strategies implemented at the primary school level in Guatemala. Maternal and Infant Health and Nutrition Loan No. 7357.0 Approval date: January 19, 2006 Effectiveness date: June 26, 2007 Closing date: June 30, 2011 Loan amount ( (US$): 49 million Undisbursed amount (US$): 25.5 million (52.1%) Amount disbursed to date (US$): 23.5 million (47.9%) Disbursed during fiscal year 2011 (US$): 7 million
Project Description The Maternal-Infant Health and Nutrition Project for Guatemala aims to: (a) improve maternal and infant health in the project's 40 areas of intervention; and (b) reduce chronic malnutrition among children younger than 2 years of age in the rural areas of the 70 municipalities targeted by the project. The project has the following components: (1) This component will support the development of a Maternal and Infant Health Referral Network, promote the demand for maternal and infant health care, and contribute to increase the proportion of safe institutional deliveries, the referral of obstetric emergencies directly from the community. (2) This component aims to address the problem of child malnutrition in the selected 70 municipalities by expanding coverage of community-based growth promotion and basic health services. (3) This component seeks to: (i) provide support to poor families to learn about nutrition and health programs, encourage the poor and indigenous population to utilize health and nutrition services promote changing in pattern of behavior, disseminate the population's right to utilize services, and encourage social auditing; (ii) design and implement a comprehensive monitoring and evaluation system (M&E) for the nutrition and health interventions; and (iii) measure the Project's impact on targeted population welfare. (4) This component would support the institutional capacity of the Ministry of Health to implement and administer basic health and nutrition services.
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LAND ADMINISTRATION II Loan No. 7417.0 Approval date: December 14, 2006 Effectiveness date: May 22, 2008 Closing date: December 1st, 2013 Loan amount (US$): 62.3 million Undisbursed amount (US$): 58.6 million (94.1%) Amount disbursed to date (US$): 3.7 million (5.9%) Disbursed during fiscal year 2011 (US$): 1.1 million
Project Description The second land administration project for Guatemala aims to foster the process of achieving land tenure security in seven new departments (Alta Verapaz, Baja Verapaz, Chiquimula, Escuintla, Izabal, Sacatepequez, and Zacapa) and the municipality of Palachum in the Department of Quiche, through the provision of efficient and accessible cadastral and land administration services. The project consists of the following components: 1: This component will carry out the cadastral and limited land regularization processes in the project area. 2: This component will develop the framework at the national and municipal level to support the field surveys to keep cadastral information updated and incorporate it into initiatives for local development and territorial planning. 3: This component will improve the legal framework for land administration in Guatemala and strengthen the institutional capacity of the agencies involved in its application. 4: This component covers the costs of the project coordination unit, monitoring and evaluation systems, including participatory evaluation mechanisms, independent evaluations and audits, and inter-institutional coordination activities. Project to Support a Rural Economic Development Program Loan No. 7374.0 Approval date: Effectiveness date: Closing date: March 29, 2006 November26, 2007 January 31, 2013 Approval date: March 29, 2006 Effectiveness date: November26, 2007 Closing date: January 31, 2013 Loan amount (US$): 30 million Undisbursed amount (US$): 27.9 million (92.8%) Amount disbursed to date (US$): 2.1 million (7.2%) Disbursed during fiscal year 2011 (US$): 0.4 million
Project Description The Project to Support the Rural Economic Development Program for Guatemala aims for strong indigenous involvement to improve the competitiveness of rural productive supply chains and strengthen the institutional capacity of public entities to adopt a territorial management model. The Project has three components: (1) it improves income, it invests in productive supply chains -- market access, technical assistance, seed capital, financial services, productive infrastructure investments and access to telecommunications; (2) it introduces in the institutions involved in the program a new model of public management focused on territorial management; and (3) it finances project management, monitoring and evaluation. Second Rural and Main Roads Project Loan No. 7169.0
Approval date: June 5 , 2003 Effectiveness date: November 3, 2004 Closing date: June 30, 2011 Loan amount (US$): 46.7 million Undisbursed amount (US$): 16.4 million (35.2%)
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Amount disbursed to date (US$): 30.3 million (64.8%) Disbursed during fiscal year 2011 (US$): 2.6 million
Project Description The goal of the Second Rural and Main Roads Project for Guatemala is to contribute reducing rural poverty and build social cohesion by improving and maintaining access in rural areas to markets, schools, health centers and other social and economic infrastructure through broadened community participation. By emphasizing beneficiary involvement, the project will assure that local development decisions reflect the needs and priorities of rural communities. The Government has requested this change to help alleviate the fiscal burden on municipalities. A financial analysis carried out by implementing agency indicates a recent deterioration in their financial circumstances due to reductions in fiscal transfers and in locally generated income due to the overarching economic situation in Guatemala. In this case, the availability of resources to finance capital works has been constrained. Reducing the amount through a change in the financing percentage would free up about US$1.2 million which could be reallocated by the municipalities to support their recurrent, operating costs and to reduce debt. Integrated Financial Management Additional Financing Loan No. 7522.0 Approval date: March 14 , 2002 Effectiveness date: April 18, 2003 Closing date: June 30, 2011 Loan amount (US$): 20.0 million Undisbursed amount (US$): 11.3 million (56.5%) Amount disbursed to date (US$): 8.7 million (43.5%) Disbursed during fiscal year 2011 (US$): 0.4 million
Project Objectives This project paper concerns an additional loan to the Republic of Guatemala to expand activities under the Third Integrated Financial Management Technical Assistance Project. The additional loan will help finance the cost of activities geared to deepen the Government of Guatemala's public sector modernization process, by amplifying the impact and development effectiveness of this well-performing project, and addressing pending challenges to the overall sustainability of the reform process. Specifically, the additional financing will facilitate the provision of technical assistance necessary to: i) further strengthen the budget, accounting and treasury management functions; ii) institutionalize the respective integrated financial management (SIAF) and the e-procurement (GUATECOMPRAS) systems within the Ministry of Finance; iii) support the municipalities' capacity to adopt and consolidate new procedures and systems to carry out efficient and transparent financial management; iv) strengthen the Comptroller General's Office (CGR); v) build-up and integrate public planning and public investment procedures and systems with the budget; and vi) design and institutionalize a permanent knowledge management system in the area of public expenditure management. The project focused on: i) deepening reforms in the areas of budget formulation and execution, multi-annual budgeting, accounting, cash management, debt management, public investment, public procurement, and increased relevance of monitoring performance and results; and ii) extending the (SIAF) to the remaining agencies and social funds within the central Government, and reaching executing units' levels in central Government agencies. The objective of the project is to extend and deepen the Borrower's financial sector reforms being pursued under the original project with the aim of increasing the effectiveness, efficiency, and transparency of public financial management. The project components as well as the outcomes and results framework will be restructured to accommodate the scaling up of existing components as well as the addition of new components, geared to ensure that the remaining challenges will be addressed both effectively and efficiently within the 36-month duration of the additional financing.
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Annex 11: Country at a Glance GUATEMALA: Emergency Support to Social Services Project
Guatemala at a glance 10 / 2 0 / 10
Latin Lower Key Development Indicators America middle Guatemala & Carib. income Age distribution, 2008 (2009) Male Female
Population, mid-year (millions) 14.0 566 3,767 75-79 Surface area (thousand sq. km) 10 9 20,422 31,923 60-64 Population growth (%) 2.5 1.1 1.2 Urban population (% of total population) 49 79 40 45-49 30-34 GNI (Atlas method, US$ billions) 37.2 3,865 7,709 15-19 GNI per capita (Atlas method, US$) 2,650 6,826 2,046 GNI per capita (PPP, international $) 4,590 10,496 4,481 0-4
10 5 0 5 10 GDP gro wth (%) 0.6 4.3 7.5 percent of total population GDP per capita growth (%) -1.9 3.1 6.3
(most recent estimate, 2003–2009)
Poverty headcount ratio at $1.25 a day (PPP, %) 12 8 .. Under-5 mortality rate (per 1,000) Poverty headcount ratio at $2.00 a day (PPP, %) 24 17 .. Life expectancy at birth (years) 70 73 68 Infant mortality (per 1,000 live births) 29 20 44 90 80 Child malnutrition (% of children under 5) .. 4 25 70 60 Adult literacy, male (% of ages 15 and older) 80 92 87 50 Adult literacy, female (% of ages 15 and older) 69 90 73 40 Gross primary enrollment, male (% of age group) 117 118 109 30 Gross primary enrollment, female (% of age group) 110 114 105 20 10 Access to an improved water source (% of population) 96 93 86 0 Access to improved sanitation facilities (% of population) 84 79 50 1990 1995 2000 2007
Guatemala Latin America & the Caribbean
Net Aid Flows 1980 1990 2000 2009 a
(US$ millions) Net ODA and official aid 73 201 263 536 Growth of GDP and GDP per capita (%) Top 3 donors (in 2008): Spain 0 0 15 256 8 United States 17 88 58 70 6 European Commission 0 11 21 39 4
A id (% o f GNI) 0.9 2.7 1.4 1.4 2 Aid per capita (US$) 10 23 23 39 0 -2 Long-Term Economic Trends -4 95 05 Consumer prices (annual % change) 10.7 41.0 6.0 1.9 GDP implicit deflator (annual % change) 10.0 40.5 6.8 2.4 GDP GDP per capita
Exchange rate (annual average, local per US$) 1.0 4.5 7.8 8.2 Terms of trade index (2000 = 100) ...... 1980–90 1990–2000 2000–09 (average annual growth %) Population, mid-year (millions) 7.0 8.9 11.2 14.0 2.4 2.3 2.5 GDP (US$ millions) 7,879 7,650 19,289 37,322 0.8 4.2 3.7 (% o f GDP ) Agriculture 26.9 27.3 38.2 12.4 1.2 2.8 2.9 Industry 23.8 20.9 33.2 28.5 -0.2 4.3 2.8 M anufacturing 18.0 15.9 22.1 19.8 0.0 2.8 2.8 Services 57.5 57.4 96.2 59.2 0.9 4.7 4.4
Household final consumption expenditure 78.9 83.6 83.9 87.3 1.1 4.2 4.0 General gov't final consumption expenditure 8.0 6.6 7.0 10.3 2.6 5.1 3.0 Gro ss capital fo rmatio n 15.9 13.6 17.8 13.1 -1.8 6.1 0.5
Exports of goods and services 22.2 21.0 20.2 23.4 -1.8 6.1 2.1 Imports of goods and services 24.9 24.8 29.0 33.1 -1.7 9.2 2.1 Gross savings 13.9 10.0 12.4 13.0
Note: Figures in italics are for years other than those specified. 2009 data are preliminary. .. indicates data are not available. a. Aid data are for 2008.
Development Economics, Development Data Group (DECDG).
42
Guatemala
Balance of Payments and Trade 2000 2009 Governance indicators, 2000 and 2009 (US$ millions) Total merchandise exports (fob) 3,085 7,330 Total merchandise imports (cif) 5,029 11,525 Voice and accountability Net trade in goods and services -1,705 -3,671 Political stability Current account balance -964 -217 as a % of GDP -5.2 -0.6 Regulatory quality
Rule of law Workers' remittances and compensation of employees (receipts) 596 4,026 Control of corruption
Reserves, including gold 1,756 4,806 0 255075100
2009 Central Government Finance Country's percentile rank (0-100) 2000 higher values imply better ratings (% of GDP) Current revenue (including grants) 10.4 11.1 Source: Kaufmann-Kraay-Mastruzzi, World Bank Tax revenue 9.5 10.4 Current expenditure 9.1 14.2 Technology and Infrastructure 2000 2008 Overall surplus/deficit -2.3 -3.1 Paved roads (% of total) 34.5 .. Highest marginal tax rate (%) Fixed line and mobile phone Individual .. 31 subscribers (per 100 people) 14 120 Corporate 25 31 High technology exports (% of manufactured exports) 7.9 4.1 External Debt and Resource Flows Environment (US$ millions) Total debt outstanding and disbursed 3,853 13,801 Agricultural land (% of land area) 42 42 Total debt service 390 1,686 Forest area (% of land area) 39.3 35.7 Debt relief (HIPC, M DRI) – – Terrestrial protected areas (% of surface area) .. 32.7
Total debt (% of GDP) 20.0 37.0 Freshwater resources per capita (cu. meters) 9,259 7,979 Total debt service (% of exports) 8.4 12.8 Freshwater withdrawal (billion cubic meters) 2.0 ..
Foreign direct investment (net inflows) 230 566 CO2 emissions per capita (mt) 0.88 0.97 Portfolio equity (net inflows) 0 0 GDP per unit of energy use (2005 PPP $ per kg of oil equivalent) 6.3 7.0 Composition of total external debt, 2008 Energy use per capita (kg of oil equivalent) 632 620 IBRD, 806 IDA, 0 IMF, 0 Short-term, 2,151 Other mul ti- lateral, 2,225 World Bank Group portfolio 2000 2009
Bilateral, 366 (US$ millions)
IB RD Total debt outstanding and disbursed 296 1,112 Disbursements 51 379 Private, 9,223 Principal repayments 13 72 Interest payments 21 41
US$ millions IDA Total debt outstanding and disbursed – – Disbursements – – Private Sector Development 2000 2009 Total debt service – –
Time required to start a business (days) – 29 IFC (fiscal year) Cost to start a business (% of GNI per capita) – 45.4 Total disbursed and outstanding portfolio 118 164 Time required to register property (days) – 27 of which IFC own account 84 158 Disbursements for IFC own account 21 87 Ranked as a major constraint to business 2000 2009 Portfolio sales, prepayments and (% of managers surveyed who agreed) repayments for IFC own account 9 6 Co rruptio n .. 80.9 Crime .. 80.4 MIGA Gross exposure 18 100 Stock market capitalization (% of GDP) 0.9 .. New guarantees 0 0 Bank capital to asset ratio (%) 8.9 10.3
Note: Figures in italics are for years other than those specified. 2009 data are preliminary. 10/20/10 .. indicates data are not available. – indicates observation is not applicable.
Development Economics, Development Data Group (DECDG). 43
Annex 12: Major Development Partner Support Provided or Pledged For Government Plan10 GUATEMALA: Emergency Support to Social Services Project Humanitarian Asset Recovery & Economic Reactivation Institutional Assistance, Roads Infrastructure Rural & Social Development Strengthening: Disaster Climate Change Rehabilitation & Risk Management Housing
Spain Emergency US$US$7.2m for educational US$30m for water Relief Goods infrastructure; US$2.2m for and climate change malnutrition; US$3.7m for & US$15m in housing restructuring for mitigation Japan Emergency US$120m loan for US$11m Grant for US$4m in TA For Disaster Relief Goods Road Infrastructure Hydroelectric Plants Risk Management Sweden Emergency US$25m for recovery of livelihoods; US$3.4m for
Bilateral Donors Bilateral Donors Relief Goods humanitarian aid Italy Emergency 20m EUR (US$28m) loan in support of ‘Reconstruction with Transformation’ Plan; 2m EUR (US$2.8m) in Relief Goods grants for a multi-sector emergency program IADB Emergency US$30m in Restructured Funds US$250m loan for Relief Climate Change Adaption CABEI Food Assistance US$265m in loans, including US$80m for bridges, and US$6m in Technical US$50 in food security Assistance for CONRED European Union Food, Shelter US$53m in loans and grants for Subsidies to related US$2.5m in grants for nutrition and food security private sector disaster reduction planning investments UN Organizations Water & US$45m in Grants for Various Programs in Support of the Reconstruction Plan Sanitation, Shelter, Disease Control, Food Assistance Multilateral Organizations Multilateral World Bank (IBRD) A proposed US$15m US$114.5m Expanding - US$85m CAT-DDO; in restructured funds Opportunities for Vulnerable US$0.75m grant for local for reconstruction of Groups Project; health and disaster risk management bridges education projects
10 Based on preliminary pledges made at the International Cooperation Conference for Reconstruction with Transformation in Guatemala City, October 11-12, 2010, as well as the list of commitments drawn from the financial tracking service of humanitarian assistance in response to the Tropical Storm Agatha compiled by OCHA (as of September 28, 2010). Several additional donors noted their intention to support the Plan without quantifying their possible contributions. 44
Annex 13: Guatemalan Municipalities in Extreme Poverty GUATEMALA: Emergency Support to Social Services Project
# Department Municipality # Department Municipality
1 Sololá Santa Cruz La Laguna 66 Alta Verapaz Panzós 2 Sololá Santiago Atitlán 67 Huehuetenango Santa Eulalia 3 Quiché San Bartolomé Jocotenango 68 Huehuetenango San Mateo Ixtatán 4 Totonicapán Santa Lucía La Reforma 69 Huehuetenango Barillas 5 Chiquimula Olopa 70 Alta Verapaz Senahú 6 Chiquimula San Juan Ermita 71 Alta Verapaz Chahal 7 Totonicapán Santa María Chiquimula 72 Alta Verapaz Lanquín 8 Chiquimula Jocotán 73 Huehuetenango Todos Santos Cuchumatán 9 Chiquimula Camotán 74 Huehuetenango San Miguel Acatán 10 Alta Verapaz Chisec 75 Alta Verapaz Tamahú 11 Alta Verapaz Raxruhá 76 Alta Verapaz Tucurú 12 Alta Verapaz Fray Bartolomé de las Casas 77 Quiché Chajul 13 Alta Verapaz Cahabón 78 Quiché San Antonio Ilotenango 14 Totonicapán Momostenango 79 Quiché Zacualpa 15 San Marcos San José Ojetenam 80 San Marcos La Reforma 16 Huehuetenango Tectitán 81 San Marcos San Miguel Ixtahuacán 17 Sololá Santa Clara La Laguna 82 Sololá Santa Catarina Ixtahuacán 18 Sololá San Juan La Laguna 83 Quiché Joyabaj 19 Sololá San Pablo La Laguna 84 Jalapa San Pedro Pinula 20 Sololá San Marcos La Laguna 85 Zacapa La Unión 21 Huehuetenango Cuilco 86 Alta Verapaz Tactic 22 San Marcos Tajumulco 87 Izabal El Estor 23 Huehuetenango Aguacatán 88 Izabal Livingston 24 San Marcos Sibinal 89 Huehuetenango Santiago Chimaltenango 25 Huehuetenango La Democracia 90 Quiché Patzité 26 Huehuetenango La Libertad 91 Quiché Chinique 27 San Marcos Tejutla 92 Quiché San Juan Cotzal 28 Huehuetenango San Idelfonso Ixtahuacán 93 Quiché Nebaj 29 San Marcos Concepción Tutuapa 94 Quetzaltenango Cabricán 30 San Marcos Comitancillo 95 Alta Verapaz Santa Catalina La Tinta 31 Huehuetenango San Pedro Necta 96 Alta Verapaz Santa Cruz Verapaz 32 San Marcos Ixchiguán 97 Sololá San Lucas Tolimán 33 Totonicapán San Bartolo Aguas Calientes 98 Quiché Chichicastenango 34 Totonicapán San Andrés Xecul 99 Quetzaltenango Cajolá 35 Totonicapán Totonicapán 100 Quetzaltenango Palestina de Los Altos 36 Baja Verapaz Rabinal 101 Quetzaltenango San Martín Sacatepéquez 37 Baja Verapaz Cubulco 102 Jutiapa Yupiltepeque 38 Totonicapán San Cristóbal Totonicapán 103 Jutiapa Zapotitlán 39 Totonicapán San Francisco El Alto 104 Jutiapa El Adelanto 40 Petén Sayaxché 105 Sololá San José Chacayá 45 41 Quiché Ixcán 106 Sololá Sololá 42 Quiché Sacapulas 107 Jalapa Mataquescuintla 43 Quiché Cunén 108 Baja Verapaz San Miguel Chicaj 44 Quiché San Pedro Jocopilas 109 Baja Verapaz Purulhá 45 Quiché San Andrés Sajcabajá 110 Huehuetenango San Juan Ixcoy 46 Huehuetenango San Sebastián Huehuetenango 111 Alta Verapaz San Cristóbal Verapaz 47 Huehuetenango San Rafael Pétzal 112 Alta Verapaz Cobán 48 Huehuetenango San Juan Atitán 113 Jalapa Jalapa 49 Jalapa San Carlos Alzatate 114 Retalhuleu El Asintal 50 Jutiapa Comapa 115 Huehuetenango Nentón 51 Quetzaltenango Huitán 116 Jutiapa Moyuta 52 Jutiapa Conguaco 117 Sololá Concepción 53 Huehuetenango San Gaspar Ixchil 118 Jutiapa Jutiapa 54 Quiché Uspantán 119 Petén La Libertad 55 Huehuetenango Santa Bárbara 120 Suchitepéquez San Miguel Panán 56 Huehuetenango Colotenango 121 Suchitepéquez San Antonio Suchitepéquez 57 Sololá San Antonio Palopó 122 Suchitepéquez Chicacao 58 Quiché Canillá 123 Santa Rosa San Rafael Las Flores 59 Quiché Chiché 124 Santa Rosa San Juan Tecuaco 60 Quiché Chicamán 125 Santa Rosa Santa María Ixhuatán 61 Alta Verapaz San Pedro Carchá 126 San Marcos San Lorenzo 62 Huehuetenango San Sebastián Coatán 127 San Marcos Sipacapa 63 Huehuetenango San Rafael La Independencia 128 San Marcos Tacaná 64 Sololá Nahualá 129 San Marcos El Quetzal 65 Alta Verapaz San Juan Chamelco 130 San Marcos Nuevo Progreso
46
Annex 14: Map (IBRD #33413R1)
47 IBRD 33413R1
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e A SOLOLSSOLOLÁOLOLÁ E ChimaltenangoChimaltenango r TZ LTTENANGO CHIQUIMULACHIQUIMULA E a L.Atitlan A JJalapaalapa QU EsquipulasEsquipulas MazatenangoMazatenango IM SACATE-SACATE- GUATEMALAGUATEMALA HONDURAS RetalhuleuRetalhuleu H AntiguaAntigua JALAPAJALAPA Z M CHIMALC Ocós E a PEQUEZPEQUEZ GuatemalaGuatemala U d Q RRETALHULEUETALHULEU E r P e E JutiapaJutiapa IT EscuintlaEscuintla CuilapaCuilapa Champerico H C U JUTIAPAJUTIAPA SUCHITEPEQUEZS SANTASANTA ESCUINTLAE S C U I N T L A ROSAROSA 14°N 14°N
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Las Lisas ELEL SSALVADORALVADOR
0 20 40 60 Kilometers To La Unión
0 10 20 30 40 50 Miles To La Unión
This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information PACIFIC OCEAN shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries. 13°N 13°N ° ° ° ° 92 W 91 W90W89W 88°W
NOVEMBER 2006