Document of The World Bank
Public Disclosure Authorized Report No: ICR00002037
IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA-H5070) (IDA-H5840)
ON A
PROGRAMMATIC CREDIT IN THE AMOUNT OF SDR 5.4 MILLION
Public Disclosure Authorized (US$8 MILLION EQUIVALENT)
AND A
PROGRAMMATIC CREDIT IN THE AMOUNT OF SDR 4.0 MILLION (US$6 MILLION EQUIVALENT)
TO THE
FOR A Public Disclosure Authorized ECONOMIC GOVERNANCE REFORM GRANT (I AND II)
December 29, 2011
Poverty Reduction and Economic Management 4 (AFTP4) Country Department Francophone Africa 1 Public Disclosure Authorized Africa Region
CURRENCY EQUIVALENTS (Exchange Rate Effective December 1, 2011)
Currency Unit = CFAF CFA Franc 1.00 = US$ 0.002 US$ 1.00 = 492.0
FISCAL YEAR January 1 – December 31
ABBREVIATIONS AND ACRONYMS
AfDB African Development Bank AIDS Acquired Immune Deficiency Syndrome ANP National People‘s Assembly APR Annual Progress Report ASECNA Agency for Aerial Navigation Safety in Africa and Madagascar ASYCUDA Automated System for Custom Data BCEAO West African States‘ Central Bank BOAD West Africa Development Bank CAIA Centro de Avaliação de Impacto Ambiental CCIA Chamber of Commerce, Industry and Agriculture of Guinea-Bissau CEM Country Economic Memorandum CENFA National Center of Training and Administration CFE Centro de Formalização das Empresas CFAA Country Financial Accountability Assessment CFAF African Financial Community Franc CoM Council of Ministers CPAR Country Procurement Assessment Review CPU Central Procurement Unit CRW Crisis Response Window DB Doing Business DENARP Documento de Estrategia Nacional para a Redução da Pobreza DFC Directorate of Financial Control DGO Directorate of Budget DRRP Demobilization, Reinsertion and Reintegration Program EAGB Electricity and Water Company of Guinea-Bissau ECOWAS Economic Community of West African Countries EGRG Economic Governance Reform Grant EFA Education For All ECF Extended Credit Facility EGRG(s) Economic Governance Reform Grant(s) ENA National Administration School EPCA Emergency and Post-Conflict Assistance EU European Union FIAS Foreign Investment Advisory Services FSF Fragile State Facility GNI Gross National Income GDP Gross Domestic Product HIP High Impact Program HIPC Heavily Indebted Poor Countries HIV Human Immunodeficiency Virus IDA International Development Association IFAD International Fund for Agriculture Development IGF General Finance Inspectorate IMF International Monetary Fund
INE National Institute of Statistics INEP National Institute for Studies and Research IPSA Integrated Poverty and Social Assessment ISN Interim Strategy Note LDP Letter of Development Policy LICUS Low Income Countries Under Stress MDG(s) Millennium Development Goal(s) MDRI Multilateral Debt Relief Initiative MoF Ministry of Finance MW Mega-Watts NGO Non-Governmental Organization OHADA Organization for the Harmonization of Business Law in Africa OPCS Operations Policy and Country Services PAIGC African Party for the Independence of Guinea and Cape Verde PARAP Public Administration Reform Support Project PEFA Public Expenditure Financial Accountability PEMFAR Public Expenditure Management and Financial Accountability Review PFM Public Financial Management PLACON Platform for Consultation in Guinea-Bissau PPIAF Public-Private Infrastructure Advisory Facility PPGD Public Procurement General Directorate PPP Public-Private Partnership PRA Procurement Regulatory Authority PRGF Poverty Reduction and Growth Facility PRSP Poverty Reduction Strategy Paper PSD Private Sector Development PSRDP Private Sector Rehabilitation and Development Project SDR Special Drawing Rights SIGFIP Integrated Public Financial Management System SMP Staff-Monitored Program SNA National Accounts System SOEs State-Owned Enterprises SPF State- and Peace-Building Fund SYGADE Debt Management Analysis System TFSCB Trust Fund for Statistical Capacity Building UN United Nations UNCTAD United Nations Conference on Trade and Development UNODC United Nations Office on Drugs and Crime UNDP United Nations Development Program WAEMU West-African Economic and Monetary Union WFP World Food Program
Vice President : Obiageli K. Ezekwesili Country Director : Vera Songwe Sector Director : Marcelo Giugale Sector Manager : Miria Pigato Task Team Leader : Alain D‘Hoore ICR Team Leader : Carlos B. Cavalcanti
GUINEA-BISSAU ECONOMIC GOVERNANCE REFORM GRANT (I AND II) CONTENTS
Data Sheet A. Basic Information B. Key Dates C. Ratings Summary D. Sector and Theme Codes E. Bank Staff F. Results Framework Analysis G. Ratings of Program Performance in ISRs H. Restructuring
1. Program Context, Development Objectives and Design ...... 1 2. Key Factors Affecting Implementation and Outcomes ...... 9 3. Assessment of Outcomes ...... 14 4. Assessment of Risk to Development Outcome ...... 18 5. Assessment of Bank and Borrower Performance ...... 18 6. Lessons Learned ...... 22 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners ...... 23 Annex 1: Bank Lending and Implementation Support/Supervision Processes ...... 24 Annex 2: Beneficiary Survey Results ...... 25 Annex 3: Stakeholder Workshop Report and Results ...... 26 Annex 4: Summary of Borrower's ICR and/or Comments on Draft ICR ...... 27 Annex 5: Comments of Cofinanciers and Other Partners/Stakeholders ...... 28 Annex 6: List of Supporting Documents (in chronological order): ...... 29 Annex 7: Key Risks Identified in the EGRG I and II ...... 30 Annex 8: Selected Economic and Financial Indicators, 2008-11 ...... 31 Annex 9: Good Practice Principles on Conditionality ...... 31 Annex 10: Map of Guinea-Bissau ...... 33
List of Tables Table 1: A Fragile Context Characterized by Continuous Instability ...... 2 Table 2: Prior Actions for EGRG I ...... 5 Table 3: Prior Actions for EGRG II ...... 6
A. Basic Information
Program 1 Economic Governance Country Guinea-Bissau Program Name Reform Grant-I Program ID P107493 L/C/TF Number(s) IDA-H5070 ICR Date 08/02/2011 ICRR Type Core ICRR REPUBLIC OF Lending Instrument DPL Borrower GUINEA-BISSAU Original Total XDR 5.4M Disbursed Amount XDR 5.4M Commitment
Implementing Agencies Ministerio das Finanças Cofinanciers and Other External Partners Program 2 Economic Governance Country Guinea-Bissau Program Name Reform Grant-II Program ID P114937 L/C/TF Number(s) IDA-H5840 ICR Date 08/02/2011 ICR Type Core ICR REPUBLIC OF Lending Instrument DPL Borrower GUINEA-BISSAU Original Total XDR 4.0M Disbursed Amount XDR 4.0M Commitment
Implementing Agencies Ministerio das Finanças
Cofinanciers and Other External Partners
B. Key Dates Economic Governance Reform Grant-P107493 Revised / Actual Process Date Process Original Date Date(s) Concept Review: 01/08/2009 Effectiveness: 08/04/2009 08/04/2009 Appraisal: 04/20/2009 Restructuring(s): Approval: 06/16/2009 Mid-term Review: Closing: 12/31/2009 12/31/2009
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Economic Governance Reform Grant-P114937 Revised / Actual Process Date Process Original Date Date(s) Concept Review: 01/27/2010 Effectiveness: 06/29/2010 08/05/2010 Appraisal: 04/15/2010 Restructuring(s): Approval: 06/29/2010 Mid-term Review: Closing: 12/31/2010 12/31/2010
C. Ratings Summary C.1 Performance Rating by ICR Overall Program Rating Outcomes Satisfactory Risk to Development Outcome Substantial Bank Performance Satisfactory Borrower Performance Moderately Satisfactory
C.2 Detailed Ratings of Bank and Borrower Performance (by ICRR) EGRG-I Bank Ratings Borrower Ratings Moderately Moderately Quality at Entry Government: Satisfactory Satisfactory Quality of Implementing Moderately Satisfactory Supervision: Agency/Agencies: Satisfactory Overall Bank Overall Borrower Moderately Satisfactory Performance Performance Satisfactory EGRG-II Bank Ratings Borrower Ratings Moderately Moderately Quality at Entry Government: Satisfactory Satisfactory Quality of Implementing Moderately Satisfactory Supervision: Agency/Agencies: Satisfactory Overall Bank Overall Borrower Moderately Satisfactory Performance Performance Satisfactory Overall Series Rating Bank Ratings Borrower Ratings Moderately Moderately Quality at Entry Government: Satisfactory Satisfactory Quality of Implementing Moderately Satisfactory Supervision: Agency/Agencies: Satisfactory Overall Bank Overall Borrower Moderately Satisfactory Performance Performance Satisfactory
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C.3 Quality at Entry and Implementation Performance Indicators Economic Governance Reform Grant-I-P107493 Implementation QAG Assessments Indicators Rating: Performance (if any) Potential Problem Quality at Entry Program at any time No None (QEA) (Yes/No): Problem Program at any Quality of Yes None time (Yes/No): Supervision (QSA) DO rating before Moderately
Closing/Inactive status Unsatisfactory Economic Governance Reform Grant-II- P114937 Implementation QAG Assessments Indicators Rating: Performance (if any) Potential Problem Quality at Entry Program at any time No None (QEA) (Yes/No): Problem Program at any Quality of No None time (Yes/No): Supervision (QSA) DO rating before Satisfactory Closing/Inactive status
D. Sector and Theme Codes Economic Governance Reform Grant-I-P107493 Original Actual Sector Code (as % of total Bank financing) Central government administration 57 57 General industry and trade sector 43 43
Theme Code (as % of total Bank financing) Administrative and civil service reform 14 14 Legal institutions for a market economy 23 23 Other financial and private sector development 7 7 Public expenditure, financial management and 42 42 procurement Regulation and competition policy 14 14
Economic Governance Reform Grant-II-P114937 Original Actual Sector Code (as % of total Bank financing) Central government administration 67 67 General industry and trade sector 22 22 Telecommunications 11 11
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Theme Code (as % of total Bank financing) Public expenditure, financial management and 67 67 procurement Regulation and competition policy 33 33
E. Bank Staff Economic Governance Reform Grant-I-P107493 Positions At ICR At Approval Vice President: Obiageli Katryn Ezekwesili Obiageli Katryn Ezekwesili Country Director: Vera Songwe Habib M. Fetini Sector Manager: Miria A. Pigato Antonella Bassani Task Team Leader: Alain W. D‘Hoore Alain W. D'Hoore ICR Team Leader: Carlos Cavalcanti ICR Primary Author: Carlos B. Cavalcanti Economic Governance Reform Grant-II-P114937 Positions At ICR At Approval Vice President: Obiageli Katryn Ezekwesili Obiageli Katryn Ezekwesili Country Director: Vera Songwe Habib M. Fetini Sector Manager: Miria A. Pigato E. Philip English Task Team Leader: Alain D‘Hoore Alain W. D'Hoore ICR Team Leader: Carlos B. Cavalcanti ICR Primary Author: Carlos B. Cavalcanti
F. Results Framework Analysis
Program Development Objectives (from Program Document)
There were three Program Development Objectives (PDO) associated with these operations: (i) promote efficiency, transparency and accountability in the use of public resources through improved budget and public financial management (PFM) (EGRG I and II); (ii) foster private sector development mainly through the development of a modern legal framework for private investment and improvements in the business environment (EGRG I); and (iii) improve specific aspects of the investment climate, including streamline procedures for business registration and targeted reforms of the legal framework (EGRG II).
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Revised Program Development Objectives (as approved by original approving authority)
(a) PDO Indicator(s)
Economic Governance Reform Grant -I- P107493
Indicator Baseline Original Target Formally Actual Value Value Values (from Revised Achieved at approval Target Completion or documents) Values Target Years
Indicator 1 : PEFA indicator on orderliness and participation in the annual budget process. Value Rating C Rating C+ Rating C (quantitative or Qualitative) Date achieved 12/31/2008 12/31/2009 12/31/2009 Comments No change in rating was observed since a more recent PEFA has not been (incl. % conducted as initially planned. Improvements in orderliness in budget achievement) preparation and reporting became apparent only in 2010 (see results for the EGRG II). Indicator 2 : PEFA indicator on effectiveness of internal controls for non-salary expenditure. Value Rating D Rating D. (no Rating D (quantitative or change from Qualitative) baseline targeted since relevant reforms are expected to yield improvements by 2010) Date achieved 12/31/2008 12/31/2009 12/31/2009 Comments No change in rating was observed since a more recent PEFA has not been (incl. % conducted as initially planned. Nonetheless, strict controls in budget achievement) execution resulted in the continuous reduction of arrears since 2009. Indicator 3 : PEFA indicator on classification of the budget. Value Rating D Rating C Rating D (quantitative or Qualitative) Date achieved 12/31/2008 12/31/2009 12/31/2009 Comments No change in rating was observed since a more recent PEFA has not been (incl. % conducted as initially planned. The 2010 budget had been prepared under the achievement) new classification.
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Indicator 4 : PEFA indicator on effectiveness of payroll controls. Value D D D (quantitative or Qualitative) Date achieved 12/31/2008 12/31/2009 12/31/2009 Comments No change in rating was observed since a more recent PEFA has not been (incl. % conducted as initially planned. Government performed a biometric census of achievement) the civil service in 2009 and stopped new recruitments. Results were reflected in the following years. Indicator 5 : Percent of budget managers using procedures manual. Value 0 25 0 (quantitative or Qualitative) Date achieved 12/31/2008 12/31/2009 12/31/2009 Comments Procedures manuals were published in May 2010. (incl. % achievement) Indicator 6 : Consistency of legal framework with WAEMU directive on external control. Value Not ensured Ensured Not Ensured (quantitative or Qualitative) Date achieved 12/31/2008 12/31/2009 12/31/2009 Comments By the end of 2010, the draft law proposal for the Court of Accounts had not (incl. % been prepared by the government. achievement) Indicator 7 : Executed allocation for education as percent of original total budget, excluding debt service. Value 8 11.7 11 (quantitative or Qualitative) Date achieved 12/31/2008 12/31/2009 12/31/2009 Comments Target 100 percent achieved. Source: 2010 CPIA. (incl. % achievement) Indicator 8 : Number of quarterly budget execution reports produced per year. Value 0 2 0 (quantitative or Qualitative) Date achieved 12/31/2008 12/31/2009 12/31/2009 Comments Quarterly reports began to be prepared and released in 2010. (incl. % achievement)
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Indicator 9 : Number of months to produce the annual debt report following the previous year. Value No debt report 12 12 (quantitative or Qualitative) Date achieved 12/31/2008 12/31/2009 12/31/2009 Comments Annual debt reports began to be prepared and released in 2010. (incl. % achievement) Indicator 10 : Number of months to submit previous year‘s government accounts to the Supreme Audit Court. Value No accounts submitted 24 18 (quantitative or Qualitative) Date achieved 12/31/2008 12/31/2009 12/31/2009 Comments Target exceeded. Source: 2010 CPIA. (incl. % achievement) Indicator 11 : Percentage of civil servants registered in the unified system. Value 0 75 0 (quantitative or Qualitative) Date achieved 12/31/2008 12/31/2009 12/31/2009 Comments Unified payroll system was fully operational in 2010. (incl. % achievement) Indicator 12 : National business laws consistent with regional WAEMU standards. Value No Yes Yes (quantitative or Qualitative) Date achieved 12/31/2008 12/31/2009 12/31/2009 Comments Target 100 percent achieved. Source: 2010 CPIA. (incl. % achievement) Indicator 13 : Existence of clear statutes on public-private partnerships that foster transparency and competition in awarding PPP contracts. Value No Yes Yes (quantitative or Qualitative) Date achieved 12/31/2008 12/31/2009 12/31/2009 Comments Target 100 percent achieved. Source: 2010 CPIA. (incl. % achievement)
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Indicator 14 : Existence of statutory provisions that authorize case by case negotiations on granting private investment incentives. Value Yes No No (quantitative or Qualitative) Date achieved 12/31/2008 12/31/2009 12/31/2009 Comments Target 100 percent achieved. Source: EGRG-II program document (incl. % achievement) Indicator 15 : Total number of procedures to open a business, deal with construction permits, register property, and enforce contracts. Value 82 82 (no change 80 (quantitative or from baseline Qualitative) targeted since relevant reforms are expected to yield improvements by 2010) Date achieved 12/31/2008 12/31/2009 12/31/2009 Comments Target 100 percent achieved. Source: 2011 Doing Business Report (incl. % achievement) Indicator 16 : Existence of a legal framework for the telecom sector that fosters competition and transparency. Value Partial Yes No (quantitative or Qualitative) Date achieved 12/31/2008 12/31/2009 12/31/2009 Comments The telecom law was adopted in May 2010. Source: EGRG-III program (incl. % document. achievement) Indicator 17 : Number of days to start a business. Value 233 233 (no change 233 (quantitative or from baseline Qualitative) targeted since relevant reforms were expected to yield improvements by 2010) Date achieved 12/31/2008 12/31/2009 12/31/2009 Comments Target 100 percent achieved. Source: 2010 Doing Business Report. It is (incl. % important to note that the methodology of the Doing Business report estimates
viii achievement) the number of days to start a business by assigning one to two days for each procedure, and more time than that for more lengthy procedures such as making the company seal. It is believed that this methodology sometimes overestimates the number of days to start a business since many of these steps can be completed simultaneously (except obviously making the company seal). The team estimates that the actual number of days to start a business has already dropped to 20.
Economic Governance Reform Grant -II- P114937
Indicator Baseline Original Target Formally Actual Value Value Values (from Revised Achieved at approval Target Completion or documents) Values Target Years
Indicator 1 : PEFA indicator on orderliness and participation in the annual budget process. Value Rating C Rating B+ Rating C (quantitative or Qualitative) Date achieved 12/31/2008 12/31/2010 12/31/2010 Comments No change in rating was observed since a more recent PEFA has not been (incl. % conducted as initially planned. Nonetheless, significant change in the achievement) orderliness of the budget process has been observed since 2010 with the timely submission of budget proposals and State General Accounts in 2010 and 2011. Indicator 2 : PEFA indicator on effectiveness of internal controls for non-salary expenditure. Value Rating D Rating D. Rating D (quantitative or Qualitative) Date achieved 12/31/2008 12/31/2010 12/31/2010 Comments No change in rating was observed since a more recent PEFA has not been (incl. % conducted as initially planned. Nonetheless, improvements on internal achievement) controls have been reflected in the reduction of government arrears in 2009- 2011. Indicator 3 : PEFA indicator on classification of the budget. Value Rating D Rating C Rating D (quantitative or Qualitative) Date achieved 12/31/2008 12/31/2010 12/31/2010 Comments No change in rating was observed since a more recent PEFA has not been (incl. % conducted as initially planned. The government adopted a new budget achievement) classification following WAEMU directives in 2009. Budget 2010 was prepared using this new classification.
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Indicator 4 : PEFA indicator on effectiveness of payroll controls. Value D D D (quantitative or Qualitative) Date achieved 12/31/2008 12/31/2010 12/31/2010 Comments No change in rating was observed since a more recent PEFA has not been (incl. % conducted as initially planned. The government conducted a biometric census achievement) of the civil service in 2009. The results from this census were reflected in the elimination of ghost and double dippers workers from the payroll in 2010. Further controls on the payroll resulted in a reduction of the personnel expenses to domestic revenue ratio from 100 percent in 2008 to 70 percent in 2010-11. Indicator 5 : Percent of budget managers using procedures manual. Value 0 50 >50 (quantitative or Qualitative) Date achieved 12/31/2008 12/31/2010 12/31/2010 Comments Procedures manuals were adopted in 2010. By the end of this year more than (incl. % 50 percent of managers were using the manuals. achievement) Indicator 6 : Consistency of legal framework with WAEMU directive on external control. Value Not ensured Ensured Not Ensured (quantitative or Qualitative) Date achieved 12/31/2008 12/31/2010 12/31/2009 Comments Law on Court of Accounts was not submitted by 2011. (incl. % achievement) Indicator 7 : Executed allocation for education as percent of original total budget, excluding debt service. Value 8 13 12 (quantitative or Qualitative) Date achieved 12/31/2008 12/31/2010 12/31/2010 Comments Target partially achieved. Source: 2010 CPIA. (incl. % achievement) Indicator 8 : Number of quarterly budget execution reports produced per year. Value 0 4 4 (quantitative or Qualitative) Date achieved 12/31/2008 12/31/2010 12/31/2010 Comments Target 100 percent achieved. Sources: 2010 CPIA and IMF Staff Reports. (incl. % achievement) x
Indicator 9 : Number of months to produce the annual debt report following the previous year. Value No debt report 3 12 (quantitative or Qualitative) Date achieved 12/31/2008 12/31/2010 12/31/2010 Comments Target not achieved. Source: 2010 CPIA (incl. % achievement) Indicator 10 : Number of months to submit previous year‘s government accounts to the Supreme Audit Court. Value No accounts submitted 12 9 (quantitative or Qualitative) Date achieved 12/31/2008 12/31/2010 12/31/2010 Comments Target exceeded. Source: 2010 CPIA. (incl. % achievement) Indicator 11 : Percentage of civil servants registered in the unified system. Value 0 95 80 (quantitative or Qualitative) Date achieved 12/31/2008 12/31/2010 12/31/2010 Comments Despite the strong process, target was partially achieved. Source: EGRG-III (incl. % Program Document. achievement) Indicator 12 : National business laws consistent with regional WAEMU standards. Value No Yes Yes (quantitative or Qualitative) Date achieved 12/31/2008 12/31/2010 12/31/2010 Comments Target 100 percent achieved, OHADA acts were adopted in 2009. Source: (incl. % 2010 CPIA. achievement) Indicator 13 : Existence of clear statutes on public-private partnerships that foster transparency and competition in awarding PPP contracts. Value No Yes Yes (quantitative or Qualitative) Date achieved 12/31/2008 12/31/2010 12/31/2010 Comments Target 100 percent achieved, PPP law was adopted in 2009. Source: 2010 (incl. % CPIA. achievement)
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Indicator 14 : Existence of statutory provisions that authorize case by case negotiations on granting private investment incentives. Value Yes No No (quantitative or Qualitative) Date achieved 12/31/2008 12/31/2010 12/31/2010 Comments Target 100 percent achieved. Source: EGRG-III program document. (incl. % achievement) Indicator 15 : Total number of procedures to open a business, deal with construction permits, register property, and enforce contracts. Value 82 60 77 (quantitative or Qualitative) Date achieved 12/31/2008 12/31/2010 12/31/2010 Comments Target 100 percent achieved. Source: 2011 Doing Business Report. This (incl. % indicator was reduced to 69 procedures according to the DB 2012. achievement) Indicator 16 : Existence of a legal framework for the telecom sector that fosters competition and transparency. Value Partial Yes Yes (quantitative or Qualitative) Date achieved 12/31/2008 12/31/2010 12/31/2010 Comments Target 100 percent achieved. Telecom law was promulgated by the president (incl. % in May 2010. Source: EGRG-III program document. achievement) Indicator 17 : Number of days to start a business. Value 233 150 216 (quantitative or Qualitative) Date achieved 12/31/2008 12/31/2010 12/31/2010 Comments Target 100 percent achieved. Source: 2010 Doing Business Report. It is (incl. % important to note that the methodology of the Doing Business report estimates achievement) the number of days to start a business by assigning one to two days for each procedure, and more time than that for more lengthy procedures such as making the company seal. It is believed that this methodology sometimes overestimates the number of days to start a business since many of these steps can be completed simultaneously (except obviously making the company seal). The team estimates that the actual number of days to start a business had dropped to 20 in 2010. Actually, according to the DB 2012, the number of days needed to start a business fell to 9.
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(b) Intermediate Outcome Indicator(s)
Economic Governance Reform Project - P107493
Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years Not Applicable Value (quantitative or Qualitative) Date achieved Comments
(incl. % achievement)
G. Ratings of Program Performance in ISRs
Economic Governance Reform Project - P107493
Actual Date ISR No. DO IP Disbursements Archived (USD millions) Moderately Moderately 1 12/16/2009 8.50 Unsatisfactory Unsatisfactory The moderately unsatisfactory rating at the time was because the results framework could not actually measure progress against actions to improve the PFM framework, since the last PEFA report prepared for Guinea-Bissau was in 2008. 2 12/9/2011 Satisfactory Satisfactory 6.0 Satisfactory rating based on the results achieved.
H. Restructuring (if any)
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1. Program Context, Development Objectives and Design
1.1 Context at Appraisal
Guinea-Bissau, with a population of 1.6 million, is one of the world’s poorest countries. A very difficult political context has characterized the country‘s economic and social development since independence. The country has ranked invariably in the bottom rung on the last decade‘s annual UNDP Human Development Indices, being the 173th out of 187 countries in the 2011 HDI. Income per capita in 2010 was estimated at about US$550. Chronic poverty is deep and entrenched—in the most recent estimates, in 2010, 70 percent of the population was living under the PPP$ 2 dollar-a-day poverty line, and more than a third of the population lived under the $1- a-day line. Guinea-Bissau is a fragile state barely emerging from conflict. Political instability is deeply rooted in the country‘s history of colonization and de-colonization since the 19th century. While most neighboring countries had become independent in 1960, a long and fierce guerilla struggle was necessary for Guinea-Bissau to achieve independence in 1974, with few structures for effective governance in place. From then on, periods of relative stability alternated with open internal conflict, events of political violence and underlying tension. A brief civil war, starting in June 1998 which is estimated to have cut national income by 25 percent, ended with the ouster, in May 1999, of President João Bernardo Vieira, who had ruled the country for 20 years. Between 2000 and early 2009, eight Prime Ministers have been appointed for eight different governments, with an average time-in-office of about one year. Short-lived governments focused on managing day-to-day business with limited ability to develop, let alone implement, long-term strategies. Economic growth has barely exceeded population growth. The preparation of the first Poverty Reduction Strategy Paper (PRSP), initiated in 2001, was repeatedly delayed and only completed in September 2006, while achievement of HIPC Completion Point (approved in December 2010) took about ten years.
The context at appraisal for the first EGRG (EGRG-I) under this series was a country challenged on the political and economic policy fronts. Hopes that the November 2008 elections would mark a significant milestone towards stability quickly gave way to disappointment following a failed coup attempt one week after the formation of a new government, and then the deaths of the army chief of staff and President in early March 2009. Despite these developments, constitutional procedures were respected. As provided in the Constitution, an interim President was sworn in soon thereafter, and presidential elections were announced. In the meantime, the civilian government headed by Prime Minister Carlos Gomes continued governing and submitted its program along with a draft budget to Parliament, which approved them in its March-April 2009 session. This modicum of political stability was supported by an acceleration of real GDP growth to 3.2 percent by end-2008, up from 2.7 percent in 2007, driven by a good cashew crop and the gradual, albeit partial, normalization of the country‘s fiscal situation. This improved fiscal situation allowed public sector wages to be paid at a better pace and government spending for supplies and investment to increase. The developments in 2009 placed the country in a more favorable position to finally begin moving toward reaching the HIPC/MDRI completion point.
By the time of the appraisal for the second operation under this series (EGRG-II), the country’s export sector had been buffeted by the global financial crisis, so political and fiduciary risks remained significant (see Annex 7). Real GDP growth had slowed down only marginally to 3 percent, compared to the 3.2 percent recorded in 2008, and inflation pressures had eased considerably, with sharply lower food and fuel prices, leading headline inflation to close by
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end-year at -1.6 percent. Moreover, growth was supported by a record cashew crop, despite lower export prices, and a moderate expansion of food crops. It was the fiscal impact of the global financial crisis that was the most significant, however. Slower economic activity and low cashew nut prices (about a third of the government‘s fiscal base) negatively affected tax revenue collection, requiring the government to accelerate tax collection efforts and to tighten spending controls.
Table 1: A Fragile Context Characterized by Continuous Instability Date Country Timeline Prime Minister Guinea-Bissau/Bank timeline June 1998-May Armed Conflict 1999 January 2000 President Kumba Yala takes HIPC Decision Point office. March 2001 Caetano Ntchama December 2001 Alamara Intchia Inhasse November 2002 Mario Pires September 2003 Military Coup deposing Antonio Artur Sanha President Kumba Yala March 2004 New legislative elections May 2004 Carlos Gomes Junior November 2005 President João Bernardo ‗Nino‘ Vieira takes office. November 2005 Aristides Gomes April 2007 Martinho Dafa Cabi August 2008 Carlos Correia January 2009 Carlos Gomes Junior March 2009 Assassination of President João Bernardo ‗Nino‘ Vieira and of the Army Chief of Staff, Lt. Col. Bwam Namtcho June 2009 Interim Strategy Paper discussed at the Board June 2009 EGRG-I approved at the Board July 2009 President Malan Sanha elected April 2010 Temporary imprisonment of Prime Minister Carlos Gomes Junior June 2010 EGRG-II approved at the Board December 2010 HIPC/MDRI Completion Point December 2010 EGRG-II closing date Source: Adapted from the ICRR for the Guinea-Bissau Private Sector Rehabilitation and Development Project. March 2010. Report No: ICR00001347.
The bottom line is that the preparation and implementation for both operations needs to be seen through the lens of a fragile and highly volatile political context. The late 1990s was marked by civil conflict and the restored civilian regime in the early 2000s operated under a situation of permanent instability given the tension between the country‘s armed forces and the
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civilian government – a tension that was reflected the drug trade and the existing ethnic divisions1. Chapter 1 of the Country Economic Memorandum describes the main events after the civil war and following the restoration of the civilian government from the early 2000s to the present days.
The series of Economic Governance Reform Grants I and II were key operations for the 2008 Interim Strategy Note (ISN) designed to support the country’s efforts toward the achievement of the Highly Indebted Poor Countries (HIPC) and the Multilateral Debt Relief Initiative (MDRI).2 The EGRGs I and II were included in the 2009 Interim Strategy Note (ISN) and the 2009 Africa Action Plan Progress Report.3 The objectives for these operations were to strengthen economic management by supporting improvements in governance, transparency and efficiency in public expenditure management, as well as laying the foundations for improvements in productive sector with advancements in legal and administrative reforms to foster private sector development. The EGRG I was a SDR 5.4 million (US$8 million equivalent) grant, while the EGRG II was a slightly smaller operation of SDR 4 million (US$6 million equivalent) that drew funding from the Crisis Response Window (CRW).
The EGRGs were seen as part of a package of World Bank and donor resources that included budget support, technical assistance and selected investment operations. They also included the prospects of significant debt relief that would be provided through the HIPC and the MDRI initiatives. The Bank‘s contribution came through several complementary analytical, capacity building and investment operations. These interventions included the synchronization of PFM and PSD legislation, such as the harmonization with the WAEMU legislation on procurement that effectively leap-frogged Guinea-Bissau to the standards and institutions of their faster reforming neighbors, as well as simplifications in the administrative steps for business registration, including the establishment of a one-stop shop. These were important ‗low hanging‘ reforms that supported the common monetary and currency framework that helped deliver stabilization.
Aid flows have been sizeable, but fragmented and unpredictable. The political situation triggered Article 96 Consultations4 with the European Union (EU) in early 2011. Budget support and other new projects were suspended. Guinea-Bissau was able to benefit from financial support through projects from several other donors. However, the EU had been funding the critical army downsizing, as well as a comprehensive multi-year reform action plan to reform and
1 Guinea-Bissau is ringed by an archipelago of uninhabited islands and has become a key transit point for Europe-bound cocaine. The government estimates that as much as 3,200 kilograms of the drug transits through the country's borders each week. These drug flows amount to billions of dollars per year, dwarfing all other economic activity in the country. A power vacuum in Guinea-Bissau could make it even more attractive for drug cartels that were under increasing pressure in neighboring countries 2 Consistent with the ISN for Guinea-Bissau, these operations also provided financial support to the government whose annual debt service to the World Bank remained considerable up to the attainment of the High Indebted Poor Countries (HIPC) completion point.
3 World Bank (2009). Enhancing Growth and Reducing Poverty in a Volatile World. A Progress Report on the Africa Action Plan, September. 4 Article 96 of the Cotonou Agreement lays down the possibility of taking appropriate measures in cases of violation by one of the parties of the requirements of essential elements of the Agreement, namely respect for human rights, democratic principles and the rule of law.
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modernize the public administration and reduce its size, and these were stopped for over one year and had still not resumed at end-2011. From 2008 to 2011 the UN-Peace Building Commission provided complementary support, with a total of US$6 million in funding for electoral support, youth employment, and rehabilitation of prisons and military barracks. These projects aimed at serving as a catalyst for the reforms being provided by other donors as a confidence-building effort for the national population.
During the EGRG series period, Guinea-Bissau enjoyed a period of relative macroeconomic stability, with low inflation and resilient growth, although one should not attribute specific outcomes to development policy operations. The maintenance of economic growth was assisted by the rebound in the price of cashew exports, the strengthened liquidity of the banking system, and sounder fiscal management during this period. Real GDP growth slipped slightly to 3.0 percent in 2009, down from 3.2 percent in 2008, before rebounding to 3.5 percent in 2010. Inflation dropped from around 10 percent in 2008 to -1.6 percent in 2009 and 1.1 percent in 2010 (see Annex 8). Although rising prices for food and fuel imports began pushing headline inflation up again in 2011, the core inflation remained subdued and the consumer price index (CPI) is now projected to reach 4.8 percent by end- year.
1.2 Original Program Development Objectives (PDO) and Key Indicators (as approved)
There were three Program Development Objectives (PDO) associated with these operations: (i) promote efficiency, transparency and accountability in the use of public resources through improved budget and public financial management (PFM); (ii) foster private sector development mainly through the development of a modern legal framework for private investment and improvements in the business environment; and (iii) improve specific aspects of the investment climate, including streamline procedures for business registration and targeted reforms of the legal framework5.
Key Indicators: There were 7 prior actions for EGRG-I and 9 prior actions in the follow up EGRG-II. The medium to long term impact of these prior actions was measured, in turn, against key expected outcome indicators. These key indicators totaled 17 in EGRG-I and EGRG-II. These key indicators included indicators for public financial management (11) for EGRG-I and 10 for EGRG-II), as well as indicators for private sector development (6). The indicators on public financial management consisted mainly of measures of improved performance in budget execution, and compliance with new procedures and reporting, with several of these indicators drawing from the findings of the 2008 PEFA assessment.6
1.3 Revised PDO (as approved by original approving authority) and Reasons/Justification
The Project Development Objectives (PDO) for the public financial management block remained unchanged during the two operations of this series. The PDO for private sector development under the EGRG II was slightly different from the one defined in the EGRG I.
5 See footnote 1. 6 PEFA (Public Expenditure and Financial Accountability), is an integrated monitoring framework that allows measurement of country Public Financial Management performance over time. It comprises six core dimensions of PFM performance containing 31 indicators measuring the operational performance of the key elements of the PFM systems. A rating that varies from ―A‖ (the highest score) to ―D‖ (the lowest score), is set for each one of the 31 indicators.
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Following suggestions from OPCS, the PDO defined in the EGRG II was more specific and reflected the expected impacts of the policy program
1.4 Original Policy Areas Supported by the Program (as approved)
Table 2: Prior Actions for EGRG I Prior Actions Status Improving Public Financial Management 1. Adoption by the Council of Ministers of the Completed. The Laws, drawing on WAEMU directives, have draft Organic Law for Budget and Public been drafted with technical assistance, and reviewed at Accounting Decree. technical levels. The Organic Law has been approved by the Council of Ministers on April 2, 2009, and the Public Accounting Decree was approved by the Council of Ministers on May 8, 2009. 2. Installation of the elaboration and execution Completed. The elaboration and execution modules have been modules of the SIGFIP in the budget units of the installed in the central administration by the MOF‘s budget central administration to improve efficiency and department. Training programs for budget managers and transparency in budget execution. accountants have taken place and pilot tests are ongoing. The 2009 Budget has been elaborated and will be executed through SIGFIP. 3. Preparation of the draft 2009 Budget under the Completed. The new budget classification was approved by the new WAEMU-based budget classification to Council of Ministers in May 2008; a new classification and improve and make more transparent the presentation procedures manual has been prepared with technical assistance; of budget allocations among sectors, administrative training programs for budget managers are ongoing. The draft units, and public functions. 2009 Budget using the new WAEMU-based classification was submitted to and approved by Parliament in April 2009. 4. The General Finance Inspectorate of the Completed. A Decree was approved by the Council of Ministry of Finance has undertaken control missions Ministers to authorize the controls. The 2006 civil service for the payment of civil service wages over sectoral census provides the statistical backbone for controls. The ministries‘ personnel data for at least half of all the General Finance Inspectorate has undertaken control missions Recipient‘s ministries. for the payments of civil service wages in January 2009 for half of all Ministries and has issued a report dated March 27, 2009 with the results of these controls.
Fostering Private Sector Development 5. Adoption by the Council of Ministers of nine Completed. The nine Acts of Business Law were adopted by OHADA (Organization for the Harmonization of the Council of Ministers on February 14, 2008. Business Law in Africa) acts of business law. 6. Adoption by the Council of Ministers of a draft Completed. The Council of Ministers adopted on September Investment Code consistent with good international 18, 2008, the Investment Code, which reflects FIAS‘ advice. practices to promote a level-playing field among private investors and remove discretion in the granting of fiscal privileges for investment. 7. Adoption by the Council of Ministers of the Completed. A draft Law has been prepared with assistance draft Public-Private Partnerships Law prepared with from PPIAF and was approved by the Council of Ministers on assistance from PPIAF. April 3, 2009.
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Table 3: Prior Actions for EGRG II EGRG-II Prior Actions Triggers for EGRG-II Achievements Rationale for change envisaged under EGRG-I Improving Public Financial Management Submission to Recipient‘s Same Completed. The draft Parliament of the draft Organic Law for Budget Organic Law for Budget has been submitted to Framework. Parliament for approval on February 22, 2010 as reflected by the letter from its secretariat dated April 28, 2010. Table 3: Prior Actions for EGRG-II (continued) Adoption by the Council of Same Completed. The Decrees Ministries of: (i) a decree have been adopted by the defining the organization, Council of Ministries in its attributions and functioning meeting dated April 28, of the Recipient‘s Financial 2010 as evidenced by the Controller; and (ii) a decree official communication reorganizing the dated April 29, 2010.
Recipient‘s Budget General Directorate and redefining its attributions.
Completed. The Decrees Adoption by the Council of Same Ministries of a decree: (i) have been adopted by the defining the role of credit Council of Ministries in its managers in all of its meeting dated April 28, ministries and public 2010 as evidenced by the entities; and ii) defining the official communication role of public accountants dated April 29, 2010. in accordance with the Public Accounting Decree. Issuance by the Ministry of Same Completed. The manual Finance of a manual of of procedures for budget procedures for budget execution has been execution for the use of all elaborated and distributed Recipient‘s ministries. to the ministries through a communication dated April, 27, 2010. Jointly decision by the Completion of the planned Completed. The The biometric survey Recipient‘s Ministers of biometric survey of the civil Ministries of Finance and of the civil servants Finance and Public service and substantial Public Administration was completed at the Administration Reform on progress made in the have selected the new HR- end of August 2009. the selection of an implementation of the new payroll system to be Final validation of appropriate payroll IT payroll system as evidenced acquired and jointly issued results is expected to system to be acquired, by the installation of the an official communication be concluded in June installed and integrated system and the inclusion in its to the Council of 2010. with SIGFIP and formal database of personnel data for Ministries dated April 23, Difficulties in defining submission of their at least 75 percent of civil 2010. the best technical recommendation to the servants. alternative for the Recipient Council of payroll system have Ministers. delayed the decision on its planned acquisition and installation.
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EGRG-II Prior Actions Triggers for EGRG-II Achievements Rationale for change envisaged under EGRG-I Table 3: Prior Actions for EGRG II (continued) Adoption by the Council of Submission to Parliament of Completed. The draft bill Political events in Ministers of: (i) a draft bill the draft Law for the on the new procurement 2009 resulted in delays approving the new ―Tribunal de Contas‖ code and the decree in advancing procurement code defining (Supreme Audit Institution) establishing the central consensus-seeking the regulatory and control consistent with WAEMU procurement units have discussions between functions thereof in line directive. been adopted by the the executive and with WAEMU‘s Council of Ministries in its judiciary branches of procurement directives; and meeting dated April 28, government over the (ii) a decree establishing the 2010 as evidenced by the reform of the Tribunal Recipient‘s central official communication de Contas. The procurement unit. dated April 29, 2010. proposed procurement reforms would significantly strengthen oversight and control over public procurement transactions. Fostering Private Sector Development Adoption by the Council of Same Completed. The Decree Ministers of a decree has adopted by the Council simplifying procedures for of Ministries in its meeting business registration. dated March 25, 2010 as evidenced by the official communication dated March 26, 2010. Adoption by the Council of Same Completed. The Decree Ministers of a decree has adopted by the Council establishing the formal of Ministries in its meeting constitution of a one-stop dated March 25, 2010 as shop for business evidenced by the official registration. communication dated March 26, 2010. Enactment by the President Same Completed. The of the Republic of the Telecommunication Law Telecommunications Law adopted by the Parliament adopted by the Recipient‘s has been enacted by the Parliament on March 9, President on May... 2010.
1.5 Revised Policy Areas (if applicable)
There were some limited adjustments in the selection of prior actions for EGRG-II relative to the triggers envisaged for this second operation at the time of the first operation, EGRG-I. These adjustments were made to take into account exogenous factors not under control of the Government, and where capacity constraints had affected the speed of program implementation. Specifically, technical issues that had arisen in setting up the new payroll system resulting in the postponement of the planned acquisition and installation of the system, and delays in reaching a consensus between the executive and judiciary branches of government led to a postponement of the reform of the Court of Accounts (Tribunal de Contas). Portugal offered to finance the acquisition and installation of the new payroll system, and there was ultimately an agreement on a medium-term program for strengthening the Court of Accounts in the context of the dissemination of the PEMFAR, which detailed the required legal and operational reforms, as
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well as of the supporting capacity building activities. The alternative reform chosen as a prior action for the EGRG-II significantly strengthened oversight and control over public procurement transactions.
The two triggers were originally designed as follows: Completion of the planned biometric survey of the civil service and substantial progress made in the implementation of the new payroll system as evidenced by the installation of the system and the inclusion in its database of personnel data for at least 75 percent of civil servants, and Submission to Parliament of the draft Law for the ―Tribunal de Contas‖ (Supreme Audit Institution) consistent with WAEMU directives.
These two prior actions were redrafted in the following way: Joint decision by the Recipient‘s Ministers of Finance and Public Administration Reform on the selection of an appropriate payroll IT system to be acquired, installed and integrated with SIGFIP and formal submission of their recommendation to the Recipient Council of Ministers; and The adoption by the Council of Ministers of: (i) a draft bill approving the new procurement code defining the regulatory and control functions thereof in line with WAEMU‘s procurement directives; and (ii) a decree establishing the Recipient‘s central procurement unit.
1.6 Other Significant Changes (in design, scope and scale, implementation arrangements and schedule, and funding allocations)
There were two other significant changes that were captured in the actions supported by the follow up operation to this series of grants. While the Investment Code was promulgated at the end of 2009, the implementation process and the set of reforms to transform and modernize the Investment Promotion Directorate of the Ministry of Economy were never initiated, leaving investors without a clear set of rules to follow. The lack of capacity to manage a tax credit system, specifically the lack of secondary regulation and the non-exemption of customs rates and of the General Sales Tax (IGV) on imported capital goods, continued to impede new private capital investment in the country. The government took advantage then of the redefinition of the implementing regulations for the investment code to make the needed revisions. The Council of Ministers created a special commission to review the investment code and propose adjustments to it, and, with the support of the Bank, the special commission drafted a revised investment code law that was adopted by the Council in May 2011.
The revised Investment Code maintained the principles of transparency, simplicity and non-discrimination enshrined in the 2009 Investment Code and addressed three limitations that prevented its successful implementation. First, it explicitly listed all possible fiscal incentives and duty concessions available for potential investors. It eliminated the possibility of granting new incentives by other laws, which Art. 9.7 of the 2009 investment code left open, which enhanced transparency and eliminated the possibility of granting discriminatory fiscal benefits. Second, in line with other countries in the region, it reintroduced duty concessions and general sales tax exemptions for capital goods. Third, given Guinea-Bissau‘s weak tax administration capacities the revised code introduced a set of incentives that are easier to manage than the tax credit mechanism in the 2009 Investment Code. Specifically, the new code introduced a gradually declining scale of deductions in the corporate income tax (Industrial
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Contribution) for the first five years of the investment, which were aligned with the draft of the WAEMU investment code that is was expected to be adopted by 2012.
The revised code re-introduced an incentive for firms with a view to encourage training and skill formation -- incentives particularly important for improving firm productivity.7 On the negative side, the new code restored the role of the Investment Promotion Directorate of the Ministry of Economy in the process of approval of projects, granting with it the power to allocate tax incentives. On the positive side, the new Code limits the discretion of the Investment Promotion Directorate and preserves the non discrimination rules for investments by size, sector and region. Also, the Investment Promotion Directorate must decide in favor or against granting the incentives within 30 days from the date the request is received. This decision must depend exclusively on verification whether the requirements of the Code are satisfied. Finally, the revised investment code defines more clearly the role of the Ministries of Economy and Finance in the administration of tax incentives.
The second significant change was the preparation of a third EGRG grant: EGRG III. Although this series of EGRGs was originally designed as a programmatic series of 2 operations, a stand-alone grant followed the EGRGs series to support the reform drive that had gained further momentum with sustained real GDP growth and the newly-found stability (both economic and political). (This is newly-found stability is discussed further below in Section 2.1 Program Performance). This additional EGRG grant (EGRG III), was not anticipated at the time of the beginning of the series due to the 18-month coverage and funding limits under the ISN; as a result a separate ICRR will be prepared.
2. Key Factors Affecting Implementation and Outcomes
2.1 Program Performance
Overview: Overall the program performance was satisfactory, with a moderately satisfactory performance in the quality at entrance stage more than compensated by a satisfactory performance during the supervision stage. The ISR dated in December 2009, rated the implementation performance as moderately unsatisfactory as progress in the implementation of the policy actions was slow in the first six months after their adoption and the impact on the performance indicators had not appeared. Nonetheless, the implementation of these actions was accelerated in 2010 as part of the government efforts to achieve the HIPC Completion Point at the end of 2010. Impacts on performance indicators became apparent in 2010 and were reflected in a smoother budget preparation and execution in 2010. As a result, the implementation rating was upgraded to satisfactory. Overall, there were significant improvements in the frameworks for public financial management and for private sector development. Also, the implementation of this series of grants coincided with the achievement leading to the HIPC/MDRI completion point at end-2010, as well as a period of recovery in real GDP growth, measurable progress in maintaining fiscal discipline, improvements in public financial management, modernizing the public administration, improving the business environment, and managing public debt. These achievements were possible above all because of the peaceful democratic stability achieved during this period.
7 This point is particularly important as the recent investment climate report found that Guinea-Bissau companies are the ones that invest the least and less often in training – which obviously have important implications for productivity.
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EGRG-I:
The first component of the EGRG-I reflected the PRSP objectives of strengthening governance, modernizing the public administration and improving public financial management. Progress in this component was satisfactory, with good progress in laying the groundwork for a stronger public financial management framework. Specific action completed include the following: (i) a new Organic Framework of the State Budget was approved by the Council of Ministers, (ii) the budget elaboration and execution modules of the SIGFIP system in the budget units of the central administration to improve efficiency and transparency in budget execution was installed; (iii) the new WAEMU-based budget classification was used to prepare the 2009 budget proposal, improving and making more transparent the presentation of budget allocations; and (iv) a General Finance Inspectorate control missions was carried out for the payment of civil service wages inspecting personnel data at least half of all Ministries.8
Outcomes from the implementation of the prior actions became apparent only in 2010 and 2011. Firstly, as the alignment of the Guinea-Bissau budget framework to the WAEMU directives was a pending agenda for several years (from the late nineties when the country entered in the WAEMU), the approval of the Organic Framework of the State Budget represented a significant step towards the leap-frogging to the regional standards for budget management and the starting point for the building up of a system of budget institutions needed for a transparent and efficient expenditure management. The installation and operation of the SIGFIP preparation and execution modules supported the institutional reforms included in the new organic framework of the state budget and facilitated improvements in the timeliness of budget preparation and enabled the country to adopt a more effective control on expenditure execution that favored the fiscal adjustment policy adopted in the last years. The control missions carried out by the General Finance Inspectorate made evident the need of centralizing the payroll and making compatible different data bases on personnel paving the route of the unification of the payroll in 2011.
The second component of the EGRG-I aimed at improving the business environment to provide the basis for economic growth, as outlined in several successive diagnostic studies and consultations with stakeholders. Specific policy action completed included the adoption and implementation of: (i) nine OHADA Acts of Business Laws (adopted in February 2008); (ii) an Investment Code consistent with good international practices; (iii) a draft Public-Private Partnership Law; (iv) the preparation of recommendations of the Commission on the Simplification of Administrative Procedures; (v) a decree liberalizing the notary profession; and (vi) the launching of a study on options for public-private partnership for the Port of Bissau.
As in the case of the reforms on PFM, the adoption of the OHADA acts and the approval of the investment code were actions that enabled Guinea-Bissau to make compatible the national legislation with WAEMU standards and turn more predictable the domestic investment climate. The new investment code provided a level play field for investors, with benefits to be granted with transparency and automaticity due to the elimination of discretionary treatment and the multiplicity of regimes. The preparation of recommendations on the simplification of procedures opened the agenda for the consistent improvement in the business climate that were reflected in the latest Doing Business Report of 2012.
8 This is a stop-gap measure to strengthen controls of the wage bill, by helping prune the payroll database from obvious inconsistencies between entered data and actual physical presence of employees, ahead of a PARAP-supported biometric census of the civil service, and the implementation of a unified payroll system/personnel management system.
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EGRG-II:
The first component of the EGRG-II focused on the implementation of the public financial management framework laid out during the first grant. The new Organic Framework of the State Budget and complementary legislation were enacted regulating the role of the different government entities responsible for budget formulation and execution. Also, the Integrated System for Public Financial Management (SIGFIP) for the register and control of government budget preparation and execution transactions was extended to the treasury, and customs upgraded its computerized customs management system which covers most foreign trade procedures (ASYCUDA++). Finally, the authorities adopted far reaching procurement reforms, effectively leap-frogging to the standards and institutions of their faster reforming neighbors. In this context, the government approved a new Public Procurement Law in June 2010 to harmonize procedures with the standards of the West Africa Economic and Monetary Union (WAEMU), and it passed additional measures to strengthen enforcement of the code and facilitate monitoring of procurement transactions. The new system created the Procurement Regulatory Authority (ARCP) with external oversight responsibilities, as well as a Central Procurement Unit (UCP) that aimed at replacing individual procurement units for line ministries.
The prior actions supported by the EGRG-II enabled the operation new Organic Framework of the State Budget. The definition of roles and the reorganization of the agencies responsible for the budget cycle management were instrumental for the actual adoption of the new budget framework. In this regard, important progress was obtained in the separation of control and budget execution functions. These actions needed to be complemented by the preparation of manuals for budget execution at the line ministries levels. Reforms on public procurement also enabled the separation of roles between the execution agencies and the regulatory authority.
In the second component of the EGRG-II, the government took important steps to simplify business opening and closing procedures. Specifically, it adopted measures simplifying procedures for business registration, significantly reducing the number of administrative steps needed in these processes. Also, it established a one-stop-shop for business registration, supporting more rapid private-sector-led growth and boosting job creation, and it enacted a legal framework for the telecom sector that fosters competition and transparency.
The simplification of business registration procedures had enjoyed a quick implementation as the government selected this area as one of its main priorities in 2010. Results were immediate as reflected in the impressive reduction of days and procedures needed to register a firm. Facing severe resource constraints, the one-stop-shop was inaugurated in May 2011. An increasing number of registers has been observed since the beginning of its operation.
2.2 Major Factors Affecting Implementation:
Five sets of factors – mostly positive -- affected the implementation of these operations. They were:
. The EGRG development policy grants were supported by the complementary efforts of the World Bank and the IMF (see more in the paragraph on donor coordination below). The collaboration between the two institutions happened at the design and, most importantly, at the implementation stages of these operations. Also, the prospect of attainment of the HIPC completion point provided an additional motivation for the government, which was used appropriately to accelerate the reform process.
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. This EGRG development policy grant series was informed by the conclusions and recommendations of an extensive body of analytical work conducted over several years. This body of analytical work included core diagnostic assessments by the World Bank in collaboration with the government and other donors as well as various studies conducted by the government with donor support. The studies comprised: (i) the 2005 and 2006 Public Expenditure Reviews, as well as the 2006 Country Financial Accountability Assessment (CFAA) and Country Procurement Assessment Report (CPAR), which documented fiscal policy issues as well as the numerous weaknesses in PFM and provided a range of recommendations on the legal framework and operational approaches for reforms, including the adoption of WAEMU directives on PFM in national law and the installation of an integrated PFM system; and (ii) various FIAS studies and project documents and aide- memoire of the IDA-financed private sector PSRD Project, which have provided analytical background and specific recommendations on business environment reforms, the investment code and other PSD reforms. Project-related studies, as well as early input from a planned Investment Climate Assessment, have all confirmed the crucial roles of political and macroeconomic instability, business environment and infrastructure deficits as impediments to private investment. A Diagnostic Trade Integration Study also highlighted red tape and related petty corruption as a barrier to private activity and investment. In addition, the 2009 PEMFAR drew on an early 2009 EU-supported Public Expenditure Financial Accountability (PEFA) providing: (a) an updated diagnostic analysis of the current strengths and weaknesses in the country‘s public financial management system and practices, including public procurement; (b) a considerable range of inputs for the design and preparation of PFM and public procurement reforms; and (c) a rating of all key components of the PFM and procurement system against international benchmarks which, in principle, was designed to be used to judge future progress of PFM reforms.
. Donor coordination. The window of opportunity opened by the end-2009 elections and the popular support for peace and stability following the April 2010 temporary imprisonment of the Prime Minister created the momentum for Guinea Bissau‘s development partners to coalesce in support of the civilian government.9 This support was provided by the African Development Bank, the UNDP, the Bank (IDA), the IMF, the regional economic organizations (WAEMU, ECOWAS, the BCEAO), the West African Development Bank, and bilateral donors, including Angola, Portugal, Spain and France, 10 the Community of Lusophone Countries,11 and, at times, by the European Commission. These donors aligned their support on the policy platform and performance assessments of the IMF-supported program, ensuring better coordination and information sharing.
. Resilience to external shocks. Economic growth performance was solid and the country was been able to weather relatively well the effects of the global crisis. Implementation of the EGRGs was impacted both positively and negatively by external factors, notably by the improvement in the terms of trade. Favorable commodity prices for Guinea-Bissau‘s chief exports, cashew nuts, contribute positively to economic growth and macroeconomic performance in 2008 and 2010. The country was negatively affected, however, by several
9 This popular support is believed to have reflected the desire of the population to preserve the gains achieved by orderly and regular salary payments to the civil service, which were funded in part by the EGRGs. 10 There was also occasional participation from Japan, Libya, and Turkey, amongst others. 11 Known as ‗Paises de Língua Oficial Portuguesa (PALOP).
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exogenous factors, including the fall of cashew prices and the drought in late-2009 that affected the cashew nut harvest, the sharp increases in food and oil prices, and the slower than expected rich-world recovery from the global financial crisis.
. Relatively political stability. Despite the setbacks mentioned above, the relatively political stability observed since 2009 allowed a consistent reform effort on the areas of PFM and PSD. Despite the incidents of April 2010, the technical teams at the Ministry of Finance and the Ministry of Economy, Planning and Regional Integration enjoyed an stable environment and support from the higher decision levels, that enabled them to design and implement the reforms supported by the EGRG series without interruptions.
. The sustainability of the EGRG-I and II outcomes are however challenged in case support from development partners do not continue compensating for the country’s limited financial and implementation capacity. Donor support is needed to provide required funding for new and ongoing activities, as well as hands-on technical assistance aimed at raising the skills in public administration.
2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization:
M&E Design: Beginning with the preparation of the EGRG-I the IDA team had worked in close collaboration with the government and its development partners to ensure adequate monitoring and evaluation of the program. The existing institutional structure for the PRSP process was expected to implement and monitor the policy reforms supported by this EGRG development policy grant. The Ministry of Finance and the Ministry of Economy, jointly with the Project Implementation Unit for the PSRDP, were to assume overall responsibility for coordinating the implementation, monitoring and evaluation of the policy matrix, and were ultimately responsible for reporting progress and coordinating actions among other concerned Ministries and agencies. The government‘s policy matrix identified ministerial departments for each policy reform and benchmark outcome indicators. The Council of Ministers provided overall guidance for the budget support program. Finally, periodic stakeholder consultations served to provide additional feedback on the impact of the proposed operation and the limited number of active development partners providing budget support should have allowed for easy coordination and monitoring of actions and progress reviews of the implementation of the policy matrix.
M&E Implementation: The implementation of this M&E as designed did not work very well in practice. The M&E framework designed for the PRSP was weak and did not provide useful indicators in the areas covered in the EGRGs series. IDA remained nevertheless engaged throughout the process, continuing to work alongside Government and other participating development partners in the monitoring of implementation and helping determine adjustments to the policy matrix. The time that elapsed between the two grants within the series was too short however to develop the needed statistical capacity for this M&E function. By the completion of this EGRG series, therefore, the M&E system continued to be challenged by severe capacity constraints, and by the postponement of donor-funded and executed reports designed to provide progress benchmarks for the achievements under these grants, such as the preparation of a more recent installment of the PEFA report.
M&E Utilization: The EGRGs were designed to encourage the utilization of M&E results. For instance, by drawing on the findings of the Doing Business Report to monitor progress in private sector development, it was anticipated that IDA and the Government‘s allocation of resources would increasingly begin to reflect the feedback provided through the M&E results. This appears to be the case with the design of the next Private Sector Development (PSD) project and the use
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of these indicators in design of the PRSP II. The immediate impact of the M&E framework appears to have been limited, notwithstanding the measurable progress in some of the indicators being monitored and the usefulness of these results for guiding ongoing and future policy reforms.
2.4 Expected Next Phase/Follow-up Operation (if any):
Despite encouraging progress achieved on the economic and institutional fronts in the EGRG I and II, Guinea-Bissau continues to face extraordinary short- and medium-term development challenges typical of a fragile state. The ISN highlighted how, recent progress towards macroeconomic stabilization notwithstanding, Guinea-Bissau remains locked in a low- equilibrium trap of continued political instability, weak governance and disappointing economic performance. The 2009 ISN also argued that donors, including the Bank, would need to continue to remain engaged and move further on a strategy capable of effectively continuing to support systemic change. When additional IDA funds became available in late 2010, the Bank prepared a third EGRG designed to continue supporting the reforms begun in this series EGRG.
3. Assessment of Outcomes
3.1 Relevance of Objectives, Design and Implementation (to current country and global priorities, and Bank assistance strategy)
The objectives, design, and implementation of these operations were highly relevant to current country and global priorities, and to the Bank‘s assistance strategy, in the following way:
EGRG Objectives: As discussed in Section 1.2, Original Program Development Objectives above, the EGRGs‘ development objectives were highly relevant as they focused on two key pillars of the National Poverty Reduction Strategy Paper (NPRSP) covering the period 2007- 2010. In particular, the EGRGs were instrumental in paving the way to the country‘s achievement of the HIPC Completion Point and in enabling the country to perform satisfactorily in the IMF EPCA and ECF programs as a number of triggers for the HIPC Completion Point were related to improvements in PFM and to the improvement of the country macroeconomic situation. In addition, the EGRGs‘ objectives of fostering private sector development are viewed as a pre-requisite to reignite economic growth, create employment opportunities and reduce poverty.
EGRG Design: The design of these operations was highly relevant to Guinea-Bissau and the implementation of NPRSP. This series of operations was central to the strategy outlined in the May 2009 Interim Strategy Note for Guinea-Bissau and designed to support the reforms initiated by the State and Peace Building Fund (SPF), the Technical Assistance (TA) for Economic Governance and Public Financial Management (PFM), and the Private Sector Rehabilitation and Development Project (PSRDP), and then followed up by the 2009 IMF-supported EPCA (Emergency Post-Conflict Assistance) program. These initiatives had generated significant and encouraging results in public financial management (PFM) and investment climate reforms, so it was followed by the launching of this series as well as by an IMF-supported ECF (Extended Credit Facility) program for the period 2010-2012. In the meantime, the government had also committed to a rapid attainment of the HIPC completion point and to adjust the macroeconomic program to address exogenous shocks.
As noted previously, the reform program associated with this operation was also highly relevant to Guinea-Bissau’s own development priorities and circumstances. It was built
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directly on the Government‘s NPRSP, thus ensuring ownership by drawing on the Government‘s own priorities, and guided by the more specific findings of several analytical studies that outlined in greater detail the agenda for reform. Also, by channeling resources through the budget, instead of through projects where Government decision-making is limited, the EGRs fostered decision- making by the Council of Ministers and, in particular, Ministry of Finance, the Ministry of Economy and the Ministry of Public Administration Reform. This decision-making authority gave, as a result, these entities some stake in the institutional reform agenda that aimed at enshrining the principles of sound financial management and a business-friendly environment, while in the process enhancing democratic accountability.
The number of prior actions was appropriately limited to less than 10 (7 for EGRG-I and 9 for EGRG-II). As seen in Tables 2 and 3 above, these prior actions show a consistent unfolding of a reform package designed to support more disciplined public financial management and to foster more responsive business environment, thus ensuring a high level of continuity from operation to operation. Program design also incorporated the ―Good Practice Principles on Conditionality‖ (see Annex 9), which were informed by both the general lessons learned from the Bank‘s involvement with fragile states, as well as by sound principles of good governance and democratic participation.
While modest in their objectives, the EGRG I and II, as well as the follow up operation (EGRG-III), focused on promoting incremental institutional development, they were also highly selective with focus on a small number of reforms feasible to be implemented in a complex political situation, with weak institutional and technical capacity. In this context, the delivery of budget support through these operations allowed greater predictability of inflows of financial support and enhanced the Government fiscal management. Following the recommendations of the new Africa Strategy, these two operations aimed at capturing the synergies and benefiting from technical cooperation with other agencies, such as the European Union, the IMF and the AfDB, by taking advantage of the comparative advantages of these agencies in specific policy areas.
3.2 Achievement of Program Development Objectives (including brief discussion of causal linkages between policy actions supported by operations and outcomes)
PDO Achievements: In the case of 4 PDO indicators in EGRG-I and 3 PDO indicators in EGRG-II, there was no data available to measure their performance. These were indicators relating to public financial management, and included: (i) orderliness of and participation in the annual budget process; (ii) effectiveness of internal control for non-salary expenditures; (iii) classification of the budget; and (iv) effectiveness of payroll controls. Their performance against the 2008 baseline targets was to be measured by another PEFA survey but the last PEFA survey conducted for Guinea-Bissau was in 2008. Nonetheless, progress on these areas has been strong and was reflected in: budget proposals have been timely submitted to the Parliament since 2010; improvements in budget execution controls led to a drastic reduction of arrears; regular issuance of quarterly budget execution reports since mid 2010; elimination of ghost and double dippers workers from the payroll; unification of the government payroll; and strong reduction of the government payroll as reflected by the fall in the payroll to domestic revenue ratio from 100 percent in 2008 to 70 percent in 2011.In the case of 10 PDO indicators for EGRG-I and 3 PDO indicators for EGRG-II, targets were 100 percent achieved. These were PDO indicators relating to: (i) the legal framework for procurement; (ii) the percentage of civil servants registered in the unified payroll system; and (iii) the legal framework for the telecommunications sector. And in
15
the case of the one PDO indicator for EGRG-I and one PDO indicator for the EGRG-II, the outcome measured exceeded their target. These were indicators relating, respectively, to the number of quarterly budget execution reports prepared during one year and the number of days to register a business.
The causal links between policy actions supported by these operations and outcomes were as follows: With the support of the EGRG-I: The adoption of the Organic Law for the Budget improved orderliness and participation in the annual budget process;
The installation of the budget elaboration and execution modules of the SIGFIP allowed the reduction in the time in the preparation of the budget so that Parliament approval of the budget could be secured before the beginning of the fiscal year as envisioned in applicable laws and regulations;
The adoption of the draft 2009 budget under the new WAEMU-based budget classification aligned Guinea-Bissau with the other WAEMU countries and ensured the synchronization of budget expenditure categories with multilateral surveillance procedures;
The authorization for the General Finance Inspectorate to control the payment of salaries of civil servants provided the basis for eventually establishing the government‘s unified payroll system;
The adoption of the nine OHADA (Organization for the Harmonization of Business Law in Africa) acts of business law consolidated the prevailing tax incentive schemes, making the payment of taxes more automatic and transparent;
The adoption of a new investment code replaced the obsolete 1991 investment code and ensured that investment incentives would be considered automatically, thus removing the discretion that could be exercised by government officials under the old law. With the new investment code there was no discrimination among projects on the basis of size, reducing the multiplicity of investment regimes and mitigating the potential for tax fraud and evasion; and
The adoption by the Council of Ministers of the draft Public-Private Partnerships (PPP) Law aimed at establishing clear statutes on public-private partnerships, fostering transparency and competition in awarding PPP contracts.
With the support of the EGRG-II: The enactment of the Organic Law for the Budget enshrined in the law the commitment to orderliness and participation in the annual budget process that had already been initiated during the EGRG-I period;
The definition of the organization, attributions and functioning of the Financial Controller, as well as the roles and responsibilities of credit managers, enhanced the quality and efficiency in the management of public funds by ensuring greater credibility, completeness, transparency and control in carrying out budgetary operations;
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The issuance of a manual of procedures for budget execution to be used by the spending ministries ensured that the budget was executed in line with what had been envisioned in the budget law;
The completion of the planned biometric survey of civil servants was an important step toward the implementation of the new unified payroll system;
The submission to Parliament of the draft Law for the “Tribunal de Contas” (Supreme Audit Institution) consistent with WAEMU directive strengthen oversight and control over public procurement transactions;
The adoption by the Council of Ministers of a decree simplifying procedures for business registration and the establishment of the one-stop shop for business registration streamlined the process of business registration, resulting in a remarkable increase in the number of companies created; and
The liberalization of the telecommunications sector ushered the entry of three mobile phone operators in the Guinea-Bissau market that were instrumental in creating many jobs and expanding the access to telecom services to more than 300,000 users.
There was satisfactory performance in the implementation of the two components of the EGRG series laying the groundwork for an agenda of additional reforms supported in the follow up operations (e.g., EGRG-III). While four outcome indicators were meet, one fell short of its objective, and in the other three cases progress could not be properly measured because the necessary reports were not available, qualitative evidence indicates that progress was made on these measures as well. Examples include the fact that: (i) all public revenues are now accounted in the general budget; (ii) treasury management has been strengthened through the establishment of an independent treasury committee; (iii) the Ministry of Finance is now able to produce a monthly account ledger and monthly synthetic government financial accounts; (iv) an action plan was drawn to reform the public procurement system in six large spending ministries (education, health, agriculture, infrastructure, finance and defense); and (v) establishing the principle of the clear separation of responsibility between budget executors and payment officers that is at the core of the WAEMU public financial management model. When these results are super imposed on the PEFA PFM performance measurement framework, Guinea-Bissau would have improved its scores in 6 of the 28 PEFA performance indicators. Improvements would be recorded in: (i) the budget classification; (ii) public access to budget information; (iii) orderliness and participation in the annual budget process; (iv) effectiveness of payroll controls; (v) timeliness and regularity of accounts reconciliation; and (vi) quality and timeliness of in-year budget reports.
3.3 Justification of Overall Outcome Rating (combining relevance, achievement of PDOs) Rating: EGRG I - Satisfactory EGRG II - Satisfactory
The EGRGs’ objectives, design, implementation, and outcomes were highly relevant to the country’s difficult circumstances and its development priorities, as well as being consistent with the Bank strategies and goals in fragile states. Despite the worsened global scenario, at the macroeconomic level, real GDP growth was at or above 3.0 percent in 2009 and 2010, allowing for a modest increase in GDP per capita. Fiscal and external deficits were substantially
17
reduced and inflation has been kept under control, prudent macroeconomic management allowed the country to perform satisfactorily under the IMF‘s EPCA and ECF programs. PFM reforms contributed to build confidence on budget institutions through enhanced efficiency, transparency and accountability. Guinea Bissau was able to achieve the HIPC/MDRI completion point after 11 years of stop and go reforms. Given the continued political instability endured by the country, this was a remarkable achievement.
3.4 Overarching Themes, Other Outcomes and Impacts (if any, where not previously covered or to amplify discussion above)
The main achievement beyond the completion of the policy actions supported by this EGRG series was reaching the HIPC/MDRI completion point. This achievement crowned the efforts made before and during the EGRG period, assisting the country achieve a modicum of stability and debt sustainability. Most importantly, the reward permitted Guinea-Bissau and its partners shift their focus toward meeting the enormous challenges of regaining what was lost over the past conflict-afflicted decades.
3.5 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops (optional for Core ICRR, required for ILI, details in annexes)
Not applicable.
4. Assessment of Risk to Development Outcome
Rating: Substantial
The risk to development outcomes is judged as significant, primarily because of the difficult and unstable political situation. Elections due in 2012 could lead to further instability, while the drug trade represents a continued threat to the rule of law and good governance. Reforms may be undermined by vested interests, including the private commercial interests of members of the government.
In addition, the lack of computer equipment undermined some PFM reforms. These constraints lead to the duplication of certain tasks, and made it difficult to prepare management accounts and the general accounts of the state. To mitigate this problem, the follow up operation to this series (EGRG-III) supported the implementation of SIGFIP -- a computerizing the accounting management process designed to ensure an adequate communication between the budget preparation and execution modules with a view to guaranteeing the accuracy of expenditure reports.
5. Assessment of Bank and Borrower Performance (relating to design, implementation and outcome issues)
5.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry (i.e., performance through lending phase)
Rating:
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EGRG-I: Satisfactory EGRG-II: Satisfactory
Bank performance in ensuring quality of entry is rated as Satisfactory for EGRG I and II. As discussed in Section 3.1, (Relevance of Objectives, Design and Implementation) above, these operations were highly relevant to Guinea-Bissau and Bank priorities and demonstrate what can be achieved when development agencies engage in a concerted fashion with fragile states. The program of reforms agreed with the Government was selected amongst the country‘s own priorities, with a view to identify measures that were technically ready, and benefitting from extensive analytical work and timely technical assistance. An example of this timely technical assistance was the one provided by the team established by the State and Peace-Building Fund (SPBF), who was assisted in activities ranging from the computerization master plan of the ministry, budget and treasury operations, customs, debt management, the establishment of the civil service data base, and the preparation of legislation to support the reform process. The reforms supported were also politically achievable, benefitting from numerous consultations with stakeholders and internal governmental discussions. Finally, most measures built on governments‘ longstanding commitments towards regional integration in the context of WAEMU (West Africa Economic and Monetary Union) and OHADA (Organization for the Harmonization of Business Law in Africa), which mitigates risks of reversibility. Extensive analytical work was completed prior to, and during, this series of grants, contributing to building consensus with government and amongst development agencies.
The funding mechanism used was central to the Bank’s strategy for Guinea Bissau, as it provided predictable and tangible support tailored to the country’s circumstances and capabilities. As noted below, the EGRG I and II (see Annex 9) explicitly incorporated the good practice principles on conditionality into program design and implementation, as well as the lessons learned from the Bank‘s involvement with fragile states. The Bank took a very strong role in working with the Government while also working closely and cooperatively with other DPs on private sector development and capacity building in public financial management. The Bank's non-lending services were coordinated with those of the other DPs to ensure complementarity and avoid duplication. The Bank and the Fund closely coordinated their policy advice to the Guinea-Bissauan authorities and collaborated closely in terms of joint support for the implementation of the NPRSP (e.g., the 2010 Joint Staff Advisory Note on the NPRSP). Consistent with standard practice on such operations, the IMF led the policy dialogue on macroeconomic policies such as fiscal and monetary policy, while the Bank led the policy dialogue on economic reforms in sectors such as: (i) public financial management and (ii) private sector development. Finally, there was strong staff continuity, including at the team leader level, with the Lead Economist in charge of the two operations working in co-TTLship with more junior staff. In doing so, the Bank was able to preserve the ―institutional memory‖ associated with these operations, as well as strengthen the working relationships with the Government and other development agencies.
(b) Quality of Supervision (including M&E arrangements) Rating: EGR-I: Satisfactory EGR-II: Satisfactory
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Bank supervision was Satisfactory for the EGRG-I and the EGRG II. Supervision took place in a difficult environment, with the team endeavoring and succeeding in resolving implementation difficulties in a timely manner. There were 3 supervision missions, which in the case of the EGRG-I overlapped with the preparation of the EGRG-II. The missions for the EGRG-II occurred at the time of the preparation of the concept note, just before the ROC meetings and at appraisal. These missions were aligned with both the activities of other donors and the Government‘s own calendar, providing a common basis for discussion and evaluation, facilitating and strengthening coordination. Supervision suffered however from the grants‘ inadequate monitoring and evaluation framework, although the lack of PEFA reports was somewhat offset by further analytical work on public financial management in the context of the PEMFAR and the DTIS.
The creation of a group of experts at the Ministry of Finance funded by the World Bank under the State and Peace-Building Fund (SPBF) played a leading role in the reform process. They were responsible for the computerization master plan of the ministry, covering budget and treasury operations, customs, debt management and the civil service data base, and also all of the preparation of legislation to support the reform process.
The difficulties of working in Guinea Bissau should not be underestimated, however. The first DPO mission was cancelled because of a rocket launched in Bissau that prompted the evacuation of the IMF team. Three months later, the second World Bank mission was evacuated because of the president‘s assassination.
(c) Justification of Rating for Overall Bank Performance
Rating: EGRG-I and II: Satisfactory
The Bank’s overall performance is rated as Satisfactory for EGRG-I and EGRG-II. The performance for quality at entry was rated as moderately satisfactory, while the performance for supervision was rated as satisfactory.
5.2 Borrower Performance
(a) Government Performance Note: According to the ICRR Guidelines, if Government and the implementing agency are indistinguishable, particularly for DPG operations, a rating and justification is provided only for Overall Borrower Performance.
Rating: EGRG-I – Moderately Satisfactory EGRG-II – Moderately Satisfactory
The Government’s overall performance is rated as moderately satisfactory for EGRG-I and EGRG-II. The performance for quality at entry and for supervision was rated as moderately satisfactory. ICRR Guidelines (Appendix A) identify seven criteria for rating Government performance, and the overall Government performance is rated as acceptable on five of these criteria:
20
Government ownership and commitment to achieving the development objectives was moderately satisfactory, despite being constrained by the country’s internal conflicts. Most importantly, the country was motivated by the prospect of reaching the HIPC/MDRI completion point. In this context, the EGR I and II can be seen as a catalyst for implementing some of the reforms that had been defined earlier in jointly prepared analytical studies. Stakeholders and civil society organizations were consulted at the time of the launching of the PRSP, with consultations held in Bissau and in regional outposts. Also, the Government dissemination of the 2010 APR findings on PRSP allowed stakeholders to provide feedback aimed at informing decision-making of the program through workshops organized in all the 8 regions of the country. Where the PRSP lacked the specificity necessary to be translated into an action plan for reforms, the Government, stakeholders, and development agencies relied on more technical documents, such as the 2009 PEMFAR and early drafts of the 2010 CEM. The Government was able to draw on the team established by the SPF grant to assist in the implementation of the reforms, including the harmonizing the domestic legislation with WAEMU legislation, the setting up the necessary IT infrastructure, and the preparation of quarterly budget execution reports and quarterly financial statements. The Government was able to resolve most implementation issues on a timely basis; thanks to the good relations between the Government and the Bank and between the Bank and the other development agencies. The Government’s relationships and coordination with the Bank and other development agencies were satisfactory, with the agenda for reforms articulated in the 2009 Public Expenditure Management and Financial Accountability Review (PEMFAR) prepared jointly with the AfDB, the EU and the World Bank. This early agenda outlined in the PEMFAR and then further elaborated in the preparation of the 2011 Country Economic Memorandum (CEM) provided the basis for a common understanding of the reforms that needed to be implemented, helping to forge a consensus for action by Government and support from the development agencies.
There were concerns during the supervision process, nevertheless, because: Fiduciary arrangements remained weak. While some important progress was achieved in public financial management during the period of the EGR I and II, with some key reforms almost implemented, the internal control environment in Guinea- Bissau remains weak. The Government’s Monitoring and Evaluation framework never became fully operational. The indicators identified in Table 2 were to rely on reports prepared jointly by the Government and development agencies (such as the PEFA report), which meant that the reports were not produced with the regularity required to guide the actions supported by the EGRG series.
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6. Lessons Learned (both operation-specific and of wide general application)
Outcome indicators should not depend on future reports for which funding is not assured. The heavy reliance on PEFA indicators was unfortunate since it turned out that the PEFA assessment could not be updated. EGRGs were useful in maintaining an agenda for reforms that had benefited from analytical and operational work done ahead of time and for which technical assistance and project support were available. Reforms that had been identified and understood well ahead of time helped secure support among development agencies. This consensus building exercise remains important, as is the analytical work that supported it, because Guinea-Bissau will continue to require outside support and to have in place a strong multi-year reform program. The EGRGs experience highlighted the importance of complementary technical assistance in a fragile state environment. Many of the reforms aimed at supporting PFM and private sector development were possible because, in parallel with the budget support, the World Bank Group (including IFC), provided technical assistance crucially given the country‘s weak institutional capacity to achieve results. These included the State and Peace Building Fund (SPF), the Technical Assistance for Economic Governance and Public Financial Management, the Private Sector Rehabilitation and Development Project (PSRDP), and the EU‘s Public Sector Reform Support Project. A substantial share of what was achieved under the EGRGs was due to the ability to draw on the team established by the SPF grant to assist in the implementation of the reforms. The EGRGs were useful in compensating for the unpredictability of annual aid flows from more politically motivated sources of support. This was particularly true in light of the decision by the European Commission to withhold its budget support to Guinea-Bissau in 2010. By channeling resources through the budget, instead of through projects, where Government decision-making and implementation of the government structural reform agenda are limited, the EGRGs instrument helped foster decision-making within Government. In the case of Guinea-Bissau, the EGRGs encouraged a sense of normalcy that allowed instances within government (e.g., the Council of Ministers, the Ministry of Finance, the Ministry of Economy and the Ministry of Public Administration Reform) to exercise their decision-making authority because these entities had a stake in the institutional reform agenda aimed at enshrining the principles of sound financial management and a business-friendly environment. The EGRG series benefited from a mutually reinforcing partnership between the World Bank and the IMF that combined efforts to attain macroeconomic stability with needed structural reforms in areas ranging from education and health to public financial management and private sector development. The collaboration between the two institutions helped craft an implementable reform agenda that combined extensive technical assistance and funding, supported by a continuity of involvement during the most challenging times during this period. This partnership was important to seize a window of opportunity when Guinea-Bissau was able to reach the HIPC/MDRI completion point, with the IMF overseeing the implementation of actions aimed at ensuring macroeconomic stability, while the Bank provided needed budget support, and the technical assistance needed for producing and monitoring fiscal outcomes.
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7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners
(a) Borrower/Implementing agencies Not Applicable
(b) Cofinanciers Not Applicable
(c) Other partners and stakeholders (e.g. NGOs/private sector/civil society) Not Applicable
23
Annex 1: Bank Lending and Implementation Support/Supervision Processes
(a) Task Team members Responsibility/ Names Title Unit Specialty Lending/Supervision EGR I Alain D‘Hoore Lead Economist AFTP4 Co-Task Team Leader Julien Bandiaky Sr. Economist AFTP4 Co-Task Team Leader Senior Financial Management Charles Coste AFTFM Financial Management Specialist Private Sector Sherri Archondo Sr. Operations Officer AFTFP Development Luz Meza-Bertrina Sr. Counsel LEGAF Legal Counsel Daria Goldstein Sr. Counsel LEGAF Legal Counsel Wolfgang Chadab Sr. Finance Officer CTRFC Finance Officer Teresa de Jesus S. McCue Finance Analyst LOADM Finance Analyst EGR II Lending/Supervision Alain D‘Hoore Lead Economist AFTP4 Co-Task Team Leader Fernando Blanco Sr. Economist AFTP4 Co-Task Team Leader Senior Financial Management Charles Coste AFTFM Financial Management Specialist Private Sector Leonardo Iacovone Economist AFTFP Development Eric Yoboue Senior Procurement Specialist AFTPC Procurement Luz Meza-Bertrina Sr. Counsel LEGAF Legal Counsel Wolfgang Chadab Sr. Finance Officer CTRFC Finance Officer Eric Ranjeva Finance Analyst LOADM Finance Analyst
(b) Staff Time and Cost Staff Time and Cost (Bank Budget Only) Stage USD Thousands (including No. of staff weeks travel and consultant costs) Lending/Supervision EGR I – P107493 FY09-Lending 12.20 21,245.37 FY10-Supervision No staff weeks listed for 2010 No charges listed for 2010 TOTAL for FY09-10 12.20 21,245.37
EGR II – P114937 FY10-Lending 21.86 156,536.44 FY11-Supervision* 4.93 30,854.00 TOTAL for FY10-11 26.79 187,390.44
Total 38.99 208,635.81
* The supervision of this operation took place jointly with the preparation of the follow-on operation.
24
Annex 2: Beneficiary Survey Results
Not applicable
25
Annex 3: Stakeholder Workshop Report and Results
Not applicable
26
Annex 4: Summary of Borrower's ICR and/or Comments on Draft ICR
After having read the Implementation Completion and Results Report for the EGRG I and II, I would to express the following opinion:
I agree with the content of the report for the following reasons: i. These two operations were crucial in supporting the country' efforts toward the achievement of the Completion HIPIC point as well as for the achievement of good fiscal performance in the last three years. ii. Specifically, these two budget support operations helped the country in the implementation of a set of cross-cutting reforms in the following areas: Governance, public administration and macroeconomic stability; public finance management and investment climate.
Jose Carlos Casimiro State Secretary of Treasury and Accounting Ministry of Finance Republic of Guinea-Bissau
27
Annex 5: Comments of Cofinanciers and Other Partners/Stakeholders
Not applicable
28
Annex 6: List of Supporting Documents (in chronological order):
Guinea-Bissau. Evaluation of public finances in Guinea-Bissau following the methodology PEFA (Public Expenditure and Financial Accountability). May 2009.
Guinea-Bissau. Evaluation of the Management of Public Finance and Procurement. June 2006
IDA and IMF, Joint Staff Advisory Note, Second Annual Progress Report for the Guinea-Bissau Poverty Reduction Strategy Paper, November 15, 2010
International Monetary Fund, Staff Report for First Review Under the Three-Year Arrangement Under the Extended Credit Facility, IMF Country Report No. 10/379, December 2010.
International Monetary Fund, Staff Report for Second Review Under the Three-Year Arrangement Under the Extended Credit Facility, IMF Country Report No. 11/119, May 2011.
World Bank, Interim Strategy Note for the Republic of Guinea-Bissau, May 20, 2009.
World Bank, Program Document for the First Economic Governance Reform Grant, Report No. 46899-GW, June 2009.
World Bank, Program Document for the Second Economic Governance Reform Grant, Report No. 52524-GW, June 2010.
World Bank, Aide-Memoire, EGR-II, February 2011.
World Bank, Doing Business, various years.
World Bank, Country Economic Memorandum, ―Guinea-Bissau: Cashew and Beyond – Diversification Through Trade‖ Report No. 54145-GW, May 2010.
World Bank, Guinea-Bissau: Public Expenditure Management and Financial Accountability Report, Report No. 51861-GW, November 2009
World Bank, Guinea-Bissau: Implementation Completion Report for the Economic Rehabilitation and Recovery Credit, Report No. 31015, December 27, 2004.
29
Annex 7: Key Risks Identified in the EGRG I and II
There were five main risks to the implementation of the reform program supported by this EGRG series: . Political risks and policy slippage. Political instability could flare up again and commitment to fiscal stabilization and to reforms, which has been demonstrated in the recent past, could come under pressure either from within or from outside the winning political party. This risk is especially true if tangible benefits of reforms do not become apparent to the population, or if costs of reform to narrow constituencies become too high. To mitigate these risks, the UN and several donors supported the country in its political transition (see the ISN for a more in depth discussion of this risk). Also, reforms supported by these operations were chosen carefully in the government‘s own PRSP, among measures that were technically ready (having benefitted from extensive analytical work and proven technical assistance) and politically achievable (having benefitted from numerous consultations with stakeholders and internal governmental discussions). Most measures build on government‘s longstanding commitments towards regional integration in the context of WAEMU and OHADA, which mitigates risks of reversibility. . Macroeconomic risk. A slower than expected recovery from the global slowdown could have undermined the country‘s already challenging stabilization efforts which relied heavily on high and sustained donor support. The government‘s sustained commitment to fiscal stabilization was a potential risk, as the cash position of the government remained extraordinarily tight. The EGRGs financial support was itself a crucial element in enabling the government to meet its financial obligations and execute its budget. Given the vulnerability to exogenous shocks and the volatile global environment, the IMF and IDA staffs monitored the economic environment and macroeconomic performance closely with a view to providing assistance to the country in case needed. An additional risk was the failure of the IMF-supported program to materialize (itself the result of possible reform backsliding) or a lack of supply response from the private sector. The track record of the successive governments in Guinea-Bissau was taken into account, as the Bissauan performance under the IMF program had been mixed, owing primarily to exogenous and political shocks. The positive news was that the government was committed to accelerate efforts toward the attainment of the HIPC completion point. . Capacity constraints. Public sector capacity constraints constituted another major challenge to successful implementation of the reform program. The proposed operation sought to mitigate this risk in several ways: first, the operation focused coverage on selected policy reform areas and narrow number of reform measures; second, it emphasized building on ongoing initiatives as opposed to introducing new ones; and third, it relied extensively on Bank and other donors‘ instruments for alleviating capacity constraints, including a State and Peace building Fund (SPF) grant. The track record with both PFM and PSD reforms indicated that progress on capacity building was possible but required a long term donor engagement and sustained government‘s political commitment. . Fiduciary risk. The financial management assessment had concluded that fiduciary risks were substantial mainly because of political instability and governance issues. This risk was mitigated, however, by focusing the proposed grant on the improvement in fiduciary standards and continued IDA and other donors‘ assistance in public financial management and public administration reforms designed to help improve the budget execution processes.
30
Annex 8: Selected Economic and Financial Indicators, 2008-11
2008 2009 2010 2011 National accounts and prices Real GDP 3.2 3.0 3.0 5.3 Real GDP per capita 1.0 0.8 1.2 2.5 Consumer price index (annual average) 10.4 -1.6 1.1 4.8 External sector Exports, f.o.b. (based on US$ values) 13.1 -3.6 2.1 16.4 Import, f.o.b. (based on US$ values) 24.4 26.3 19.4 27.3 Export volume 3.4 12.9 -10.6 3.6 Import volume -8.5 18.6 -5.5 2.6 Terms of trade (deterioration = -) 3.3 -22.2 11.6 -4.5 Real Effective Exchange Rate (depreciation = -) dollar 7.0 -1.8 -0.5 2.1 (end of period) Government finances Domestic revenue (excluding grants) 30.0 2.3 26.1 11.8 Total expenditure 26.2 -6.7 -0.9 14.4 Current expenditure 7.0 -4.0 -2.0 12.3 Capital expenditure 64.7 -10.1 0.7 17.4 Money and credit Net domestic assets 19.7 -10.9 15.9 5.4 Credit to government (net) 8.4 -10.5 7.0 0.0 Credit to the economy 10.1 4.3 8.0 2.1 Velocity (GDP/broad money) 4.1 3.8 3.6 3.6 Investment and saving Gross investment 8.7 10.1 9.8 10.9 Of which government investment 4.2 5.1 4.8 5.2 Gross domestic savings -5.3 -6.6 -4.0 -4.0 Of which government savings -11.1 -7.9 -5.1 -5.5 Gross national savings 3.9 3.7 3.1 3.6 Government finances Budgetary revenues 9.2 9.0 10.8 11.1 Total domestic primary expenditure 12.4 11.9 12.0 13.8 Domestic primary balance -3.2 -2.9 -1.2 -2.7 Overall balance (commitment basis) -1.5 5 1.3 9.8 Including grants -0.8 2.9 -0.2 -2.0 Excluding grants -15.3 -12.9 -9.9 -10.7 External sector Current account balance (including official transfers) -4.9 -6.4 -6.7 -7.3 Current account balance (excluding official transfers) -11.3 -14.4 -10.2 -11.4 Net present value of external debt/XGNFS 364.8 419.4 93.8 91.7 (%)international reserves (millions of US$) Nominal public debt (including arrears) 167.5 157.9 50.0 47.6 Memorandum item: Nominal GDP at market prices (CFA) billions) 377.5 393.1 413.7 447.9
Source: IMF 2011.
Annex 9: Good Practice Principles on Conditionality
31
Principle 1: Reinforce ownership The reform agenda underpinning the proposed operation is rooted in both the fundamental commitments of successive governments towards regional integration (under the West African Economic and Monetary Union and the Organization for the Harmonization of Business Laws in Africa) and on the country‘s own PRSP which was prepared through a highly participatory and consultative process. For the latter, stakeholder consultative workshops and focus group discussions were held with representatives of the public and private sectors and civil society, down to the level of local communities. There has also been extensive analytical work which has informed policy formulation, and further consultation exercises, such as a 2007 Public-Private Forum. Principle 2: Agree up front with the government and other financial partners on a coordinated accountability framework There are only a limited number of financial partners involved in providing budget support, facilitating joint understanding of areas of common and special interest. A framework agreement among donors providing budget support has been set up to ensure better coordination and information sharing. The 2009 PEMFAR also provided an important opportunity for enhancing collaboration with other donors aligning donor technical assistance on the country‘s key PFM reform priorities. Principle 3: Customize the accountability framework and modalities of Bank support to country circumstances The policy matrix was developed in close coordination with the government, thus ensuring that it reflects the government‘s expressed policy intentions and the country circumstances – including weak capacity for policy formulation and implementation. The design of policy reforms has been backed by analytical work and technical assistance in place. Most of the reforms are longstanding and ongoing government initiatives which were prioritized in the PRSP. Donor coordination on the budget support has reduced transaction costs and the expected timing of the IDA disbursement is aligned with the government‘s domestic budgeting process. Principle 4: Choose only actions critical for achieving results as conditions for disbursement Prior actions for the proposed grant focus on a selected number of measures that are critical to achieving the objectives of the government‘s reform program. Principle 5: Conduct transparent progress reviews conducive to predictable and performance- based financial support The existing institutional structures for the PRSP processes were used to implement and monitor the policy reforms supported by the proposed development policy operation. The limited number of active development agencies providing budget support allowed coordination and monitoring of actions and progress reviews of the implementation of the policy matrix. After the disbursement of the grant tranches, IDA continued working with the government and other participating development agencies to monitor implementation and help determine whether adjustments to the policy matrix needed to be made to take into account the country developments, stakeholder support and alternative options for realizing the intended development goals.
32 IBRD 33415 N ° 12
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Kolda a C Xime Xime Gandembel l Gandembel Gamamudo Gamamudo a Buba b Buba W W14 u ° ° r Songonha o Songonha C Cambaju Cambaju Ganquecuta Ganquecuta á
Jumbembem Jumbembem
Cacine e
Campeane
Bedanda n Bedanda Cuntima i Cuntima
To c
Balanta Balanta a Sédhiou C Fulacunda Fulacunda Mansab Mansabá TOMBALI TOMBALI Cachamba Cachamba a ô
a á
b to Gole ê QUINARA QUINARA ó Mansôa Mans G Porto Gole Por Farim Farim Jabed Jabedá Dungal Dungal o Cati Catió ã
ite Empada Empada
T Tite
i a
OIO l 30 a b
o Jo b
u
ã m o B
é T
S To São João
e Olossato d Olossato
40 Kilometers
Encheia
Sédhiou Encheia
e
ã d
ombali
n
u T Tombali
Enxud a Enxudé
e
r
h
Baixo Baixo
c G
Nhacra Nhacra
a o
Bissor Bissorã i 30
C
R a
b Bolama Bolama
ê Madina de Madina de IIlha Joao Vieira
BISSAU G Binar Binar
o
Olossato d Olossato
l 20
BISSAU a Ilhéu
n
a do Meio 10 40 Miles
Ilha de Roxa Barro C
Ilha de Bolama Safim
To 10
I. de Rubane Bula bis I. das Diiattakounda á é Pr Prábis 0 020 This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information shown on this map do not imply, the part of The World Bank Group, any judgment on the legal status of territory, or endorsement or acceptance of such boundaries. Galhinas
Ilha de Bubaque
Ilha de Orangozinho Ignoré Ignor Abu I. de Soga
mel BIOMBO BIOMBO
á a
ô s
n
Jolmete a Jolmete Bubaque SENEGAL M Ondame W15 W15 ° °
Ilha de
Formosa
Quinh Quinhámel I. de 16 16
I. de Canogo
Meneque Eticoga Eticoga
CACHEU Iljante Cacheu Cacheu BOLAMA BOLAMA Uno Ilha de Orango o Domingos Canchungo Canchungo ã
lha de S São Domingos
Carache To
u
e
Ziguinchor h
c Caió
a C
Uno
Ilha de Calequisse
Ilha de Caravela Caravela Caravela
dos Bijagós Arquipélago Susana Susana
To
Oussouye Varela To
Kabrousse
OCEAN BISSAU GUINEA-
ATLANTIC N ° 12
DECEMBER 2004