Document of The World Bank FOR OFFICIAL USE ONLY Report No. 54355-KM Public Disclosure Authorized INTERNATIONAL DEVELOPMENT ASSOCIATION PROGRAM DOCUMENT FOR A PROPOSED GRANT IN THE AMOUNT OF SDR 2 MILLION Public Disclosure Authorized (US$3 MILLION EQUIVALENT) TO UNION OF THE COMOROS FOR A ECONOMIC GOVERNANCE REFORM SUPPORT GRANT MAY 3, 2010 Public Disclosure Authorized Poverty Reduction and Economic Management 2 Eastern Africa Country Cluster 2 Africa Region Public Disclosure Authorized This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. Union of the Comoros - GOVERNMENT FISCAL YEAR January, 1 – December, 31 CURRENCY EQUIVALENTS (as of March 31, 2010) Currency Unit = Comorian Franc (KMF) US$1.00 = KMF 361.34 SDR1.00 1.52= USD Weights and Measures: Metric System ABBREVIATION AND ACRONYMS (as applicable, plus others) AfDB African Development Bank LDP Letter of Development Policy LICUS Low Income Country Under Stress AfDF African Development Fund MDGs Millennium Development Goals BADEA Banque Arabique de Developpement des MDRI Multilateral Debt Relief Initiative Etats Africains (Arab Bank for Economic Development in Africa) CFAA Country Financial Accountability MOE Ministry of Education Assessment DP Development Partner MOF Ministry of Finance DPO Development Policy Operation MOH Ministry of Health EC European Commission MTEF Medium-Term Expenditure ECF Extended Credit Facility PEFA Framework EGTA Economic Governance Technical Public Expenditure and Financial Assistant Project Assessment EPCA Emergency Post Conflict Assistance EGTA Economic Governance PER Public Expenditure Review Technical Assistance PFM Public Financial Management EU European Union PHRD Japan Policy and Human Resource Development Trust Fund PPF Project Preparation Facility GDP Gross Domestic Product PRSP Poverty Reduction Strategy Paper GNP Gross National Product ROSC Report on the Observance of Standards and Codes HACS High Authority of Civil Service SA Safeguard Assessment HIPC Heavily Indebted Poor Countries SDR Special Drawing Rights IBRD International Bank for Reconstruction and SME Small and Medium Enterprises Development IDA International Development Association TA Technical Assistance IDF Institutional Development Fund IFC International Finance Corporation UNDP United Nations Development Program IMF International Monetary Fund ISN Interim Strategy Note JSAN Joint Staff Advisory Note Vice President: Obiageli Katryn Ezekwesili Country Director: Johannes C.M. Zutt Sector Manager: Kathie Krumm Task Team Leader: Aurélien Kruse UNION OF THE COMOROS ECONOMIC GOVERNANCE REFORM SUPPORT GRANT TABLE OF CONTENTS CREDIT AND PROGRAM SUMMARY ...................................................................................... i I. INTRODUCTION ............................................................................................................... 1 II. COUNTRY CONTEXT ...................................................................................................... 1 RECENT ECONOMIC DEVELOPMENTS IN COMOROS ........................................... 2 MACROECONOMIC OUTLOOK AND DEBT SUSTAINABILITY ........................... 4 III. THE GOVERNMENT’S PROGRAM AND PARTICIPATORY PROCESSES .......... 6 IV. SUPPORT TO THE GOVERNMENT’S PROGRAM .................................................... 7 COLLABORATION WITH THE IMF AND OTHER DONORS ................................... 8 RELATIONSHIP TO OTHER BANK OPERATIONS ..................................................... 9 LESSONS LEARNED ............................................................................................................ 9 ANALYTICAL UNDERPINNINGS .................................................................................... 10 V. THE PROPOSED GRANT ................................................................................................ 10 OPERATION DESCRIPTION .............................................................................................. 10 POLICY AREAS ..................................................................................................................... 12 VI. OPERATION IMPLEMENTATION ................................................................................ 16 POVERTY AND SOCIAL IMPACTS ................................................................................. 16 ENVIRONMENTAL ASPECTS ........................................................................................... 16 IMPLEMENTATION, MONITORING AND EVALUATION ....................................... 17 FIDUCIARY ASPECTS ......................................................................................................... 17 DISBURSEMENT AND AUDITING .................................................................................. 18 RISKS AND RISK MITIGATION ....................................................................................... 18 ANNEXES ANNEX 1: LETTER OF DEVELOPMENT POLICY ................................................................. 21 ANNEX 2: POLICY MATRIX ....................................................................................................... 25 ANNEX 3: FUND RELATIONS NOTE......................................................................................... 28 ANNEX 4: COUNTRY AT A GLANCE ........................................................................................ 31 ANNEX 5: DPOs IN FRAGILE STATES HAVE BEEN MAINSTREAMED – MOSTLY IN SUPPORT OF PFM REFORMS .................................................................................................... 33 ANNEX 6: MAP ............................................................................................................................... 34 List of Boxes Box 1: Prior Actions for this Grant Operation and Possible Triggers for a Follow-On Operation .......... 12 Box 2: Good Practice Principles for Conditionality ................................................................................. 15 List of Tables Table 1: Main economic indicators: 2005-2012 ......................................................................................... 3 Table 2: Nominal Stocks and Net Present Value of Debt at end-2009 by Creditor Groups ...................... 5 Table 3: Comoros: Areas of Donor Technical Support (Ongoing and Planned) ....................................... 8 The Economic governance reform support program Grant was prepared by an IDA team led by Aurélien Kruse (AFTP2) and comprising Charles Coste (AFTFM), Wolfgang Fengler (AFTP2), Roger Sullivan (AFTP2), Raj Soopramanien (LEGAF), Luis Schwarz (CTRFC), Javier Suarez (AFTFE), and Johannes Widmann (AFCKE). CREDIT AND PROGRAM SUMMARY UNION OF THE COMOROS ECONOMIC GOVERNANCE REFORM SUPPORT GRANT Borrower Union of the Comoros Implementing Ministry of Finance of the Union of the Comoros Agency Financing Data SDR 2 million (US$3 million equivalent) Operation Single tranche programmatic Type Main Policy The proposed development policy operation will strengthen the state Areas capacity building process, as part of a multi-donor-supported program, focusing on two main policy areas: (i) improving public financial management and (ii) fostering public sector efficiency and accountability, focusing on core personnel management systems. Key Outcome Key outcome indicators under the PFM area will be: improved efficiency Indicators and transparency of the expenditure chain and enhanced implementation and monitoring of budget execution. Key outcome indicators under the public sector efficiency and accountability area will be: improved management of the wage bill and improved deployment of civil service human resources. Program The overarching objective of the proposed operation is to strengthen Development Comoros‘ transition from fragility to resilience. It directly supports two of Objective(s) the PRSP‘s six strategic axes, namely (i) axis one, on economic stabilization and and equitable growth, emphasizing improvements in government and fiscal Contribution to operations; as well as (ii) axis three, on strengthening governance and social ISN cohesion. It is also a central element of the new ISN for FY10-12, and squarely aligned with its second objective to strengthen state capacity and accountability. Implementation of the reform program will also be supported via a technical assistance project that will complement this operation. Risks and Risk This operation would face significant risks stemming from (i) systemic Mitigation weaknesses, related to the fragile political and macroeconomic environment and limited government capacity; but also (ii) specific challenges associated with weak national fiduciary systems as well as the political economy of reform in public financial and civil service management. These risks will be mitigated by (i) enhanced donor coordination, to ensure focus on key feasible reforms but also timely delivery of aid, (ii) improved supervision and parallel implementation support, and (iii) analytical work on the political economy of reforms in Comoros. Moreover, the risks of not providing support would be considerable (i) to the Bank‘s reputation given the reengagement of all major donors via budget support (ii) to the reconciliation and state building process if Comoros did not manage to remain on track with the IMF program and missed the opportunity to benefit from HIPC and MDRI relief in the immediate future. Operation ID P117229 i IDA PROGRAM