Page 1 PROGRAM INFORMATION DOCUMENT (PID) CONCEPT STAGE Report No.: AB3450 Operation Name POVERTY REDUCTION SUPPORT CREDIT IV Region AFRICA Sector Central government administration (35%); Health (20%); Sub- national government administration (15%); Other social services (20%); General energy sector (10%) Project ID P106502 Borrower(s) REPUBLIC OF CAPE VERDE Implementing Agency MINISTRY OF FINANCE AND PUBLIC ADMINISTRATION Date PID Prepared November 12, 2007 Estimated Date of Appraisal Authorization May 20, 2008 Estimated Date of Board Approval March 27, 2008 1. Key development issues and rationale for Bank involvement Cape Verde’s performance in social indicators outpaces most African nations. The country’s good economic performance (GDP per capita of US$ 2,100 in 2005) and successful public programs increased access to education and healthcare, paving the way to Cape Verde’s graduation to middle- income status in January 2008. Cape Verde is considered to be on track to meet the MDGs due to its high growth and strong performance on several social indicators. Poverty has declined 8 percentage points between 2001 and 2006 1 , and the human development index has increased from 0.63 in 1990 to 0.72 in 2003. Adult literacy rates are high as 79 percent (97 percent among the youth) and life expectancy at birth (69) is the third highest in Africa. Political openness has accompanied this economic and social progress. Since the adoption of a multi-party system in 1991, there have been three national elections and two orderly changes in government. A free press and media further support the building of an open society. The last presidential and legislative elections took place in early 2006. Cape Verde faces a number of challenges. With the country’s graduation in 2008 to middle income country, pressures on access to concessional external financing may arise. With regard to remittances, as the income gap and the ties with the diaspora decrease, remittances may decline over time. Furthermore, the country is highly dependent on oil imports (including for water desalination, which accounted for about 75 percent of water production by 2003) which, in a context of a continued increase in prices may cause some fiscal risks. In addition, income inequality has risen and as rural populations flee entrenched poverty, urbanization is putting pressure on basic services. Finally, the capacity of the environment to support large-scale expansion in tourism, industry and construction may be at risk if not adequately managed. The PRSC operations are central to the CAS, accounting for about 60 percent of the IDA 14. This emphasis on programmatic lending is consistent with Cape Verde’s performance in implementing the previous CAS, its level of institutional, economic and political development, its strong and sustained performance in recent years, and the recommendations of core diagnostic work (PER, CFAA, CPAR). The CAS deems the PRSC to be the preferred lending instrument to (a) provide predictable resource 1 These estimates are based on changes over time between 2001 and 2006 in an asset index of well-being, with corrections for changes in inequality over time. Page 2 flows, particularly important gi ven Cape Verde’s reliance on donor financing; (b) strengthen public administration and public expenditure management systems, with spill-over benefits to non-IDA resources; and (c) harmonize donors and reduce the potential distortions and transaction costs of external assistance. IDA’s assistance strategy is also in line with the GPRSP priorities. 2. Proposed objective(s) The proposed PRSC-4 is a one-off operation that aims to support the last year of implementation of the Government’s Growth and Poverty Reduction Strategy, as presented in the Growth and Poverty Reduction Strategy Paper (GPRSP), and to contribute to Cape Verde’s effort to attain its Millenium Development Goals (MDGs). The proposed PRSC-4 builds on results achieved under the first series and will continue to engage the Bank in a policy and technical dialogue in three of the five pillars of the GPRSP, already supported by the first PRSC cycle, based on the division of labor with other IDA and donor projects. The three pillars to be supported are the following: (a) promote good governance –especially effectiveness and equity– through reforms in public expenditure management, civil service and decentralization; (b) develop human capital, with a focus on health; and (c) strengthen the effectiveness and sustainability of the social protection system. Continuing the approach of the three previous PRSCs, this fourth operation is prepared in close coordination with other budget support partners, following a Memorandum of Understanding signed with the Government. The design of the proposed PRSC-4, embedded in a 3 year matrix agreed with the Authorities and donors, was prepared under extensive consultation with the various stakeholders under the Government’s leadership. This consultative and harmonized approach minimizes the burden on the limited Government capacity and ensures Government ownership of the supported reforms. 3. Preliminary description The Fourth Poverty Reduction Support Credit (PRSC-4) will support the last year of implementation of Cape Verde’s first Growth and Poverty Reduction Strategy (GPRSP). As the second GPRSP is still under development, this one-tranche operation will be a transitory operation between the first and the second series. The financial support provided through the fourth PRSC will further narrow the gap between the cost of implementing key elements of the GPRSP and the resources available from the Government’s own domestic revenues and other donor support. The policy dialogue and a results-based framework under PRSC-4 focus on the following pillars of the GPRSP: (i) to promote good governance; (ii) to develop human capital in the areas of education and health; and (iii) to improve the effectiveness and sustainability of the social protection system. 4. Environment Aspects PRSC 4 falls under the DPL OP BP 8.60, and as for PRSC 1, 2, and 3, and therefore no environmental assessment is required. Due diligence and pro-activity on environment policies have been carried out in collaboration with the Spanish and Austrian cooperations which targets their budget support towards environmental issues. 5. Tentative financing Source: ($m.) BORROWER/RECIPIENT 0 Page 3 International Development Association (IDA) 6.0 Total 6.0 6. Contact point Contact: Manuela Francisco Title: Country Economist Tel: (202) 473-8209 Fax: Email: mfrancisco@worldbank.org