ICRR 13612 Report Number : ICRR13612 IEG ICR Review Independent Evaluation Group 1. Project Data: Date Posted : 05/11/2011 PROJ ID : P113450 Appraisal Actual Project Name : Lr - Reengagement US$M ): Project Costs (US$M): 4.0 4.3 And Reform Support Program 2 Country : Liberia Loan/ US$M): Loan /Credit (US$M): 4.0 4.3 Sector Board : Cofinancing (US$M): US$M ): - - Sector (s): Central government administration (90%) General industry and trade sector (10%) Theme (s): Public expenditure financial management and procurement (60% - P) Administrative and civil service reform (20% - S) Regulation and competition policy (10%) Tax policy and administration (10% - S) L/C Number : CH492 Board Approval Date : 05/21/2009 Partners involved : Closing Date : 06/30/2010 06/30/2010 Evaluator : Panel Reviewer : Group Manager : Group : Rene I. Vandendries Ismail Arslan IEG ICR Review 2 IEGPS2 2. Project Objectives and Components: a. Objectives: The Objectives of the proposed grant are to support government -owned ongoing reforms to rebuild core state functions and institutions and support private sector development by : (i) improving the efficiency of budget preparation and execution and increasing the professionalism and improving the human resource management of the civil service; and (ii) improving the investment climate through the reform of the revenue and private investment regimes. (PAD para 5.3). There are minor differences in the formulation of the objectives in the summary sheet of the PAD and in the ICR . b.Were the project objectives/key associated outcome targets revised during implementation? No c. Components (or Key Conditions in the case of DPLs, as appropriate): There were two key policy areas in this second Re -engagement and Reform Support Program (RRSP2): (1) Rebuilding core state functions and institutions . The focus here was on four reform areas : (a) facilitate the preparation of timely budget reports; (b) improve the legislative framework for public financial management; (c) initiate civil service reform; and, (d) audit government accounts for key ministries . (2) Facilitating pro-poor growth. The focus was on reform of the Revenue Code and of the National Investment Code. There was one prior action as well as one PDO indicator associated with each one of the 5 reform areas. All prior actions were fully implemented. d. Comments on Project Cost, Financing, Borrower Contribution, and Dates: The grant was approved on May 21, 2009 for SDR 2.7 million (US$4 million equivalent). This was a single tranche operation, fully disbursed upon effectiveness . It was closed on schedule on June 30, 2010. There was no cofinancing. 3. Relevance of Objectives & Design: Both the objectives and the design were highly relevant . The program was consistent with the priorities of Liberia's Poverty Reduction Strategy, major elements of which were rebuilding core state functions and institutions, improving public sector management, transparency and governance, and revitalizing the economy . It was also consistent with the Bank's assistance strategy, which focused on helping Liberia transition from post-conflict relief to long-term development, and it was complementary to other Bank activities in Liberia, including analytical work and technical assistance (TA). The design was kept simple and appropriate to country circumstances as a post -conflict country with a history of economic mismanagement and poor governance . 4. Achievement of Objectives (Efficacy): In spite of the global crisis in 2008/09, which complicated budgetary management as a result of declining revenues, the government was able to maintain fiscal stability . Policy area 1: Rebuilding core state functions and institutions (a) Facilitate the preparation of timely budget reports The lack of an adequate system for accounting, control and reporting on the budget led to large differences between legislated and actual budget outcomes in the past . The prior action was to give the Comptroller General Office access to the system for accounting and reporting in the Ministry of Finance . Implementation was facilitated by Bank TA. The reform resulted in improved preparation and execution of the budget . The PDO indicator, a reduction in the average variance between budget out -turn and legislated ministerial budgets was much more than fully achieved and reduced to 1.7 percent in 2010. (b) Improve the legislative framework for public financial management The prior action was submission to Parliament of a Public Finance Management Act and of amendments to the Public Procurement and Concessions Act, with implementing regulations and instructions . The Public Finance Management Act was approved in August 2009 with some delay but was implemented in the preparation of the FY2010/11 budget. The amendments to the Public Procurement and Concessions Act were approved only in September 2010 but, operating in the spirit of the proposed amendment, the Government was able to drastically reduce the level of non-competitive procurement (the PDO indicator) from 80 percent in 2008 to 9.2 percent for the most recent period for which data are available (first three quarters of the 2009/10 fiscal year), beyond the 20 percent target set. (c) Initiate civil service reform The ultimate objective is to build a smaller more effective civil service, devoid of ghost workers . The prior action was cabinet approval of a comprehensive Civil Service Reform strategy and its publication . Subsequently, a critical first step was implementation of a biometric identification system based on the one -staff, one-file principle. The PDO was to capture 100 percent of the civil servants in the system . This target was not achieved: by 2010, only 70 percent of civil servants had been entered into the system, largely because the funds required had been underestimated especially in trying to cover rural counties . (d) Audit government accounts for key ministries The prior action supported the audit of government accounts for five key spending ministries (health, education, public works, finance, and lands, mines and energy .) Much progress has been made in reviving the audit function. The General Auditing Commission (GAC) was strengthened, including through technical assistance from the Bank. By June 2010, the GAC had completed audits for 2005/06, 2006/07 and 2007/08 for the five key spending ministries, which were submitted to Parliament, the President, and were published . Efficacy in policy area 1 is rated substantial . Policy area 2: Facilitating pro -poor growth The objective in this area was to rationalize the incentive framework for investments . The prior condition was submission to parliament of bills reforming the Liberia Revenue Code and the National Investment Code, including the elimination of ad hoc incentives . One specific measure was repeal of the provision of ad hoc tax concessions on a case by case basis . The new investment code eliminates discriminatory and discretionary non-fiscal incentives for new investments . Both bills were enacted by parliament . The PDO in this area was 100 percent automatic approval of incentives for investors . But achievement for this PDO could not be assessed for lack of information on approved concessions, given the recency of the new Codes . Efficacy in policy area 2 is rated substantial . 5. Efficiency (not applicable to DPLs): N.A. ERR )/Financial Rate of Return (FRR) a. If available, enter the Economic Rate of Return (ERR) FRR ) at appraisal and the re-estimated value at evaluation : re- Rate Available? Point Value Coverage/Scope* Appraisal % % ICR estimate % % * Refers to percent of total project cost for which ERR/FRR was calculated. 6. Outcome: The objectives as well as the design of this program were highly relevant . The focus on a few, but crucial first steps to rebuild state functions and revitalize the economy in a post -conflict country is especially noteworthy . Efficacy was substantial. In terms of rebuilding core state functions and institutions all PDO indicators were achieved with the exception of some shortfall in the civil servants biometric system . In the area of facilitating growth the objectives were also achieved except that it is still too early to measure the PDO indicators . a. Outcome Rating : Satisfactory 7. Rationale for Risk to Development Outcome Rating: The principal risks to the program were well covered in the PAD and risk mitigation actions were identified . These mitigation factors were primarily the government's strong commitment to the program as well as many of the reforms proposed by the program itself, such as the public financial management reforms and the revisions in investment incentives. Nevertheless, significant risks remain, primarily the still fragile internal security situation, vulnerability to external shocks, continued corruption, and limited implementation capacity . a. Risk to Development Outcome Rating : Significant 8. Assessment of Bank Performance: The program was well designed by the Bank with close attention to actions that were both crucial and politically feasible in a post-conflict environment. The program was also well aligned with Bank technical assistance activities as well as with the IMF's program in Liberia, and with other donor programs such as the budget support operations provided by the AfDB and the EU . Supervision took place in consultation with government and in close collaboration with the IMF whose program complemented that of the Bank . at -Entry :Satisfactory a. Ensuring Quality -at- b. Quality of Supervision :Satisfactory c. Overall Bank Performance :Satisfactory 9. Assessment of Borrower Performance: The government exhibited strong ownership of the program and was fully committed : the reforms were key elements of its poverty reduction strategy . In developing the program there was substantial consultation with and support from civil society . A good measure of the government's commitment is that the laws submitted to parliament were all passed, despite the divided nature of parliament . a. Government Performance :Satisfactory b. Implementing Agency Performance :Not Applicable c. Overall Borrower Performance :Satisfactory 10. M&E Design, Implementation, & Utilization: M&E was the responsibility of the Ministry of Finance . However, M&E is difficult because there are few data available, although efforts are underway to strengthen statistical capacity . The design of the M&E was aligned with the M&E process established for the Poverty Reduction Strategy . Implementation was done by a committee under the chairmanship of the Ministry of Finance, but also relied on monitoring by the IMF of its Poverty Reduction and Growth Facility . Findings were utilized for designing subsequent phases of reform measures, including the Bank's ongoing RRSP 3. a. M&E Quality Rating : Modest 11. Other Issues (Safeguards, Fiduciary, Unintended Positive and Negative Impacts): 12. 12. Ratings : ICR IEG Review Reason for Disagreement /Comments Outcome : Satisfactory Satisfactory Risk to Development Significant Significant Outcome : Bank Performance : Satisfactory Satisfactory Borrower Performance : Satisfactory Satisfactory Quality of ICR : Exemplary NOTES: NOTES - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006. - The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate . 13. Lessons: The ICR contains good lessons, the major ones of which can be summarized as follows . Even in a post-conflict country, with limited implementation capacity, a reform program can be successful if (1) there is genuine and strong government commitment; (2) the program is designed to be politically feasible; and (3) the program is supported by technical assistance to make up for local capacity shortcomings . 14. Assessment Recommended? Yes No 15. Comments on Quality of ICR: This is an excellent ICRR. The ICRR presents a thoughtful, well -reasoned, and detailed analysis of the program. It is concise yet comprehensive . It is easy to read. Above all, it is very transparent with no important omissions or ambiguities. a.Quality of ICR Rating : Exemplary