PROGRAM INFORMATION DOCUMENT (PID) CONCEPT STAGE Report No.: AB7379 October 23, 2013 Operation Name Comoros Economic Governance Reform Grant. Region AFRICA. Country Comoros. Sector Central government administration (70%); Public administration- Energy and mining (10%); Transmission and Distribution of Electricity (10%); Public administration- Agriculture, fishing and forestry (10%). Operation ID P131688. Lending Instrument Development Policy Lending. Borrower(s) GOVERNMENT OF COMOROS. Implementing Agency Vice-Presidency in charge of Finance of the Union of the Comoros. Date PID Prepared October 21, 2013. Estimated Date of Appraisal December 11, 2013. Estimated Date of Board February 27, 2014. Approval Corporate Review Decision [Following the corporate review, the decision was taken to proceed with the preparation of the operation.] Other Decision {Optional} Key development issues and rationale for Bank involvement 1. This program document proposes an Economic Governance Reform Grant (EGRG), the first in a series of two annual programmatic development policy operations (DPO) in the Union of the Comoros. The proposed programmatic DPO, in the amount of SDR XX million (US$3.0 million equivalent), supports the implementation of Comoros’s Poverty Reduction and Growth Strategy Paper (PRGSP). It builds upon the reforms initiated during the completion point of the Enhanced Heavily Indebted Poor Countries Initiative (HIPC), and supported by an Economic Reform Development Policy Grant (ERDPG) DPO which was approved in November, 2012 and disbursed in January 2013. The proposed operation also supports policy actions that prepare the country for a second generation PRGSP in 2015: the Sustainable Accelerated Growth and Development Strategy (SCADD). 2. Comoros has implemented a set of ambitious structural reforms that have enabled it to reach the HIPC completion point in December 2012 and consequently benefit from the Multilateral Debt Relief Initiative. Since 2009, Comoros has successfully implemented a series of macro-stabilization and structural reform programs supported by the International Monetary Fund (IMF), the World Bank, the European Union (EU) and the African Development Bank (AfDB), among others. These policy reforms have generally supported the implementation of the PRGSP over the last three years through, most notably, gains in fiscal consolidation and macroeconomic stability supported by an IMF Extended Credit Facility (ECF) arrangement, with headways made to public financial and debt management, and to the process of reforming state- owned enterprises. These reforms enabled the country to reach the HIPC completion point in December 2012, resulting in debt cancellation of US$144.8 million in end-2009 net present value (NPV) terms. In addition, it received debt stock cancellation under the Multilateral Debt Relief Initiative estimated at US$76.9 million. Full debt relief reduced the country’s NPV of debt-to-exports from 343 percent at end-December 2009 to a more sustainable 79 percent at end- December 2012. 3. Moving forward, the widespread poverty and unemployment in Comoros will be further challenged by demographic factors. While accurate data on poverty are unavailable given that the last household survey was conducted in 2004, poverty is believed to broadly affect one out of two individuals, mostly living in rural areas, where four out of five households are classified as poor. In urban areas, one in four household was considered poor, but recent rural urban exodus may have further exacerbated urban poverty in crowded suburbs. Furthermore, even the non-poor population remains highly vulnerable, with a high risk of dropping back into poverty. Key to explain the high poverty numbers is the low productivity of the economy, mostly informal, and centered around agriculture and fishery production intended for self-consumption. Much of the problem lies in the high unemployment level which is widespread in Comoros, and exceeded 15 percent of the active population and affected one out of two young individuals in 2004. Not surprisingly, Comorians have often migrated to other countries in search of better economic prospects. These underlying demographic forces will exert further pressures on the economy with the population projected to rise by 50 percent and the labor force expected to double over the next 15 years. 4. A more stable political system has been instrumental to sustain reform efforts and build more stable institutions. The new Constitution adopted in 2009 clarified the scope of devolution and recentralized some core functions of the state in an effort to achieve a workable compromise between a functioning central government and the autonomy of the islands. While the greater trust reached between the islands and the Union continues to be instrumental to political stability, the implementation process under this new framework is not exempt of risks and tensions, within the context of limited fiscal room, weak institutional capacity, and a modest pace of economic growth which remains largely insufficient to create the number of jobs needed to absorb the labor force and reduce the staggering levels of unemployment and poverty. Trust between the parties and a speedier economic growth will be therefore key ingredients for success of the reform process, and this proposed DPO series seeks to contribute to it through improved economic governance and transparency while improving the management and the development of the electricity and information and communications technology (ICT) sectors. Proposed Objective(s) 5. The Development Objective of this DPO is to improve economic governance, transparency, and raise efficiency of the electricity and ICT sectors. The operation is designed around three pillars: (i) strengthening economic management, consolidating Government’s Treasury accounts, enhancing the comprehensiveness of budget, and strengthening rules to contract new debt; (ii) improving transparency across the Union and island governments, with open dissemination of compliant officers with asset information, updated economic statistics and fisheries information; (iii) improving efficiency in key infrastructure sectors (electricity and ICT). Preliminary Description 6. The proposed operation is consistent with the new Country Partnership Strategy (CPS) in the Union of Comoros, and reinforces on-going World Bank technical assistance projects. The 2014-2018 CPS, expected to be presented to the Board this fiscal year, draws on lessons learnt from the last Interim Strategy Note, presented to the Board in June 2010. The new CPS will support the implementation of on-going reforms and help sustain reform momentum after the Comoros reached the HIPC completion point. This operation is at the core of the reform program in the CPS and also articulates the parallel dialogue supported by Bank technical assistance projects, namely: (i) Economic Governance Technical Assistance Grant (EGTAG); (ii) Trust fund on statistical capacity building; (iii) electricity sector recovery project, (iv) regional fisheries sector project; and (v) regional telecommunication project (RCIP-4). Poverty and Social Impacts and Environment Aspects 7. The policies supported by this programmatic EGRG series are likely to generate poverty reduction and a positive social impact. Improved budgetary and expenditure management supported by the DPO series will benefit the general public and particularly the poor by developing more comprehensive and integrated budget and treasury management that will facilitate a better reallocation of the limited resources available towards poverty reducing expenditures. Moreover, the use of more efficient tools to track such expenditures in the budget (both ex ante and ex post) and an improved governance framework driven by anti-corruption measures will enhance the effectiveness of such expenditures. Taken together, improvements in the reform areas targeted by this programmatic DPO should enable the government to move forward with the implementation of its PRGSP and allocate the scarce resources available to priority areas of social development. 8. A poverty and social impact analysis on the reform of the commercial function of the electricity utility company - MA-MWE – will take place in tandem with the electricity sector recovery project. This exercise will assess the distributional impact of the planned changes intended to improve MA-MWE’s commercial functions (i.e., changes in billing, improvement to reduce fraud and non-payment of electricity bills) on the poor. The analysis is expected to identify the potential impact of enforcement on the payment of electricity bills, as well as how those practices could be modified to achieve the expected results while limiting the impact on the poor. 9. The policy actions supported by the EGRG series are not expected to generate significant negative environmental impacts. The policy addressed by this operation focuses on institutional reforms without any expected short-term direct or indirect environmental impact. In the long-term some policy actions may have a positive impact, although this is contingent on many factors, including future capacity and policy developments. For instance, policy actions that increase the transparency in the fisheries sector will be able to address environmental issues related to the potential risk of over-fishing. Also, policy actions in the energy sector can help identify opportunities for alternative energy sources, a process that has proved difficult to date. Tentative financing Source: ($m.) BORROWER/RECIPIENT 0 International Development Association (IDA) 3.0 million Borrower/Recipient 0 IBRD Others (specifiy) Total 3.0 million Contact point World Bank Contact: Rafael Muñoz Moreno Title: Senior Economist Tel: 5259+2521 / 230 203 2521 Fax: 230 208 0502 Email: rmunozmoreno@worldbank.org Location: Port Louis, Mauritius (IBRD) Borrower Contact: Oubeidi Mze Chei Title: Conseiller du Chef de l'Etat, Secrétaire Permanent de la CREF Tel: (269) 338.30.82 Email: abououbeidi@yahoo.fr For more information contact: The InfoShop The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 458-4500 Fax: (202) 522-1500 Web: http://www.worldbank.org/infoshop