PROGRAM INFORMATION DOCUMENT (PID) APPRAISAL STAGE Report No.: AB7267 Operation Name Economic Reconstruction and Growth Development Policy Grant Region LATIN AMERICA AND CARIBBEAN Country Haiti Sector Public finance management (25%); public procurement (25%); energy (25%); private sector development (25%) Operation ID P127208 Lending Instrument Development Policy Lending Borrower(s) REPUBLIC OF HAITI Implementing Agency MINISTRY OF FINANCE Ministry of Finance Rue Charles Summer Port-au Prince Haiti Tel: (509-3) 701-8058 Fax: NA Date PID Prepared February 25, 2013 Estimated Date of Appraisal April 11, 2013 Estimated Date of Board May 21, 2013 Approval Corporate Review Decision Following the corporate review, the decision was taken to proceed with the preparation of the operation. Key development issues and rationale for Bank involvement The proposed Grant supports the Government’s strategy for reconstruction and development which has been outlined in the Government of Haiti’s National Recovery and Development Action Plan as well as the priority areas articulated by the President. This is the fifth DPG supporting the Republic of Haiti after its successful reengagement with the donor community in 2005, and the second DPG after a magnitude 7.0 earthquake that struck in January 2010. The Grant helps to meet financing requirements for reconstruction, which increased significantly following the earthquake. The operation builds on the institutional foundations created under the past series of DPGs, in particular, progress on public finance management and transparency, procurement, and operational efficiency and transparency in the energy sector. The proposed operation also takes into account new challenges following the earthquake, with particular focus on laying the groundwork for private sector development. Haiti’s macroeconomic indicators remained stable in the last year thanks to sound fiscal, exchange rate, and monetary policies, and their program with the IMF has remained on track despite the difficult post- earthquake environment. Proposed Objective(s) The proposed Development Policy Operation supports the Government’s reconstruction programs. In particular, the operation supports institution building, and the strengthening and enforcement of the regulatory frameworks in sectors critical to reconstruction. The proposed operation aims to: (i) strengthen public investment tracking and enhance cash management systems; (ii) reinforce the institutional framework and capacity for effective implementation of the Procurement Law; (iii) enhance governance and financial performance in the electricity sector; and (iv) improve the transparency and soundness of the insurance sector in order to foster private sector development. By combining growth and public-spending efficiency objectives, the proposed operation aligns its priority areas with the country’s short- and medium-term challenges. The proposed operation supports the macroeconomic objective of achieving high growth through the provision of positive incentives to the private sector. This aligns with the need to shift the growth impetus from fiscal stimulus to a more sustainable growth pattern. At the same time, the operation places emphasis on the conditions needed for enhancing the efficiency of public spending in view of maximizing the impact of the high level of grants in the transition period following which grants are likely to return to their pre-earthquake level. Expected outcomes of the operation include: publication of quarterly budget execution reports with information on domestically financed public investment beyond the commitment stage; substantial progress toward a Single Treasury Account; full implementation of and compliance with the new Procurement Law; a more efficient electricity utility with no new arrears owed by the Central Government to EDH for electricity consumption, and more financial transparency and control over EDH’s payments to independent power producers; and a new regulatory framework for the insurance sector as well as an insurance supervisor in place and with dedicated staff and offices. Preliminary Description The program design balances the pragmatism required to deepen governance reforms in areas addressed by the predecessor operations, and the need for addressing new areas relevant to the reconstruction agenda. Consistent with this strategy, attention is geared toward institution-building and sound governance conditions to ensure the efficient use and enhanced accountability of reconstruction funds while expanding the focus on new areas and mechanisms affecting growth to enhance reconstruction efforts. The reform in public expenditure management focuses on areas deemed critical for improved budget execution rates, monitoring and transparency. With respect to procurement, the proposed operation shifts the focus from strengthening the legal and regulatory framework to actual implementation of the Procurement Law. In the area of electricity, the focus shifts to creating the conditions critical for efficient private investment that would complement Government efforts to expand electricity supply and coverage, while preserving the integrity of public transfer management. New areas include the establishment of a sound insurance sector in order to instill confidence for private sector investment. The prior actions that the Government has already taken or will take to implement the program supported by this operation are as follows: Prior action 1. The Prime Minister has created and established a Directorate of Public Investment within the Ministry of Planning, and the Directorate is staffed and equipped. Prior action 2. Effective implementation of Project Execution Units (UEPs) in line ministries with technical support from the Ministry of Planning. Prior action 3. The Directorate of the Treasury at the Ministry of Finance has adopted and begun implementing an action plan toward establishing the Single Treasury Account. Prior action 4. The Government issued and published all the necessary implementing decrees of the 2009 Procurement Law, including (i) the code of ethics for officials involved in procurement activities; and (ii) the standard documents for evaluating bids. Prior action 5. All line ministries have established ministerial procurement units (commissions ministérielles de passation des marchés), these units are trained, and 10 ministries (representing 85% of public procurement) have begun elaborating procurement plans. Prior action 6. The Government has made public and implemented the key recommendations of the CSCCA’s Audit Report of the 41 contracts to: (i) cancel 5 contracts; (ii) review 36 contracts; and (iii) restructure contracts as needed, and the CSCCA has approved the revised contracts. Prior action 7. EDH has begun to use meter readings from functional remote meters newly installed at IPP entry points to verify IPP production levels and billing. Prior action 8. EDH has performed controls on meters of 200 priority customers to verify activity. Prior action 9. The Central Government has settled all FY12 payment delays to EDH. Prior action 10. Adoption of the two insurance bills by the Council of Ministers. Poverty and Social Impacts and Environment Aspects Poverty and Social Impacts The actions supported by this operation are likely to have positive poverty and social impacts. With respect to economic governance, strengthening budget execution will allow for better control over expenditures, leading to more efficient allocations and better resource planning to meet the needs of the Haitian population. These measures will ultimately make it easier to scrutinize the extent to which voted budget allocations and actual public expenditures are in line with the government’s stated objectives, benefiting the entire population, including the poor. Upgrading the cash management system to ensure the availability of cash for timely payment of the government’s liabilities, fiscal savings will be generated by avoiding unnecessary borrowing costs. The measures that support the implementation and enforcement of the new Procurement Law would increase accountability and foster increased trust in government institutions. The actions supporting reforms in the electricity sector would translate into gains on several fronts, including improved financial efficiency and fiscal loss mitigation, freeing up resources for socially sustainable policies. By monitoring IPP production and paying only for metered generation, and by controlling, repairing and monitoring the meters of its largest consumers, EDH will improve its commercial balances. Insurance can act as an effective reducer of poverty by providing tools to reduce the impact of risks on business and individuals. In addition, insurance enables individuals to access mortgage financing, and enables firms to get access to credit, and to expand. The need for insurance in Haiti is magnified by a high vulnerability to natural disasters. The proposed Operation aims to lay the groundwork for a strong regulatory framework that will support a sound and competitive insurance sector. Environment Aspects The specific policies supported by the proposed Operation are not likely to have a significant effect on the environment, forests or other natural resources. The proposed Operation focuses primarily on institutional reforms, with no perceived negative environmental implications. On the positive side, efficiency improvements in the electricity sector should help rationalize electricity generation and consumption through a closer link between production and consumption costs, as well as lead to increased access to less costly electricity in the medium run. Tentative financing Source: ($m.) BORROWER/RECIPIENT 0 IDA Grant 20 Borrower/Recipient Total 20 Contact point World Bank Contact: Elizabeth Ruppert Bulmer Title: Senior Country Economist Tel: (202) 473-6399 Fax: Email: eruppertbulmer@worldbank.org Borrower Contact: Marie-France Laleau Title: Directeur, Direction des Etudes Economiques Tel: +509-3842-6894 Email: mflaleau@yahoo.com 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