The World Bank Second Consolidation and Social Inclusion Development Program (P168474) Document of The World Bank FOR OFFICIAL USE ONLY Report No: PGD120 INTERNATIONAL DEVELOPMENT ASSOCIATION PROGRAM DOCUMENT FOR A PROPOSED DEVELOPMENT POLICY GRANT IN THE AMOUNT OF SDR 36.4 MILLION (EQUIVALENT TO US$50.0 MILLION) TO THE CENTRAL AFRICAN REPUBLIC FOR THE SECOND CONSOLIDATION AND SOCIAL INCLUSION DEVELOPMENT PROGRAM August 5, 2020 Governance Global Practice Western and Central Africa Region 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. . The World Bank Second Consolidation and Social Inclusion Development Program (P168474) Central African Republic GOVERNMENT FISCAL YEAR January 1 – December 31 CURRENCY EQUIVALENTS (Exchange Rate Effective as of 30 June 2020) Currency Unit=CFAF (XOF) US$1.00 = XOF 583.9 US$1.00 = SDR 0.7269 ABBREVIATIONS AND ACRONYMS ACS Agents and Civil Servants AFD Agence Française de Développement (French Development Agency) AfDB African Development Bank ANAC Agency for Civil Aviation ANEA Agency for Water and Sanitation APPR Accord Politique pour la Paix et la Réconciliation en Centrafrique (Peace and Reconciliation Political Agreement) ASYCUDA Automated System for Customs Data BEAC Banque des Etats de l’Afrique Centrale (Central Bank of the States of Central Africa) CAAT Central Accounting Agent of the Treasury CAR Central African Republic CCRT Catastrophe Containment and Relief Trust CEMAC Communauté Economique et Monétaire de l’Afrique Centrale (Central African Economic and Monetary Community) CEN Country Engagement Note CFAF Franc Communauté Financière en Afrique Centrale (Franc of the Financial Community of Central Africa) CIFS Cellule Interministerielle de Filets Sociaux (Inter-ministerial Social Safety Net Unit) CNSS Caisse Nationale de Sécurité Sociale (National Social Security Fund) COVID-19 Coronavirus Disease CPF Country Partnership Framework CPPR Country Portfolio Performance Review CS-REF Cellule Chargée du Suivi des Réformes Economique et Financières (Unit Responsible for the Monitoring of Economic and Financial Reforms) CSIDP Consolidation and Social Inclusion Development Program CSO Civil Society Organization DDRR Demobilization, Disarmament, Reintegration and Repatriation DeMPA Debt Management Performance Assessment DGB Directorate General of Budget DPF Development Policy Financing DPO Development Policy Operation DRC Democratic Republic of Congo DRM Domestic Revenue Mobilization DSA Debt Sustainability Analysis DSF Debt Sustainability Framework DSSI Debt Service Suspension Initiative ECF Extended Credit Facility ENERCA Energie Centrafricaine (Central African Energy) EU European Union FCS Fragile and Conflict Settings FCV Fragility, Conflict, and Violence FY Fiscal Year GBV Gender-based Violence GDP Gross Domestic Product GRS Grievance Redress Service HIPC Heavily Indebted Poor Countries HRM Human Resources Management IDA International Development Association IEG Independent Evaluation Group IMF International Monetary Fund INDC Intended Nationally Determined Contribution IPF Investment Project Financing JET Jobs and Economic Transformation KPCS Kimberley Process Certification Scheme MAHRN Ministry of Humanitarian Actions and National Reconciliation MCS Ministry of Civil Service MEPSTA Ministry of Primary, Secondary, Technical Education and Alphabetization MFB Ministry of Finance and Budget MINUSCA United Nations Multidimensional Integrated Stabilization Mission in the Central African Republic M&E Monitoring and Evaluation NGO Non-governmental Organizations PA Prior Action PACAD Projet d’Appui aux Communautés Affectées par le Déplacement (Service Delivery and Support to Communities Affected By Displacement Project) PBF Performance-based Financing PDO Project Development Objective PFM Public Financial Management PPA Performance and Policy Action PPP Purchasing Power Parity RCF Rapid Credit Facility RCPCA Recovery and Peace Building Plan RESA Stratégie Nationale de Restauration de l’Autorité de l’Etat en Centrafrique (National Strategy for the Restoration of State Authority) RMF Road Maintenance Fund SCD Systematic Country Diagnostic SDR Standard Drawing Right SOCATEL Société Centrafricaine des Télécommunications (Central African Telecommunications Company) SOCASP Société Centrafricaine de Stockage des Produits Pétroliers (Central African Petroleum Products Storage Company) SODECA Société de distribution d’Eau en Centrafrique (Central African Water Distribution Company) SOE State-owned Enterprise TA Technical Assistance TOFE Tableau des Opérations Financières de l’Etat (Table of State Financial Operations) TSA Treasury Single Account UEAC Union of Central African States UN United Nations UNICEF United Nations Children’s Fund US$ United States of America Dollar WB World Bank WB-SENI World Bank Health System Support and Strengthening Project WHO World Health Organization . Regional Vice President: Ousmane Diagana Country Director: Abdoulaye Seck Regional Director: Francisco Galrao Carneiro Manuel Antonio Vargas Madrigal, Francisco Galrao Practice Managers: Carneiro Task Team Leaders: Elena Georgieva-Andonovska, Wilfried A. Kouame The World Bank Second Consolidation and Social Inclusion Development Program (P168474) CENTRAL AFRICAN REPUBLIC SECOND CONSOLIDATION AND SOCIAL INCLUSION DEVELOPMENT PROGRAM TABLE OF CONTENTS SUMMARY OF PROPOSED FINANCING AND PROGRAM .......................................................................3 1. INTRODUCTION AND COUNTRY CONTEXT ...................................................................................5 2. MACROECONOMIC POLICY FRAMEWORK....................................................................................9 2.1. RECENT ECONOMIC DEVELOPMENTS............................................................................................ 9 2.2. MACROECONOMIC OUTLOOK AND DEBT SUSTAINABILITY ........................................................ 11 3. GOVERNMENT PROGRAM ........................................................................................................ 17 4. PROPOSED OPERATION ............................................................................................................ 18 4.1. LINK TO GOVERNMENT PROGRAM AND OPERATION DESCRIPTION .......................................... 18 4.2. PRIOR ACTIONS, RESULTS AND ANALYTICAL UNDERPINNINGS .................................................. 21 4.3. LINK TO CPF, OTHER WORLD BANK OPERATIONS AND THE WBG STRATEGY ............................. 41 4.4. CONSULTATIONS AND COLLABORATION WITH DEVELOPMENT PARTNERS ............................... 43 5. OTHER DESIGN AND APPRAISAL ISSUES ........................................................................................ 43 5.1. POVERTY AND SOCIAL IMPACT .................................................................................................... 43 5.2. ENVIRONMENTAL ASPECTS ......................................................................................................... 44 5.3. PFM, DISBURSEMENT AND AUDITING ASPECTS .......................................................................... 44 5.4. MONITORING, EVALUATION AND ACCOUNTABILITY .................................................................. 46 6. SUMMARY OF RISKS AND MITIGATION ......................................................................................... 47 ANNEX 1: CHANGES BETWEEN THE INDICATIVE TRIGGERS AND RESULT INDICATORS ENVISAGED IN CSIDP 1 AND CSIDP 2 PROPOSED PRIOR ACTIONS ............................................................................. 50 ANNEX 2: POLICY AND RESULTS MATRIX........................................................................................... 56 ANNEX 3: IMF RELATIONS ANNEX ..................................................................................................... 60 ANNEX 4: LETTER OF DEVELOPMENT POLICY..................................................................................... 65 ANNEX 5: ENVIRONMENT AND POVERTY/SOCIAL ANALYSIS TABLE .................................................. 85 ANNEX 6: LESSONS LEARNT ............................................................................................................. 89 ANNEX 7: CLIMATE CO-BENEFITS ..................................................................................................... 91 Page 1 The CSIDP 2 Grant was prepared by an International Development Association (IDA) team consisting of Elena Georgieva-Andonovska (Task Team Leader, EAWG2), Wilfried Anicet Kouakou Kouame (Co-Task Team Leader, EAWM2), Diderot Sandjong Tomi (EAWM2), Henri Fortin (EAWG2), Heriniaina Mikaela Andrianasy (EAWG2), Mamadou Lamarane Deme (EAEG2), Ragnvald Michel Maellberg (EAWG1), Mahoko Kamatsuchi (HAWH2), Moulay Driss Zine Eddine El Idrissi (HAWH2), Cristelle Alexandra Ahunvin Kouame (HAWE2), Boubakar Lompo (HAWE2), Kebede Feda (HAEE1), Philippe Auffret (HAES2), Paul Bance (HAES2), Athanase Danhossou (HAWH3), Saba Nabeel M Gheshan (LEGAM), Faly Diallo (WFACS), Late Felix Lawson (WFACS), Roy Katayama (EAWPV), Joelle Nkombela Mukungu (SAEE3), Bella Dialo (EAWG2), Rose Caline Cadet (EAWRU), Maimouna Diakite (EAWG2), Mavo Ranaivoarivelo (EAWG2), Pierre Lenaud (EAWG2), Evelyne Huguette Madozein (AWMCF) and Béatrice Toubarot Mossane (AWMCF). The team benefited from guidance provided by Jean-Christophe Carret (AECC2), Abdoulaye Seck (AFCC1), Han Fraeters (AWMCF), Manuel Vargas (EAWG2), Francisco Carneiro (EAWM2), Vinaya Swaroop (AFEDE), and Chadi Bou Habib (EMFTX). Peer reviewers for the operation are: Gaël Raballand (Lead Public Sector Specialist, EAEG1), Carine Clert (Program Leader, HAWDR), and Andrea Coppola (Program Leader, EAWDR). The World Bank Second Consolidation and Social Inclusion Development Program (P168474) SUMMARY OF PROPOSED FINANCING AND PROGRAM BASIC INFORMATION Project ID Programmatic If programmatic, position in series P168474 Yes 2nd in a series of 2 Proposed Development Objective(s) Support the consolidation of basic fiscal management and social inclusion Organizations Borrower: CENTRAL AFRICAN REPUBLIC, MINISTRY OF ECONOMY, PLAN AND COOPERATION Implementing Agency: MINISTRY OF FINANCE AND BUDGET PROJECT FINANCING DATA (US$, Millions) SUMMARY Total Financing 50.00 DETAILS International Development Association (IDA) 50.00 IDA Grant 50.00 INSTITUTIONAL DATA Climate Change and Disaster Screening This operation has been screened for short and long-term climate change and disaster risks Overall Risk Rating High . Page 3 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) Result indicators Indicator Name Baseline Update (as of June 2020) Target Use of exceptional spending procedures as a 5.5 percent (end December 11 percent (2018) 5 percent (2021) percent of non-salary spending 2019) 1 (the 2018 debt report has been published, and the Number of published annual debt reports 0 (2018) 3 (2021) draft 2019 report has been prepared) Actual presence rate of Civil Servants and 40 percent (2017) 86 percent (2019) 80 percent (2021) Agents of the State in secured areas Percentage of customs duties and taxes 59 percent (2018) 90 percent (2019) 93 percent (2021) processed through ASYCUDA The internal control manual and the internal audit Number of internal audit reports of the Roads manual based on which the 0 (2018) 4 (2021) Maintenance Fund (RMF) internal audits will be conducted have been adopted Number of published financial audits of State- 0 (2018) 5 (2019) 7 (2021) owned Enterprises (SOEs) and Parastatals Number of poor households who benefit from unconditional cash transfers funded by the 0 (2018) 3163 (2020) 3200 (2021) Government Number of districts where targeted free health care is implemented by the government (and 0 (2018) 0 (2019) 7 (2021) not by donors), which receive essential medicines 150 primary school teachers Percentage of primary school teachers (47 of whom women) have recruited in 2019 who have become teachers been recruited locally and in their localities, following the completion of 0 percent (2018) have started their training, 80 percent (2021) their two-year training (disaggregated by committing to completing it gender) and to teaching at the local level . Page 4 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) IDA PROGRAM DOCUMENT FOR A PROPOSED SECOND CONSOLIDATION AND SOCIAL INCLUSION DEVELOPMENT POLICY GRANT TO THE CENTRAL AFRICAN REPUBLIC 1. INTRODUCTION AND COUNTRY CONTEXT 1. The proposed Second Consolidation and Social Inclusion Development Program (CSIDP 2) supports the Government of the Central African Republic (CAR) as it implements structural reforms designed to continue the consolidation of fiscal management and to support social inclusion. The proposed operation in the amount of US$50 million equivalent is the second in a programmatic series of two IDA grants. The Program is aligned with the Government’s economic recovery, poverty reduction and structural reform priorities, as set forth in the National Recovery and Peace Building Plan (RCPCA) for 2017-2023 and other key strategic documents. The operation is aligned with both the World Bank Group (WBG) Country Partnership Framework (CPF) 2020-2025 for CAR (in preparation), the WBG strategy on fragility, conflict, and violence (FCV) and the WBG twin goals of boosting shared prosperity and ending extreme poverty. 2. The proposed operation is being prepared against the backdrop of the Coronavirus disease (COVID-19) pandemic, which is leading to a sharp economic downturn and significant fiscal pressures in CAR. CAR’s economic performance has been sustainable, although sensitive to the security environment, in recent years, with an average growth rate of 4.1 percent since 2015 – the highest five-year growth average since independence. However, as a result of the COVID-19 pandemic, the economy is projected to contract by 1.2 percent in 2020 (3.1 percent contraction in per-capita terms), compared to a pre-COVID projection of 4.4 percent growth. The main drivers of the economic downturn include a sharp fall in CAR’s exports (diamond, coffee, cotton, and timber), a decrease in foreign direct investment, and a decline in commodity prices due to the sharp global economic downturn. Furthermore, internally, the Government’s measures to contain the spread of COVID-19, including restrictions of movement within the country, closing schools, banning mass gatherings, and closing the airport are having an added impact onslowing economic activity and increasing unemployment. With tax revenues down and increased COVID-related spending needs, the fiscal deficit is projected to widen to 4.1 percent of GDP in 2020, compared to a surplus of 0.2 percent projected prior to COVID. 3. Significant budget support from the proposed operation and other development partners will contribute to closing the financing gap in 2020. COVID-19 has widened the financing need (including grants) in 2020 to CFAF 128.1 billion – about US$216.5 million or 9.4 percent of GDP. Through the proposed Program and the Supplemental Financing of the previous operation in the series (CSIDP 1), the World Bank is providing US$75 million (3.3 percent of GDP). Through an Extended Credit Facility (ECF) and a Rapid Credit Facility (RCF), approved in December 2019 and April 2020, respectively, the IMF expects to provide US$87.2 million (3.8 percent of GDP). The African Development Bank (AfDB), the European Union (EU), and France are expected to provide US$47 million (2 percent of GDP). Debt service relief under the IMF’s revamped Catastrophe Containment and Relief Trust (CCRT) and the G20 Debt Service Suspension Initiative (DSSI) for Poorest Countries contribute to closing the residual financing gap. 4. COVID-19 is expected to increase poverty and worsen the already precarious humanitarian situation of the country, which could in turn exacerbate tensions in an already fragile situation. An additional 140,000 Central Africans are projected to fall into extreme poverty in 2020, adding to the 3.4 million people already below the international poverty line (US$1.90 per day, 2011 Purchasing Power Parity (PPP)). Supply-chain disruptions at the Cameroon border and neighboring countries have increased Page 5 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) the price of selected necessities and inflationary pressures, with significant impacts on households with limited income and savings. A large proportion of the population is highly vulnerable to economic impacts of COVID-19 due to the precarious nature of most jobs—more than 75 percent of the labor force is in the informal sector, the coverage of pensions and unemployment insurance schemes is limited and a Government-funded social safety nets program has been limited. The fallout from the crisis could affect implementation of the 2019 peace agreement, disrupt preparations for upcoming elections, and delay the progressive redeployment of the state and service delivery throughout the country. 5. COVID-19 reached CAR in mid-March 2020 and its spread is on the rise, while CAR’s health system is not prepared to confront the pandemic. As of August 3, 2020, 4614 confirmed cases have been reported and 59 deaths. While the numbers are still relatively low, the country has seen a significant increase in confirmed cases in the past weeks, both due to travelers from other countries and community transmission. The situation could deteriorate rapidly since the health system is ill-equipped to address an outbreak of coronavirus in the country. According to the United Nations (UN), CAR is one of the least prepared countries to face a COVID-19 outbreak, with 2.2 million people already in need of health assistance and about 70 percent of health services provided by humanitarian organizations. Only one laboratory in Bangui has been accredited by the World Health Organization (WHO) and is able to diagnose COVID-19. There is only one COVID-19 treatment center with 14 beds in Bangui and no health isolation centers. Other challenges include limited case management capacity, weak medical supply and distribution system, inadequate preventive measures, and infection control. 6. In response, the Government has adopted several measures to contain the spread of the virus and a preparedness and response plan to strengthen the capacity of the country to cope with its impact. In early March 2020, in collaboration with the WHO, the Government prepared a COVID-19 preparedness and response plan estimated at CFAF 27 billion (around US$45 million equivalent), which aims at addressing some of the national health system’s main weaknesses in a sustainable way. This plan was later complemented by additional activities to strengthen social protection, support the private sector and economic recovery, and enhance justice and security. In addition, following the first recorded cases of COVID-19 in CAR, the Government adopted measures against the pandemic, such as asking people entering the country to submit to a mandatory temperature check and asking travelers arriving from countries with many confirmed cases to self-quarantine. Additional measures were introduced in late March 2020, including: the closing of schools and the country’s borders; a ban on assembly involving more than 15 people; and restriction of movement of people from Bangui to other regions.1 In a country where mandatory social distancing is impossible, CAR’s fit-for-purpose strategy includes a focus on the population with comorbidities, the mandatory wearing of masks, large-scale community-based surveillance, and sensitization campaigns. 7. In this context, the proposed CSIDP 2, structured around two pillars, supports key structural reforms and COVID-19 specific measures that will contribute to economic recovery and resilience in CAR. Pillar 1—Consolidating basic fiscal management— focuses on improving governance and institutions by improving public financial management, including the monitoring COVID-19 related funds, strengthening the oversight and transparency of state-owned enterprises and parastatals, automating customs procedures, improving debt transparency and enabling digital payments, including for salaries of civil servants, cash transfers and payment of taxes by firms. Two of CSIDP 2 Prior Actions (PAs) form the basis for the proposed FY21 Performance and Policy Actions (PPAs) under the Sustainable Development 1 On June 12, 2020, the Prime minister announced the partial easing of the restrictive measures. Page 6 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) Finance Policy (SDFP). Pillar 2 — Supporting inclusive economic recovery—supports measures to improve access to social protection, health and education through the launch of a digitally enabled cash transfer program, the implementation of free healthcare for children under-five, pregnant and breastfeeding women and survivors of gender-based violence, and the recruitment and deployment of primary school teachers at the local level. Both pillars include measures to help mitigate the immediate impacts of the coronavirus crisis and build the foundations for recovery and resilience. The proposed program is thus consistent with the WBG COVID Response Approach paper. Furthermore, CSIDP 2 addresses some of the drivers of fragility identified in the 2016 CAR Fragility Assessment, such as the lack of social cohesion and the near complete absence of public services. The supported reforms are also grounded in the 2019 Systematic Country Diagnostic (SCD) for CAR which emphasized the need to address cross-cutting governance issues in order to strengthen government capacity and deploy the state across the territory. Last but not least, the proposed measures are a continuation of the reforms initiated under the previous operation in this series, which built on the series before that. 8. The proposed Program is part of the World Bank’s three-phased response to the crisis and the coordinated effort by the international community to support the Government of CAR (Figure 1). In Phase 1 (Relief), the World Bank’s initial support to the Government was focused on containing the pandemic. On April 23, 2020, the World Bank approved a US$7.5 million COVID-19 Preparedness and Response Project (P173832)2 financed under the Fast Track COVID-19 Facility. Projects in the existing portfolio were restructured to support immediate measures against the spread of the virus. For example, the Londo ('Stand-Up') Project (P152512) will support the local production of 10 million masks and the drilling of boreholes to increase access to potable water. A Supplemental Financing of US$25 million to CSIDP 1 (P173900), prepared in coordination with the IMF RCF of US$38 million, was approved by the Board of Executive Directors on 11 June 2020. The objective of the Supplemental Financing was to provide immediate relief, which was urgently needed due to the negative consequences of the pandemic on CAR’s fiscal stance caused by a drop in domestic revenues and a slowdown in economic activities. The operation helped the Government address the unexpected additional financing gap caused by COVID-19. CAR has also benefitted from debt service relief under the IMF CCRT, and since May 2020, the Government participates in the G20 DSSI for Poorest Countries. In Phase 2 (Restructuring), existing3 and new operations4 will aim to restore livelihoods and support enhanced quality and access to basic services. Lending will be complemented by analytical work to ensure more effective government spending in health and education, while engaging in policy dialogue and strengthening institutions. CSIDP 2 is part of the transition towards a more Resilient Recovery (Phase 3) as, next to crisis-response measures, it supports structural reforms that will help strengthen CAR’s economic position to navigate the COVID-19 crisis and its aftermath. 2 The project supports the implementation of the Government’s COVID-19 health response plan. Its objective is to prevent, detect and respond to the threat posed by COVID-19 in CAR. This will be achieved through, inter alia, strengthening of public health emergency management and community and event-based surveillance, building of national and district diagnostic capacity for COVID-19 and other epidemics, procurement of medical equipment, drugs and supplies for outbreaks, etc. 3 Health Systems Strengthening Project, COVID-19 Emergency Project, Primary Education Project, Agribusiness project 4 Human Capital Project, Digital Governance Project, Private Sector Support Project Page 7 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) Figure 1. The Bank's coordinated three-phased response to the COVID-19 crisis 9. CSIDP 2 will also contribute to sustaining the 2019 peace agreement in one of the most fragile and poorest countries in the world. CAR is the size of France, landlocked, scarcely populated country with a population of approximately 5.4 million. It is one of the most fragile countries in the world.5 The country is endowed with ample natural resources, but it is barely urbanized and has faced continued political instability and cycles of violence ever since independence from France in 1960. Recent estimates indicate that CAR’s poverty rate increased from 62 percent in 2008 to 69.7 percent in 2018, i.e., nearly 3.4 million people live below the international poverty line (US$1.90 per day, 2011 PPP). About two-thirds of the population live in rural areas where poverty is estimated to be 69 percent, compared to 50 percent in urban areas.6 CAR is also very vulnerable to climate change, which affects 75 percent of the population.7 The Peace and Reconciliation Political Agreement (Accord Politique pour la Paix et la Réconciliation en Centrafrique, APPR-RCA) signed between the Government and 14 armed groups in February 2019,8 has reduced conflicts and violence which began in early 2013. The conflict resulted in the internal displacement of roughly one-fourth of the population in addition to refugees fleeing to neighboring countries,9 and 2.6 million people in need of humanitarian assistance. The levels of displacement are still very high as of October 2019, there were 593,000 refugees in neighboring states and 600,000 people were internally displaced. The country is continuing its recovery from the conflict and implementation of the peace agreement is progressing, although at a slower pace than expected. Most of the armed groups have not yet laid down their arms and continue to exploit natural resources to the detriment of the State. The central government controls only about 40 percent of the national territory. 5 In 2020, the Fragile States Index ranked CAR as the 6th most fragile country in the world, which is still an improvement compared to 2014 when CAR was the 3rd most fragile country in the world. 6 The 2018 poverty projections are done using international poverty line (US$1.90 per day, 2011 PPP) whereas the rural/urban estimates are based on the national poverty line which is using data from the last nationally representative household survey conducted in 2008. 7 CAR Intended Nationally Determined Contribution Report (INDC). Annex 7 provides an overview of CAR’s climate change and vulnerability context and explains which of the Program’s prior actions (PA) will generate climate co -benefits. 8 The African Union and the Economic Community of Central African States (ECCAS) serve as the agreement’s guarantors, while the UN peacekeeping force United Nations Multidimensional Integrated Stabilization Mission in the Central African Republic (MINUSCA) plays a critical support role in the background - as of January 2020, 12,870 UN Peacekeepers ensure that the country does not slide back into civil war. Unlike the seven peace agreements previously signed since the crisis in 2013, this one is the first resulting from long and direct discussions between the parties in conflict. 9 In two- thirds of CAR’s territory, the entire population has been displaced at least once. Page 8 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) 2. MACROECONOMIC POLICY FRAMEWORK 2.1. RECENT ECONOMIC DEVELOPMENTS 10. With the signing of the peace agreement, CAR entered the COVID-19 crisis with an economic growth of 3.1 percent in 2019, down from 3.7 percent in 2018. The economic performance was lower than expected due to the collapse by about 30 percent in the production of coffee and cotton because of persistent structural issues, despite improvements in security. On the supply side, the services sector supported economic activities as this sector expanded by 2.3 percent in 2019. Structural issues in the agricultural sector continued to undermine its development and limited its growth rate at 3.1 percent in 2019. On the demand side, private consumption remained the main driver of economic growth at 96.1 percent of GDP in 2019 compared to 93.7 percent in 2018. Gross fixed capital formation declined to 14.2 percent of GDP in 2019, down from 16.4 percent in 2018 as public investments decreased from 7.4 percent of GDP in 2018 to 5.6 percent in 2019. Export volume of goods is estimated to have expanded by 1.9 percent in 2019 against 3.8 percent in 2018 due mainly to weak international demand that slowed timber exports and the collapse in coffee and cotton sectors (Table 1). 11. Inflation increased in 2019 but remains in compliance with the convergence criterion of the Central African Economic and Monetary Community (Communauté Economique et Monétaire de l’Afrique Centrale, CEMAC) region, of which CAR is a member.10 As the inflationary pressures that resulted from the blockade of the main trade route between Bangui and Cameroon in March 2019 have abated, inflation is estimated to be limited to 2.8 percent on average in 2019, up from 1.6 percent in 2018. 12. The current account balance improved in 2019, with the rise in official transfers. The current account deficit narrowed to 4.8 percent of GDP in 2019 against 8 percent in 2018 as official transfers increased. The trade balance deteriorated by 4.3 percent as the petroleum bill increased, and merchandise exports declined. As the deficit of income and service accounts worsened slightly, the deterioration of the trade balance was offset by the increase in official transfers. As a result, the deficit of the overall balance of payment declined at 0.7 percent of GDP in 2019 from 1.7 of GDP in 2018, resulting in an increase in foreign reserves. The latter shifted coverage upward from 2.7 months of imports in 2018 to 3.3 months in 2019. 13. CAR’s fiscal stance improved in 2019. CAR’s efforts to rationalize public expenditure and resolve domestic arrears enabled it to put its ratio of debt-to-GDP on a declining path since 2014. Public sector debt is estimated at 47.8 percent of GDP in 2019, down from 63 percent in 2014. However, tax revenues declined from 8 percent of GDP in 2018 to 7.8 percent of GDP in 2019 due primarily to delays in the transfer of parafiscal taxes to the Treasury Single Account (TSA) and the impact of derogatory tax exemptions. Overall domestic revenues amounted to 8.7 percent of GDP in 2019 against 8.8 in 2018. On the expenditure side, public expenditure, on a cash basis, reached 16.9 percent of GDP in 2019, down from 17.6 percent of GDP in 2018. As a result, the overall fiscal balance, excluding grants, posted a deficit of 8.2 percent of GDP in 2019. The latter was compensated by grants, which reached 9.6 percent of GDP in 2019 from 7.8 percent in 2018, reflecting the support of the international community to the peace agreement signed in February 2019 (Table 2). The overall balance, including grants, posted a surplus of 1.5 percent of GDP in 2019 from a deficit of 1 percent in 2018. 14. The credit to the economy decreased in 2019. The growth rate of credit to the economy in 2019 was negative at -1.6 percent, compared to 11.5 percent in 2018, due to the tightening of monetary policy 10 The other members of CEMAC are Cameroon, Chad, Republic of Congo, Gabon, and Equatorial Guinea. Page 9 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) by BEAC in October 2018, political uncertainty, and weak business environment. Credit to the economy remains at a very low level at 13 percent of GDP. The financial sector is dragged down by its weak legal framework and market infrastructure, the smallest in the CEMAC region. Less than 14 percent of individuals over 15 years old hold a bank account as of 2017.11 Micro-finance accounts for only one percent of total credit facilities, serving 0.5 percent of the population. Mobile banking has recently been introduced with the potential to help overcome the geographic challenges and lack of infrastructure. However, the penetration of mobile banking could be hampered by poor information and communication technology infrastructure and low network coverage. Table 1. Key Macroeconomic and Financial Indicators, 2017-2023 2017 2018 2019 2020 2021 2022 2020 2021 2022 2023 Actual Est. Projections pre-covid post-covid Annual percentage change, unless otherwise indicated National income and prices Real GDP 4.5 3.7 3.1 4.4 5.2 5.3 -1.2 3.0 4.1 4.6 GDP deflator 6.5 1.4 2.3 3.2 2.9 3.1 2.8 2.5 2.5 2.9 CPI (annual average) 4.1 1.6 2.8 2.5 2.8 2.8 3.5 2.9 2.8 2.8 External sector Imports volume of goods -2.0 -0.7 10.4 7.8 4.0 5.0 -8.7 0.8 2.5 3 Exports volume of goods 42.5 10.3 -6.7 14.9 6.0 7.0 -12.1 5.9 6.7 8.7 Terms of Trade (deterioration -) -18.5 -12.4 13.6 3.5 2.2 0.5 -3.1 1.3 5.2 -0.2 % of GDP, unless otherwise indicated Fiscal Accounts Expenditure 13.8 17.6 16.9 18.1 18.1 17.7 21.6 18.8 18.6 18.8 Revenue and grants 12.8 16.6 18.4 18.3 16.7 16.2 17.5 17.9 18.2 18.0 Overall fiscal balance (incl. grants) -1.0 -1.0 1.5 0.2 -1.4 -1.5 -4.1 -0.9 -0.4 -0.8 Annual percentage change, unless otherwise indicated Selected Monetary Accounts Base Money 10.3 14.0 1.9 14.9 5.8 8.9 10.3 1.7 5.6 5.8 Credit to the economy 1.4 11.5 -1.6 5.0 7.0 8.0 -3.0 6.0 8.0 8 % of GDP, unless otherwise indicated Balance of Payments Current Account Balance -7.8 -8.0 -4.8 -8.0 -8.7 -8.6 -5.6 -6.5 -6.3 -6.0 Imports of goods and services -33.8 -35.2 -35.8 34.5 32.7 30.8 33.0 32.7 32.3 31.8 Exports of goods and services 16.6 16.6 16.4 15.7 15.4 15.4 14.6 15.2 15.6 16.2 Foreign Direct Investment 0.8 0.8 1.1 1.4 1.4 1.4 0.4 1.0 1.5 1.5 % of GDP, unless otherwise indicated Public Debt Total government (end of period) 50.3 50.0 47.8 42.4 40.4 37.5 47.4 45.5 43.5 39.6 o/w External debt 35.4 37.2 37.2 35.6 35.0 34.0 39.0 37.9 36.9 34.2 Memo GDP nominal (US$ millions) 1979.7 2181.4 2180.2 2323.8 2530.4 2761.5 2239.7 2356.6 2536.7 2729.8 Source: CAR authorities, World Bank and IMF estimates, June 2020. Note. Post-covid projections are based on the baseline scenario. Macroeconomic and financial indicators are likely to be different under the downside scenario, as discussed below. 11 Source: World Development Indicators, https://data.worldbank.org/indicator/FX.OWN.TOTL.ZS?locations=CF. Page 10 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) Table 2. Financial Operations of the Central Government, 2017-2023 2017 2018 2019 2020 2021 2022 2020 2021 2022 2023 Actual Est. Projections pre-covid post-covid In percentage of GDP Total Revenue (and grants) 12.8 16.6 18.4 18.5 18.3 17.8 17.5 17.9 18.2 18.0 Tax revenue 7.0 8.0 7.8 8.1 8.2 8.5 5.2 7.4 8.4 8.8 Taxes on goods and services 3.4 4.1 4.1 3.8 3.9 4.1 2.9 3.6 3.9 4.1 Taxes on profits and property 1.2 1.7 1.8 2.0 2.0 2.1 1.3 1.8 2.0 2.2 Taxes on international trade 2.4 2.3 2.0 2.2 2.3 2.4 1.0 2.0 2.5 2.5 Non-tax revenue 0.8 0.8 0.9 1.7 1.7 1.7 1.2 1.5 2.0 2.0 Grants 5.0 7.8 9.6 8.7 8.4 7.6 11.2 8.9 7.8 7.3 Expenditure 13.8 17.6 16.9 18.9 18.2 18.4 21.6 18.8 18.6 18.8 Current expenditure 9.3 10.2 11.3 11.0 11.1 11.2 13.0 11.1 11.3 11.4 Wages and salaries 4.7 4.8 4.9 4.7 4.8 4.8 5.0 4.9 4.9 4.9 Current transfers 2.0 2.2 2.9 3.1 3.3 3.3 3.9 3.1 3.3 3.3 Interest payments 0.3 0.4 0.3 0.3 0.3 0.2 0.3 0.3 0.3 0.3 Goods and services 2.3 2.8 3.2 2.8 2.8 2.8 3.8 2.8 2.8 2.9 Capital expenditure 4.5 7.4 5.6 7.9 7.0 7.2 8.6 7.7 7.3 7.3 Domestic 0.7 0.8 1.3 1.6 1.7 2.0 1.7 2.1 2.0 2.0 Donor-funded 3.8 6.6 4.3 6.3 5.3 5.2 6.9 5.6 5.3 5.3 Overall balance (incl. grants) -1.0 -1.0 1.5 -0.4 0.1 -0.5 -4.1 -0.9 -0.4 -0.8 Domestic primary balance -2.0 -1.7 -3.5 -2.7 -2.5 -2.5 -6.1 -3.0 -2.5 -2.5 Overall balance (cash basis) -2.0 -3.6 -1.0 -2.9 0.2 -0.5 -5.0 0.0 -0.3 -0.9 Financing 2.0 3.6 0.7 2.9 -0.2 0.5 0.6 0.9 0.8 0.7 External (net) 1.0 1.4 0.3 0.7 0.1 0.1 0.9 0.8 0.7 0.7 Domestic (net) 1.0 2.2 0.4 2.2 -0.3 0.4 -0.3 0.1 0.1 0.1 Source: CAR authorities; World Bank and IMF estimates, June 2020 Note. Post-covid projections are based on the baseline scenario. Macroeconomic and financial indicators are likely to be different under the downside scenario, as discussed below. 2.2. MACROECONOMIC OUTLOOK AND DEBT SUSTAINABILITY 15. The economic outlook in CAR has deteriorated sharply as a result of COVID-19 but is projected to recover gradually going forward with a recovery of external demand, hinging on a peaceful democratic transition domestically. The economy is projected to contract by 1.2 percent in 2020 (3.1 percent contraction in per-capita terms), compared to a pre-COVID projection of 4.4 percent growth (Table 1). The main drivers of the downturn include a sharp fall in CAR’s exports (diamond, coffee, cotton, and timber), a decline in commodity prices, and a decrease in foreign direct investment. Furthermore, internally, the Government’s measures to contain the spread of COVID-19, including restricting movement within the country, closing schools, banning mass gatherings, and closing the airport are having an added impact on slowing economic activity. As the negative impacts of COVID-19 dissipate, CAR’s economy is projected to recover gradually by 3.9 percent per year during 2021-23, which is still significantly below the pre-COVID- 19 projections. The recovery is expected to be driven by an increase in timber and forestry activities as international prices rise and tensions in the sector are resolved progressively. Diamond exports – a key commodity for export – are projected to resume with the expectation of the full reestablishment of the Kimberley certification process.12 Cotton production and exports are also expected to increase as the 12 The Kimberley Process is a multilateral trade regime established in 2003 with the goal of preventing the flow of conflict diamonds. The core of this regime is the Kimberley Process Certification Scheme (KPCS) under which States implement safeguards on shipments of rough diamonds and certify them as “conflict free". Under the terms of the KPCS, participating states must meet ‘minimum requirements' and must put in place national legislation and institutions; export, import and internal controls; and also commit to transparency and the exchange of statistical data. Page 11 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) Government continues to clear arrears accumulated to cotton producers during the 2013-2014 crisis. Ongoing projects, especially in the agricultural sector, are expected to ease the investment climate and facilitate the development of agribusiness in the Bangui area. Improved distribution channels and increased output in agriculture will also support growth. Higher levels and efficiency of public investment addressing infrastructure constraints should also support the projected growth rates (see Box 1 for more details). Box 1: The economic outlook could deteriorate further under the downside scenario COVID-19 poses a significant risk to CAR's economy, as the pandemic could deteriorate further the economic outlook. Two scenarios are considered to estimate the economic impacts of COVID-19 on CAR's economy: a baseline and a downside scenario. Under the baseline scenario – presented above – the global economy will enter a recession affecting most of the world in 2020. i In this scenario, where global economic growth is projected to contract by 5.2 percent, COVID-19 is expected to push CAR’s economy into recession. Under the downside scenario, the global economy will shrink further by almost 8 percent as the outbreak lingers, and several countries are likely to face a second wave of infections with renewed lockdowns before the end of 2020. In the downside scenario, the socioeconomic impacts of COVID-19 are expected to be more significant as CAR’s economy would shrink by 2.1 against -1.2 percent in the baseline scenario. The fiscal deficit is projected to be larger at -4.9 percent of GDP from a surplus of 1.5 percent of GDP in 2019 driven by a sharp decline in tax revenues by 44 percent (about CFAF 44 billion) – from 7.8 percent of GDP in 2019 to 4.3 percent of GDP in 2020. The economic recession is expected to be driven by a further decline in private consumption and investment, exports, imports, and the service sector, compared to the baseline scenario. Figure B.1. Estimated impacts of COVID-19 on economic growth in CAR 6 5 4 3 2 1 0 -1 -2 -3 2020 2021 Pre-COVID Baseline Downside scenario Source: Staff calculations using World Bank’s MFMod and scenarios from the World Bank Global Economic Prospects i Under this scenario, three months of mitigation would prove insufficient to stem the pandemic. Another three months of partial mitigation would be required before the pandemic can be brought under control. During these additional three months, mitigation measures would only be eased gradually in advanced countries. Despite fiscal policy support, vulnerable firms would exit, vulnerable households would sharply curtail consumption, and travel would remain sluggish. 16. The poverty and social impacts of COVID-19 are expected to be significant. COVID-19 is likely to worsen the already precarious humanitarian situation of the country. The poverty rate pre-COVID 19 is estimated at 70.9 percent in 2019, and half of the population is food insecure, requiring humanitarian assistance.13 Poverty is expected to increase to 72.4 percent following the COVID-19 crisis implying at least 140,000 additional Central Africans falling into extreme poverty under the baseline scenario. The crisis may 13 World Food Program, 2018. Page 12 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) lead to increased public spending on health but spending in other key sectors and services is expected to decline, given the Government’s limited overall resources. The economic impact of COVID-19 may also have a significant bearing on vulnerable groups – among those most at risk are the 695,000 internally displaced people as well as children, women, people with disabilities, and the elderly, whose vulnerabilities are expected to exacerbate. An important share of the labor force, including youth and women, is self- employed in the informal sector. These workers are likely to be adversely impacted by reduced demand stemming from containment measures, with important poverty and social impacts, as CAR does not have a national social safety net. For these workers, an inability to work due to illness will reduce earnings and increase vulnerability. Furthermore, CAR relies heavily on imports for food and non-food products. Disruptions to the supply chain following the partial closure of the borders with Cameroon and the Democratic Republic of Congo (DRC), have already led to food shortages and price increases, undermining the purchasing power of households and increasing the risks of social unrest. The impacts will be most significant on the poor, who tend to have limited or no savings. 17. The current account is projected to deteriorate slightly in the medium term. The deficit of the current account balance is projected at 5.6 percent of GDP in 2020, slightly higher than preliminary estimates of 4.8 percent in 2019 (Table 1), as both exports and imports decline with the slowdown in the global economy. As the impacts of COVID-19 recede and the global economy recovers gradually, exports from CAR are likely to increase and support a slight improvement in the current account balance in 2022- 23 at 6.2 percent of GDP, on average. The current account deficit is expected to remain below pre-COVID- 19 projections due primarily to a sharp decline in oil prices. 18. The regional Central Bank (Banque des Etats de l’Afrique Centrale, BEAC), has also taken significant measures to provide monetary stimulus to the CEMAC zone, minimize risk factors weighing on monetary and financial stability, and help the CEMAC region cope with the effects of the pandemic. Key measures include: (i) reducing the open market interest rate (TIAO in French) by 25 basis points, from 3.50 percent to 3.25 percent, (ii) revising down the Marginal Loan Facility Rate by 100 basis points, from 6 percent to 5 percent, (iii) increasing liquidity injections from US$400 million to US$800 million (CFAF 240 billion to CFAF 500 billion), with the possibility to further increase this amount if needed, (iv) expanding the range of private instruments allowed as collateral for monetary policy operations, (v) reducing the levels of applicable discounts on public and private instruments admitted as collateral for refinancing operations. BEAC is actively monitoring the situation and has expressed its commitment to take all necessary measures to curb the impact of the pandemic on the economies of the region. 19. Disruption in the supply chain are expected to increase inflation. The consumer price index accelerated to 4.6 percent (year-on-year) in May 2020, compared to 3.6 percent over the same period in 2019 and 0.4 percent in March 2020, because of the disruptions of the local and international supply chains due to the COVID-19 crisis. With neighboring countries extending restrictions to access their territories and portal gateways, inflation is projected to increase at 3.5 percent in 2020 from 2.8 percent in 2019 before falling below the CEMAC convergence criterion in the medium them as the impacts of COVID-19 recede. 20. To minimize the economic impact of the pandemic, CAR’s Government has taken fiscal measures to provide relief to the economy. On 16 July 2020, the National Assembly adopted a revised 2020 budget law in order to reflect the new developments, notably by redirecting expenses towards addressing the health, social and economic impacts of the pandemic, and by cutting non-priority expenditures. The revised budget provides funds for, among others, the construction of a new health facility, expanding access to water, cash transfers to vulnerable households and support to the private sector through the provision of a time bound fiscal package of CFAF 2.6 billion – US$4.4 million equivalent. Additional fiscal measures Page 13 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) include: (i) minimizing weekly priority spending, (ii) suspending retroactive payroll adjustments, compensation for leave not taken, salary regularizations, and various reimbursements, (iii) suspending spending related to external missions, (iv) suspending expenditure on official, cultural and sporting events, (v) reducing subsidies to public agencies by 25 percent, and (vi) reducing the operational expenses of state institutions by 25 percent.14 21. The overall fiscal balance, including grants, is projected to move from a surplus to a deficit of 4.1 percent of GDP in 2020, as tax revenues decline, and public expenditure needs related to COVID-19 rise. Public expenditures reached CFAF 124.5 billion in the first half of 2020, up from an estimated CFAF 94.8 billion in 2019. Higher capital spending related to the construction and rehabilitation of public infrastructure and government spending on goods and services led to an increase in public spending. Capital expenditure is projected to increase in 2020 to 8.6 percent of GDP from 5.6 percent of GDP in 2019, driven by capital spending in the health and other social sectors in response to the COVID-19 crisis. As the economic impacts of COVID-19 recede, capital expenditure is projected to decrease at 7.4 percent of GDP in the medium- term. Similarly, current transfers and public spending on goods and services are expected to increase in 2020 and decline afterward. On the revenues side, official grants are expected to increase and offset the fall in all types of tax revenues because of containment measures, the slowdown in economic activities, and the closure of the borders with neighboring countries. The authorities are expected to make a concerted effort to streamline public expenditure and improve tax collection by limiting exemptions and improving the efficiency of tax administration and policy15 to contain the fiscal deficit in the medium term. 22. The COVID-19 pandemic has increased CAR’s financing needs in 2020. Like many other fragile countries, CAR does not have fiscal buffers and depends on international support to close its financing gap. The total financing gap in 2020 estimated at CFAF 128.1 billion – about US$216.5 million equivalent and 9.4 percent of GDP in 2020 – and is expected to be financed by a coordinated effort of donors. The proposed operation, prepared in close coordination with other development partners, contributes to closing the financing gap in 2020 (Table 3). 14 These measures were adopted by the Ministry of Finance and Budget on 25 March 2020 through circular 167/2020/MFB/DIR/CAB/DGB. The reduction of non-priority expenditures is not expected to have significant poverty and social impacts as these measures focus mainly on expenses related to missions abroad, cultural, and sports events. 15 To limit exemptions, especially those that are not in line with the investment charter, the Government has committed to: (i) submit all exemption proposals to the inter-ministerial exemptions committee which assesses whether they comply with the investment charter; (ii) review past exemptions to ensure that they comply with the chart’s provisions, and take corrective a ction, if they don’t; (iii) when the exemptions expire, evaluate whether all commitments made by companies when the exemption convention was signed have been honored. Since mid-November, the parafiscal taxes levied by public agencies are being transferred to the TSA. Following the audit of some of these agencies, the General Inspectorate of Finance has recommended the elimination of several agencies and parafiscal taxes with no economic justification. IMF Country Report No 20/1. Page 14 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) Table 3. External Financing Needs, 2019-2023 (billion CFAF) 2019 2020 2021 2022 2020 2021 2022 2023 Est. Projections pre-covid post-covid Total Financing Requirement 205.3 189.7 185.3 185.0 200.1 152.5 157.7 162.4 Current account (excl. budget support) 158.4 146.6 137.5 136.3 144.5 125.9 121.9 128.3 Schedule amortization (official) 5.7 5.4 5.7 6.3 6.8 5.7 6.3 3.6 Repayment to the IMF 1.6 4.4 4.8 8.9 4.9 4.2 8.9 14.3 Change in other reserves ((-) = increase) 39.6 33.4 37.4 33.6 43.8 16.7 20.7 16.3 Financing Sources 205.3 189.7 185.3 185.0 200.1 152.5 157.7 162.4 Budget support 109.8 73.2 73.0 64.1 123.5 73.2 64.3 62.5 World Bank 57.6 28.3 28.1 … 44.1 28.1 … … IMF 27.9 19.1 19.1 19.1 51.6 19.3 19.3 0.0 ECF 27.9 19.1 19.1 19.1 29.0 19.3 19.3 0.0 RCF 0 0.0 0.0 0.0 22.6 0.0 0.0 0.0 Others (AfDB, EU, France) 24.3 25.8 25.8 … 27.8 25.8 … … CCTR … … … 2.4 0.0 0.0 0 DSSI … … … 2.2 0.0 -0.7 -0.7 Capital transfers 63.3 75.9 78.8 81.4 80.3 71.7 74.2 78.2 Foreign direct investment (net) 15.0 20.0 22.0 24.0 6.0 15.0 22.5 25 Debt financing 12.2 15.7 7.5 7.5 15.7 7.5 7.5 7.5 Other net capital inflows 5.0 5.0 4.0 8.0 -30.0 -15.0 -10.0 -10 Financing gap 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Source: IMF estimates, June 2020. Note: The external financing needs for 2020 are aligned with the IMF’s forecast s and use a projected growth rate of - 1 percent in 2020. 23. CAR’s external and overall debt continues to be at a high risk of distress but remains on a declining path. After the 2013 crisis, public debt increased significantly to 63 percent of GDP in 2014 due to an accumulation of domestic arrears and the collapse in GDP. It has been decreasing since then and is projected to follow a downward path over the medium term, mostly driven by the clearance of domestic arrears and the decline in external borrowing. Public debt is estimated at 47.8 percent of GDP in 2019 and projected at 47.4 percent of GDP in 2020 with a new loan under the IMF's Rapid Credit Facility to address the COVID-19 pandemic. However, contingent liabilities related to the debt held by the three largest SOEs16 operating in the energy, water, and telecommunications sectors, could exacerbate sustainability concerns. As comprehensive information on the amount of these contingent liabilities is not available, the Government has committed to conducting audits of these enterprises to assess their financial sustainability. The joint World Bank-IMF 2020 Debt Sustainability Analysis (DSA) shows that CAR remains at high risk of debt distress, unchanged from the 2019 DSA (Table 4). Solvency indicators17 remain below their relevant thresholds, while the disbursement under the IMF’s RCF is projected to accentuate the breaches of the liquidity indicators18 over the medium term. Additional considerations, including the sensitivity of debt indicators to standard stress tests, a highly uncertain macroeconomic environment, a volatile security environment, and sizeable contingent liabilities, support the high-risk assessment. Debt is projected to remain sustainable over the medium term provided that the authorities continue implementing structural reforms once the effects of the COVID-19 crisis wear off (Figure 2). Figure 2. Public Debt Indicators under Alternative Scenarios, 2020-30 16 Central African Energy - Energie Centrafricaine, ENERCA; Central African Water Distribution Company - Société de Distribution Page 15 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) Source: World Bank and IMF Debt Sustainability Framework (DSF), April 2020. Table 4. External Debt Composition, 2019 Type of creditor Total (in CFAF billion) (in percent of GDP) Total* 496.6 37.2 Multilateral 217.6 16.3 Bilateral 96.1 7.2 Private 54.7 4.1 Pre- HIPC arrears** 128.1 9.6 24. The overall macroeconomic policy framework is adequate to support the proposed operation. The macroeconomic framework is deemed to be adequate given the Government’s good track record in macroeconomic management and commitment to implementing structural reforms. The ongoing dialogue with the World Bank, IMF, and other partners, have also helped the Government identify and address key macroeconomic issues as they emerge. The authorities are implementing the IMF’s new ECF program but have faced some challenges, including delays due to COVID-19. For example, quantitative indicators on social spending and the recourse to exceptional spending procedures were breached. While some structural d'Eau en Centrafrique, SODECA; Central African Telecommunications Company - Société Centrafricaine de Télécommunications, SOCATEL. Large contingent liabilities are due to existing domestic arrears which are still to be audited and limited information on SOEs. COVID-19 is not expected to exacerbate debt vulnerabilities as non-concessional borrowing is limited under the IMF ECF program, and ongoing reforms, including measures supported by CSIDP 2, coupled with TA, will strengthen public debt management. 17 Solvency indicators: the present values of the external public and publicly guaranteed debt-to-GDP and debt-to-exports ratios. 18 Liquidity indicators: debt service-to-exports and debt service-to-revenue ratios. Page 16 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) benchmarks have been met, others, such as those related to the deployment of e-procedures (declaration and payments) for large companies, recording of the 2018 and 2019 corporate tax returns into an IT system, and adoption of secondary legislations to support the implementation of the new legal framework on SOEs, were not met as of end June 2020. Nonetheless, the Government remains firmly committed to meeting the objectives set under the ECF. The IMF has also confirmed that the RCF’s staff assessment of CAR’s economic situation, outlook and macroeconomic policies remains relevant and constitutes a sound basis for the operation. Moreover, the agreement between CEMAC Heads of State to protect the currency peg and the adoption of a strategy to pursue sound monetary policy, strengthen the financial sector, and promote economic diversification reflects efforts to maintain a sound macroeconomic framework. These reforms should contribute to lowering the inflation rate and strengthening overall macroeconomic stability. The country is participating in the DSSI. One of the main risks to the country’s macroeconomic outlook is a further deterioration in the security environment, which would worsen the humanitarian situation, curb the increase in investments and slow the rise in the production and exports of wood products and diamonds, as well as agricultural products. The COVID-19 crisis and its socioeconomic impacts represent another significant risk to the macroeconomic outlook with the fiscal balance projected to shift into a deficit of 4.1 percent of GDP in 2020 from a surplus of 1.5 percent in 2019. To mitigate these risks, the Government is actively working with the international community on a concerted response to mitigate the public health and economic effects of COVID-19 and to prepare for the orderly conduct of the upcoming presidential and general elections. 2.3. IMF RELATIONS 25. The proposed operation has been prepared in close coordination with the IMF, which is also supporting the Government facing the consequences of the COVID-19 pandemic. The IMF successfully completed a three-year ECF program (2016-2019) on July 6, 2019 with a total financing of SDR 133.68 million (about US$185.56 million), equivalent to 120 percent of the country’s IMF quota. This ECF program aimed at enhancing revenue mobilization, improving PFM, and scaling-up social and infrastructure spending. The program's performance was satisfactory. All quantitative performance criteria were met, except for the domestic primary deficit and the repayment of domestic arrears, which was slightly delayed. Most structural reforms were implemented, except for the elimination of parafiscal taxes without economic justification, which has incurred delays. A new ECF for three years in the amount of US$115.1 million (SDR 83.55 million) – 75 percent of the quota – was approved on December 20th, 2019. The new program focuses on improving accountability, transparency, revenue collection, oversight of SOEs, and reducing corruption, but performance has thus far been subpar. Nonetheless, the Government remains firmly committed to meet the ECF’s objectives. To help address urgent needs arising from the COVID-19 pandemic, the IMF approved on April 20, 2020 an RCF of SDR 27.85 million (US$38 million), equivalent to 25 percent of CAR’s quota. The World Bank and IMF teams are coordinating closely to ensure that reforms included in their respective programs are complementary and mutually reinforcing. The proposed CSIDP 2 is complementary to the ECF and the Letter of Intent of the RCF, especially as regards measures to improve domestic revenue mobilization (DRM), PFM, and management of SOEs. 3. GOVERNMENT PROGRAM 26. The RCPCA is CAR’s development strategy for 2017-2021. It was adopted by the Government in October 2016 and is supported by development partners, including the EU, the UN, and the World Bank. Following the February 2019 peace agreement, the Government decided to extend the RCPCA for two years, until 2023. The Plan identifies the country’s main priorities grouped in three pillars: (1) supporting peace, security, and reconciliation; (2) renewing the social contract between the state and the population; Page 17 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) and (3) promoting economic recovery and boosting productive sectors. The RCPCA also identifies cross- cutting themes such as reducing regional imbalances, promoting transparency and accountability, building the capacity of public institutions and civil society organizations, and promoting gender equity. 4. PROPOSED OPERATION 4.1. LINK TO GOVERNMENT PROGRAM AND OPERATION DESCRIPTION 27. The proposed Program builds on the achievements of the first operation in the series. Under Pillar 1, CSIDP 1 contributed to consolidating fiscal management by adopting key CEMAC public financial management (PFM) directives and improving budget execution rates for line ministries responsible for service delivery through strengthened budget management. The program also contributed to improvements in the management of civil servants by strengthening controls and enhancing human resources management (HRM) children under-five, pregnant and breastfeeding women and victims of gender-based violence (GBV), and the adoption of recommendations to improve the management of the education sector. These policies will be implemented through CSIDP 2 support. 28. While continuing the policy reforms initiated under CSIDP 1, CSIDP 2’s two pillars will contribute to providing relief, supporting recovery and building resilience following the impacts of the COVID-19 pandemic, in line with the WBG’s Crisis Response Approach Paper (Figure 3). Both pillars support measures which will help mitigate the immediate impacts of the coronavirus crisis and build the foundations for recovery and resilience. In terms of relief to protect lives and livelihoods, Pillar I supports the establishment of a monitoring mechanism for the execution of COVID-19 related funds. This will ensure that the funds are spent on responding to the emergency and saving lives. The adoption of legislation which enables the mobile payment of civil servants’ salaries will contribute to service delivery continuity, by limiting the need to travel to access a bank. A complementary measure ─ the preparation of a cartography of civil servants ─ provides ministries and agencies with an overview of their staff at central and local level, which is key for crisis management. This is coupled with measures to ensure that civil servants are present at their posts. These actions are expected to have a positive impact on the deployment of the State throughout the country, reducing absenteeism, and facilitating the control of the wage bill. Pillar II will support the roll-out of a government- funded cash transfer program which has already reached around 27,000 poor and vulnerable people through mobile payments. Targeted free healthcare will benefit around 130,000 pregnant women, children under five, and survivors of GBV. Page 18 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) Figure 3. Proposed Operation in the Context of COVID-19 29. The Program will support economic recovery through: i) de-concentration of budget management to line ministries, while ensuring financial control. This will contribute to service delivery by improving budget execution rates and reducing the use of exceptional procedures which could increase during the crisis; ii) automation of customs operations, which will make customs clearance more efficient, and less prone to corruption, thereby facilitating trade and increasing revenues; iii) adopting legislation enabling digital tax declarations and payments is also a measure which will contribute to tax enforcement and increasing revenues, while limiting the risk of exposure posed by paper-based transactions; and iv) strengthening the institutional framework for social protection by supporting the collection of data on social assistance and humanitarian programs, which will increase their efficiency and impact. 30. The operation will support several measures which will contribute to building the resilience of the country to future crises. The Program supports the establishment of a strong basis to manage public resources in a transparent and efficient manner and address PFM vulnerabilities to corruption19 through the transposition of the CEMAC PFM directives. Debt transparency and management, which are fundamental for sound fiscal policies, will be improved by publishing the annual debt reports and strengthening the oversight and internal control of SOEs and parastatals. The underlying PAs of these reforms form the basis for the proposed fiscal year (FY) 21 Performance and Policy Actions (PPAs) under the SDFP.20 Measures to improve the regulatory framework of SOEs and parastatals as a whole, and specifically of the Road Maintenance Fund (RMF), are expected to enhance their financial management 19IMF Country Report No 19/2, December 2018. 20The SDFP is a new World Bank policy aiming to encourage IDA countries to borrow on sustainable terms and to promote coordinated action by IDA and other creditors in support of country efforts. It will be based on two pillars: (i) the Debt Sustainability Enhancement Program (DSEP), which will provide incentives for countries to adopt public policies to reduce their debt vulnerability, and (ii) the Creditor Outreach Program (COP) to facilitate information sharing, dialogue, and coordination among creditors and help manage debt risks, building on IDA's global platform and catalytic role. Page 19 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) and will contribute to the improved functioning of key sectors such as energy, transport, and telecommunications. The private sector will also benefit from these reforms, as SOEs and parastatals will pay contractors more regularly. Finally, the Program supports the deployment of government-funded teachers at the local level, which will improve access to education and reduce the burden of school fees on households. These measures address some of the country’s drivers of fragility and will pave the way to address more profound economic and governance challenges in the medium and long term. 31. The reforms supported by CSIDP 2 will also contribute to sustaining the 2019 peace agreement which has improved the security situation and reduced violence. The Peace and Reconciliation Political Agreement (Accord Politique pour la Paix et la Réconciliation en Centrafrique, APPR-RCA) signed between the Government and 14 armed groups,21 has reduced conflicts and violence which began in early 2013. The conflict resulted in the internal displacement of roughly one-fourth of the population in addition to refugees fleeing to neighboring countries,22 and 2.6 million people in need of humanitarian assistance. Real Gross Domestic Product (GDP) contracted by 36.7 percent, tax revenues were reduced by 47.5 percent, and state institutions and basic services collapsed. The country is continuing its recovery from the conflict and implementation of the peace agreement is progressing, although at a slower pace than expected. Key legislation has been adopted, efforts have been made to combat impunity and establish local-level reconciliation mechanisms, the administration is being redeployed throughout the country, an inclusive government remains in place,23 and violence against civilians has decreased. However, while violence has decreased overall, intermittent but serious incidents of violence and human rights violations have continued. Most of the armed groups have not yet laid down their arms and continue to exploit natural resources to the detriment of the State. The central government controls only about 40 percent of the national territory. 32. The proposed operation is fully aligned with the priorities of the Government in its post- transition phase and for the implementation of the peace agreement. The operation supports the strategic objectives of Pillar 2 of the RCPCA, which include: (a) redeploying the administration across the country; (b) providing basic services to the population by initiating a progressive transfer of capacities and resources to national structures; and (c) strengthening macroeconomic stability and good governance, including PFM and controls, revenue generation, and anti-corruption measures. Likewise, the proposed Program supports Pillar 3 of the RCPCA, whose objectives include: (a) repairing, building and maintaining infrastructure including electricity, roads and communication network; and (b) increasing fiscal space and ensuring the stability of the macroeconomic framework. Furthermore, the operation provides timely support to the authorities to implement the peace agreement. A key commitment in the agreement is to increase access to public services in the regions, which will be supported by the Program. 33. The operation is also aligned with strategic documents in key sectors. CSIDP 2 supports the implementation of the three-year PFM reform plan. The Program also supports the objectives of the Government’s National Strategy for the Restoration of State Authority 2017-2020 (Stratégie Nationale de Restauration de l’Autorité de l’Etat en Centrafrique, RESA) which are: (i) progressive introduction of 21 The African Union and the Economic Community of Central African States (ECCAS) serve as the agreement’s guarantors, while the UN peacekeeping force United Nations Multidimensional Integrated Stabilization Mission in the Central African Republic (MINUSCA) plays a critical support role in the background - as of January 2020, 12,870 UN Peacekeepers ensure that the country does not slide back into civil war. Unlike the seven peace agreements previously signed since the crisis in 2013, this one is the first resulting from long and direct discussions between the parties in conflict. 22 In two- thirds of CAR’s territory, the entire population has been displaced at least once. 23 The new cabinet of 39 members was appointed in March 2019 and includes representatives of the armed groups. Page 20 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) security across the country; (ii) redefining the role of service delivery; and (iii) improving local governance. In the area of health, the operation will contribute to the implementation of the Government’s national intersectoral plan to accelerate the development of human capital, which is under preparation. The proposed operation will also contribute to providing the fiscal space needed to implement the Government’s response plan for COVID-19. CSIDP 2 is in line with the Government’s Education Sector Plan for 2020-2029, which is expected to be endorsed in 2020. The Program contributes to the plan’s objectives, which are to: (i) achieve universal primary education and equitable access to education for girls and boys; (ii) train, recruit, and deploy teachers throughout the country; (iii) improve the quality of teaching and the learning conditions; and (iv) improve efficiency and decentralize system governance. The operation is also aligned with and contributes to the Government’s overall objectives on climate adaptation, as stated in CAR’s Intended Nationally Determined Contributions (INDC) submitted to the UN Framework Convention on Climate Change. 34. The design of proposed operation builds on lessons learned from the implementation of previous development policy operations (DPOs) and projects in CAR. CSIDP 2 incorporates the lessons learned from past operations by are: (i) identifying priorities that are likely to have visible impacts for the population; (ii) ensuring that the policy agenda is supported by an investment program and analytical work; (iii) including focused reforms, with a straightforward design and underpinned by Government commitment; (iv) ensuring close donor coordination and alignment with Government development objectives; and (v) using simple result indicators which take into account data collection issues. Annex 6 describes the incorporated lessons learned in detail. 4.2. PRIOR ACTIONS, RESULTS AND ANALYTICAL UNDERPINNINGS 35. The Program Development Objective (PDO) and policy framework of CSIDP 2 remain consistent with CSIDP 1 but the policy framework has been refined and adapted to better respond to the new context. The PDO remains to support the consolidation of basic fiscal management and social inclusion. In the context of COVID-19, the operation emphasizes the link of this structural dual objective with the protection of lives, livelihoods, economic recovery and resilience. The proposed operation maintains the same two-pillar structure as CSIDP 1. Most PAs remain without material changes, while some have been further strengthened. A new prior action related to the immediate response to the COVID-19 crisis is proposed. Some result indicators have been modified to reflect refinements in the prior actions and to capture the effects of the policy reforms better. Annex 1 presents the changes between the indicative triggers envisaged in CSIDP 1 and the proposed prior actions in CSIDP 2. 36. There is a strong linkage between the two pillars. The two pillars have a positive link with each other as improved fiscal management would lead to more effective spending with a positive impact on critical areas such as transport, social protection, health, and education. Conversely, an inclusive economic recovery is expected to have a positive impact on revenues, which will contribute to strengthening fiscal management. Strengthening the presence of the State throughout the country and increasing the provision of government services will contribute to building human capital and restoring stability, which is the foundation for economic recovery. Implementation of policies supporting social inclusion and gender equality will also address some of the drivers of fragility, contributing to improved security. Transfers to the local health centers will increase demand for local goods and services as the health centers and staff are purchasing goods and services at a local level, hence contributing to spurring economic activity at the local level. PILLAR 1: CONSOLIDATING BASIC FISCAL MANAGEMENT Page 21 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) 37. Under Pillar 1, CSIDP 2 seeks to strengthen PFM, improve budget management, enhance debt transparency, increase revenues, improve the deployment of civil servants and strengthen governance of SOEs. The theory of change24 of this pillar is presented below. This pillar supports seven PAs (Figure 4), which contribute to the implementation of the Government’s PFM reform action plan, the RCPCA, and the RESA strategy. Figure 4. Pillar 1: Theory of Change Objective 1.1. Strengthen public financial management Completed CSIDP 1 Prior Action: Proposed CSIDP 2 Prior Action #1: 38. Challenge. Despite recent improvements, there is still room to strengthen PFM. With support from the World Bank and the IMF, the Government is implementing a 2017–2020 PFM reform action plan 24A theory of change is a description of the mechanisms through which a change is expected to occur in a particular situation. A theory of change identifies the goals, preconditions, requirements, assumptions, interventions, and indicators of a program, providing important insight into and guidance on intervention and impact evaluation design. Source: https://dimewiki.worldbank.org/wiki/Theory_of_Change#:~:text=A%20theory%20of%20change%20identifies,intervention%20a nd%20impact%20evaluation%20design. Page 22 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) organized around four pillars: (a) introduce good governance of public finances; (b) continue efforts to mobilize resources; (c) improve the credibility of the budget; and (d) strengthen the treasury function. A critical challenge that remains is to complement the alignment of CAR’s PFM legal framework to the CEMAC directives. This is an obligation of all CEMAC member states intended to harmonize their PFM rules and bring them up to international standards. 39. Policy reform. The proposed Program will strengthen the legal framework for PFM by supporting the transposition of the remaining CEMAC PFM directives.25 define the rules of , operational efficiency, transparency, and accountability. This is a continuation of the reforms launched under CSIDP 1, which supported the enactment of the 40. The transposition of the CEMAC directives represents a significant improvement that will bring the legal and regulatory framework of PFM in CAR in line with international best practices and standards. The PFM directives, together with the CEMAC fiscal policy directives, represent an essential component of the commitment of the CEMAC countries to improving the design and management of budget policy, in order to strengthen the foundations of monetary policy and the common currency. In particular, the directives seek to achieve the following main objectives: i) align the government finance system with international best practices and standards; ii) harmonize the rules for budget preparation, presentation, approval, execution, control, and reporting; iii) promote efficient and transparent fiscal management; iv) ensure the comparability of government finance data to ensure the effective multilateral monitoring of national budgetary policies; and v) promote the integration process in Central Africa. Objective 1.2. Improve budget management 25 The CEMAC directives on PFM are: i) Budget Laws - Directive no. 01/11-UEAC-190-CM-22 relative aux Lois des finances ; ii) General Regulations on Government Accounting - Directive no. 02/11-UEAC-190-CM-22 relative au règlement général de la comptabilité publique; iii) Government Chart of Accounts - Directive no. 03/11-UEAC-195-CM-22 relative au plan comptable de l’État; iv) Government Budget Nomenclature - Directive no. 04/11-UEAC-190-CM-22 relative à la Nomenclature Budgétaire de l’Etat; v) Table of State Financial Operations - Directive no. 05/11-UEAC-190-CM-22 relative au Tableau des Opérations Financières de l’Etat (TOFE); and vi) Transparency and Good Governance Code - Directive no. 06/11-UEAC-190-CM-22 relative au Code de transparence et de bonne gouvernance dans la gestion des finances publiques. Page 23 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) Completed CSIDP 1 Prior Action: The Recipient has, through its Minister of Finance and Budget issued: (i) Circulaire 1391 du 27 septembre 2018 portant délégation du pouvoir de l’ordonnateur principal au profit des ordonnateurs délégués pour l’exercice 2019, delegating commitment and validation of expenditures to the ministries responsible for Education; Research and Innovation; Higher Education; Health and Population; Agriculture and Rural Development, Livestock and Animal Health; Humanitarian Action and National Reconciliation; Gender and Child Protection; Medium and Small Enterprises and Artisans; and Energy and Hydrolic Resources; and (ii) Arrêté 1244/MFB/DIR/CAB/DGB.18 du 13 novembre 2018 appointing a financial controller to each of the ministries mentioned in part (i) immediately above, in order to reduce the use of exceptional spending procedures. Proposed CSIDP 2 Prior Action #2: 41. Challenge. Until 2018, budget management was highly centralized, which makes the expenditure chain cumbersome to follow, dilutes responsibilities, and delays budget execution. The Ministry of Finance and Budget (MFB), through the Directorate General of Budget (DGB), was solely responsible for the whole expenditure chain (commitment, validation, and authorization of expenditures) which resulted in delays, lack of accountability by the sectoral ministries and lack of incentives for them to invest in strengthening their PFM capacities. The concentration of operational tasks at the MFB level diverted its attention from its core mission of budget programming and management. 42. In the past weeks, the Government has received additional budget and project support for the implementation of the response plan to COVID-19. Next to funds from development and humanitarian partners, the Government is receiving monetary and in-kind donations. These resources need to be managed in a coordinated, transparent and accountable way, in order to ensure that the funds are efficiently and effectively responding to the pandemic and reaching the poor and vulnerable. While rapid disbursement of resources is key, budget management discipline and controls need to be maintained and established procedures followed. 43. Policy reform. To address the excessive centralization of budget management, the Program supports the continuous devolution of budget management to line ministries. CSIDP 1 supported the delegation of commitment and validation of expenditures to ten ministries, as well as the January 1, 2020.26 To strengthen the transparency and 26 The Government began the reform in 2018 with the largest ministries responsible for service delivery and is adding ministries in order of importance. Page 24 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) 45. The authorities are committed to implementing further reforms to strengthen PFM. With World Bank support, the Government has developed a new budget and accounting management software, which is expected to be operational on January 1, 2021. The use of the software will improve the efficiency and transparency of budget management, as it will digitize the entire budget cycle. 46. Expected r exceptional spending procedures from 11 percent of non-salary spending in 2018 to 5 percent in 2021 (result indicator), and to an The first wave of devolution has already 14.8 percent in 2017 to 36.20 percent in 2019. Proposed CSIDP 2 Prior Action #3: 47. Challenge. The quality, coverage, and periodicity of information on debt in CAR have been uneven. In the past, debt reports were not very comprehensive and were not made public. The capacities of the debt department in the MFB are very limited. Given that CAR is at a high risk of debt distress, it is imperative to improve the quality of debt statistics in order to improve debt management. Accurate, comprehensive and publicly available debt data is key for sound borrowing and lending practices. Policymakers in borrower countries require debt information to make informed and appropriate borrowing decisions in order to safeguard debt sustainability and macroeconomic stability. Creditors, donors, analysts, and rating agencies require debt information to make an accurate assessment of sovereign financing needs and creditworthiness and to price debt instruments appropriately. The public requires debt data to hold the government accountable for its fiscal management. 48. Policy reform. The proposed Program supports the Government to improve debt transparency through the preparation and publication of the 2018 and the preparation of the draft 2019 debt statistics. The publication of the 2018 report in mid-2019 was the first of its kind since the conflict. The report represents a significant improvement in terms of coverage and analysis of the information Page 25 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) compared to past reports. The draft 2018 debt statistics are also comprehensive and provide a strong basis for the 2019 debt report.27 The improvement in the quality of debt data reflects the strong commitment of the Government to improve debt management, with support from development partners such as AfDB, IMF, and the Bank.28 Debt transparency is also an IDA 19 commitment, and this prior action is aligned and sequenced with the PPAs under the SDFP to address debt-related vulnerabilities. CAR is one of the SDFP pilot countries and the two proposed PPAs have been submitted to the SDFP Committee.29 Expected results. The expected result from this prior action is an improvement in debt transparency. This will be measured by an increase in the number of published annual debt reports from 0 to 3 in 2021 (result indicator). Completed CSIDP 1 Prior Action: Proposed CSIDP 2 Prior Action #4: 50. Challenge. Since the conflict, civil servants have been concentrated in Bangui, which leaves a large proportion of the population underserved. The overall public sector is already too small to deliver services effectively and is dominated by the security sector- civil servants make up 1.5 percent of the labor force (although public sector wages made up about 5 percent of GDP in 2019). Only around 17,600 civil servants work as civilians and most of them, 65 percent, are still based in Bangui – where the resident population represents about 17.3 percent of the total population (Figure 5). The lack of connectivity and insecurity are also key overarching challenges in terms of the limited presence of the State outside Bangui. 27 The final 2019 debt report will be published by the end of August 2020. The lag between preparation of the statistics and the publication of the report reflects, on the one hand, the limited capacity of the debt department, and on the other, the fact that the collection of debt statistics is a time-consuming process which depends on the responsiveness of CAR’s creditors. In addition, draft debt reports need to be validated by a special committee before finalization and publication. 28 So far, the Bank’s assistance has been through just-in-time support, an assessment of the stock of arrears and monitoring of the associated payment plan through an ongoing TA project. In late 2019, the authorities requested further assistance, which will be delivered by the Bank’s Global Debt Unit. This may include an update of the Debt Management Performance Assessment (DeMPA), since the last assessment was undertaken in 2011. For 2019-2022, the IMF plans to focus on (i) modernizing the institutional, legal, and regulatory framework for public debt management, (ii) improving debt management strategy, and reporting, (iii) strengthening analytical and operational capabilities of debt managers, and (iv) developing DSA capacities of staff. 29 Two PPAs were defined for FY21 to strengthen debt transparency and fiscal sustainability: (i) prepare and publish the 2020 debt reports, including debt statistics of stock (debt composition, maturity profile, currency distribution, and holders) and flows (future principal and interest payments), and (ii) conduct audits of the three largest SOEs in the energy, telecommunications and water sectors to assess their financial sustainability and reduce contingent liabilities related to their debt. Page 26 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) Figure 5. Distribution of civil servants per region (November 2019) 14000 2000000 1798807 11523 1800000 12000 1600000 10000 1400000 8000 1200000 1103917 947829 1000000 6000 800000 708055 649824 4000 2838 600000 430574 400000 2000 991 1108 615 370 200000 0 0 Ombella Mpoko, Ouham & Ouham Nana Gribizi, Haute Kotto, Basse Kotto, Bangui Lobaye, Sangha Pende Kemo & Ouaka Bamingui Mbomou & Haut Mbaere, Bangoron & Mbomou Mambere Kadei Vakanga & Nana Mambere Civil Servants (17,445) Inhabitants (5,639,006) Source: MFB, cartography of civil servants and agents of the state. 51. One of the reasons for the limited presence of the State outside Bangui is the difficulty for civil servants to access their salaries. Currently, government employees on the public payroll can only receive their salaries in bank accounts and need to personally travel (or use intermediaries) to one of the few urban centers where it is possible to withdraw money from a bank or a postal office, i.e., in only 20 percent of the 179 district capitals (Figure 6)30. This can cost civil servants up to 15 percent of their income. The limited access to payment services creates delays (Figure 7) and unnecessary absences, which affects the provision of essential public services. It also forces civil servants to spend time and a part of their salary to make long and (often) dangerous journeys or to rely on informal (and often costly) mechanisms to receive their money through intermediaries. Hence, those placed outside the capital have little motivation to take up their positions, and many who do, go and return at the payment of their first salary. These issues have been aggravated by the COVID-19 crisis, which has led to the closing of bank offices. In addition, a critical challenge is the absence of a formal mechanism enabling the MFB, the Ministry of Civil Service (MCS), and line ministries to control and report on the actual presence of Agents and Civil Servants (ACS) and take timely actions when ACS have unjustified absences. A further challenge affecting both planning and the control of the presence of ACS is the fact that public institutions are not fully informed about the number of ACS allocated across government departments, agencies, and ministries. 30 World Bank. 2019. CAR - Systematic Country Diagnostic: Priorities for Ending Poverty and Boosting Shared Prosperity. Page 27 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) Figure 6. Limited banking system Figure 7. Delays in salary payments for civil servants Delays in salary payment for civil servants in districts 40% 36% 28% 30% 20% 17% 10% 10% 4% 4% 1% 0% 0 or 1 2 or 3 4 or 5 6 or 7 8 or 9 10 or 11 12 month months months months months months months or more Source: World Bank 2019 Systematic Country Diagnostic (SCD) for CAR 52. Policy reform. To increase state presence at the local level, the Program supports several policy reforms that will contribute to the redeployment of civil servants across the country, including through technology. First, the Program supports the adoption of the legal framework necessary to enable government digital and mobile payments. This reform is part of the Government’s strategy to advance towards the digital economy and modernize the public sector. One of its objectives is to promote financial inclusion through the mobile payment of salaries of ACS, as part of the restoration of state authority throughout the country. The second objective of the strategy is to increase the mobilization of domestic resources through electronic declaration and payment of taxes. The inter-ministerial Decision supported by the Program provides the regulatory provisions necessary for the achievement of these objectives. In particular, it allows ACS to collect their salaries through their mobile phones, which will increase their productivity by reducing the time and costs related to accessing salaries through the banks. Furthermore, the Decision allows citizens and firms to access the services of the revenue collection agencies and to declare and pay their taxes, duties, fees and fines remotely. The Decision also establishes a legal regime for the protection of personal data in the context of electronic payments. 53. Second, the Program supports measures to strengthen planning and improve transparency in HRM. The proposed operation supports the preparation and publication on MFB’s webpage, the cartography of positions of ACSs allocated to each institution by grade, function, department, and location. All concerned ministries have been provided with this information and will be using the cartography to verify and optimize the posts allocated to them. In addition, to decrease absenteeism, the Government has undertaken a physical presence control of ACSs in the secured areas of the country. 54. These reforms build on the measures supported by CSIDP 1. CSIDP 1 supported the establishment of the legal mechanism for monitoring, control, and reporting on the presence of ACS. This legal basis enabled the Government to conduct physical presence control supported by this operation. 55. Expected results. The results expected from this prior action are an increase in the actual presence rate of ACS in secured areas from 40 percent (2017) to at least 80 percent (2021) (result indicator). The reforms supported by this prior action will contribute to restoring state presence outside of the capital and improving the State’s ability to provide basic social services by reducing absenteeism and strengthening controls. As of December 2019, the results of two waves of control of the actual presence of ACS in Bangui and outside concluded that the attendance rate was already 86 percent. 82 Page 28 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) percent of all civil servants were controlled, covering 48 percent of the country’s territory (Figure 8). This included all ACS posted in Bangui, i.e. 66 percent of all ACS (excluding the army) and 2,857 ACS in 28 other localities, including in the main cities where ACS are posted and in areas bordering zones of potential risk.31 Furthermore, the Government will use the cartography of posts and the results of the physical presence control to clean up its payroll further and create space for hiring ACS to provide services at the local level. In addition, through its initiative “Patapaye”, the Government has already piloted successfully mobile payments of salaries in at least four cities with limited banking infrastructure.32 On 22-23 June 2020, the MFB launched the project also in Bangui in order to limit the need for congregation at bank branches and comply with social distancing. The number of civil servants who will be able to access their salaries through mobile phones will be gradually increasing, as the Government expands the rollout of the pilot. The Government is planning to use mobile payments also for cotton farmers who receive subsidies from the State, for paying scholarships to students and for cash transfers. Finally, this prior action will contribute to increasing revenues, as based on the adopted Decision, the Government plans to launch a pilot on electronic filing and payment of taxes for the 50 largest taxpayers in the country, which represent CFAF 45 billion in annual revenue. Over the medium term, the Government intends to digitize all tax procedures. Figure 8. Civil servants per region subject to the physical presence verification 14000 947,829 Inhabitants 12000 10000 Civil Servants 8000 6000 4,691,177 Inhabitants 4000 2000 0 Ombella Mpoko, Ouham & Nana Gribizi, Haute Kotto, Basse Kotto, Bangui Lobaye, Sangha Ouham Pende Kemo & Ouaka Bamingui Mbomou & Haut Mbaere, Bangoron & Mbomou Mambere Kadei Vakanga & Nana Mambere Civil Servants (17,445) Staff having been controlled (14354) Source: MFB, cartography of civil servants and agents of the state, November 2019. Objective 1.5. Increase revenues 31 The following 28 localities outside of Bangui were controlled: the main cities of Berberati, Bouar, Bozoum, M’baiki, Nola, Bossangoa, Kaga-Bandoro, Bambari, as well as Carnot, Baoro, Baboua, Beloko, Boali, Bossembele, Yaloké, Bossemptele, Bocaranga, Bocaranga, Koui, Damara, Sibut, Dekoa, Mala, Ndjoukou, Mbrés, Bogangolo, Grimari. 32 The four cities are Bambari, Bouar, Bossangoa and Mbaïki. The next phase of the pilot will be implemented in three other new cities: Bangassou, Bozoum, Kaga-Bandoro. Page 29 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) Completed CSIDP 1 Prior Action: The Recipient has, through its Minister of Finance and Budget issued : (i) arrêté 1243/2018/MFB.DIRCAB/DGDDI du 09 novembre 2018 portant errection du bureau des dounaes de Mongoumba en services de recettes de douanes for the purpose of establishing a full custom office at Mongoumba and ; (ii) arrêté 1264/2018/MFB/DIRCAB/DR du 28 novembre 2018 instituant les règles de rotation des fonctionnaires et agents des douanes to establishing rotation rules for customs personnel, in order to improve revenue mobilization from customs. 56. Challenge. CAR’s domestic revenue is structurally below the potential of the economy and the average of regional peers, including countries in fragile and conflict situations. The conflict resulted in a drop in domestic revenues from 10 percent of GDP in 2012 to 4.4 percent of GDP in 2014. Domestic revenue increased from 7.7 percent of GDP in 2017 to 8.9 percent in 2018. However, this is still about 2 percentage points below the 2013 pre-crisis levels and average levels in comparable countries. Moreover, domestic revenues could drop significantly by a third (CFAF 33.7 billion) if the economic downturn and containment measures following the COVID-19 crisis last for several months as described in the downside scenario above. 57. Automated System for Customs Data ( continuing the rollout of ASYCUDA to the main customs clearance offices. In the short term, they plan to ensure the interconnection of the Douala single window and the offices in Berberati and Mongoumba with the central customs services in Bangui. In the medium term, the Government intends to roll out the newest version of the software (ASYCUDA World). 58. contributed to the transformation of the post of Mongoumba on the border with the DRC into a full border post. This measure facilitated trade flows, thereby contributing to reducing smuggling and increasing revenues. To improve CSIDP 1 supported the adoption of rules for rotation of customs officers, 33The Automated System for Customs Data (ASYCUDA or Système Douanier Automatisé- SYDONIA in French) is a computerized system designed by the United Nations Conference on Trade and Development to administer a country's customs. There are three generations of ASYCUDA in use: ASYCUDA version 2.7, ASYCUDA++ and ASYCUDA World. 34 The ASYCUDA system has been up and running at the Beloko and Bangui customs offices. The Government plans to expand its use to the Berbérati, Gamboula, and Mongoumba posts. 35 According to the authorities, customs clearance of petroleum products started in May 2018, but it was formalized with the Instruction supported by the DPO. The customs clearance of petroleum products is done only at one customs post- Kolongo, near the Bangui airport. Page 30 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) 59. Expected results. The expected result of this prior action is an increase in the share of customs duties and taxes processed through ASYCUDA, from 59 percent in 2018 to 93 percent in 2021 (result indicator). In addition, automation will contribute to trade facilitation, which is even more important in view of the barriers to trade created by the COVID- 19 crisis, through increased customs efficiency, faster movement of goods and people, reduced corruption, and improved transparency. Completed CSIDP 1 Prior Action: The Recipient’s Road Maintenance Fund has generated financial statements for the first and second quarters of 2018 and submitted said financial statements to the Central Accounting Agent of the Directorate General of the Treasury and Public Accounting by letter 0818/FER/OP/DG/DAFC dated October 8, 2018 to demonstrate improved financial oversight of the RMF. In order to improve the management of the Recipient’s road maintenance fund, the Recipient has adopted the internal control manual for said fund, though Inter-ministerial Decree 045/2020/MTPER/MFB dated March 27, 2020. 60. Challenge. The road network of CAR is the backbone of the transport system, but it is underdeveloped and in poor condition. Even though roads account for 90 percent of total transportation, road network density is low at only 1.5 km per 100 km2 (compared to an average for Sub-Saharan Africa of 15 km per 100 km2). The main road network in CAR is 24,137 km, only 855 km of which are paved, and mostly in poor condition.36 The rural road network is about 15,000 km but it has received little maintenance over the past two decades, and, as a result, only 16 percent of the rural road network is classified as being in ‘good or fair’ condition. Much of the country is beyond the reach of the road network, limiting access to rural areas, markets and basic services. Last, without maintenance, roads in CAR deteriorate quickly, since they are made of compacted dirt and one rainy season is sufficient to make even the best road impassable. Floods caused by climate change contribute further to the deterioration of road conditions and increase the need for maintenance. 61. The RMF (Fonds d’Entretien Routier, FER) is in charge of financing road maintenance in CAR. It was created in 1981 and is one of six public funds regulated by the law on SOEs and parastatals (see below). The RMF is financed from fuel taxes and road tolls, but these are far from sufficient to finance the maintenance and operations of the road sector - its resources cover only about 5 percent of the maintenance requirements. 62. Policy reform. Considering the importance of road maintenance for the recovery of CAR’s economy through improved connectivity, trade and mobility of people and goods, the proposed Program will contribute to strengthening the governance and functioning of the RMF. The Program will improve the financial management and oversight of the RMF by supporting the adoption of its internal control manual.37 The manual was developed following an assessment of the internal control environment of the RMF and will be used regularly for assessing its management and conducting internal audits. 63. This measure is a continuation of the reforms included in CSIDP 1. CSIDP 1 contributed to improving the financial oversight of the RMF by supporting the preparation of its financial statements for the first and second quarter of 2018. These were submitted to the Central Accounting Agency of the 36See CAR policy notes (P157806; 2016) 37Internal control is a process to assure an organization's operational effectiveness and efficiency, reliable financial reporting, and compliance with laws, regulations and policies. Internal control involves everything that controls risks to an organization. Page 31 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) Treasury (CAAT), which analyzed the statements and provided the RMF with an opinion and recommendations to improve the quality of its fiduciary management, by, inter alia, adopting an internal control manual. 64. Expected results. The expected result from this prior action is an improvement in the financial management of the RMF through an increase in the number of internal audits based on the manual from zero (0) in 2018 to 4 in 2021 (result indicator). This measure will also contribute to strengthening the resilience of the road network to climate change. Completed CSIDP 1 Prior Action: The Recipient has, through its Minister of Finance and Budget, (i) published the audit of the Forest Development Fund and the Electronic Communication and Postal Regulatory Authority on its website www.finances-budget.cf; and (ii) initiated the recruitment process of an audit firm to undertake the audits of the National Civil Aviation Agency, the National Environment Fund, the Airport Infrastructure Development Corporation, the Tourist Development Special Fund and the National Radioprotection Agency. In order to put in place in accordance with international best practice, rules of establishment, governance and oversight of state-owned enterprises (SOEs), the Recipient has enacted SOE Law Number 20.004 dated January 13, 2020, establishing the institutional, legal and financial framework of SOEs in CAR. 65. Challenge. SOEs and parastatals in CAR operating in critical sectors such as transport, telecommunications, agriculture, environment, and forestry, are facing major operational and financial challenges due in large part to weak governance.38 The previous law on SOEs and parastatals was outdated and did not establish clear rules for their creation, internal governance, oversight, and accountability. The law did not assign the responsibility for financial oversight over these entities to the MFB, and as a result, supervision was weak. Combined with weak rules on reporting, this has led to limited information on the financial situation and domestic debt and arrears of SOEs and parastatals. 66. Policy reform. The proposed Program supports improvements in the governance and financial oversight of SOEs and parastatals, which is critical to the management of public finances. The operation supports the adoption of a new legal framework on the governance, oversight, and management of SOEs and parastatals. The Law on the Organization of the Institutional, Legal, and Financial Framework for Public Enterprises and Establishments was adopted by the National Assembly on December 24, 2019 and enacted on January 13, 2020. The new law establishes rules of creation, internal governance, and oversight of SOEs and attributes the financial oversight responsibility to the MFB, in accordance with best international practice. The Government has committed to adopt the secondary legislation supporting the implementation of the new law and to update the entities’ bylaws in the second half of 2020. Another step the authorities have taken to improve the management of SOEs is the inclusion in the 2019 budget of revenues and expenses from parastatal entities (agencies and special funds) representing 1 percent of GDP. The Government also intends to attach the first annual report on the SOE’s financial performance as an appendix to the draft budget law for 2021. These reforms build on the measures included in CSIDP 1, which supported the publishing of two audits of SOEs and steps to initiate five audits additional in key 38According to the Office of the General Controller of the Parastatal Sector in CAR, there are: i) ten SOEs operating in major sectors such as energy (ENERCA), water (SODECA), telecommunications (SOCATEL); ii) eight agencies, such as the agency for civil aviation (ANAC), agency for water and sanitation (ANEA), etc.; iii) eight funds (“caisse”) and offices, such as the national IT office (ONI) and National Social Security Fund (CNSS); iv) eight funds and special purpose accounts, such as the RMF, environmental fund (FNE), etc.; and v) three semi-public companies, such as the Petroleum Products Storage Company (SOCASP). Page 32 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) sectors including telecommunication, forestry, and transport. 67. Expected results. This prior action will contribute to increased transparency of SOEs and parastatals through the publication of their audited financial statements. This will be measured by an increase in the number of published audited annual financial statements of SOEs and parastatals from zero (0) in 2018 to seven (7) in 2021 (result indicator). 68. Instability and violence in CAR have also resulted in substantial deterioration of human capital. The country ranks 188 out of 189 on the 2019 Human Development Index. Health outcomes in CAR are poor: life expectancy at birth was 53 years of age in 2019. Most of the population does not have access to essential health care services- an estimated 23 percent of health facilities are not functional due to inadequate equipment, personnel, and supplies. There is only one health specialist for 20,534 people.39 Access to education is limited throughout the country, particularly at the post-primary levels. The adult literacy rate is 37 percent. Basic social services are limited or nonexistent in much of the country and are under pressure due to the large number of displaced people. 69. Children and women are most severely impacted by conflict, insecurity and poverty. Two in three children in CAR are in urgent need of aid,40 the under-five mortality rate is estimated at 129 per 1,000 live births, ranking the country as the 3rd worst in the world. The maternal mortality ratio is also among the highest in the world, with 882 per 100,000 live births. Under-five stunting prevalence has been around 40 percent for the past 20 years.41 Malnutrition is an underlying cause of almost half (48 percent) of the deaths of children under five years.42 CAR has a Gender Inequality Index (GII) value of 0.682, ranking it 159 out of 162 countries in 2018. In rural areas, 81 percent of women are registered as poor, compared to 69 percent of men. 68 percent of women in CAR are illiterate (compared to 48 percent of men), and only 55 percent of girls complete primary education (compared to 71 percent of boys). Although data on GBV is limited, it is estimated that 80 percent of women (15-49 years) have experienced domestic violence, and 47 percent have experienced sexual violence. Approximately one-fourth of girls are married before the age of 15, and 60 percent before the age of 18.43 Female participation in the labor market is 64.7 percent compared to 79.8 for men. 70. Under Pillar 2, the operation seeks to support a pro-poor, post-transition reform agenda that will foster human capital formation and social inclusion by improving access to social protection, health, and education services. In the COVID-19 context, improved access to social services will help the country protect livelihoods of the poor and the vulnerable. The theory of change of Pillar 2 is presented below (Figure 9). This pillar supports three prior actions in social protection, health, and education. 39 Directorate of Resources of the Ministry of Health and Population 40 UNICEF (https://news.un.org/en/story/2020/02/1056842). 41 Draft CAR CPF presentation. 42 UNDP Human Development Indicators, CAR, 2014. 43 GBV in CAR has become more evident during the political and military crises that have devastated the country since 2012, leading to a very high number of reported GBV victims, surpassing 11,110 incidents in one single year (2016). Source: World Bank. Page 33 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) Figure 9. Pillar 2: Theory of Change 71. Challenge. CAR’s long history of fragility and conflict and the systemic weaknesses of the State have kept its population vulnerable, poor and in desperate need of social assistance. Nearly 3.4 million people live in extreme poverty, and about 25 percent of the population is displaced. However, social assistance comes only in times of crisis, in the form of humanitarian, short-term help for survival. Only a small fraction of the population has access to the existing government-run contributory social security schemes. These schemes are primarily focused on formal and public sector workers, while workers in the informal sector (estimated to be between 40 and 60 percent of GDP44) and agricultural households face the highest rates of poverty and deprivation. 72. There is a lack of comprehensive and up- to-date information on social assistance programs, as they are not coordinated by the Government and remain driven by each donor’s specific mandate. Social safety nets programs in CAR are primarily financed by the international community (Figure 8). 44 World Bank 2019. CAR Economic Update. Page 34 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) Available data suggest that between 2009 and 2015, 157 programs with social protection components for a total amount of US$444 million were implemented in CAR. 45 All of them, with two-three exceptions, were implemented by UN agencies, local or international non-governmental organizations (NGOs).46 These efforts are often short-term, small in scale and scope, focused on immediate response rather than system-building and implemented with limited Government participation. There is currently no registry of safety nets programs. Each program has its own methodological approach to determine coverage, targeting method, area of intervention, and monitoring. There is no common reporting and data on the number of beneficiaries, and program coverage is often missing.47 Consequently, the Government has only partial and incomplete data on social safety nets programs, which leads to inefficiencies.48 The lack of consolidated data may be a source of duplication, gaps, and errors to the detriment of the quality of each intervention and the overall country’s safety nets. Figure 10. Share of donor-funded safety nets in Sub-Saharan African countries Share of donor-funded safety nets in Sub-Saharan African countries Central African Republic Ethiopia South Sudan Uganda Gambia Zimbabwe Mozambique Kenya Senegal Botswana Namibia 0 20 40 60 80 100 Donor-funded share Government share Source: The State of Social Safety Nets 2018, World Bank. 73. Policy reform. The proposed Program supports the implementation of the Government’s first social safety net program using mobile payments, as well as the collection of data on social assistance and humanitarian programs. This prior action will strengthen the capacity of the State to protect the poorest and support the beginning of a gradual increase in domestic funding for social assistance programs, in line with the forthcoming Government’s National Social Protection Strategy.49 First, to 45 Atlas of Social Protection Indicators of Resilience and Equity (ASPIRE), http://datatopics.worldbank.org/aspire/. 46 In recent years, the World Bank has become the largest donor of social safety nets with a US$120 national cash-for-work program (“Londo” Project) and a US$50 million unconditional cash transfer program (PACAD- P161591). 47 World Bank 2019. Core Diagnostic Instrument (CODI): Report for Central African Republic. 48 The latest data indicates that in 2018, there were 35 safety net programs, of which 57 percent were emergency programs, covering 14.1 percent of the population. 49 Expected to be endorsed in 2020, the strategy’s objective is “to reduce the impact of shocks that directly threaten the lives of populations, particularly the most vulnerable groups, by helping households to better manage the risks that lead to loss of life or irreversible capital losses and to promote access to basic social services for the most vulnerable segments of the population”. Source: République centrafricaine: Politique Nationale de Protection Sociale, 1 September 2019. Page 35 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) address the lack of Government financing of social protection, CSIDP 2 will support the implementation of a cash transfer program for poor and vulnerable people in the city of Berberati, all of whom are either displaced, returning refugees or host families.50 This is the first cash transfer program funded by the Government’s own budget. Given that women are among the most vulnerable, the program is targeting more households headed by women (75 percent), thereby helping to close the gender poverty and vulnerability gap. In the context of COVID-19, cash transfers are critical for supporting relief, but they can also produce long-term benefits, including financial inclusion, a key driver of resilience during economic shocks, as well as the economic empowerment of women. The unconditional cash transfer program targets 3200 poor households or a total of 26,992 beneficiaries. Its implementation is coordinated by the Inter-ministerial Social Safety Net Unit (Cellule Interministerielle de filets sociaux, CIFS), which was established through CSIDP 1 in late 2018,51 and will be delivered by staff of the Ministry of Humanitarian Actions and National Reconciliation (MAHRN). In addition, T cash transfer program will improve the adaptive capacity of beneficiaries to climate change, as explained in Annex 7. 74. Second, in order to address the lack of data on social assistance programs, the proposed Program supports the CIFS to collect data on programs through a harmonized questionnaire. The Government has requested all actors involved in the delivery of social assistance and humanitarian programs to use the same harmonized questionnaire to provide the CIFS with data on their programs.53 The questionnaire was developed by the Government through a consultative process which involved consultations with all major stakeholders, in order to receive their inputs and ensure buy-in for the use of the questionnaire. The harmonized questionnaire is the first step of a reform process towards the implementation of an integrated registry of social nets programs. The questionnaire will collect basic information on social assistance and humanitarian programs, including whether they operate in an area vulnerable to climate risks and whether the program includes measures to address climate change. This will allow data to be aggregated, analyzed, and used for policymaking and monitoring. The questionnaire is accompanied by a user guide that explains how data is to be entered, stored, and analyzed. 75. Expected results. This prior action will lead to an increase in the number of poor households who benefit from unconditional cash transfers funded by the Government from zero (0) in 2019 to 3200 in 2021 (result indicator). Two transfers have already been executed and 3163 households have been reached. This measure will also improve coordination, targeting, coverage, and delivery of social assistance programs, which will enhance their effectiveness and efficiency in the long run. Objective 2.2. Improve access to targeted free healthcare 50 46 percent of the targeted households are of displaced people, 30 percent are host families and 24 percent are returnees. 51 The CIFS is under the supervision of the Prime Minister and its technical secretariat is provided by the MAHRN. Its mission is to design, implement and promote a national monitoring system for social net programs, with a view to establishing a social register. 52 See https://blogs.worldbank.org/voices/responding-crisis-digital-payments-social-protection-short-term-measures-long- term-benefits. 53 Since the Decision is signed by the Prime Minister, it automatically applies also to all Government ministries. Page 36 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) The Recipient has: (i) through a Presidential Decree, décret 19.037 du 15 fevrier 2019 portant gratuité des soins dans les formations sanitaires establishing targeted free healthcare for children under-five, pregnant and breastfeeding women and victims of GBV; and (ii) through an order of its Minister of Health, arrêté 142/MSP/DIR-CAB/CMAJ_019 du 07 février 2019 portant approbation du manuel d’exécution du financement basé sur la performance dans le secteur de la santé en République Centrafricaine adopting the operations manual for performance-based financing in the health sector. : 76. Challenge. Most of CAR’s population does not have access to quality healthcare services and the authorities are emphasizing the need to establish an equitable and efficient health system. The health system suffers from a range of fundamental deficits, from a lack of access to essential medicines to shortages of skilled health workers, poor service delivery and weak sector governance. Only around 55 percent of health facilities are functional; only 25 percent have an energy source, and only 21 percent have drinkable water.54 Attention to maternal, child and reproductive health and support to survivors of GBV remains especially urgent, as CAR’s indicators in these areas are among the worst in the world: infant mortality remains amongst the highest in SSA and is estimated at 84.5 deaths per 1000 live births in 2018. Lack of coordination and fragmentation among the numerous actors involved is exacerbating the crisis in the health system. Multilateral organizations and donor-funded NGOs work in and out of arbitrary regions and health zones on various short-term health and nutrition initiatives with little or no coordination by the Government. Most of the population cannot afford to pay for basic healthcare services. However, blanket free healthcare for all in CAR would be difficult to implement due to the limited domestic resources. Hence, targeted free healthcare, especially to the most vulnerable groups, is a more viable option. 77. Policy response. CSIDP 2 integrated services and health care children under five, pregnant and post-partum women, and victims of GBV. This will be achieved by introducing a new dedicated budget line in the 2020 budget of CFAF 1 billion (or 0.27 percent of the 2020 budget) for targeted free healthcare for 177 health facilities in seven districts with a total population of around 960,000 people, the majority of whom are climate-vulnerable (Annex 7). The Government foresees that around 60 percent of the funds will be used to purchase essential drugs, 22.5 percent will strengthen the referral system through the purchase of ambulances and 17.5 percent will be used as subsidies for reimbursement of a minimum package of services, based on a uniform set of unit costs which the Government is developing with World Bank support.55 78. This prior action demonstrates further the Government’s commitment to restore its presence and provide basic services to the population. The seven districts in which the funds will be used are 54World Bank. 2019. CAR - Systematic Country Diagnostic: Priorities for Ending Poverty and Boosting Shared Prosperity. 55This allocation of resources is considered commensurate to the Government’s limited capacities for service delivery. CAR has a National Medical Waste Management Plan which was developed in 2002 as part of the preparation of a World Bank project. The Plan was updated in 2007 and in 2010 it was assessed to be in conformity with international standards and good practices. Nonetheless, the Government’s capacity to manage medical waste is limited, especially outside Bangui. Page 37 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) among the poorest and are currently not served by any donor.56 Considering the Government’s very limited capacities and resources, the fact that the authorities have allocated a sizeable amount of the 2020 budget to free healthcare represents a significant step forward. It shows that the Government is gradually assuming more ownership of health services provision in a sector which is heavily dominated by non-state actors. Continued attention to reproductive health is particularly important in the current pandemic, which risks diverting resources away from services for women. Given the strong legal basis for this budget line, which is the presidential decree on targeted free health care for pregnant women, children under five and survivors of GBV, supported by CSIDP 1, as well as the high expectations of the beneficiaries, it is expected that the Government will continue providing funds for the implementation of this policy in the future. 79. Expected results. The expected result of this measure is an increase in the number of districts not covered by other donors, which will receive essential medicines as part of the implementation of the targeted free health care policy by the Government. The baseline is 0 and the target is 7 districts, which will be covered by 2021 (result indicator).57 It is expected that around 130,000 beneficiaries among which 85,000 children under five, 20,000 pregnant women and 25,000 GBV survivors, will benefit from the implementation of the targeted free healthcare policy in the seven districts. Objective 2.3. Improve access to primary education The Recipient has, through its Minister of Primary, Secondary, Technical and Literacy issued arrêté 006/MEPSA/DIRCAB/.19 du 29 janvier, 2019 portant adoption du document intitulé “étude analytique: évaluaiton, gestion et planification du sec teur de l’éducation” endorsing the recommendations of the 2018 Review of Human Resource Stock and Strategic Planning for Short to Medium-Term Needs in the education sector. 10: 80. Challenge. The education sector has been significantly affected by security turmoil and is facing a deep access crisis, with girls being the most disadvantaged group. The 2013 conflict further depleted an already inadequate education system. Most of the qualified teachers left their posts and school facilities and educational materials were looted or destroyed. Nowadays, access to primary school58 is low- almost a third of children of primary school age (6-11 years) are out of school (28.7 percent or 239,000 children). In 2018-2019, there were just under 8 girls for 10 boys enrolled at the primary level and around 6 girls for 10 boys enrolled in the secondary level. Access at the post-primary is extremely limited as the gross enrolment ratio stands at 32 percent at the secondary level and only 2.3 percent at the tertiary level. In 2016, the primary completion rate was 49 percent for boys and only 33 percent for 56 The World Bank’s SENI project covers 15 districts with targeted free health care, using PBF which was supported by CSIDP 1 through the adoption of the operations manual for PBF in the health sector. The EU covers 13 districts and is also using the PBF approach. 57 The seven districts where the Government will fund the implementation of the targeted free healthcare policy are Bocaranga, Nangha Boguila, Batangafo, Bouca, Bossembélé, Mbaïki, Ngaoundaye. 58 During the 2018-2019 academic year, 378 primary schools remained non-functional, as a direct consequence of the armed conflicts and insecurity. Page 38 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) girls. Overall, the impact of the crisis has reduced enrollment for girls by about 17 percent versus 15 percent for boys. 81. The State has limited capacity to provide teachers throughout the country and the shortage of teachers is acute, especially in poor and remote areas. Households overcome the situation by recruiting community teachers, most of whom lack qualifications and work in precarious conditions (little and irregular salary payments, insufficient pedagogical support from school principals and academic inspectors). Community teachers account for 63 percent of the primary level public teaching force, and 68 percent are outside Bangui. One of the key reasons for having more community teachers outside Bangui is that teachers are recruited and managed centrally and, once deployed, do not stay within their original posting at the local level. Furthermore, due to lack of resources, the Government also has a limited capacity to recruit massively, train, and deploy qualified teachers. This has resulted in a high student/teacher ratio at the primary level: 91/1, as opposed to only 38/1 for SSA. Moreover, given that the payment of teachers’ salaries is made through the banking system, which is limited mainly to Bangui, teachers are often absent from schools and travel far to collect their salaries. 82. Policy reform. local level, the proposed Program supports critical reform efforts in teachers’ recruitment and deployment policy, which will increase government-funded service delivery. CSIDP 2 supports the introduction of decentralized recruitment and management of teachers at the level of local Academic Inspection Directorates ( .59 Consequently, the test to enter the National School for Teachers will be organized at the Academic Inspection Directorate level, which is the level that is closest to the schools and contributes the most to increasing school performance. The implementation of this new policy adopted in February 2019 started in November 2019, resulting in the local recruitment of 149 teachers, 47 of whom women. The policy also requires that once the two-year pre-service training of teachers is completed, teachers will be deployed at the schools belonging to the Academic Inspection Directorate at which the teachers were initially recruited. In order to ensure the implementation of this provision, the Government has put in place a framework to support the retention of teachers. In particular, all 149 teachers who started their training in November 2019 have signed commitment letters in which they pledge to complete their training and to return to work as teachers at the locality in which they were recruited. The letters are co-signed by the MEPSTA and the MCS. 83. This policy reform is based on the recommendations of an evaluation of the education sector in CAR supported under CSIDP 1. The first DPO supported the Government’s efforts to improve the provision of teachers at the primary education level by adopting the recommendations of a comprehensive study on the planning, management, and evaluation of the education sector. The study recommended, among others: (i) a significant scale-up of education infrastructure; (ii) a significant increase in the recruitment of teachers; and (iii) a holistic approach to improve the deployment and retention of teachers in underserved areas as well as improve the training level of teachers including through recruitment and training at the regional level and by introducing monetary incentives.60 84. Expected results. The expected result of this prior action is an increase in the deployment of 59 In CAR, the Ministry of Primary, Secondary, Technical Education and Alphabetization (MEPSTA) is characterized by a deconcentrated managerial and organizational structure: it is divided into 8 administrative entities, called Inspections académiques or academic directorates. Each academic directorate is divided into school zones that are further divided into school districts which oversee the direct supervision of schools. 60 The Advisory Services and Analytics conducted in 2018 suggested policy options that would ensure deployment or retention of trained teachers at the school level where teacher deficit is high or where it is difficult to retain teachers. Page 39 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) government- provided teachers at the local level. This will be measured by the percentage of primary school teachers who were recruited and started their pre-service training in 2019 and became teachers in their localities, following the completion of their two-year training (baseline 0 in 2019 and target: at least 80 percent in 2021, disaggregated by gender). The results of this policy reform will be reinforced by the measure related to mobile payments of salaries, which will enable teachers recruited and deployed locally to receive their salaries through their mobile phones. Furthermore, the retention of teachers will benefit from the policy reform related to strengthened controls of ACS posts and physical presence checks. Combined, these measures will further decrease absenteeism and enhance service delivery to the poor and vulnerable. 85. In addition, the prior action contributes to closing the gender gap. It is expected that the deployment of female teachers, which represent 31 percent of the 149 teachers currently in training, will have a positive effect on girls' enrollment - evidence suggests that there is a correlation between the number of women teachers and girls’ enrollment, especially in SSA. In countries where the number of male and female primary teachers is roughly equal, there is close to gender parity in student intake. In contrast, in countries where women constitute only 20 percent of teachers, there are far more boys than girls entering school.61 As part of its education sector policy, the Government is committed to increasing its efforts to recruit more female teachers, as one of the measures to close the gender gap in enrollment. 86. The operation’s design and its prior actions have been informed by a broad range of analytical underpinnings. These include the two Economic Updates, the SCD, the Fragility Assessment, IMF reports, and other assessments. Table 6 presents an overview of the analytical underpinnings of each prior action. Table 3. CSIDP 2: Prior Actions and Analytical Underpinnings Prior Actions Analytical Underpinnings Pillar 1: Consolidate basic fiscal management • 2016–2017 PFM Reform Plan and 2017–2020 PFM Reform Plan. • IMF Country Report No 18/380, December 2018. • IMF Country Report No 19/216, July 2019 • IMF Country Report No. 19/383, December 2019 • IMF Country Report No 20/1, January 2020 • IMF Rapport technique Renforcer la credibilite du budget de l’etat, January 2020 Prior Action 2: • Reestablishing Core PFM Function, WB Policy Notes, June 2016. • A Concerted Action Plan for the resilience of the PFM system. Prior Action 3: • Joint WB-IMF DSA 2020 • CAR Digital Economy for Africa (DE4A), World Bank, 2020 • Financial services in CAR, IFC 2019. • CAR Fragility assessment, World Bank 2016. • Report on petroleum taxation, CAR, 2016. • IMF/AFRITAC report on Fiscal and Customs reforms in CAR, May 2018. • IMF/AFRITAC/WB PFM assessment, May 2018. • Economic update CAR, World Bank, 2019 • Transport Sector in CAR, WB Policy Notes, June 2016. • Systematic Country Diagnostic, World Bank, 2019 61United Nations Educational, Scientific and Cultural Organization, 2003, p. 60. EFA Global Monitoring Report 2003/4. Gender and Education for All: The Leap to Equality. Paris. Page 40 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) Prior Actions Analytical Underpinnings • IMF/AFRITAC report on Fiscal and Customs reforms in CAR, May 2018. • IMF/AFRITAC/WB PFM assessment, May 2018. Pillar 2: Supporting an inclusive economic recovery • WB Policy Note on Social Protection, June 2016 • Institutional and Organizational Audit of the Ministry of Social Affairs and National Reconciliation October 2017 • Social Protection Sector Core Diagnostic (2019) • ID4D Country Assessment (2019) • Government of the CAR, National Health Sector Strategy to introduce targeted free health care in the health system and strengthening program, 2019. • WB Policy Note on Health, June 2016 • WB School Infrastructure Assessment and Development of Short to Medium-Term Needs, World Bank, June 2018 • Government of the CAR, National Health Sector Strategy to introduce targeted free health care in the health system and strengthening program, 2019. • WB Policy Note on Education, June 2016 • Government of the CAR, Study on HR management in the education sector, 2019. 4.3. LINK TO CPF, OTHER WORLD BANK OPERATIONS AND THE WBG STRATEGY 87. The two pillars of the proposed Program are closely aligned with the two focus areas of the new forthcoming CPF (FY21-FY25), namely: (i) human capital and connectivity to boost stabilization, inclusion and resilience, and (ii) economic management and improved governance to build state legitimacy and foster growth. Women’s empowerment and digital development are cross-cutting priorities for the CPF. The proposed DPO and the CPF are being presented for approval by the Board at the same time. 88. The Program is also consistent with the findings of the 2019 SCD. The SCD identifies as a binding constraint the need to address grievances through basic services provision nationwide. It advocates for cash transfer programs, ICT-based solutions, including to make financial transactions and pay salaries locally, as well as investments in education and health to improve human capital and enhance social cohesion. The SCD identifies the need to reinforce the capacity of the public administration, address public sector governance constraints and strengthen revenue mobilization- all of which are included in the proposed Program- as prerequisites for growth and stability. The SCD also highlights the issue of GBV and the need to improve access to services for women and survivors of sexual violence. 89. At a higher level, the objectives of CSIDP 2 support the WBG twin goals of reducing poverty and boosting shared prosperity. By targeting reforms under Pillar 1 to support improved budget management, accounting, and control in budget execution, the operation seeks to increase fiscal space as well as efficiency in public spending. Reforms in social protection, education, and health will improve access to basic services, particularly for women and children. Expanding social protection is also an important tool to improve equity and boost shared prosperity. 90. In line with the WBG Strategy for FCV 2020-2025. The objective of the strategy is to support countries in addressing the drivers and impacts of FCV and strengthening their resilience, especially for their most vulnerable and marginalized populations. The proposed Program fits under the third pillar of Page 41 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) the strategy,62 which focuses on helping countries transition out of fragility by promoting approaches that can renew the social contract between citizens and the state and strengthen the legitimacy and capacity of core institutions. The strategy also highlights the powerful impact that digital technology adoption can play in FCV settings like CAR. Finally, the Program is in line with three of the strategy’s four guiding principles of, i.e., differentiation (by being tailored to the CAR context), inclusion (by having a focus on gender equality, in alignment with the WBG Gender Strategy (2016-2023)) and legitimacy, transparency, and accountability (by strengthening the capacity of core institutions). 63 91. The proposed Program contributes to the Jobs and Economic Transformation (JET) agenda. The operation contributes mainly to the second pillar of the JET framework- Building capabilities and connecting workers to jobs. The JET agenda calls for strengthening the capabilities of workers particularly through investments in human capital and social protection and by promoting financial inclusion and leveraging digital technologies. The operation is aligned with this approach in the context of CAR’s foundational needs - Pillar 1 supports the consolidation of basic fiscal management, which contributes to sound macroeconomic policy and increased revenues, which are necessary for investments in human capital. It supports also prior actions which promote financial inclusion and the use of technology for modernizing the public sector. Pillar 2 supports foundational improvements in human capital by strengthening primary health services, delivering basic education, and supporting social protection. 92. The operation is consistent with the Africa Region Framework for Operational Response to the COVID-19 Pandemic and Global Crisis. The CSIDP program policy framework continues to be highly relevant in the COVID-19 context and has been strengthened further in response to the crisis. Pillar 1 contributes to short-term fiscal management needs and medium-term economic recovery and resilience. Pillar 2 supports the protection of livelihoods by improving social protection, health and education services for the poor and most vulnerable. 93. A key attribute of the proposed operation is its strong link and synergies with the World Bank’s ongoing and planned operational program in CAR. The proposed Development Policy Financing (DPF) complements many sectoral operations and TA activities in CAR. This close link between the operational program and the DPF provides a high level of confidence about the authorities’ ability to implement the wide range of planned reforms. In Pillar 1, the PFM reforms supported by the operation are aligned with the support provided by the Public Expenditure and Investment Management Project (P161730). The prior action supporting digital payments of salaries and taxes is foundational for a future project in the area of digital governance. CEMAC Transport and Transit Facilitation Project (P079736), which financed a study to determine how to improve financial resources mobilization and sustainability of the RMF. Similarly, in Pillar 2, the measures to strengthen the institutional framework for social protection will have a positive impact on the LONDO Project (P152512) and the PACAD Project (P161591). The CSIDP series’ support to adopt the performance-based financing (PBF) manual and the policy on free health care will benefit the Health System Support and Strengthening Project (P164953), which is also providing integrated health and psychosocial services survivors of GBV. The proposed operation is also complementary to the Human Capital Project (P171158), which is currently under preparation and focuses on women’s empowerment. Likewise, the prior action on teachers is aligned with the Emergency Basic Education Support Project (P164295), which aims to improve access to quality basic education and strengthen capacity in education sector management, including through 62 The other pillars are: i) Preventing violent conflict and interpersonal violence; ii) Remaining engaged during conflict and crisis situations; and iv) Mitigating the spillovers of FCV. 63 World Bank. 2020. World Bank Group Strategy for Fragility, Conflict, and Violence 2020–2025. Page 42 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) recruiting and training teachers, and support to decentralization for effective service delivery. 4.4. CONSULTATIONS AND COLLABORATION WITH DEVELOPMENT PARTNERS 94. Consultations. The reform initiatives supported by the Program have benefited from consultations with NGOs, civil society representatives, the private sector, and health services providers. The Program is closely aligned with the RCPCA, which was elaborated through a participatory approach. The 2015 Bangui Forum, which led to the adoption of the RCPCA, involved local consultations nationwide to discuss the peace-building program and define a vision for the future of the country. This included consultations with 700 representatives of transition authorities, armed groups, civil society, religious organizations, and youth and women’s groups. In the framework of the RCPCA process, regional consultations and validation workshops were organized as well. Finally, the program coordination and implementation unit- the Unit Responsible for the Monitoring of Economic and Financial Reforms at the MFB (Cellule Chargée du Suivi des Réformes Economique et Financières, CS-REF) will regularly consult with CSOs and private sector representatives during the implementation of the Program. 95. Collaboration with development partners. The proposed operation has been prepared in consultation with development partners and is complementary with their recovery and development activities. The preparation of the Program itself contributed to relaunching the donor coordination group on budget support composed of representatives of the World Bank, IMF, EU, the French Development Agency (Agence Française de Développement, AFD), the UN Development Program, and AfDB, thereby ensuring that Program design has benefitted from consultations with development partners. Specifically, the proposed policy matrix is complementary to the budget support provided by AFD, which in 2018 and 2019 supported the government to clear salary and pension arrears and conduct audits of SOEs. The Program is also aligned with the budget support provided by the EU, which in the period 2019-2021 focuses on PFM and domestic resource mobilization, business climate, health, education, and GBV. This is complemented by TA on PFM, which will help the Government implement the reforms on public accounting and budget execution supported by the proposed Program. The social protection sector measures have been coordinated with United Nations Children’s Fund (UNICEF). In the health sector, the implementation of the targeted free health care policy is coordinated with the EU. 5. OTHER DESIGN AND APPRAISAL ISSUES 5.1. POVERTY AND SOCIAL IMPACT 96. The prior actions supported by the proposed operation are expected to have positive direct and indirect impacts on poor households and vulnerable groups, although COVID-19 may lessen these impacts. The Program’s poverty and social impacts are presented in Annex 5. Under Pillar 1, improved DRM and fiscal management will reinforce macroeconomic stability, hence helping the government address fiscal imbalances that could threaten pro-poor spending and strengthening the necessary conditions for accelerated growth.64 The gradual redeployment of the State across the territory will also 64A minimum share of pro-poor spending is included in the IMF program whose indicative targets include a floor for social spending (defined as defined as domestically financed public non-wage spending on primary and secondary education, health, social action, water and sanitation, microfinance, agriculture and rural development) of CFAF 28 billion. IMF Country Report No. 20/1, January 2020. Page 43 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) contribute to improving basic service delivery, in particular in areas outside of Bangui where poverty incidence tends to be higher. 97. Under Pillar 2, the Program will contribute to improving human capital and expanding opportunities among poor and vulnerable groups, especially women, by increasing their access to basic services and social protection. Although recent microdata to model the poverty and distributional impacts are not available, with an estimated national poverty rate of about 70 percent, it is highly likely that most of the beneficiaries of the improved public services would be among the poor. According to the 2018 communal monograph, the top priority reported by households was the provision of basic health services (33 percent of respondents) and basic education (21 percent of respondents), demonstrating the extent of unmet needs in these sectors. Through support for free health care to pregnant and breastfeeding women, children under five, and GBV survivors, in seven districts with a total population of almost 1 million, the Program will make health care affordable for around 130,000 poor and vulnerable individuals. The money saved from health care can be reallocated to other needs. In the medium and long run, increased public health expenditure will lower infant and maternal mortality. With respect to education, the Program is supporting the training and deployment of 149 government-paid teachers to schools in underserved districts. In the longer term, the increase in the expected years of schooling will improve the country’s human development indicators. 98. CSIDP 2 support for social protection will help supplement the income of poor and vulnerable households. As government involvement in social assistance programs is currently limited, measures to improve the institutional framework for social protection will help improve the coordination of different interventions. CSIDP 2 will support cash transfers of CFAF 25,000 per household per quarter for 3200 households, or an estimated 26,992 beneficiaries. The cash transfer payment represents 6 to 10 percent of the extreme poverty line for a household of three to five members on average. Finally, the social protection reform also promotes gender equity, as the share of female beneficiaries to receive cash transfer payments is expected to be around 68 percent. 5.2. ENVIRONMENTAL ASPECTS 99. The specific policies supported by this operation are not expected to have negative effects on the CAR’s environment, forests, water resources, habitats, or other natural resources. In 2009, the Ministry of the Environment and Ecology was created (currently called Ministry of Environment and Sustainable Development), along with numerous other institutional changes aimed at improving environmental management. Although the essential regulatory framework and policies are in place, the institutional capacity for environmental management is still weak.65 CSIDP 2 environmental impacts are presented in Annex 5. 100. Climate co-benefits. As stated in its Letter of Development Policy (Annex 4), the Government is implementing the reforms supported by the Program with the intention to mitigate the negative effects of climate change to which CAR is highly vulnerable. Several prior actions supported by the operation are expected to generate climate co-benefits. These are detailed in Annex 7. 5.3. PFM, DISBURSEMENT AND AUDITING ASPECTS 101. The Government has improved its core PFM functions. The operationalization of CAAT in 2015- 2016 resulted in the adoption of clear rules for budget execution and accounting. It also contributed to 65 World Bank. 2010. Central African Republic, Country Environmental Analysis. Page 44 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) strengthening the control over budget execution, limiting abuses, and the use of exceptional procedures. Significant efforts have been undertaken over the past years to improve accounting and internal control rules and procedures. The Treasury can produce annual accounts, albeit with delays, due to the weaknesses of the current information management system, which will be replaced by the new one from January 1, 2021. Decrees where passed in 2016 to clarify the supporting documents for expenditure execution, which increased the rate of rejection of expenditures not issued with proper supporting documentation and contributed to reducing the use of exceptional procedures and increasing the rate of compliance by line ministries. The PFM reform plan adopted in 2017 is being implemented, including with World Bank support. Payroll management has improved, although a 2019 payroll audit provided recommendations for further strengthening. The general government budget is available to the public and is published on the webpage of the MFB. The 2016 law on settlements (loi de règlement) has been sent to Parliament and the 2017 and 2018 ones have been finalized. 102. Progress has been made in the area of public procurement. The public procurement regulation that promotes transparency and integrity in public procurement (2008) includes (i) the creation of the Authority for Regulation of Public Procurement which is comprised of civil society, the private sector and government officials; (ii) de-concentration of the Directorate of Public Procurement in key line ministries; and (iii) establishment of a complaint handling mechanism for public procurement issues. In 2019, the authorities launched a review of public procurement procedures. Based on the conclusions of the assessment, and with World Bank assistance, they intend to revise the public procurement code by end- December 2020. The focus will be on: i) conducting and publishing a mandatory cost-benefit analysis of public investments above a certain threshold; ii) introducing a legal obligation—accompanied by sanctions in the event of noncompliance—to publish tenders on the government’s website; iii) publishing criteria for the selection of the companies; and (iv) operationalizing a national procurement system. In the medium term, to strengthen transparency, the Directorate for Public Procurement plans to develop a public procurement portal and a management system. 103. Progress has also been made in strengthening BEAC’s safeguards framework and implementing the new regional foreign exchange regulation. According to the IMF,66 BEAC continues to implement the remaining recommendations of the 2017 safeguards assessment. BEAC’s full transition to international financial reporting standards to strengthen financial transparency is advancing. The alignment of the BEAC’s secondary legal instruments with its Charter was recently concluded. The Government is contributing to the enhanced foreign exchange regulation in collaboration with BEAC, in order to help rebuild international reserves. BEAC is organizing outreach events with commercial banks and the private sector, including mining companies, to enhance awareness and increase understanding of the purpose of the regulation. The Government is committed to continue supporting BEAC in enforcing the regulation in CAR, including the repatriation and surrender of foreign exchange deposits from export proceeds. 104. Disbursement, accounting and auditing. The Recipient is the Government of CAR, represented by the MFB. The grant will be released in a single tranche equivalent to US$50 million upon effectiveness and provided that IDA is satisfied with (i) the program being carried out by the Recipient and (ii) the adequacy of the Recipient’s macroeconomic policy framework. The proposed operation will follow IDA’s standard disbursement procedures for development policy financing. Upon approval of the operation and effectiveness of the Financing Agreement, the proceeds of the grant will be disbursed by IDA into a Government account at BEAC dedicated for budget support and will form part of the country’s foreign- 66 IMF Country Report No. 19/215. Page 45 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) exchange reserves. Per usual practice, the funds will then be transferred to a dedicated government local currency (CFAF) account at BEAC. The Recipient will ensure that upon the deposit of the grant into the foreign currency account, an equivalent amount in local currency is credited in the Recipient’s budget management system in a manner acceptable to the World Bank. Based on previous experience, the execution of such transactions between BEAC and MFB does not require more than four days. The Recipient will report to the World Bank on the amounts deposited in the dedicated foreign-currency account and credited in local currency (CFAF) to the budget management system in a manner acceptable to IDA. The equivalent amount in CFAF reported in the budgetary system will be based on the market rate effective on the date of the transfer. The Recipient will promptly notify the World Bank within thirty days of the transfer by fax or email that the transfer has taken place and that proceeds have been credited in a manner satisfactory to IDA. 105. The financial support provided under this operation is not intended to finance goods or services in the standard negative list. If, after being deposited in this the account, the proceeds are used for excluded expenditures as defined in the Financing Agreement, IDA will require the Recipient to refund directly to IDA an amount equal to the amount of that payment promptly upon notice. Amounts refunded to the World Bank upon such a request will be canceled. 106. Audit. The Association reserves the right to seek an audit of the dedicated accounts by independent auditors acceptable to the World Bank. The result of such an audit will be furnished to the Association within four months of the request and in accordance with Terms of Reference satisfactory to IDA. All audit costs will be borne by the Government of CAR. 107. The closing date for the operation is December 31, 2021. 5.4. MONITORING, EVALUATION AND ACCOUNTABILITY 108. The central coordination unit in MFB—CS-REF— will be responsible for program coordination, monitoring and evaluation (M&E). CS-REF has already gained significant experience in preparing and managing budget support programs through its close collaboration with the World Bank, IMF, EU, and the AfDB. CS-REF has demonstrated sufficient capacity for M&E, as well as for mobilizing support and participation from sectoral ministries. CS-REF’s capacity to collect quality data and report on results indicators is adequate. Result indicators have been designed with data availability and accessibility in mind. Program monitoring will be facilitated by the close coordination on budget support with other donors, which are all committed to supporting complementary measures. As part of donor coordination, the donor partners are in the process of preparing a common matrix with all prior actions and indicators supported by different programs. This will make it easier for CS-REF and the Government as a whole to monitor and report on the measures it is implementing. 109. Grievance Redress. Communities and individuals who believe that they are adversely affected by specific country policies supported as prior actions or tranche release conditions under a World Bank Development Policy Operation may submit complaints to the responsible country authorities, appropriate local/national grievance redress mechanisms, or the WB’s Grievance Redress Service (GRS). The GRS ensures that complaints received are promptly reviewed in order to address pertinent concerns. Affected communities and individuals may submit their complaint to the WB’s independent Inspection Panel, which determines whether harm occurred or could occur as a result of WB non-compliance with its policies and procedures. Complaints may be submitted at any time after concerns have been brought directly to the World Bank's attention, and Bank Management has been given an opportunity to respond. Page 46 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) For information on how to submit complaints to the World Bank’s corporate Grievance Redress Service (GRS), please visit http://www.worldbank.org/GRS. For information on how to submit complaints to the World Bank Inspection Panel, please visit www.inspectionpanel.org. 6. SUMMARY OF RISKS AND MITIGATION 110. The overall risk rating for the proposed operation is High due to several interrelated risks that may jeopardize the achievement of the PDO, especially in view of COVID-19. High and substantial risks are presented below. The main risks stem from external economic shocks (of which COVID-19 is the most recent) and the residual risks of political instability, insecurity, and violence. 111. Political and governance risk is High. CAR has a fragile political environment with weak institutions. The political settlement has solidified following the 2016 elections, but there is still a high risk of political instability especially in view of the upcoming presidential and legislative elections. Political instability could result in rising tensions in the country and potentially a resurgence of violence, which would inevitably lead to delays in reform implementation and achievement of the objectives of the operation. Mitigating factors to this risk include the UN Stabilization mission’s (MINUSCA) and donor partners’ continued support to the preparation of an orderly conduct of the elections. The Government’s focus on post-conflict economic recovery, with support from development partners, demobilization, disarmament, reintegration, and repatriation (DDRR), and reforms to improve governance and institutional capacity contributes to mitigating the risk. The signature of the Khartoum Agreement in February 2019 is an important step and could be the start of the end of the long conflict. The Government and the armed groups have shown a commitment to the implementation of the agreement, which will contribute to reducing the political and governance risk. Despite these mitigating factors, the residual political and governance risk remains high. 112. Macroeconomic risk remains High and could be aggravated by the COVID-19 crisis, depending primarily on the depth and duration of the COVID-19 pandemic. The global economic slowdown due to the COVID-19 pandemic is materializing, and uncertainty remains high, with potentially severe macroeconomic implications for CAR. The country faces two specific risks to the growth and macroeconomic outlook, compounded by the potential negative effects of the COVID-19 crisis. The first risk pertains to the projections of key export goods. The dynamism of the exports is conditional on strong international demand, which is expected to collapse due to the global economic slowdown. Social distancing measures are likely to slow down economic activities and disrupt local businesses. A prolonged and deeper crisis could cause a recession in 2020 and worsen further CAR’s fiscal stance through a reduction in tax revenues and an increase in public spending, especially in the health sector. Second, CAR faces a high risk of debt distress, limiting its ability to finance investment programs and social spending. Domestic revenues remain insufficient to cover priority expenditures and finance the growing needs of the population, leaving the economy highly dependent on foreign aid. Disruption in the supply chains could lead to an increase in food prices with severe effects for the poor and the risk of social unrest. A further worsening of the macroeconomic situation combined with insufficient support from the international community may jeopardize the achievement of the PDO. 113. The Government’s good track record in macroeconomic management and BEAC’s policy measures in response to exogenous shocks are mitigating factors. Despite the country’s extreme fragility, the authorities have completed a three-year ECF program (2016-2019) successfully with the IMF. Page 47 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) Immediately thereafter, the country started a new ECF program that will contribute to limiting the fiscal deficit and to macroeconomic stability in the medium term, despite recent challenges in its implementation. In light of the crisis, the Government developed a National Preparedness and Response Plan Against Coronavirus. BEAC’s track record in implementing effective monetary policy has been crucial to mitigate risks in the CEMAC zone following the 2014-2015 oil-price shock. BEAC’s tighter monetary policy and stricter enforcement of foreign exchange regulations have contributed to the reduction of fiscal and external imbalances in the sub-region. BEAC has modernized its monetary, operational framework by (i) eliminating statutory advances; (ii) establishing an emergency liquidity assistance system; and (iii) providing refinancing through competitive auctions. 114. Institutional capacity for implementation and sustainability risk is Substantial. The violent conflict has significantly weakened the capacity of the public administration, and the current COVID-19 crisis is putting a further strain on its functioning. Capacity constraints could result in delays in the implementation of reforms supported by the operation, which may be further aggravated by the measures to contain the spread of COVID-19. For example, the pandemic may slow down the implementation of the reforms related to the deployment of teachers at the local level. Coordination within the Government is challenging, considering the fragmentation of responsibilities among multiple ministries and agencies and the multitude of beneficiary institutions involved in Program implementation. Interinstitutional coordination challenges, and bottlenecks at the decision-making level, are now amplified as the government's focus is on managing the COVID-19 crisis. As a mitigation measure, the Program’s institutional arrangements provide for a strong central coordination team, which works in close collaboration with all beneficiary institutions. The risk is further mitigated by the institutional strengthening measures that form part of the CSIDP program, as well as complementary TA and ongoing investment projects in the reform areas supported by the Program funded by the World Bank and other development partners. 115. Fiduciary risk is Substantial. This assessment is based on the status of the PFM system and the BEAC safeguards framework, accounting systems, and auditing arrangements. The Government has made some progress to lower fiduciary risks, although there are still institutional weaknesses that could adversely affect the program. These relate to weaknesses in expenditure and revenue management, such as budget under- and overruns, weak revenue forecasting, limited capacities for budget preparation, lack of coordination with sectoral ministries, bypassing of the expenditure chain, limited functionalities of the existing budget execution system, lack of reliable data on budget execution.67 The Government has strengthened multiple aspects of public finance and budgetary management, especially the adoption of the CEMAC PFM directives, the operationalization of which is supported by World Bank TA. The Government remains committed to the implementation of the credible PFM reform program it has adopted. These measures, together with the continued TA support by the World Bank, the IMF, and other development partners, are mitigating the fiduciary risk to the development objectives of the operation. 116. Other risks related to the program are High. The volatile security situation is a transversal risk affecting all components of the Program and can have a negative effect on achieving the PDO. The scarce presence of security forces outside of Bangui, as well as a lack of access to basic police and judicial services, contributes to insecurity, which is especially acute outside of the capital region. The socioeconomic impacts of COVID-19, especially the recent increase in prices of basic goods, coupled with containment 67 IMF Rapport technique Renforcer la credibilite du budget de l’etat, January 2020. Page 48 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) measures, may lead to social unrest. COVID-19 could undermine security as MINUSCA has suspended most internal travel and stopped rotating in new contingents, which poses challenges to its ability to implement its protection mandate. The recent conflict in the rural areas outside of Bangui may have further impacts on economic activity, administrative capacity, and social service provision. Security incidents could require an increase in the use of exceptional spending procedures. Insecurity may also reduce revenue from international trade if the Douala – Bangui trade corridor is blocked and make deployment and monitoring of the presence of ACS challenging or impossible. Insecurity could also adversely affect access to free health care, slow-down coordination efforts in social protection, and put to a halt effort to recruit teachers in affected regions. The UN peacekeeping mission, as well as the government’s reform of the security sector, the recent peace agreement and the DDRR process, are mitigating these risks. Table 7: Summary Risk Ratings Risk Categories Rating 1. Political and Governance ⚫ High 2. Macroeconomic ⚫ High 3. Sector Strategies and Policies ⚫ Moderate 4. Technical Design of Project or Program ⚫ Moderate 5. Institutional Capacity for Implementation and Sustainability ⚫ Substantial 6. Fiduciary ⚫ Substantial 7. Environment and Social ⚫ Moderate 8. Stakeholders ⚫ Moderate 9. Other ⚫ High Overall ⚫ High Page 49 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) ANNEX 1: CHANGES BETWEEN THE INDICATIVE TRIGGERS AND RESULT INDICATORS ENVISAGED IN CSIDP 1 AND CSIDP 2 PROPOSED PRIOR ACTIONS Indicative triggers for CSIDP 2 as Result indicators Proposed Prior Actions for CSIDP 2 Proposed changes Material change Status of CSIDP approved by the Board in the of CSIDP series as in the result 2 Prior Actions Program Document of CSIDP 1 approved by indicators for the Board in the CSIDP series Program Document of CSIDP 1 PILLAR 1: CONSOLIDATING BASIC FISCAL MANAGEMENT Percentage annual rior Action 1: Use of exceptional No material change, only a rior Action 1 is change in the use spending reformulation to better define completed, and of exceptional procedures the policy change. the legal spending • Baseline: 11 evidence has adopted the general procedures percent The result indicator has been been provided. regulation of public accounting, • Baseline: -37 (2018) simplified and brought in line the chart of accounts, the budget percent • Target: 5 with the statistics tracked in the nomenclature, and the table of (2018) percent Government’s program with the financial operations of the state • Target: -15 (2021) IMF. percent (2020) Prior Action 2: The PA has been reformulated rior Action 2 is to better define the policy completed, and change and to add a third aspect the legal related to the monitoring of evidence has COVID-19 related funds. been provided. Page 50 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) Indicative triggers for CSIDP 2 as Result indicators Proposed Prior Actions for CSIDP 2 Proposed changes Material change Status of CSIDP approved by the Board in the of CSIDP series as in the result 2 Prior Actions Program Document of CSIDP 1 approved by indicators for the Board in the CSIDP series Program Document of CSIDP 1 Number of Prior Action 3: Number of The 2018 debt report has been rior Action 3 is published annual published annual published. The 2019 draft debt completed, and debt reports debt reports report with the 2019 debt the legal • Baseline: 0 • Baseline: 0 statistics has been prepared. evidence has (2018) (2018) The final 2019 debt report will been provided. • Target: 2 • Target: 3 be published by the end of (2020) (2021) August 2020, since the finalization of the report involves a validation process which takes time and may be further slowed down by COVID- 19. The result indicator remains unchanged, but the target has been increased to three reports by 2021. The Recipient has, Actual presence Prior Action 4: In order to improve planning Actual presence The first two elements of this rior Action 4 is through its Minister of Finance rate, in and control of human resources as well as rate, in percentage, prior action remain the same completed, and and Budget and Minister of Civil percentage, of contribute to increased State presence, the of Civil Servants and but have been reformulated to the legal Page 51 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) Indicative triggers for CSIDP 2 as Result indicators Proposed Prior Actions for CSIDP 2 Proposed changes Material change Status of CSIDP approved by the Board in the of CSIDP series as in the result 2 Prior Actions Program Document of CSIDP 1 approved by indicators for the Board in the CSIDP series Program Document of CSIDP 1 Service, published on the web- Civil Servants and Recipient’s ministry of finance and budget Agents of the State better define the policy change. evidence has page of the MFB and informed all Agents of the has: (i) published online a cartography for in secured areas The mentioning of defense been provided. concerned ministries – both at State in secured agents and civil servants for each public • Baseline: 40 forces and police has been taken Central and Regional Level - the areas agency and/or ministry, by grade, function, percent out- while police forces are cartography/ list of allocated and • Baseline: 40 department and location; (ii) undertaken a (2017) covered by the physical actual presence by function, percent physical presence control exercise of agents • Target: 80 presence control supported by department and location of ACS (2017) and civil servants in selected areas in CAR; percent the Program, defense forces are to contribute to a better • Target: 60 and (iii) regulated the electronic declaration (2021) controlled through a separate distribution of, and increase the percent and settlement of State’s receipts and mechanism. effective presence, of ACS; and (2020) disbursements, including agents and civil has undertaken a physical servants salaries, taxes and custom duties, The prior action was presence control of all ACS, through Inter-ministerial Decision strengthened through the including of defense forces and 0285/MFB/2020 dated January 31, 2020. addition of a third aspect related police. to mobile payments of salaries of ACS. The result indicator remains unchanged, but the target has been increased and the target year changed to 2021. The Recipient has, Revenue from Prior Action 5: The prior action has been rior Action 5 is through a decision (arrêté) of the international trade strengthened to capture better completed, and Minister of Finance and Budget in percent of Gross the essence of the reform, as the legal mandated the use of ASYCUDA++ Domestic Product stipulated in the adopted evidence has as the only mechanism to (GDP) Instruction. been provided. undertake customs clearance of • Baseline: 2.6 petroleum products in order to percent The result indicator has been improve revenue mobilization. (2017) changed to an indicator which is • Target: 3.1 more closely linked with the percent expected effects of the prior (2020) action. The Recipient has, Number of Prior Action 6: In order to improve the Number of internal No material change, only a rior Action 6 is Page 52 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) Indicative triggers for CSIDP 2 as Result indicators Proposed Prior Actions for CSIDP 2 Proposed changes Material change Status of CSIDP approved by the Board in the of CSIDP series as in the result 2 Prior Actions Program Document of CSIDP 1 approved by indicators for the Board in the CSIDP series Program Document of CSIDP 1 through decree of its MFB and the internal audit management of the Road Maintenance audit reports of the reformulation to simplify the completed, and Ministry of Public Works, Road reports of the Fund (RMF), the Recipient has adopted the Roads Maintenance language. the legal Maintenance, and Transport, Roads internal control manual of the RMF through Fund (RMF) evidence has adopted the internal control Maintenance Fund Inter-ministerial decision • Baseline: 0 The result indicator is been provided. manual of the RMF to improve its (RMF) 045/2020/MTPER/MFB dated March 27, (2018) unchanged, but the target year fiduciary management to • Baseline: 0 2020. • Target: 4 has been changed to 2021. improve financial management (2018) (2021) oversight of the RMF. • Target: 4 (2020) Number of Prior Action 7: In order to put in place in Number of The prior action was rior Action 7 is published financial accordance with international best practice, published financial strengthened to reflect the completed, and audits of State- rules of establishment, governance and audits of State- actual adoption of the law. the legal owned Enterprises oversight of state-owned enterprises owned Enterprises evidence has (SOE) and (SOEs), the Recipient has enacted SOE Law (SOEs) and The result indicator is been provided. Parastatals Number 20.004 dated January 13, 2020, Parastatals unchanged, but the target year • Baseline: 0 establishing the institutional, legal and • Baseline: 0 has been changed to 2021 (2018) financial framework of SOEs in CAR. (2018) • Target: 7 • Target: 7 (2020) (2021) PILLAR 2: SUPPORT INCLUSIVE ECONOMIC RECOVERY AND HUMAN CAPITAL Cumulative Prior Action 8: Number of poor The prior action has been rior Action 8 is number of social households who strengthened to capture better completed, and protection benefit from the essence of the policy reform. the legal beneficiaries in unconditional cash A new element has been added- evidence has the harmonized transfers funded by the government’s new cash been provided. social protection the Government transfer program. data base • Baseline: 0 • Baseline: 0 (2018) The result indicator has been Center for the Coordination of (2018) • Target: 3200 changed to reflect the change in Safety Nets. • Target: 25,000 (2021) the prior action and better (2020) capture the effects of the policy Page 53 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) Indicative triggers for CSIDP 2 as Result indicators Proposed Prior Actions for CSIDP 2 Proposed changes Material change Status of CSIDP approved by the Board in the of CSIDP series as in the result 2 Prior Actions Program Document of CSIDP 1 approved by indicators for the Board in the CSIDP series Program Document of CSIDP 1 reform. Number of health Prior Action 9: Number of districts No material change, only a rior Action 9 is facilities offering where targeted free reformulation to better define completed, and for targeted Free Health Care health care is the policy change. the legal free healthcare for children for Pregnant implemented by the evidence has under-five, pregnant and Women, government (and The result indicator has been been provided. breastfeeding women and the Breastfeeding not by donors), modified to capture better the provision of free, integrated Women, Children which receive impact of the reform. services and care for victims of Under Five Years essential medicines GBV through the Government’s and Gender-based • Baseline: 0 own budget, in at least two (2) Violence (GBV) (2018) districts (beyond WB-SENI project victims. • Target: 7 and development partners’ • Baseline: 0 (2021) supported districts). (2018) • Target: 392 (2020) Percentage of Prior Action 10: Percentage of The prior action has been rior Action 10 Education primary school reformulated to capture better is completed, Inspectorates teachers recruited the essence of the policy reform. and the legal recruiting teachers in 2019 who have It has also been strengthened evidence has for initial training become teachers in through the addition of a new been provided. • Baseline: 0 their localities, element - the signing of the (2018) following the teachers’ commitment letters. • Target: 20 completion of their percent two-year training The result indicator suggested in (2020) (disaggregated by CSIDP 1 has been fully met. The gender) proposed result indicator • Baseline: 0 captures the change in the prior (2019) action of CSIDP 2. • Target: 80 percent (2021) Page 54 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) Page 55 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) ANNEX 2: POLICY AND RESULTS MATRIX Prior actions Results Prior Actions under DPO 1 Prior Actions under DPO 2 Indicator Name Baseline Target rior Action 1: Prior Action 2: The Recipient has, through its Minister of Finance and Prior Action 2: Use of exceptional 11 percent 5 percent Budget issued: (i) Circulaire 1391 du 27 septembre 2018 portant spending procedures (2018) (2021) délégation du pouvoir de l’ordonnateur principal au profit des ordonnateurs délégués pour l’exercice 2019, delegating commitment and validation of expenditures to the ministries responsible for Education; Research and Innovation; Higher Education; Health and Population; Agriculture and Rural Development, Livestock and Animal Health; Humanitarian Action and National Reconciliation; Gender and Child Protection; Medium and Small Enterprises and Artisans; and Energy and Hydrolic Resources; and (ii) Arrêté 1244/MFB/DIR/CAB/DGB.18 du 13 novembre 2018 appointing a financial controller to each of the ministries mentioned in part (i) immediately above, in order to reduce the use of exceptional spending procedures. Page 56 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) Prior actions Results Prior Action 3: Number of annual debt 0 (2018) 3 (2021) reports published Prior Action 3: Prior Action 4: In order to improve planning and control of Actual presence rate, in 40% (2017) 80% (2021) human resources as well as contribute to increased State percentage, of Civil presence, the Recipient’s ministry of finance and budget has: Servants and Agents of (i) published online a cartography for agents and civil servants the State in secured for each public agency and/or ministry, by grade, function, areas department and location; (ii) undertaken a physical presence control exercise of agents and civil servants in selected areas in CAR; and (iii) regulated the electronic declaration and settlement of State’s receipts and disbursements, including agents and civil servants salaries, taxes and custom duties, through Inter-ministerial Decision 0285/MFB/2020 dated January 31, 2020. Prior Action 5: 59% (2018) 93% (2021) Prior Action 6: Number of internal 0 (2018) 4 (2021) audits of the RMF Prior Action 7: In order to put in place in accordance with Number of published 0 (2018) 7 (2021) international best practice, rules of establishment, financial audits of governance and oversight of state-owned enterprises (SOEs), state-owned the Recipient has enacted SOE Law Number 20.004 dated enterprises (SOEs) and Page 57 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) Prior actions Results January 13, 2020, establishing the institutional, legal and Parastatals financial framework of SOEs in CAR. Prior Action 8: Number of poor 0 (2018) 3200 (2020) households who benefit from unconditional cash transfers funded by the Government Prior Action 9: Number of districts 0 (2018) 7 (2021) where targeted free health care is implemented by the government (and not by donors), which receive essential medicines The Recipient has, through its Minister of Primary, Prior Action 10: Percentage of primary 0% (2019) 80% (2021) Secondary, Technical and Literacy issued arrêté 006/MEPSA/DIRCAB/.19 school teachers recruited du 29 janvier, 2019 portant adoption du document intitulé “étude in 2019 who have analytique: évaluaiton, gestion et planification du secteur de become teachers in their l’éducation” endorsing the recommendations of the 2018 Review of localities, following the Human Resource Stock and Strategic Planning for Short to Medium-Term completion of their two- Needs in the education sector. year training (disaggregated by gender) Page 58 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) Page 59 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) ANNEX 3: IMF RELATIONS ANNEX Press Release No. 19/484 International Monetary Fund FOR IMMEDIATE RELEASE Washington, D.C. 20431 USA December 20, 2019 IMF Executive Board Approves US$115.1 Million Three-Year Extended Credit Facility (ECF) Arrangement for the Central African Republic68 On December 20, 2019, the Executive Board of the International Monetary Fund (IMF) approved a three- year arrangement under the IMF’s Extended Credit Facility (ECF) for the Central African Republic (CAR) equivalent to SDR83.55 million (about US$115.1 million, or 75 percent of the Central African Republic’s quota in the Fund). The IMF-supported program aims to maintain macroeconomic stability, strengthen administrative capacity, governance and the business climate, and address the country’s protracted balance of payment needs. The IMF Executive Board’s decision enables an immediate disbursement of SDR 11.936 million, about US$16.4 million. Disbursement of the remaining amount will be phased in over the duration of the program, subject to semi-annual reviews of the IMF-supported program by its Executive Board. Following the Executive Board’s discussion on Central African Republic, Mr. Mitsuhiro Furusawa, Deputy Managing Director and Acting Chair, made the following statement: “Despite significant progress under the ECF arrangement that expired last July, the Central African Republic (C.A.R.) remains very fragile, with a volatile security environment, limited administrative capacity, poor governance, and lack of social cohesion. “The new three-year program supported by the IMF Extended Credit Facility (ECF) will support the implementation of the February 2019 peace agreement and of C.A.R.’s medium-term development strategy. It aims at maintaining macroeconomic stability, strengthening administrative capacity, governance and the business climate, promoting robust and sustainable growth, and reducing poverty. “Fiscal policy will focus on enhanced revenue mobilization, spending prioritization, and strengthened public financial management. This will ensure that C.A.R.’s considerable security, social, and infrastructure spending needs are sustainably met. Revenue mobilization measures will include the daily reconciliation of revenue data, the digitalization of tax returns and payments, and enhanced coordination between revenue administrations. The further strengthening of public financial management will involve the elimination of the remaining public agencies with no economic justification, the finalization of the audit of domestic arrears, and the strengthening of SOEs’ oversight and management. 68IMF Country Report No. 20/1 can be accessed at: https://www.imf.org/en/Publications/CR/Issues/2020/01/13/Central- African-Republic-Request-for-a-Three-Year-Arrangement-under-the-Extended-Credit-48940. Page 60 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) “Structural reforms will aim at improving the government’s capacity to design and implement policies and reforms, enhancing governance, including through strengthening anticorruption institutions, and removing bottlenecks and regulatory impediments to private investment. “Continued financial and technical support from development partners will be critical to the program’s success. Given its high risk of debt distress and limited revenue base, C.A.R. will have to continue relying heavily on grant financing to finance its most pressing spending needs. The authorities will work closely with their technical partners to ensure that capacity development focuses on priorities closely aligned with the program objectives and is efficiently delivered. “The C.A.R.’s program is supported by the implementation of policies and reforms by the CEMAC regional institutions in the areas of foreign exchange regulations and monetary policy framework, and to support an increase in regional net foreign assets, which are critical to program’s success.” Page 61 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) Press Release International Monetary Fund FOR IMMEDIATE RELEASE Washington, D.C. 20431 USA April 20, 2020 IMF Executive Board Approves a US$38 Million Disbursement to the Central African Republic to Address the COVID-19 Pandemic69 On April 20, 2020, the Executive Board of the International Monetary Fund (IMF) approved disbursement under the Rapid Credit Facility (RCF) equivalent to SDR 27.85 million (US$38 million, 25 percent of quota) to help the Central African Republic (C.A.R.) meet the urgent balance of payments needs stemming from the COVID-19 pandemic. C.A.R. has also benefited from the IMF Executive Board decision of April 13, 2020 to provide debt service relief to all countries eligible for support from the International Development Association (IDA) in the form of grant assistance under the Catastrophe Containment window of the Catastrophe Containment and Relief Trust (CCRT). As a result, C.A.R. will receive relief from the CCRT on debt service falling due to the IMF in the next 6 months (about US$4 million). This relief could be extended for up to 2 years, subject to the availability of resources under the CCRT. If not contained, the COVID-19 pandemic could have a considerable economic and social impact on the C.A.R. The sharp global economic downturn and border closures with neighboring countries have already led to a significant reduction in economic activity, with sectors such as commodity exports, trade, and construction particularly hard-hit. The authorities have acted fast to prevent the spread of the pandemic by setting up preventive measures and designing a response plan, in collaboration with the WHO. The plan aims at: (i) providing medical care of confirmed cases; (ii) improving monitoring system for the country’s main points of entry and; (iii) strengthening the capacity of medical staff and facilities. IMF financing will help preserve fiscal sustainability and catalyze further assistance from the international community, in the form of grants. The IMF continues to monitor C.A.R.’s situation closely and stands ready to provide policy advice and further support as needed. Following the Executive Board’s discussion on C.A.R., Mr. Mitsuhiro Furusawa, Deputy Managing Director and Acting Chair, issued the following statement: “The global COVID-19 crisis is expected to have a considerable economic and social impact on the Central African Republic (C.A.R.), a fragile country with a volatile security environment, limited administrative capacity, and weak governance. The outbreak will likely affect C.A.R.’s economy both directly, as containment measures impact domestic demand and disrupt supply and trade, and indirectly, as the marked slowdown in economic activity worldwide will affect demand for C.A.R.’s commodity exports. Along with a decline in financial flows, the latter will create substantial urgent external financing needs. 69The IMF Country Report No. 20/137 can be accessed at https://www.imf.org/en/Publications/CR/Issues/2020/04/28/Central- African-Republic-Request-for-Disbursement-under-the-Rapid-Credit-Facility-Press-49378. Page 62 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) “To limit the pandemic’s human and economic impact, the authorities have adopted measures— including border closures, school closings, and prolonged curfews—to contain its spread and prepared, in collaboration with the World Health Organization, a response plan to strengthen the health system’s capacity. In addition, the regional central bank and banking commission are taking steps to support growth and preserve financial sector stability. “A temporary widening of the budget deficit is warranted in the short term to allow for the implementation of the response plan while continuing to meet C.A.R.’s considerable social, infrastructure, and security needs. The IMF’s emergency financial support under the Rapid Credit Facility, along with the additional donor grant financing it will help to catalyze, will address C.A.R.’s urgent balance of payments needs while supporting this temporary fiscal loosening. The recent approval of debt service relief for C.A.R. under the Catastrophe Containment and Relief Trust (CCRT) will also play an important role in freeing up resources to cope with the pandemic. “The implementation of the policies and structural reforms to which the authorities committed under the ECF arrangement adopted in December remains key to ensuring macroeconomic stability and debt sustainability and restoring sustained inclusive growth. Additional external support, preferably in the form of grants, is also urgently required to meet C.A.R.’s elevated financing needs and ease the financial burden of the pandemic. These are also essential to the authorities’ efforts to restore peace and prosperity in the country.” Page 63 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) IMF RCF: Selected Economic and Financial Indicators, 2018-2025 Page 64 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) ANNEX 4: LETTER OF DEVELOPMENT POLICY DRAFT GOVERNMENT LETTER OF DEVELOPMENT POLICY AS PART OF REFORMS FOR THE SECOND CONSOLIDATION AND SOCIAL INCLUSION DEVELOPMENT PROGRAM70 I. BACKGROUND 1- The Development Policy Letter has been prepared in order to report on the implementation of the actions selected under the Second Consolidation and Social Inclusion Development Program (CSIDP 2) concluded with the World Bank. The reforms carried out are in line with those undertaken in previous budget support programs (PACE, PRCE, CSIDP 21) and also take into account the measures agreed with the other technical and financial partners (TFPs). Indeed, the CSIDP aims to consolidate the achievements of PACE, in particular through the promotion of good governance and financial transparency, the restoration and strengthening of State authority through the redeployment of public services throughout the national territory, the control of the wage bill, the fight against poverty through the development of human capital, and improvement in the management of social safety nets. 2- The completion of the Government's economic program (2016-2019) supported by the Extended Credit Facility (ECF) of the International Monetary Fund (IMF) has stabilized the macroeconomic framework and made possible the implementation of the reforms initiated under CSIDP2. The new program (2020-2022) concluded with the IMF aims, in the medium term, to further reduce fiscal and external imbalances while promoting sustainable growth and poverty reduction. 3- As underscored by the Prime Minister during the commemoration of Year 1, the implementation of the Political Agreement for Peace and Reconciliation (PAPR) of February 2019 has generated dividends at political, security, humanitarian, economic and social levels. Politically, the Agreement has enabled the Central African Republic to regain its international credibility, and its reforms to alleviate the political climate. On the security front, since the signing of the Peace Agreement, there has been a significant reduction in the level of community violence. With the deployment of the Central African Armed Forces to uphold the Agreement, security is gradually returning, making it possible to deploy public services as part of the restoration of State authority. The organization of World Food Day in Bambari on November 18, 2019 is proof of the progress made in security. At humanitarian level, the improvement in security observed after the implementation of the Agreement has played a major role in the massive return of refugees and displaced persons to their respective communities. At the economic and social level, the renewed calm has made it possible to revive certain socio-economic activities and improve economic performance with a qualitative leap. 4- In December 2020, the first round of general elections (presidential and legislative) will be held to elect the country's top leaders. The Government will take all necessary steps to enable the National Elections Authority (NEA) to organize peaceful and credible elections in order to give the necessary legitimacy to the personalities up for election. 70 This is a translation from French of the letter submitted by the Government in French. The French version is copied below. Page 65 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) 5- The extension of the deadline for the implementation of the National Plan for the Recovery and Consolidation of Peace in the Central African Republic (RCPCA) until 2023 will make it possible to speed up the implementation of projects with high social impact. The aim is to lay the foundations for accelerated growth and sustainable and inclusive development. However, the inadequacy of the country's domestic resources is prompting the Government to continue its advocacy with the various TFPs with a view to increasing their funding. 6- As part of the fight against climate change, the Government plans, in accordance with its commitment under the Paris Agreement, to use part of the funds from this budget support to strengthen the climate resilience of poor and vulnerable populations and to drive forward the implementation of its contribution to this global challenge. 7- Thus, the Government has requested and obtained from the World Bank this new reform program to consolidate the achievements of previous operations, which will cover the years 2019 and 2020 alongside the support of other partners. 8- This Development Policy Letter describes recent economic developments and prospects for the coming years (II), reviews the main results of CSIDP 1 (III) and the implementation of CSIDP 2. It also presents the state of play of the actions agreed under this program (IV), and concludes with the framework for its implementation (V). II. RECENT ECONOMIC DEVELOPMENTS AND MEDIUM-TERM OUTLOOK 9- Recent macroeconomic developments in the CAR have been generally satisfactory although challenges remain. 10- In 2019, projected growth is 3% versus 3.8% in 2018. This growth is driven by the tertiary (5%), secondary (4.7%) and primary (2.7%) sectors. Inflation remained moderate in 2019 (2.8% annual average), up from 2018 (1.7% annual average). 11- Total resources mobilized in cash amounted to 260.708 billion CFA francs in 2019, including 116.1 billion CFA francs domestic revenue, which corresponds to an increase of nearly 4 billion CFA francs (+3.5%) compared to 2018 realized revenue. External financial support (budgetary support, loans/grants for projects, etc.) amounted to 113.2 billion CFA francs. Thus, the implementation of the cash flow plan for 2019 shows a surplus balance of 37.8 billion CFA francs. 12- The overall balance of payments is expected to show a surplus of 1.0 billion CFA francs in 2019, down from 9.3 billion CFA francs in 2018. 13- In terms of outlook, a more sustained economic recovery is expected in the medium term, with growth rates of 5% in 2020 and 5.6% in 2021. The overall balance of payments should improve to 19.2 billion and 27.2 billion CFA francs in 2020 and 2021, respectively. 14- COVID-19 pandemic will jeopardize these prospects as the global pandemic does not spare the Central African Republic. The pandemic has already hit all sectors of the economy. The economic growth initially expected at 5% will be less than 1% in 2020, or even negative. Other consequences, the drop in domestic revenue is projected CFAF 80 billion, and urgent needs related to the COVID-19 response plan are estimated at CFAF 27 billion. Taking into account these additional health expenditures Page 66 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) combined with other new spending related to COVID-19 would further deteriorate the primary deficit, which would increase from 2.4% to 5.7% of GDP in the 2020 Supplementary budget. Moreover, the negative impacts of COVID-19 will be significant in the tourism sector, on exports, jobs, and social sectors. Given the inevitable decline in domestic revenue and urgent needs, the challenges ahead are significant for the Government. The Government is grateful to the technical and financial partners that have committed to providing additional support to mitigate the consequences of COVID- 19 in particular, the World Bank and IMF. However, there are still financing needs to be covered. That is why the Government will continue its advocacy to mobilize further financial support to address the social and economic consequences of COVID-19 by strengthening investments in the health sector, undertaking measures to assist the most vulnerable groups and small and medium-sized enterprises. To respond to the COVID-19 pandemic, the Government has adopted a Supplementary Budget for 2020, which reflects new macroeconomic developments, reduces non-priority expenditure, and increases the budget dedicated to fighting COVID-19 in line with the Government's health preparedness and response plan. This plan was prepared in collaboration with the World Health Organization and is being implemented by the Ministry of Health, under the coordination of the Crisis Committee led by the Prime Minister. III. MAIN RESULTS OF THE PREVIOUS PROGRAM (CSIDP1) 15- Under CSIDP 1, reforms focused on strengthening public finance management and supporting inclusive economic recovery. 16- The measures agreed were aimed at reinforcing and consolidating those already included in other programs, in particular the economic and financial reform program supported by the IMF's ECF covering the period 2016-2019 and the PACE covering the period 2016-2017. BUDGETARY TRANSPARENCY AND FINANCIAL REFORMS 17- Good governance, transparency and domestic revenue mobilization are the flagship public finance measures that the Government has been able to implement for poverty reduction. Thus, in 2018, the Government had the President of the Republic promulgate the Organic Law on Finance Laws (LOLF) in the Central African Republic, in accordance with the directives of the harmonized public finance management framework of the Central African Economic and Monetary Community (CEMAC). The adoption of LOLF, which follows the adoption of the Code of Transparency and Good Governance in Public Financial Management, itself adopted in 2017, has helped to clarify the roles of the various actors involved in implementing the Government's financial policy and to make the framework more consistent with the country's development objectives. 18- The Government, under CSIDP 1, had also supervised operations to monitor the actual presence of civil servants and government employees in order to ensure the proper functioning of public services, particularly health, education and justice, while at the same time controlling the wage bill. 19- In order to boost the mobilization of domestic revenue, the Government has placed particular emphasis on the deployment of the ASYCUDA software. The Beloko customs post has been connected to ASYCUDA to secure and increase customs revenue. The Government has also established the Moungoumba customs office as a revenue service. In addition, customs staff have been relocated on a regular basis to make the customs service more dynamic and efficient, while combating customs fraud. Page 67 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) 20- The Government also attaches importance to the accountability of public enterprises and establishments. To this end and with the assistance of CSIDP 1, an external audit of the Road Maintenance Fund (RMF) accounts for the years 2008 to 2015 was conducted. The recommendations of the various audit reports were the subject of measures adopted within the framework of CSIDP 2. 21- The Government has taken steps to improve the supervision and financial management of public enterprises and establishments. DEVELOPING HUMAN CAPITAL 22- The development of human capital is one of the Government's priorities. In order to improve the living conditions of the population and protect vulnerable groups, the Government has, by decree, formalized an institutional framework dedicated to social safety nets, placed under the authority of the Prime Minister, Head of Government, with the Ministry of Humanitarian Action and National Reconciliation (MAHRN) as technical secretariat. The Social Nets Unit has designed and enabled the establishment and promotion of a national mechanism for monitoring social net programs so that program beneficiaries can derive maximum benefit from projects to reduce poverty. 23- Health and education are also among the Government's priority sectors. 24- In the area of health, the Government has made free health care available to children under five years of age, pregnant and nursing women, and victims of gender-based violence. That measure was aimed at protecting that vulnerable segment of the population that had difficulty in seeking health care. 25- With regard to the education sector, the Government – thanks to the results of the Bank's analytical study of management and planning in the education sector – is working to improve pupil/teacher and class size ratios. The construction of decent classrooms is also one of the priorities. The Government is also continuously ensuring that teachers are redeployed throughout the country and physically present in their posts. IV. PROGRESS REPORT OF THE IMPLEMENTATION OF THE MEASURES OF THE SECOND CONSOLIDATION AND SOCIAL INCLUSION DEVELOPMENT PROGRAM (CSIDP2) 26- The Government is considering, with the support of the World Bank, the introduction of new budget support under the Second Consolidation and Social Inclusion Development Program (CSIDP 2), aimed at consolidating public finance management and supporting inclusive economic recovery with particular attention to human capital (education, health, social protection). 27- The promotion of human capital, the gradual establishment of social safety nets and experimentation with the policy of free targeted care for the most vulnerable section of the population (pregnant and breastfeeding women, children under 5 years of age, women victims of gender-based violence) have also been made possible thanks in particular to this program. 28- CSIDP 2 also aims to promote good management and public accountability by encouraging the conclusion of a social contract between the Government and the population. 29- The prior actions adopted under the program were divided into two pillars, namely "CONSOLIDATING PUBLIC FINANCIAL MANAGEMENT" and "SUPPORTING INCLUSIVE ECONOMIC RECOVERY AND HUMAN CAPITAL." 30- The implementation of these measures has led to the following results. PILLAR 1: CONSOLIDATING BASIC FISCAL MANAGEMENT Page 68 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) 31- The consolidation of public finances is aimed at improving public finance management, making the budget process more transparent, improving the management of State-owned enterprises, and restoring State authority by setting up administrative offices throughout the country and providing services. o In order to create a new budgetary framework, necessary for the implementation of its financial policy, the Government in 2019 updated the General Regulation on Public Accounting (RGCP), the Statement of State Financial Operations (TOFE), the State Accounting Charter (PCE) and the State’s Budget Nomenclature (NBE), in accordance with the Directives for the Harmonized Framework for Public Finance Management in the CEMAC zone. These texts clarify the roles of the various actors involved in the implementation of the State's financial policy and provide the necessary flexibility for the conduct of the Government's fiscal policy. The evaluation carried out by the Public Finance Directorate of the CEMAC Commission, which visited Bangui from November 16 to 20, 2019 as part of the monitoring and evaluation tour of the transposition and implementation of public finance directives, shows that CAR has achieved an implementation rate of 35%. To go further, the Government intends in the medium term to broaden the scope of TOFE to include local authorities and public enterprises, to adopt the texts that will specify the responsibilities of authorizing officers and financial controllers, and to experiment with the fiscal orientation debate as from the 2021 budget process. All this to make public finance management more transparent and to facilitate Parliament's oversight work. The Government will also take into account the recommendations contained in the reports of the CEMAC evaluation mission in order to complete the process of transposing and implementing the directives of the harmonized public finance management framework. In order to improve fiscal programming and comply with the transposed CEMAC directives, the Government intends to move to the program budget as from the 2022 fiscal year. To this end, at least five pilot ministerial departments, including the Ministry of Finance, will move from a means-based budget to a program objective-based budget where performance and accountability will affect trade-offs. o Following the delegation of the commitment and sign-off of expenditures under CSIDP 1 to ten ministerial departments, the Government has extended the measure to five other ministries including Transport and Public Works. Eventually, all departments and institutions should benefit from this delegation in order to facilitate the execution of their respective budgets. The Government has also appointed financial controllers in the departments benefiting from this delegation in order to ensure compliance with the procedures for the execution of State spending. This measure has made it possible to significantly reduce the use of derogation procedures, their rate falling from 37% in 2018 to less than 10% in 2019 with the objective of containing it to around 5%. In the short term, the Government intends to deploy a new integrated public finance management software, Sim_Ba, to facilitate the preparation and execution of the State budget and also to enable regular financial reporting to parliament and taxpayers. In the medium term, the Government plans to deconcentrate in the sectoral departments benefiting from the delegation of the authorizing officer function and the mechanism necessary for the execution of their budget, in place of the platform currently set up Page 69 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) within the General Budget Directorate, and to fully delegate the power of commitment, sign-off and authorization of expenditure to the ministries and institutions of the Republic. o In order to ensure that the funds related to COVID-19 in the 2020 budget law are spent in a transparent and accountable manner, the government has set up, by decree, the mechanism for monitoring the funds that will be mobilized to combat the spread of this pandemic. Under the terms of this decree, a multisectoral committee with the main task of monitoring the use of all resources devoted to the fight against the spread of COVID-19 is created. The decree has provided for mechanisms for the accountability and auditing of the funds earmarked to combat covid-19. o In this context, the Committee will ensure the traceability of budgetary, accounting and financial operations relating to COVID-19. It will also ensure accounting and financial reporting actions with a view to reporting, in a transparent, sincere and accurate manner, on the implementation of expenditure relating to VIDOC-19. This process thus involves the intervention of all the actors concerned by the COVID-19 funds, including technical and financial partners, the Ministry of Finance and Budget, the Ministry of Public Health and Population as well as other sectoral departments, control bodies, civil society, etc. o In order to improve debt management, the Government prepared and published the 2018 Debt Report in July 2019. The Government is committed to publishing the 2019 debt report by the end of August 2020. In order to make the government debt report more comprehensive, the Government plans to expand the scope of the data to include debt statistics of state-owned enterprises and local authorities. This will allow a better analysis of the sustainability of public debt and minimize the risk of over-indebtedness of the State. In addition, the Government, with TA from the World Bank and the IMF, intends to develop its debt management strategy and continue to build the capacity of the Debt and Equity Department. o In addition, the Central African Republic has been selected as a pilot country for the World Bank's new Sustainable Development Finance Policy (SDFP). This new Sustainable Development Finance Policy is a unique opportunity to strengthen debt management and transparency. To this end, the Government has undertaken to implement two performance policy measures which are : (i) prepare and publish the annual central government debt report for 2020 on the Ministry of Finance's web page (www.finances-budget.cf), including statistics on outstanding amounts (composition of the debt, maturity profile, distribution of currencies and holders) and flows (future payments of principal and interest), with sufficiently detailed information on the maturity profile (broken down by principal and interest) per year. The report for 2020 will be published before the end of the first quarter of 2021; (i) undertake audits of the three largest public enterprises operating in the energy, telecommunications and water sectors (ENERCA, SODECA, SOCATEL, etc.) in order to assess their financial sustainability, reduce contingent liabilities related to their debt and clarify the status of unaudited domestic arrears. o As part of its policy of restoring State authority, the Government has published a map on the website of the Ministry in charge of Finance (www.finances-budget.cf) – by function, department and location – of civil servants and State employees (FAE) based on the November 2019 report. This information has been shared with all State agencies at both central and regional level to help them improve the management of their human resources. On the basis of this map, the Government undertook two missions to monitor physical presence in 2019. The findings of these Page 70 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) missions showed that out of the nearly 14,300 agents checked, 12,208 were present at their posts versus 2,091 absent, which corresponds to an attendance rate of over 85%. The Government now intends to organize regular unannounced checks of government staff to deter unscrupulous agents from being absent from their posts and undertakes to ensure that at least 80% of civil servants and public officials are present at their posts. The Government will take the necessary disciplinary action against all agents whose absence from duty are unjustified. o Also, in order to enable the agents posted in the provinces to have their salaries and wages at their disposal and to remain at their duty stations, the Government has initiated a pilot project for the mobile payment of salaries in 9 (nine) cities to volunteers in the Ministries of Health, Education and the Armed Forces. The success of this pilot scheme has enabled the Government to consider extending this service to any staff who wish to do so, in localities where commercial banks are not present. The Government attaches importance to the implementation of the recommendations of the GIRAFFE audit and intends in the medium term to develop an integrated HR management system to better monitor government agency staff. In addition, the Government will provide the National Information Technology Office (ONI) with the necessary resources to develop automated pension management software. This will make it easier to monitor retirements and, above all, prevent the accumulation of pension arrears or backlogs. Furthermore, in addition to mobile payment of salaries, the Government has adopted an inter- ministerial decree in connection with its digitization program, regulating the procedures for the electronic filing of tax returns and the electronic payment of taxes. The Government plans to launch the electronic filing and electronic payment process with the 50 biggest taxpayers, who account for more than 80% of the revenue collected by the General Tax Directorate. To this end, an awareness-raising campaign was conducted by the Ministry of Finance at the end of last year to gain the support of the public targeted by this ambitious reform. o By Instruction of the Minister in charge of Finance dated August 26, 2019, the Government formalized the use of ASYCUDA as the sole mechanism for the payment of all customs duties and taxes, including petroleum products, in order to improve revenue mobilization. Since then, there has been a marked improvement in the revenue collected on petroleum products, which increased from 16.8 billion CFA francs in 2017, the year before the Instruction came into force, to 19.7 billion and 21.4 billion CFA francs in 2018 and 2019, respectively. In addition, the Government has put in place an ambitious program to computerize all customs offices and posts with the necessary infrastructure to secure revenue as well as reduce the risk of fraud. Currently, three customs offices are being equipped with ASYCUDA. In the medium term, the Government's ambition is to equip the Central African Customs with ASYCUDA World, which is easier to deploy and offers more functionality. o In order to improve the financial management of the Road Maintenance Fund (RMF) and to ensure that maintenance activities are carried out in such a way as to take into account the effects of climate change, the Government adopted by inter-ministerial order of the Minister of Transport and the Minister in charge of Finance, the RMF's Control and Internal Audit Manuals. The Government has undertaken to ensure that the manuals are used regularly and that, by the end of 2021, four internal audits of the RMF are carried out and their conclusions and recommendations are followed up. Page 71 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) o On 13 January 2020, the Parliament adopted the law No. 20.004 on the organization of the institutional, legal and financial framework applicable to public enterprises and establishments that was promulgated by the President of the Republic. A committee has been set up to prepare the implementing texts (decrees and/or orders) in collaboration with all TFPs involved in this reform, including the Bank. The aim of this Law is, in particular, to ensure better supervision of these institutions so that they fully perform the tasks assigned to them and are accountable for the management of the public funds entrusted to them for this purpose. As part of the popularization campaign of this Law and in order to enable its appropriation by the main actors, a workshop for the Members of the Boards of Directors, General Managers, Administrative and Financial Directors as well as Representatives of the Ministry of Finance and TFPs was held on January 31, 2020. This workshop made it possible to raise awareness among managers of public institutions of their responsibilities and also to lay the groundwork for better collaboration with financial administrations on governance issues and financial accountability reporting. PILLAR 2: SUPPORTING AN INCLUSIVE ECONOMIC RECOVERY o The Prime Minister issued an Order dated February 14, 2020 to encourage national and international actors involved in the management of humanitarian or social assistance programs to use the harmonized questionnaire to collect data and information on all activities developed in the framework of social safety nets for poor and vulnerable households. This harmonized questionnaire will be managed by the Inter-Ministerial Unit for Social Nets set up under CSIDP 1. To strengthen this action and demonstrate the Government's willingness to combat the precariousness of the population, an allocation of 550 million CFA francs is being made in the 2020 budget for a cash transfer program in favor of 3,200 households resident in the city of Berberati who are vulnerable to climate change. The cash transfers, which are intended primarily for poor and vulnerable people, particularly women, should make it possible to increase the resilience of recipient households to climate change. Two transfers were made using mobile money. The Government plans to use this experience with mobile cash for other programs, such as cash transfers to poor people who have been affected by the COVID-19 pandemic. Several measures are associated with this program, including educating beneficiary households on how to cope with climate change. Through this cash transfer program, the Government intends to close the gender gap in poverty and access to basic services. o As part of the policy of targeted free health care for children under 5 years of age, pregnant and nursing women and women victims of gender-based violence (GBV), introduced by the decree of February 15, 2019, the Government has earmarked 1 billion CFA francs in the State budget for 2020. This budget line will be used to provide health care in other Districts (Bocaranga, Nangha Boguila, Batangafo, Bouca, Bossembélé, Mbaïki, Ngaoundaye) not covered by the World Bank's SENI project and funding from other development partners. More than 150,000 new children will be able to benefit from free health care from the year 2020. The government intends to eventually extend this policy to all of the country's Health Districts in order to ensure equitable access to eligible care within the framework of targeted free health care. o In 2019, the Government carried out a decentralized program to hire 150 student-teachers in all the country's academic inspectorates, 47 of whom were women. These student-teachers have Page 72 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) already started their academic year at the National School of Teachers, the only training institution in the country, and will receive two years’ training. A five-year commitment was signed by each student-teacher requiring them on graduation to work for the Government for at least five years, or else repay all their training costs. The Government will take all necessary measures to facilitate the integration into the civil service of trained teachers within the limits of its financial constraints and will need the support of all partners in the Central African education system. o Also, as part of its policy to promote gender equality, the Government will continue to promote female candidates for teaching jobs in order to reduce the gender gap among teachers and, at the same time, help to reduce the gap in school enrollments and completion rates between girls and boys. In the medium term, the Government intends to equip all the eight academic inspectorates in the country with a training institution for teachers. 32- The Government continues to pursue the policy of transparency supported by previous reform programs by systematically publishing on the website of the Ministry of Finance (www.finances- budget.cf) all finance laws and acts relating to the awarding of public contracts, reports on the execution of State expenditure, and all other laws and regulatory acts of the Government. V. INSTITUTIONAL FRAMEWORK FOR IMPLEMENTING THE PROGRAM 33- Coordination of the monitoring of the implementation of all economic and financial reforms agreed with the TFPs is ensured by the Unit in charge of Monitoring Economic and Financial Reforms (CS- REF), a structure attached to the office of the Minister of Finance and Budget. 34- The CS-REF is headed by a Coordinator assisted by a Deputy Coordinator and comprises five Experts, two Research Officers and support staff. 35- Last but not least, the encouraging economic and financial developments recorded in recent years have been made possible thanks to the multifaceted support of the Bank and other TFPs in CAR. The public finance reforms carried out by the Government in recent years are aimed at creating a new budgetary framework for better understandability and focus on performance. The obligation to achieve results and accountability (production of the State's general accounts, management accounts, and compliance with the financial settlements Law (Loi de règlement)) are the objectives of the reforms supported by the CSIDP. The Government is keen to ensure that this exemplary and sincere partnership can continue and intensify. In order to finally emerge from its fragile situation and get on with establishing sustainable bases for socio-economic development, the Government is counting on the global and even sectoral support of all the TFPs in accordance with its priorities defined in the RCPCA. /- Minister of Finance and Budget Prime Minister, Head of Government Henri-Marie Dondra Firmin NGREBADA Page 73 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) Page 74 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) Page 75 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) Page 76 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) Page 77 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) Page 78 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) Page 79 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) Page 80 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) Page 81 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) Page 82 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) Page 83 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) Page 84 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) ANNEX 5: ENVIRONMENT AND POVERTY/SOCIAL ANALYSIS TABLE Significant positive or negative Significant poverty, social or distributional effects Prior Actions environment effects positive or negative Pillar 1: Consolidate Basic Fiscal Management rior Action 1: No. Prior Action 1 is expected to No. No adverse poverty or distributional effects have no adverse impact on the are expected. Overall, the PFM reforms have the environment; rather, the reforms potential for positive indirect poverty, social are expected to improve basic fiscal and/or distributional impacts, but this will management and transparency, and ultimately depend on final budget allocations. In ultimately lead to an improved the medium term, Prior Action 1 will allow for capacity to manage policy better management of public financial resources, formulation and implementation which will potentially result in efficiency and including concerning the effectiveness gains, allowing the Government to environment, climate and disaster increase its fiscal space for critical service risk management. delivery. Prior Action 2: No. Prior Action 2 is expected to No. No adverse poverty or distributional effects have no adverse impact on the are expected. Overall, the PFM reforms have the environment; rather, the reforms potential for positive indirect poverty, social are expected to improve basic fiscal and/or distributional impacts, but this will management and transparency and ultimately depend on final budget allocations. ultimately lead to an improved Prior Action 2 will allow for a reduction in capacity to manage policy exceptional expenditure procedures and, formulation and implementation potentially, increase the budget execution rate, including concerning the which will contribute to accelerating the environment, climate and disaster implementation of the overall Budget Law, risk management. contributing to an increase in spending on poverty reduction, economic and social development. Page 85 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) Prior Action 3: No. Prior Action 3 is expected to No. No adverse poverty or distributional effects have no adverse impact on the are expected. environment. Prior Action 4: In order to improve No. Prior Action 4 is expected to Yes. Prior action 4 will promote transparency of planning and control of human have no adverse impact on the HRM and improved control of the presence of civil resources as well as contribute to environment. servants. This is expected to improve their actual increased State presence, the presence, which is expected to have a positive Recipient’s ministry of finance and impact on service delivery, in particular in areas budget has: (i) published online a outside of Bangui, where poverty incidence tends cartography for agents and civil to be higher. This can help reduce the regional servants for each public agency inequalities in access to basic services (e.g., and/or ministry, by grade, function, education, health). This in return is expected to department and location; (ii) have a positive impact on poverty reduction, undertaken a physical presence inclusion, and economic and social development control exercise of agents and civil servants in selected areas in CAR; and (iii) regulated the electronic declaration and settlement of State’s receipts and disbursements, including agents and civil servants salaries, taxes and custom duties, through Inter-ministerial Decision 0285/MFB/2020 dated January 31, 2020 . Prior Action 5: No. Prior Action 5 is expected to No. No adverse poverty or distributional effects are have no adverse impact on the expected. In the future, Prior action 5 could lead to environment. an increase in revenues and contribute to reducing the level of the domestic primary deficit. Increased revenues are likely to contribute to an increase in the provision of public goods and services to the most vulnerable in multiple sectors, including health, education, and social protection. This, in turn, is expected to have a positive impact on poverty reduction, economic and social development as well as inclusiveness. Prior Action 6: In order to improve No. The strengthening of the Yes. Prior Action 6 is expected to have an indirect the management of the Recipient’s governance and oversight of the positive social and poverty impact. This policy road maintenance fund, the RMF is not expected to have any action will potentially contribute to increased Page 86 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) Recipient has adopted the internal adverse impact on the environment. allocations to the RMF and improved budget control manual for said fund, though The internal control manual of the execution. Improving the management of the RMF Inter-ministerial Decree RMF will provide guidance on how has the potential to help improve connectivity, 045/2020/MTPER/MFB dated March its internal control framework which would contribute to reducing regional 27, 2020. ensures that maintenance activities disparities and improving access to markets, are carried out in a manner that thereby having a positive indirect poverty, social takes into account the effects of and/or distributional impacts. climate change. The regular use of the manual will contribute to ensuring that road maintenance is performed in a way that builds the climate resilience of the road network of CAR. Prior Action 7: In order to put in No. The strengthening of oversight No. No adverse poverty or distributional effects are place in accordance with and financial management of SOEs expected. international best practice, rules of and Entities is not expected to have establishment, governance and any adverse impact on the oversight of state-owned environment. enterprises (SOEs), the Recipient has enacted SOE Law Number 20.004 dated January 13, 2020, establishing the institutional, legal and financial framework of SOEs in CAR. Pillar 2: Supporting an Inclusive Economic Recovery Prior Action 8: No. The measure is not expected to Yes. have an adverse impact on the environment. The measure is an important step to improve the organization of the social protection sector. Social protection, in the form of social safety nets (mostly labor-intensive public works and cash transfers), is very important to provide the poorest segments of the population with opportunities for work and revenues. Better organizing the sector is expected to, in the medium term, lay the foundations for increasing access to social protection for the poor and vulnerable across the country and improving the efficiency of social safety nets. Support to cash transfers for 3200 poor and vulnerable households, or close to 27,000 beneficiaries is expected to have a positive effect on poverty reduction. With an estimated national poverty rate of 70 percent, it is highly likely that most beneficiaries of these improved public services would be among the poor. The cash transfer payment represents 6 to 10 percent of the extreme poverty line for a household of three to five members on average. The social protection reform promotes also gender equity, as 75 percent Page 87 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) of the beneficiaries are women. Prior Action 9: Prior Action 10: No. The measure is not expected to Yes. Improved teacher recruitment and have an adverse impact on the deployment at the local level are critical to environment. ensure improved access to education services to some of the most vulnerable parts of the population. This prior action will increase access to education in a country where there are about 319,000 students out-of-school. In addition, households who were previously paying for teachers will no longer be burdened by fees, as the newly recruited and trained teachers will be funded by the government. Page 88 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) ANNEX 6: LESSONS LEARNT 1. Importance of identifying priorities that are likely to have visible impacts for the population. As emphasized by the 2016 Recovery and Peace Building Assessment, projects in fragile and conflict settings (FCS) must focus on identifying the most urgent priorities and those with tangible impacts for the population, which may have lost trust in the government. Accordingly, the proposed operation will target critical reform areas where there is the greatest immediate potential for restoring trust in government institutions. The 2016 CAR Fragility Assessment also noted that it is essential to address regional imbalances, which create grievances and limit the opportunities to build national and social cohesion. This objective includes the need to address the marginalization of the North East, and more broadly the imbalance between Bangui and the rest of the country in terms of access to services, security, and economic opportunities. To this end, the proposed operation focuses on PFM reforms to increase the capacity of the state to deliver services to the population, as well as on concrete activities, such as cash transfers and free healthcare, which have immediate effects to the population. 2. The policy agenda should be integrated with the investment program, as well as the analytical work. This operation is highly complementary to ongoing and planned investment operations that support PFM reforms, human capital, health and education services and social safety net programs. The operation is also informed by analytical work in all of the intervention areas. This approach has ensured synergies between the different operations and that the reforms supported by the operation will benefit from TA from the World Bank and other development partners. This is line with findings of the Independent Evaluation Group (IEG) that capacity building is critical to the sustainability of public service delivery in FCV setting. 3. Focused reforms with a straightforward design underpinned by government commitment. As emphasized by IEG, in FCS it is important to take into account the capacity constraints and go for a pragmatic, focused and clear project design, which accounts for the fragility of the environment and the weak country systems. This implies making realistic estimations of the results and risks from the outset. It is also essential that support be provided to areas where the government has demonstrated commitment. The proposed operation will focus on a set of clearly defined reforms to which the Government of CAR has expressed continuous commitment. 4. The 2016 Country Portfolio Performance Review (CPPR) proposes to harmonize institutional arrangements by reducing the number of delivery mechanisms, which are numerous in CAR. 71 Accordingly, the CPPR advised that institutional arrangements should be harmonized into one mechanism that comprises one fiduciary agency and the various technical units that are housed in the relevant ministries. Furthermore, the CPPR recommended a comprehensive monitoring and evaluation (M&E) system in order to document the broader impact of development. Drawing on these lessons, the program will be managed solely by the Cellule Chargée du Suivi des Réformes Economique et Financières (CS-REF), which will ensure an active dialogue with and participation from the related line ministries. In addition to assuming the overall coordination and implementation, the CS-REF will also be responsible for the M&E of the Program. 71These include “classic” Project Implementation Units (PIU) (e.g. health system support projects), PIUs anchored within Ministries (e.g. PURSeP and CEMAC transport projects), and PIUs with delegated project management agreements (e.g. Energy, Emergency Urban Infrastructure Support and LONDO projects). Page 89 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) 5. Previous experience in FCS suggests that close donor coordination and alignment to government development objectives is extremely important for the success of reforms, as cohesion among donors helps to maintain focus on the implementation of key reforms. In addition, the CAR Fragility Assessment notes that donors should apply the “do no harm” principle in CAR, which means first and foremost engaging for years – if not decades – and avoiding a “stop-and-go” aid flow. Drawing on this lesson, ongoing support provided by other partners—particularly the IMF, AfDB, EU and AFD—has been considered and reflected in the program design, to maximize synergies and complementarities of the programs. Moreover, in addition to building partnerships, the RCPCA process will also contribute to the smoothing of aid cycles, improvement of donor coordination, a strategically contribute to addressing risks linked to security, political capture, and institutional capacity. 6. The most recent IEG Retrospective of World Bank DPOs suggests that M&E has been a challenge with many World Bank DPOs. In particular, creating a set of relevant indicators in many cases is hampered by weaknesses in country data, while arrangements to generate or collect data specifically for the M&E framework of DPOs may not always work. To remedy this issue, the proposed operation has worked with the Government to strategically select indicators for which data currently exists, and no major issues with its collection can be expected. Page 90 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) ANNEX 7: CLIMATE CO-BENEFITS 1. Climate Co-Benefits are the financial resources committed by the World Bank to development operations, which deliver positive benefits associated with the reduction of greenhouse gas (GHG) emissions (climate change mitigation) and/or enable project/program beneficiaries to adapt to impacts of climate change (climate change adaptation). 2. The following provides an analysis of the Prior Actions proposed under the CAR CSIDP in terms of: a) Vulnerability Context: current and anticipated impacts of climate change on the DPO’s location, sector, and beneficiaries. b) Intent to address vulnerability: a clear statement outlining the DPO’s intent to address the impacts of climate change in CAR. c) Link to Prior Actions (PAs): specification of how the activities undertaken in indicated PAs will address the impacts of climate change outlined in the DPO’s climate change vulnerability context. a) Vulnerability Context: 3. CAR is particularly exposed to climate change, which affects 75 percent of the population.72 The country is highly vulnerable to extreme climate hazards, primarily drought and floods. CAR has three climatic zones: tropical climate in the equatorial forest of the south; inter-tropical climate in the centre; and arid, sub-Sahelian climate in the north. Prolonged droughts, mainly in the north, as well as excessive rains in the rest of the country, impact agriculture, food security, public health, sanitation, and livestock. Rapid urbanization and inadequate land-management practices, with rising concentration of settlements in hazard-prone areas, have heightened CAR’s vulnerability to the effects of climate change. CAR already faces an increased vulnerability to climate change due to its status as a low-income country with low adaptive capacity, but this vulnerability is exacerbated by recent civil conflicts and on-going insecurity in parts of the country. Today, CAR is the 15th most vulnerable country and the 3rd least ready country in the world to act on climate change and natural disasters.73 In CAR, climate change is expected to (a) increase mean annual temperatures by 1.25-2.75 degrees Celsius by 2080 which will cause frequent and extended periods of heavy rains raising the risks of flooding, extreme weather conditions, and seasonal variations74; (b) make rainfalls more erratic; and (c) increase the occurrence of storms, floods, and droughts. Localized droughts and destructive storms are expected to pose an increasing threat to agriculture and transport infrastructure. Floods will be a recurring and devastating natural disaster and are responsible for the largest share of economic and human losses as a result of natural disasters in CAR.75 4. An increase in flooding will have serious implications for agriculture, food security, infrastructure and trade pathways, drinking water supply and irrigation, energy production potential and public health and healthcare. Since the majority of CAR’s population is made up of the rural poor, who are dependent on subsistence, rain-fed agriculture as a source of livelihood, the rural population would be most negatively affected by climate change. Agriculture and food security are identified as the 72 CAR Intended Nationally Determined Contribution Report (INDC). 73 Notre Dame Global Adaptation Index, https://gain.nd.edu/our-work/country-index/ 74 Source: http://documents.worldbank.org/curated/en/400841468012313387/pdf/700500ESW0P1130mental0Analysis00Eng.pdf 75 See World Bank Climate Change Knowledge Portal. Page 91 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) sectors most vulnerable to climate change. Eighty one percent of women are employed in agriculture, compared to 67 percent of men. Over 80 percent of women live below the poverty line, compared to 69 percent for men. A study on the perception of climate change impacts in CAR indicates that the effects of climate change are already evident to respondents, who reported changes in the agricultural calendar, including a much wider variation in the timing of rains and the length of the dry season, which would lead to a drop in productivity. Respondents also said that streams were drying up earlier in the dry season, which means that people have to go further to get water. This primarily affects women and children and has a negative effect on home life.76 CAR’s stated vision to address the effects of climate change, according to its INDC, is “To become, between now and 2030, an emerging country built upon an economy that is diversified, sustainable and uniformly shared throughout the national territory, a modern state open to the world and committed to an ethic and to technological innovation.”77 5. For example, in April 2015, continuous storms resulted in extensive flooding, destruction of houses, and loss of household belongings in several districts of Berbérati- the city in which the program supports a government-funded cash transfer program, affecting 210 households (1,109 people) destroying 199 houses. In 2019, widespread floods occurred in several parts of the country, leading to displacement and damage. According to the latest report of International Organisation for Migration and the UN, heavy floods at the end of October 2019 in Bangui, which is only 500km away from Berberati, and along the Ubangi River up to the Bangassou area, affected some 97,000 people and displaced more than 20,000 people. Significant material damage to buildings and key infrastructure are affecting the population, already suffering from violence and poverty. The floods caused the total or partial destruction of more than 10,000 houses, the overflowing of more than 1,000 wells and 1,500 latrines and the flooding of fields in rural areas, which had an impact on protection and food security. 6. Climate change will continue to increase pressure on health, education, and social protection service delivery systems. Its impacts on the population of CAR will be distributed unequally, with the poor, women and children, and those living in vulnerable geographic areas at higher risk. This will require policies to: (i) strengthen service delivery systems and their role in adaptation; (ii) increase safety nets to protect vulnerable populations; and (iii) reduce gender inequalities that can be exacerbated by climate changes’ impacts- all of which are addressed through policy reforms supported by the CSIDP 2. b) Intent to address vulnerability 7. As stated in its Letter of Development Policy, the Government is implementing the reforms supported by the Program with the intention to mitigate the negative effects of climate change to which CAR is highly vulnerable. Several prior actions supported by the operation are designed with the specific intent to address climate vulnerabilities and increase the resilience of vulnerable and poor people to the negative effects of climate change. c) Link to prior actions 8. The table below shows how four of the Program’s prior actions will address the impacts of climate change. 76 H. Carolyn Peach Brown, Barry Smit, Olufunso A. Somorin, Denis J. Sonwa & Félix Ngana (2013) Institutional perceptions, adaptive capacity and climate change response in a post-conflict country: a case study from Central African Republic, Climate and Development, 5:3, 206-216, DOI: 10.1080/17565529.2013.812954 77 NDC, 2015. Page 92 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) PA 6 (Internal control of Road maintenance Fund): Context and link between policy reforms and climate vulnerability Context. The road network of CAR is the backbone of the transport system, but it is underdeveloped and in poor condition. Even though roads account for 90 percent of total transportation, road network density is low at only 1.5 km per 100 km2 (compared to an average for SSA of 15 km per 100 km2). The main road network in CAR is 24,137 km, only 855 km of which are paved, and mostly in poor condition.78 The rural road network is about 15,000 km but it has received little maintenance over the past two decades, and, as a result, only 16 percent of the rural road network is classified as being in ‘good or fair’ condition. Much of the country is beyond the reach of the road network, limiting access to rural areas, markets and basic services. Last, without maintenance, roads in CAR deteriorate quickly, since they are made of compacted dirt and one rainy season is sufficient to make even the best road impassable. The RMF (Fonds d’Entretien Routier, FER) is in charge of financing road maintenance in CAR. It was created in 1981 and is one of six public funds regulated by the law on SOEs and parastatals (see below). The RMF is financed from fuel taxes and road tolls, but these are far from sufficient to finance the maintenance and operations of the road sector - its resources cover only about 5 percent of the maintenance requirements. Climate vulnerability. A changing climate reinforces and increases the returns to optimal maintenance. Ensuring adequate road maintenance has been identified as a critical and effective building block for creating a system of resilience to the impact of climate change. In CAR, roads are vulnerable to climate stressors such as increased temperature, precipitation, and flooding. In particular, roads in CAR typically fail due to water ingress into the road pavement caused by climate change induced floods, which are expected to increase in the future. The effects of climate change are likely to lead to higher maintenance and rehabilitation costs, shortened road rehabilitation lifecycle, and large increases in the disruption time of the network. Many roads are impassable during the rainy season. For instance, in 2016 half of the districts reported that roads to Bangui are only accessible for some months of the year with 50 percent reporting that roads are inaccessible four to six months of the year. Policy reform. Considering the importance of road maintenance for the recovery of the CAR’s economy through improved connectivity, trade and mobility of people and goods, the proposed Program will contribute to strengthening the governance and the functioning of the RMF. The Program will improve the financial management and oversight of the RMF by supporting the adoption of its internal control manual.79 In view of the important effects of climate change on road maintenance, the manual provides guidance on how the RMF's internal control framework ensures that maintenance activities are carried out in a manner that takes into account the effects of climate change. The regular use of the manual will contribute to ensuring that road maintenance is performed in a way that builds the climate resilience of the road network of CAR. PA 8 (Government-funded cash transfer program to poor and vulnerable beneficiaries and use of harmonized questionnaire for collection of data on social assistance programs): Context and link between policy reforms and climate vulnerability Context and climate vulnerability. CAR’s long history of fragility and conflict has kept its population vulnerable and in extreme poverty. With nearly 3.4 million people (71 percent of the population) living in extreme poverty, CAR remains one of the poorest countries in the world. Decades of conflict and instability have repeatedly displaced communities in CAR, but the 2013 crisis caused a massive spike in displacement, which still persists- about 25 percent of the population is displaced. Nearly half of the population requires humanitarian assistance. Displacements are also caused by climate-induced disasters- for example, 20,691 people were displaced in Bangui as a result of widespread flooding that occurred in October 2019 and was declared a national 78 See CAR policy notes (P157806; 2016) 79 Internal control is a process for assuring of an organization's objectives in operational effectiveness and efficiency, reliable financial reporting, and compliance with laws, regulations and policies. Internal control involves everything that controls risks to an organization. Page 93 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) emergency. Annually around 8,500 people are expected to be displaced due to floods 80. Nationwide food insecurity, which affects a significant proportion of the population, is further exacerbated by the effects of climate change. As a result, CAR has one of the highest rates of malnutrition in the world at between 48 and 53 percent.81 Policy reform. The proposed Program supports the implementation of the Government’s first social safety net program and the collection of data on social assistance and humanitarian programs. First, to address the lack of Government financing of social protection, CSIDP 2 will support the implementation of cash transfer program to poor and vulnerable people- either refugees, displaced people or host families- a substantial share of whom are female and displaced. This is CAR’s first government funded unconditional cash transfer program, which will target 3200 poor households. The cash-transfer program aims to help close the gender poverty gap and improve the adaptive capacity of beneficiaries to climate change. Given that poverty is higher among women, the program is targeting more women than men- 75 percent of the program’s 26,992 beneficiaries are women. Beneficiaries will receive CFAF 25,000 per household per quarter over a period of 24 months. This is consistent with international practice for cash transfer programs and the same amount is transferred through the PACAD program. The program will be implemented in the city of Berberati which was specifically selected because: (i) it has been particularly affected by the displacement of population in the aftermath of the 2013 crisis; and (ii) it has been severely impacted by climate change through floods and erosion which have destroyed crops and homes. The transfers will provide incremental income to help mitigate poverty and climate-induced vulnerability, such as food insecurity. The cash transfer program will build households’ res ilience to climate change-related events through increased food consumption and investments in assets, such as improved housing, health, and education. The program targeting mechanism favors households whose housing is more vulnerable to climate change induced events, by giving more weight to households whose house walls and roofs are made out of straw. In addition, next to the cash transfers, the Government will implement accompanying measures for the communities aimed at building social cohesion and capacity building for the beneficiaries aimed at the efficient utilization of the funds, including on how to better prepare for climate-induced shocks, such as floods. Finally, Second, in order to address the lack of data on social assistance programs, the proposed Program supports the CIFS to collect data on programs through a harmonized questionnaire. The questionnaire will collect basic information on social assistance and humanitarian programs, including whether they operate in an area vulnerable to climate risks and whether the program includes measures to address climate change. This will allow data to be aggregated, analyzed, and used for policymaking and monitoring. The questionnaire is accompanied by a user guide that explains how data is to be entered, stored, and analyzed. PA 9 (Budget line for targeted free health care): Context and link between policy reforms and climate vulnerability Context. Most of CAR’s population does not have access to quality healthcare services. The health system suffers from a range of fundamental deficits, from a lack of access to essential medicines to shortages of skilled health workers, to poor service delivery and weak sector governance. Only around 55 percent of health facilities are functional; only 25 percent have an energy source, and only 21 percent have drinkable water. Attention to maternal, child, and reproductive health and support to survivors of GBV remains especially urgent, as CAR’s indicators in these areas are among the worst in the world- infant mortality remains amongst the highest in SSA 80 Internal Displacement Monitoring Center (https://www.internal-displacement.org/countries/central-african-republic). 81 CAR Policy note- Social Protection. World Bank, 2016. Page 94 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) and is estimated at 84.5 deaths per 1000 live births in 2018. Climate vulnerability. Both the direct and indirect impacts of climate change on health will also impact the delivery of healthcare, especially to the most vulnerable population- women and children. The direct impacts of climate change on health, namely increases in mortality and morbidity, changes in disease prevalence and patterns, increases in thermal stress, skin cancer, eye diseases, and cardio-respiratory diseases, allergic disorders- as well as the indirect effects- food and water availability and quality, malnutrition, famine, increases in water-borne diseases, vector-borne diseases, etc.- put a strain on the already very weak capacities of CAR’s health system to deal with the increase in diseases. CAR is also vulnerable to many diseases which thrive during the dry season (typhoid, respiratory infections, acute meningitis, diarrhea, malaria). CAR lies within the Meningitis Belt, with a high likelihood of annual outbreaks during the dry season, and scarce water supplies and poor water quality enhance the likelihood of these diseases. More erratic rainfall may also increase malaria breeding sites and transmission. Vaccination programs, widespread drug distribution, public awareness campaigns, access to safe water supplies, and improved sanitation will be imperative to reduce vulnerability.82 In addition, the delivery of medical services can be disrupted by climate-induced events, such as floods (through e.g., limiting the access to health facilities, destroying scarce medical equipment, preventing health staff from accessing their posts, etc.). Policy reform. CSIDP 2 supports the introduction of a new dedicated budget line in the 2020 Finance Law, with funds for targeted free healthcare for 177 health facilities in seven districts with a total population of around 960,000 people, the majority of whom are climate-vulnerable, especially the targeted beneficiaries (women and children. The districts are: Bocaranga, Nangha Boguila, Batangafo, Bouca, Bosembele (Bassembele), Mbaiki and Ngaoundaye. These districts are predominantly rural and are home to around one quarter of CAR’s population, 75 percent of which is considered climate-vulnerable and 71 percent of which is poor. Women, children under 5 and GBV victims are particularly vulnerable to climate change, as their incomes depend on subsistence agriculture, which is heavily affected by climate change. The CFAF 1 billion represents 0.38 percent from the overall 2020 budget. In addition, the Government has developed a costed plan for using the funds in a way that ensures equitable allocation of the resources and their efficient and transparent use. The easing of the burden of fees for through targeted free health care can be viewed as a de facto cash transfers to the households and women who will no longer have to pay for healthcare. This will increase their disposable income, which will reduce their food insecurity driven by climate change. PA 10 (Decentralized recruitment and deployment of teachers): Context and link between policy reforms and climate vulnerability Context. CAR’s education system faces a deep access crisis, with girls being the most disadvantaged group. Access to the primary school is low- almost a third of children of primary school age (6-11 years) are out of school (28.7 percent or 239,000 children). During the 2018-2019 academic year, 378 primary schools remained non-functional, as a direct consequence of the armed conflicts and insecurity. The incidence of being out of school tends to be higher among children from economically disadvantaged households, rural areas, and girls. In 2018-2019, there were just under 8 girls for 10 boys enrolled at the primary level and around 6 girls for 10 boys enrolled in the secondary level. Overall, the impact of the crisis has reduced enrollment for girls by about 17 percent versus 15 percent for boys. One of the factors contributing to the low access to education is the State’s limited capacity to provide teachers across the country’s territory, leaving a heavy burden on communities to hire and pay teachers to fill the gap. Due to the underfunding of the sector, around half of the schools do not have any government‐paid teachers. The shortage of teachers is acute, mostly in poor and remote areas, where households overcome the situation by recruiting community teachers. The State has limited capacity to provide teachers throughout the country and the shortage of teachers is acute, mostly in poor and remote areas. Households overcome the situation by recruiting community teachers, most 82 https://climateknowledgeportal.worldbank.org/country/central-african-republic/vulnerability Page 95 The World Bank Second Consolidation and Social Inclusion Development Program (P168474) of whom lack qualifications and work in precarious conditions (little and irregular salary payments, insufficient pedagogical support from school principals and academic inspectors). Community teachers account for 63 percent of the primary level public teaching force, and 68 percent are outside Bangui. One of the key reasons for having more community teachers outside Bangui is that teachers are recruited and managed centrally and, once deployed, do not stay within their original posting at the local level. Furthermore, due to lack of resources, the Government also has a limited capacity to recruit massively, train, and deploy qualified teachers. This has resulted in a high student/teacher ratio at the primary level: 91/1, as opposed to only 38/1 for SSA. Moreover, given that the payment of teachers’ salaries is made through the banking system, which is limited mainly to Bangui, teachers are often absent from schools and travel far to collect their salaries. Climate vulnerability. Education is a potent factor for reducing climate vulnerability, acting through direct and indirect mechanisms. These include higher risk perception and disaster preparedness, and the ability to employ nondeteriorating coping strategies, mitigate loss, and recover from shocks (Muttarak, R. and W. Lutz. 2014. Is education a key to reducing vulnerability to natural disasters and hence unavoidable climate change? Ecology and Society 19(1): 42.). Therefore, people who have received more education- general or climate-related- are better prepared to deal with climate shocks and are less vulnerable. Policy reform. local level, the proposed Program supports critical reform efforts in teachers’ recruitment and deployment policy, which will increase government-funded service delivery. CSIDP 2 supports the introduction of decentralized recruitment of teachers, requiring that teachers are recruited and managed at the Academic Inspection level. Consequently, the test to enter the National School for Teachers will be organized at the Academic Inspection level, which is the level that is closest to the schools and contributes the most to increasing school performance. The results of this policy reform will be reinforced by the measure related to mobile payments of salaries, which will enable teachers recruited and deployed locally to receive their salaries on their mobile phones. Furthermore, the retention of teachers will benefit from the policy reform related to strengthened controls of ACS posts and physical presence checks. Combined, these measures will further decrease absenteeism and enhance service delivery to the poor and vulnerable. The role of schools and teachers in national climate adaptation efforts is very important, especially outside of Bangui where most of the vulnerable and poor people reside. In the case of a climate-induced natural disaster such as a flood, if teachers are present and trained, they can ensure an adequate response which would minimize the negative effects of the disaster on children. However, currently, there is a rampant lack of qualified teachers in classrooms, especially outside of the capital in areas that coincide with populations at heightened risk to observed and anticipated climate trends. This prior action contributes to the increased education of 149 teachers, 47 of whom women, who have already been recruited locally and have started their two-year pre- service training of teachers at the National School for Teachers. The teachers have committed to completing their training and for being deployed outside of Bangui in their localities once they finish it. As part of the curriculum, teachers will be taught disciplines such life and earth sciences, health education, technology and practices like installing handwashing systems, which will strengthen their ability to provide an adequate first response to a climate changed induced disaster, such as a flood. Given the student/teacher ratio of 91/1 in CAR, these teachers can be expected to contribute to education 13,559 students per year, many of whom are likely to have returned to school since the there is a government-paid teacher now. In turn, these pupils will have increased education which will increase their adaptability and decrease their climate vulnerability. In addition, the easing of the burden of fees for community teachers can be viewed as a de facto cash transfer to the households in the catchment areas of the schools where the teachers will be deployed, as these poor households will no longer have to pay for community teachers. This will increase their disposable income, which is likely to be used to reduce food insecurity driven by climate change. Page 96