Document of The World Bank FOR OFFICIAL USE ONLY Report Number: 50769-TJ INTERNATIONAL DEVELOPMENT ASSOCIATION AND INTERNATIONAL FINANCE CORPORATION COUNTRY PARTNERSHIP STRATEGY FOR THE REPUBLIC OF TAJIKISTAN FY10-FY13 April 22,2010 Central Asia Country Department Europe and Central Asia Region International Finance Corporation Southern Europe and Central Asia Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its content may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS (Exchange Rate Effective April 15, 2010) Currency Unit = Somoni (TJS) US$ 1 = 4.3681 TJS GOVERNMENT FISCAL YEAR January 1 to December 31 WEIGHTS AND MEASURES Metric System ABBREVIATIONS AND ACRONYMS AAA Analytical and Advisory Activities ECA Europe and Central Asia A&A ROSC Accounting & Auditing Report on EFA FTI-CF Education-for All Fast Track Initiative- Observance of Standards & Codes Catalytic Fund ADB Asian Development Bank EITI Extractive Industries Transparency Initiative AF Additional Financing EMP Education Modernization Project APL Adaptable Program Loan EU European Union AS Advisory Services FCR Financial Crisis Response BBP Basic Benefit Package FIRST Financial Sector Reform and Strengthening BEE Business Enabling Environment Initiative BEEPS Business Environment & Enterprise FMBT First Microfinance Bank of Tajikistan Performance Survey FPSP Farm Privatization and Support Project CAE Country Assistance Evaluation FSAP Financial Sector Assessment Program CAEWDF Central Asia Energy Water Development FTA Federal Transit Administration Framework GDP Gross Domestic Product CAPS Central Asia Power System GEF Global Environment Facility CAREC Central Asia Regional Energy Cooperation GFDRR Global Facility for Disaster Risk Reduction CASAREM Central Asia-South Asia Regional Energy GNI Gross National Income Market HIV/AIDS Human Immunodeficiency Virus/ Acquired CAWMP Community Agricultural and Watershed Immune Deficiency Syndrome Management IBRD International Bank for Reconstruction and CBHP Community and Basic Health Project Development CEA Country Environmental Assessment ICR Implementation Completion Report CEM Country Economic Memorandum ICRR Implementation Completion and Results CFAA Country Financial Accountability Report Assessment ICT Information and Communication CGAC Country Governance and Anti Technology Corruption IDA International Development Association CHP Combined Heat Power IEG Independent Evaluation Group CIS Commonwealth of Independent States IFC International Financial Corporation CFLs Compact Fluorescent Lamps IGR Institutional and Governance Review CPFR Country Portfolio Fiduciary Review IMF International Monetary Fund CPIA Country Policy and Institutional Assessment JCPS Joint Country Partnership Strategy CPPR Country Portfolio Performance Review JSAN Joint Staff Advisory Note CPS Country Partnership Strategy KfW German Government-Owned Development CPSPR Country Partnership Strategy Progress Bank Report LIC Low Income Countries CSO Civil Society Organization MIGA Multilateral Investment Guarantee Agency DB Doing Business MDGs Millennium Development Goals DFID Department for International Development MOH Ministry of Health DPO Development Policy Operation MSMEs Micro, Small and Medium Enterprises DRM Disaster Risk Mitigation MTEF Medium-Term Development Framework DSA Debt Sustainability Analysis NBT National Bank of Tajikistan EBRD European Bank for Reconstruction and NCD Non-Communicable Diseases FOR OFFICIAL USE ONLY Development SAS SugdAgroServe EC European Commission SCISPM State Committee on Investment and State ECF Extended Credit Facility Property Management NDS National Development Strategy SDC Swiss Development Cooperation NGO Non-Governmental Organization SECO Swiss Economic Cooperation NSED National Strategy for Education SELR Second Energy Loss Reduction Development SIDA Swedish International Development Cooperation PCF Per-Capita Financing Agency PDPG Programmatic Development Policy Grant SME Small & Medium Enterprise PEFA Public Expenditure and Financial SMP Staff Monitored Program Accountability SOEs State-Owned Enterprises PEM Public Expenditure Management SWAp Sector-Wide Approach PFM Public Financial Management TA Technical Assistance PFVA Public Finance Voice and Accountability TAFF Tajikistan Agricultural Finance Facility PIP Public Investment Program TALCO Tajik Aluminum Company PHC Primary Health Care TB Tuberculosis PIU Project Implementation Unit TJS Tajik Somoni POP Persistent Organic Pollutants TLSS Tajikistan Living Standard Survey PPAR Project Performance Assessment Report UNDP United Nations Development Program PPCR Pilot Program on Climate Resilience UNFPA United Nations Population Fund PPER Programmatic Public Expenditure Review UNICEF United Nations Children’s Fund PPP Purchasing Power Parity US United States PPIAF Public Private Infrastructure Advisory USAID United States Agency for International Facility Development PRGF Poverty Reduction and Growth Facility VAT Value Added Tax PRS Poverty Reduction Strategy VPF Virtual Poverty Fund PRSP Poverty Reduction Support Program WB World Bank PSD Public Sector Development WBG World Bank Group PTA Parent Teacher Associations WBI World Bank Institute QAG Quality Assurance Group WHO World Health Organization READ Russian Education Assessment WUA Water User Association Development RICA Rural Investment Climate Assessment ROSC Report on Observance of Standards and Codes The World Bank Group Team IDA IFC Vice President: Philippe Le Houerou Vice President: Rashad Kaldany Country Director: Motoo Konishi Country Director: Shahbaz Mavaddat Team Leaders: Chiara Bronchi and Team Leader: Wendy Jo Werner Jariya Hoffman This CPS was prepared by a core team that included: Nathalie Abu-Ata, Hassan Aliev, Saodat Bazarova, Christophe Bosch, Sudharashan Canagarajah, Anna Cestari, Brett Coleman, Andrea Dall’Olio, Elena Glinskaya, Daryl Fields, Ronald Hoffer, Imtiaz Hizkil, Fabrice Houdart, Takao Ikegami, Zainiddin Karaev, Vladimir Kolchin, Jana Kunicova, Mukaddas Kurbanova, Sodyk Khaitov, Scherezad Joya Monami Latif, Shuhrat Mirzoev, Jessica Mott, Takhmina Mukhamedova, Elena Nikulina, Clelia Rontoyanni, Luis Alvaro Sanchez, Pia Schneider, Helen Shahriari, Bekzod Shamsiev, Mehrnaz Teymourian, Svetlana Proskurovska, Utkir Umarov, Ekaterine Vashakmadze, Bobojon Yatimov, and Dilya Zoirova, The team also included Tomasz Telma, and Oksana Nagayets from IFC. Amanda Green provided efficient and invaluable editorial assistance of the CPS. Zakia Nekaien-Nowrouz and Tojinisso Khomidova provided administrative support. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not be otherwise disclosed without World Bank authorization. iii  TABLE OF CONTENTS EXECUTIVE SUMMARY ..........................................................................................................................................i I. INTRODUCTION .............................................................................................................................................. 1 II. COUNTRY CONTEXT ..................................................................................................................................... 1 A. Geography, Population and Politics ............................................................................................................... 1 B. Recent Economic Developments...................................................................................................................... 3 C. Medium-term Outlook and Debt Sustainability ............................................................................................... 7 D. Poverty and Social Developments ................................................................................................................... 8 E. Governance ................................................................................................................................................... 10 III. TAJIKISTAN’S DEVELOPMENT AGENDA AND PRIORITIES ....................................................... 12 A. National Development Agenda ...................................................................................................................... 12 B. Key Economic and Social Priorities.............................................................................................................. 14 IV. World Bank Group ENGAGEMENT ....................................................................................................... 22 A. Bank Group Track Record ............................................................................................................................ 22 B. Proposed WBG Strategy................................................................................................................................ 27 C. Implementing the CPS ................................................................................................................................... 36 D. Partnerships and Participation ..................................................................................................................... 42 V. MANAGING RISKS........................................................................................................................................ 45 TABLES Table 1: Tajikistan Economic Indicators ...................................................................................................... 6 Table 2: Poverty Headcount, 2003-2007 ..................................................................................................... 8 Table 3: Summary of Expected Results from CPS Implementation .......................................................... 27 Table 4: Indicative CPS Program Financed by IDA and Trust Funds ....................................................... 39 Table 5: Analytical and Advisory Activities.............................................................................................. 40 Table 6: Key Donor Involvement in Tajikistan, by Sector ........................................................................ 44 FIGURES Figure 1: Tajikistan – GDP growth and Remittances .................................................................................. 3 Figure 2: Governance in Tajikistan, 2008 .................................................................................................. 12 iv BOXES Box 1: Poverty in Tajikistan ........................................................................................................................ 9 Box 2: Progress in Addressing Constraints to Expanding Agricultural Capacity in Tajikistan................. 19 Box 3: Regional Energy-Water Development Framework ........................................................................ 42 Box 4: Consultations on the Tajikistan CPS .............................................................................................. 45 ANNEXES Annex 1: Results Framework for the Tajikistan CPS FY10-13 ................................................................. 48 Annex 2: Country Partnership Strategy (FY05-FY09) Completion Report ............................................. 57 Annex 3: CPS Stakeholder Consultations .................................................................................................. 89 Annex 4: Country Governance and Anti Corruption Strategy ................................................................... 92 Annex 5: Donor Coordination and Harmonization in Tajikistan ............................................................. 114 ANNEX TABLES Table A2 Country at a glance Table B2 Selected Indicators of Bank Portfolio Performance and Management Table B3 IDA Program Summary Table B3 IFC Investment Operations Program Table B4 Summary of Non-lending Services Table B5 Social Indicators Table B6 Key Economic Indicators Table B7 Key Exposure Indicators Table B8 Statement of IFC's Held and Disbursed Portfolio Table B8 Operational Portfolio (IDA and Grants) Table B9 Active Trust Fund Operations MAP v REPUBLIC OF TAJIKISTAN COUNTRY PARTNERSHIP STRATEGY FY2010-2013 EXECUTIVE SUMMARY i. Tajikistan has enjoyed relative political stability and strong economic growth since its civil war ended in 1997, but these impressive gains are at risk in the face of an ongoing global financial and economic crisis. The return to peace at home and a favorable external environment drove average growth rates of 8.6 percent during 2000-2008, coupled with declining inflation, fiscal surpluses, and a manageable external deficit. Since then, a recession in Russia has brought about a substantial drop in remittances to Tajikistan which, combined with a fall in aluminum and cotton exports, has constrained the fiscal space available to meet the country’s development challenges. Tajikistan faces energy shortages for 5-6 months in a year and periodically faces food security problem. ii. Tajikistan faces the economic crisis from a weak position. Structural reforms have been undertaken in areas such as agriculture, energy, transport, and private and financial sector development. However, there is a need to speed up these reforms. The country’s remote, landlocked location, together with deteriorating infrastructure, high input costs, and weak regulation, poses barriers to international trade, connectivity and investment. Macroeconomic stability is fragile and government credibility was undermined by recent National Bank of Tajikistan’s (NBT)’s misreporting of data to the International Monetary Fund (IMF). Though over a million Tajik citizens have escaped poverty in recent years and social indicators have improved, the significant drop in remittances, low agricultural productivity, and rudimentary safety nets have left those living in or near poverty with few means to cope with shocks. Access to services remains limited, especially in rural areas, and there is little scope for achieving the Millennium Development Goals (MDGs). iii. The government has taken steps to address both short-term challenges and the medium-term reform agenda. With support from the IMF, the Staff Monitored Program (SMP) was completed in December 2008, and implementation of the subsequent Extended Credit Facility (ECF) for 2009-2012 is on track. The ECF and other donor initiatives have also supporting execution of the government’s May 2009 anti-crisis action plan. The government has recognized the need to step up progress on the medium-term reform agenda in critical areas, especially agriculture, energy, and private and financial sector development. iv. To unleash the potential of assets such as land, water, hydropower, and human capital, Tajikistan will need to mitigate the effects of the crisis while working to build capacity towards post-crisis recovery and sustained development. Addressing the near-term challenges posed by the crisis will require sound macroeconomic management, including ECF stabilization measures and efforts to protect spending on priority social services. An effective crisis response will also involve actions to manage economic and social risks, including strengthening financial sector stability, investing in human capital, and protecting the most vulnerable segments of the population through improved social assistance. Over the medium- term, successful post-crisis recovery will depend on enhancing the productivity of the country’s physical and human assets. Key initiatives will include strengthening the business environment and access to finance, boosting agricultural productivity and resolving the outstanding cotton i debt, improving the reliability of electricity and water supply, expanding the country’s energy production and export potential, and enhancing human capital through higher-quality education and health services. v. The World Bank Group’s (WBG’s) Country Partnership Strategy (CPS) seeks to address these challenges through a constructive partnership with Tajikistan’s government, people, and donors. The CPS is anchored in the government’s own national development priorities as expressed in the National Development Strategy (NDS) and PRS3. Recognizing the critical importance of private sector development to Tajikistan’s future growth and poverty alleviation goals, the CPS has been prepared jointly by the World Bank (WB) and International Finance Corporation (IFC). The strategy has also benefited from the Bank Group’s participation in a multi-donor effort to outline a Joint Country Partnership Strategy (JCPS) for coordinated donor support to Tajikistan. vi. Building on lessons learned, the current strategy focuses on deepening the reform agenda launched under the previous CPS while strengthening mechanisms to foster good governance and sustainable capacity development. The objectives of the CPS are two-fold: (i) reducing the negative impact of the crisis on poverty and vulnerability; and (ii) paving the way for post-crisis recovery and sustained development. To help achieve these two objectives and rebuild government credibility, the Bank will work to build capacity in the context of Tajikistan’s Country Governance and Anti Corruption (CGAC) strategy (Annex 4). Implementation of the CPS will be guided by four principles of engagement: (i) frontloading resources to facilitate a timely, effective crisis response; (ii) flexibility in programming given the uncertainties surrounding the global recession; (iii) selectivity of interventions to avoid overstretching limited capacity and resources in both the government and the Bank Group; and (iv) leveraging the Bank Group’s global knowledge and expertise to attract co-financing. vii. The CPS will rely on a mix of instruments. The indicative IDA15 allocation for Tajikistan is projected to be about US$86.6 million (SDR 55.9 million), US$30 million of which has been used to finance the final year of the previous CPS for FY06-09. The remaining allocation (about US$57 million) will finance the first two years of the proposed CPS. As a result of this limited financial envelope, selectivity will be critical—within and across sectors, and according to the Bank Group’s comparative advantage. The CPS will place greater emphasis on budget support through a new three-year series of Programmatic Development Policy Grants (PDPGs). The PDPG will serve to advance structural reforms needed to enhance the country’s growth potential, while providing the fiscal space needed to maintain critical social spending. Investment activities will rely largely on additional financing to support programs with a proven track record and respond quickly to the crisis. New investment operations will be limited to one to two per year. Operational design will be informed by targeted analytical work, and technical assistance will be provided to assist the government in implementing identified reforms. The Bank and IFC will also access various trust funds to extend the reach of the International Development Association (IDA)-financed activities, subject to the country’s absorptive capacity and Bank staff resources. In addition, IFC will provide direct investments to the private sector. Tajikistan will also receive additional resource equivalent of SDR 15.4 million (about US$23.4 million) in FY10 to address the impact of the global crisis from the IDA Crisis Response Window. ii viii. Progress toward expected CPS outcomes will be monitored in the context of a realistic and measurable results framework (Annex 1). Anticipated results are closely linked to national strategies to demonstrate the proposed CPS program’s contribution to country development objectives. Where possible, results indicators have been clearly defined on the basis of monitoring exercises already being undertaken or planned by the Bank Group and other development partners. The PDPG will support regular monitoring of a subset of CPS results, and the remainder will be addressed through sector dialogue. Outer-year programming will be defined through a mid-term CPS Progress Report in order to maintain program flexibility in an uncertain environment. ix. The CPS supports the government in responsibly developing hydropower to secure the country’s energy supply and gradually generate electricity export revenues. The Bank is supporting the preparation of comprehensive techno-economical, social and environmental assessments of a large hydropower programs such as Rogun. Subject to confirmation of the project’s technical soundness, economic viability and compliance with all relevant environmental and social safeguards, the Bank would consider leading the consortium to implement the Rogun project. The Bank will work with the Government of Tajikistan and regionally recognized institutions through a regional program on energy and water to strengthen the technical and institutional basis for cooperation in these sectors with the aim of ensuring mutual economic, environmental and social benefits. x. The CPS program has been designed in the context of strong and growing partnerships among Tajikistan’s donors. CPS activities have been selected with other development partners’ activities in mind, focusing on sectors where the Bank Group has a long- standing engagement, comparative advantage, and/or complementary global knowledge. These parameters have guided the selection of agriculture, energy, private sector development, water and sanitation, and social services as the Bank Group’s primary areas of concentration. The Bank Group will also continue to participate in joint donor efforts to implement a recently developed joint aid coordination strategy in line with the Paris Declaration on Aid Effectiveness and in the context of the ongoing JCPS for Tajikistan. Under the CPS, the Bank Group will seek to expand collaboration with new bilateral development partners such as China and Russia, and to strengthen engagement with Tajikistan’s parliament, civil society, and private sector. xi. The effectiveness of the proposed CPS program and attainment of expected outcomes is subject to a number of risks. Implementation of the CPS could be delayed by a protracted recession mainly in Russia, which would continue to have a chilling effect on growth in Tajikistan. Progress in implementing the CPS program may also be slowed by weak government commitment to deeper post-crisis reforms in productive sectors or by limited institutional and human capacity. The deteriorating security situation in Afghanistan and Pakistan could result in an unprecedented influx of refugees to Tajikistan, placing additional strain on economic and social services during a time of crisis. The CPS is designed to mitigate these risks to the extent possible, both through its dual focus on mitigating the negative impact of the crisis and building the foundations of post-crisis recovery, and through its principles of engagement. iii i. The following issues are proposed for Board discussion: x Do the Directors endorse the approach proposed in the presented CPS as appropriate for supporting the country in meeting its short-term challenges while strengthening a medium-term governance agenda, and build capacity to achieve medium to long term growth? x Is the mix of instruments and activities consistent with the objectives, flexible approach and feasible within the available resource envelope? x Does the CPS program successfully leverage the activities of other development partners in light of limited IDA resources? iv I. INTRODUCTION 1. This Country Partnership Strategy (CPS) presents the World Bank Group’s (WBG’s) strategy for Tajikistan during the period FY10-13. The CPS is anchored in the government’s own national development priorities as expressed in the National Development Strategy (NDS) and Third Poverty Reduction Strategy (PRS III). To increase the effectiveness of the Bank Group program in ensuring sustainable growth and poverty alleviation through fostering private sector growth, the CPS has been prepared jointly by the World Bank (WB) and International Finance Corporation (IFC). The strategy has also benefited from the Bank Group’s participation in the ongoing development of a Joint Country Partnership Strategy (JCPS) for coordinated donor support to Tajikistan. It was originally proposed that the CPS would be prepared jointly with several other donors, but after an initial draft and subsequent consultation, JCPS partners decided to focus first on the development of an aid coordination strategy, completed in October 2009. The Bank will work with these partners to align the CPS with the PRS III within the JCPS framework. 2. The focus of the proposed CPS builds on the lessons learned in implementing the Bank’s previous CPS for FY06-09 (Annex 2). The objectives of the CPS are two-fold: (i) reducing the negative impact of the crisis on poverty and vulnerability; and (ii) paving the way for post-crisis recovery and sustained development. These two objectives have a common purpose in meeting short-term challenges and supporting a governance agenda to help build credibility and capacity for achieving medium to long term economic growth. Efforts to improve core governance will be mainstreamed across the CPS program in the context of Tajikistan’s Country Governance and Anti Corruption (CGAC) strategy (Annex 4). Progress toward expected CPS outcomes will be monitored through a realistic, measurable results framework (Annex 1), and outer-year programming will be defined through a mid-stream CPS Progress Report (CPS PR) in order to maintain program flexibility in an uncertain environment. II. COUNTRY CONTEXT A. Geography, Population and Politics 3. Tajikistan is small, land-locked, and 93 percent mountainous, making it one of the least accessible countries in the world. It is situated 2,000 km away from the nearest port, and high mountains separate it from the Kyrgyz Republic in the northeast, China in the east, and Uzbekistan in the west and north. Its 1,400 km-long southern border is shared with Afghanistan, and the country is separated from Pakistan in the south by the narrow Wakhan corridor. Tajikistan’s remoteness, existence of regional physical barriers together with deteriorating Soviet-style transport infrastructure networks and weak governance and regulatory policy frameworks, poses significant barriers to international trade, connectivity and investment. 4. Tajikistan is vulnerable to natural disasters, external economic conditions and is the poorest country in the Europe and Central Asia (ECA) region. It is regularly affected by natural disasters such as floods, mudflows, landslides, avalanches, earthquakes, droughts and epidemics due to its geography, topography and climate. Heavy rains in the Spring 2009 claimed 1 human lives, destroyed villages and arable land. The country is also dependent on key commodity exports; aluminum, cotton, and labor (measured through remittances) accounted for 51.8 percent of GDP in 2008.1 Severe limitations in employment opportunities in Tajikistan have led a large number of workers (up to 40 percent of the working population) to seek better job prospects overseas—largely in Russia. The resulting dependence on remittances increases vulnerability in the economy and among the Tajik population. Tajikistan’s gross national income (GNI) per capita (Atlas method) was estimated at US$560 in 2008. Its population of 7.3 million is young and growing rapidly, at 2 percent per year during 2000-07. A 2009 Poverty Assessment Update indicated that households with three or more children account for 53 percent of the total population, and 62 percent of the poor population. 5. The country has been relatively stable since 1997, but decision-making remains centralized and political accountability is limited. The presidency is the dominant political institution at the national level. President Rahmon, who was elected to a second seven-year term in 2006, is acknowledged for restoring stability after the civil conflict and presiding over a period of strong economic growth. The President’s party (People Democratic Party) won 72 percent of the votes in the most recent Parliamentary elections held in February 2010. Political control remains concentrated in the center, and the parties other than the ruling party have a limited role in the parliament. The past decade of political stability has provided some breathing space for the government to begin making the difficult transition from a command and control system to a modern government based on democratic principles. 6. Tajikistan faces diverse and complex geo-political forces. The country is seen by China, Russia, the European Union (EU) and the United States (US) as an important gatekeeper for peace and stability in Central Asia. China’s interests in the region are based on strengthening commercial advantages and maintaining security in border areas. Russia has a long-standing history of involvement in Central Asia and considers maintaining its presence in the area to be strategically important. The EU and the US are interested in preventing the spread of religious extremism, stifling drug trafficking, and countering geo-political threats in the region. Accordingly, the deteriorating security situation in Afghanistan and Pakistan is of increasing concern to Tajikistan and its allies. 1 Government of Tajikistan, State Statistical Committee. 2 B. Recent Economic Developments 7. Soon after the civil war, Figure 1: Tajikistan – GDP growth and Remittances peace and political stability were restored, and the economy began 12.0 50.0 to register robust growth. The 45.0 economy grew at an average of 8.6 10.0 40.0 percent per year during 2000-2008. 35.0 8.0 This growth was driven mainly by Remittances as % of GDP GDP Growth (%) 30.0 restoration of fiscal discipline and 6.0 25.0 macroeconomic stability which 20.0 4.0 stimulated a recovery of 15.0 consumption, production and 2.0 10.0 5.0 investment facilitated by 0.0 0.0 implementation of some structural 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 reforms to liberalize the economy GDP Growth Remittances following the end of conflict, and a favorable external environment. World prices for cotton and aluminum—Tajikistan’s main export commodities—soared. Rapid growth in Russia and other trading partners boosted demand for Tajik labor. The resulting growth in remittances fuelled a consumption boom in Tajikistan, which helped to support buoyant growth in real GDP during the 2000s. Inflation steadily declined reaching a single digit during 2004-05. The country has also received considerable multilateral financing over these years to finance its basic needs (Figure 1). 8. Tajikistan has taken steps to improve business environment and delivery of basic services. The new laws on business inspections and licensing have been adopted and under implementation. The Government has made good progress with the reform of the aviation sector by liberalizing air access, thus enhancing competition and increasing passenger turnover during the past few years. The Tajik Airlines has also been restructured, as a result, new independent companies have been established to transport passengers, operate airports and control air traffic. To improve delivery of basic services, the government has gradually increased social spending for health, education and social protection and implemented per capita financing in health and education on a pilot basis with further scale-up at the national level. The public sector pay system has become more transparent and the government intends to deepen the reforms in this area. 9. Despite the ongoing structural reform implementation, progress has been slow and uneven. Macroeconomic management, especially fiscal policy was strengthened under the previous PRGF when fiscal deficits were reduced substantially and domestic financing of the budget was completely eliminated. Reforms of the sectors that represent sources of future growth (agriculture, energy, private and financial sector development, and transport) have been undertaken. Until recently, government’s continued intervention in agricultural production and markets restricted the freedom of farmers to grow whatever crops that were most profitable, and a burdensome cotton farm debt financing schemes have constrained growth in the agriculture. Recently the government with the help of donors has resolved the longstanding cotton debts issue and written off large parts of these debts. This is an important step towards greater farm 3 freedom and agricultural productivity in the country. Financially nonviable and poorly regulated state-owned enterprises (SOEs) in the energy sector failed to secure a reliable supply of electricity throughout the country, especially in the winter. Quality of business enabling environment has witnessed some improvement due to reforms in legislation to simplify business regulations and entry. This has earned the country a place among the top ten reformers and improved its ranking in the Doing Business Report 2010. There is a need to deepen reforms to improve the business climate and reduce the cost of doing business and minimize risks to investors. 10. Macroeconomic performance weakened in the mid 2000s due to an increase in external public debt, the quasi-fiscal activities of the central bank and external shocks. Tajikistan’s external debt position has weakened due to increased external borrowing from bilateral creditors (particularly China) to finance large infrastructure projects, although external public debt remains sustainable. The fiscal balance (including the public investment program, PIP) widened to 5.5 percent of GDP in 2008. The quasi-fiscal deficit in the energy sector, though declining, remained high at 10 percent of GDP in 2008. The quasi-fiscal activities of the central bank revealed that the country’s central bank, the National Bank of Tajikistan (NBT), had pledged foreign exchange reserves as guarantees for foreign credits to a non-bank financial institution for cotton financing without reporting these activities to the International Monetary Fund (IMF) as required under the Poverty Reduction and Growth Facility (PRGF) for 2002- 2006. These developments coincided with supply side shocks that hit the country during the period 2007-2008 through a steep rise in global fuel and food prices, and eroded the macroeconomic indicators. The NBT’s international reserves fell below the equivalent of two weeks of imports; the money supply nearly doubled, fueled by expansionary monetary policy and annual average inflation accelerated to 20 percent in 2008. Trade and current account deficits and public debt rose sharply. 11. To restore macroeconomic stability and the credibility of the NBT and the government, the authorities agreed with the IMF on an economic stabilization program in April 2008. The Staff Monitored Program (SMP) aimed to rebuild foreign reserves and strengthen governance of the NBT.2 The government has succeeded in achieving all targets under the IMF SMP. Macroeconomic performance improved in the second half of 2008. The economy grew by a respectable 8 percent despite reduced agricultural (cotton) and industrial output resulting from drought, electricity shortages and decline in the world demand and prices for key export commodities, such as aluminum and cotton. Although the spike in global food and fuel prices in early 2008 exacerbated inflation (which reached 26 percent in June 2008), it subsequently receded to 12 percent by end-December 2008 reflecting relatively effective monetary policy and decline in the global commodity prices. The current account deficit declined to 7.7 percent of GDP as a result of strong remittances inflows (47 percent of GDP), enabling the NBT to accumulate international reserves equivalent to 1.1 months of imports (end-2008). The overall fiscal balance (excluding externally-financed investment) remained in surplus (at 1.4 2 The Staff Monitored Program (SMP) measures included the implementation of a special audit of the National Bank of Tajikistan (NBT), strengthening the autonomy and governance of the NBT through the passage of appropriate amendments to the central bank law, and strengthening governance and monitoring of the largest state-owned enterprises (SOEs), including through tenders for external audits of the two largest SOEs (Barki Tajik and Talco) by reputable international firms. 4 percent of GDP) owing to strict expenditure control combined with buoyant revenues (amounting to 22.1 percent of GDP) reflecting the high nominal GDP and strong import growth. The overall fiscal deficit (including externally-financed investment) slightly declined to 5.5 percent of GDP (down from 6.1 percent 2007) reflecting disbursements of concessional external financing for public investment projects. The stock of public debt declined to 28.9 percent of GDP due to prudent debt policy and strict control on non-concessional borrowing (Table 1). 12. The government adopted an anti-crisis action plan and agreed with the International Monetary Fund (IMF) on the new Extended Credit Facility (ECF) to reduce the impact of the crisis. The anti-crisis action plan aims to protect critical social spending (e.g., education, health, social protection), support improved efficiency and quality of public services through targeted increases in public sector wages, and expand employment opportunities through social programs such as a cash-for-work scheme and measures to facilitate entrepreneurship. The government also plans to continue implementing its civil service reform program with the objective of improving the efficiency and the quality of public service delivery. The successful completion of the SMP in April 2009 has paved the way for a new ECF for 2009-2012.3 The ECF’s macroeconomic priorities include: (i) maintaining a modest fiscal deficit, excluding the PIP; (ii) facilitating external adjustment through the exchange rate depreciation; (iii) strengthening monetary policy and banking supervision frameworks; and (iv) building up foreign currency reserves. The ECF’s structural reform priorities include: (i) strengthening governance of the NBT; (ii) improving the operational and financial management of large SOEs; and (iii) adopting a strategy to resolve cotton sector debt. Over the course of the program, the IMF is expected to lend US$116 million, of which about US$40 million was released in May 2009 after approval of the ECF. An additional US$40 million is expected to be disbursed in May 2010 upon completion of the first and second reviews. To achieve the overall fiscal deficit target, the authorities are deferring domestically-financed capital spending, continuing only with the highest priority projects. 13. The global economic crisis has weakened economic performance. Output growth fell to 3.4 percent in 2009 (although higher than the original forecast of 2 percent) mainly driven by buoyant non-cotton agricultural output. However, a significant reduction in remittances inflows (by 31 percent) caused real per-capita disposable income to contract for the first time in many years. Inflation receded substantially to 5 percent by end-2009. The current account deficit declined to 7.3 percent of GDP due to lowered trade deficit (from 53 percent in 2008 to 39 percent of GDP in 2009). This was driven by lowered prices of imported fuel and food, reduced domestic demand, and by a currency depreciation that increased export competitiveness. As a result, the level of international reserves fell to equivalent of 1.4 months of imports in 2009. Due to slow economic activities and the anti-crisis fiscal measures (lowered VAT and income taxes) to stimulate private sector development, tax revenue fell by 1.1 percent of GDP (from 18.7 percent in 2008 to 17.6 percent in 2009). Budget support from development partners (WB, ADB, and EC) amounting to US$74 million helped offsetting the impact of revenue shortfall, thus enabling the government to increase social expenditure under the anti-crisis action plan. The overall fiscal balance (excluding externally-financed investment) registered a deficit of 0.5 percent of GDP in 2009 and the overall fiscal deficit (including externally-financed investment) 3 The Extended Credit Facility (ECF) replaced the Poverty Reduction and Growth Facility following the entry into force of the IMF Executive Board’s decision of July 2009. 5 slightly declined to 5.4 percent of GDP in 2009. The stock of public debt increased to 33.5 percent of GDP in 2009 (Table 1). Table 1: Tajikistan Economic Indicators Actual Estimate Projection Item 2006 2007 2008 2009 2010 2011 2012 2013 Income and Growth GDP per capita (US$ current) 398 514 696 661 714 773 829 900 GDP growth (% constant prices) 7.0 7.8 7.9 3.4 4.0 5.0 5.0 5.0 Savings and investment Investment 13.7 22.9 21.3 18.8 19.4 21.7 21.0 19.2 Gross National Savings 10.9 14.3 13.6 11.5 11.4 12.9 11.9 9.9 Money and Inflation (annual % change) Consumer Price Index (period average) 10.0 13.2 20.4 6.5 7.0 8.3 6.7 5.5 Broad Money (growth in percent over 12 months) 63.4 78.8 6.0 34.5 17.4 19.2 19.5 19.5 Government Finance (% of GDP) Revenues and Grants 23.6 22.5 22.1 23.3 26.6 25.2 22.7 22.6 Expenditure and Net Lending 21.9 28.6 27.6 28.8 29.1 30.2 28.5 27.3 Overall Fiscal Surplus (Deficit)* 1.7 -6.1 -5.5 -5.4 -2.4 -5.0 -5.9 -4.7 Balance of Payments Merchandise Trade Balance (% of GDP) -35.1 -45.1 -53.0 -38.7 -39.8 -39.5 -39.5 -39.0 Current Account Balance (% of GDP) -2.8 -8.6 -7.7 -7.3 -8.0 -8.8 -9.1 -9.3 Merchandise Export ($) Growth (annual % change) 1.2 16.9 12.8 -5.5 7.2 10.0 12.5 10.2 Merchandise Import ($) Growth (annual % change) 38.0 57.9 45.0 -23.7 10.8 9.8 10.3 10.5 External Payments Indicators Gross Official Reserves ($ million) 111 107 193 347 457 537 607 677 (months of merchandise imports of goods and services) 1.0 0.4 1.1 1.4 1.7 1.7 1.8 1.8 Total PPG External Debt (% of GDP) 32.9 33.7 28.9 33.5 35.3 37.3 38.3 37.1 Memorandum Items GDP (current prices, million somoni) 9,272 12,780 17,609 20,623 24,665 29,394 34,568 40,289 Exchange rate (somoni/US$, period average) 3.29 3.44 3.43 4.14 4.48 4.83 5.19 5.45 Population (million) 7.06 7.22 7.37 7.54 7.70 7.87 8.04 8.22 GDP = Gross Domestic Product; PPG = Public and Publicly Guaranteed * including Public Investment Program and Grants Sources: IMF (IFS Online; Article IV Staff Report, March 2010; Staff Reports: March 2010, BoP file; IMF and Bank staff calculations. 14. However, the somoni depreciation is expected to add stress on the banking system. The recently stress tests carried by IMF staff indicated that banks are vulnerable to a large depreciation of the somoni because debtors with U.S. dollar-denominated loans (about 60 percent of outstanding loans) do not necessarily have foreign exchange income. To help limit the risk of a banking crisis in Tajikistan, the authorities are strengthening the regulatory requirements and intensifying supervision. The priorities are to improve the liquidity position of the banks and to curb the impairment of their assets. With the support of the World Bank and the IMF, the NBT is also drawing up contingency plans for tackling a banking crisis, so that it is not caught unprepared should one materialize. 15. Under the ECF program, a sound fiscal and monetary program has been agreed for 2010. The economy is expected to grow by 4 percent in 2010 due to a slow recovery of the global economy. The overall fiscal deficit (excluding the Public Investment Program) is projected to increase from 0.5 percent of GDP in 2009 to 1 percent of GDP in 2010. However, this target and the associated ECF performance criteria for domestic borrowing will be challenging due to a slowly increase in domestic revenue arising from lowered tax rates associated with anti-crisis fiscal measures, a weaker demand for imports and domestic 6 production. With non-discretionary expenditure on wages and salaries, interest payments, and transfers and subsidies already accounting for 65.8 percent of total budget expenditure in 2010, further spending cuts will have to come from operations and maintenance activities, if additional donor support is not available. The authorities have opted to defer some domestically financed capital spending, but given the ECF target for an overall fiscal deficit, there remains a fiscal gap between available resources and essential spending needs that is expected to be financed through budget support grants from donors. C. Medium-term Outlook and Debt Sustainability 16. Tajikistan’s economic prospects are expected to improve over the medium-term, although much depends on the positive confluence of external and domestic factors. The protracted recession that is currently affecting Russia is expected to begin unwinding by the end of 2010, allowing gradual recovery in Tajikistan. A recovery in demand and trade would support Tajikistan’s exports and employment opportunities (migrant and domestic). At home, successful implementation of the government’s anti-crisis action plan and the ECF—as well as good progress on structural reforms to reduce supply constraints—is expected to contribute to an economic rebound. Increased availability of employment opportunities through facilitating and attracting investment would also help address poverty and food security concerns. Economic recovery would depend in part on the timing, extent and focus of donor support. 17. Output is expected to recover slowly over the medium-term. The IMF is projecting an upturn in domestic output of 4 percent in 2010 and 5 percent on average during 2011-2013, though substantial downside risks persist. This is supported by the implementation of structural reforms aimed at removing the most pressing barriers to expansion of productive capacity in agriculture, energy and the private sector as well as increased remittances and investment due to rebounding regional growth. Prudent management of monetary and fiscal policy is expected to keep inflation to single digits and domestic and external balances at sustainable levels. Given a high population growth rate, a small positive growth will not be sufficient to reduce poverty. Growth will need to accelerate to pre-crisis rates to ensure that gains in poverty reduction are not be eroded. Debt sustainability is likely be further challenged by the absorption of cotton sector debt and the associated need to recapitalize the NBT. 18. Tajikistan can grow and recover over the medium-term only if it addresses the key binding constraint to growth and utilizes its hydropower potential. A Country Economic Memorandum (CEM) prepared in 2009 found that growth is constrained by a low level of private investment. Medium to long term growth can be achieved through hydropower production, agriculture, small and medium businesses, infrastructure, and labor migration. Raising private investment requires that the government: (a) improve the investment climate and protect property rights in order to attract investment from abroad and thereby meet the large capital expenditure requirements of large investment projects, (b) shift resource away from cotton to food crops and fodder crops for livestock through the removal of restrictions on the “freedom to farm”, the liberalization of land use and agricultural input and output markets, and carefully planned support services for farmers and livestock producers, and (c) alleviate key bottlenecks such as unreliable power supply through institutional and governance reforms to improve generation and distribution systems in the energy sector and increasing tariffs to cost recovery levels. These 7 actions would be facilitated by efforts to strengthen governance, transparency, and accountability in Tajikistan. 19. Debt sustainability remains at risk. In recent years, the government has borrowed increasingly from bilateral creditors, mainly to finance infrastructure projects that aim to support economic growth over the medium-term. Most of the debt stock growth in 2008 resulted from the disbursement of loans from China (over 5 percent of GDP) to finance roads and energy projects (power transmission lines). Though the ratio of private and public sector external debt to GDP improved from 53.6 percent in 2005 to 47.3 percent in 2008,4 the joint IMF-WB debt sustainability analysis (DSA) conducted in February 2009 shows that Tajikistan’s risk of debt distress remains high; this is also confirmed by a recent DAS update.5 The deterioration of macroeconomic indicators such as growth and export demand is likely to cause the net present value of debt-to-GDP and debt service-to-exports indicators to breach policy thresholds. Alternative scenarios and stress tests indicate that debt sustainability is vulnerable to adverse macroeconomic shocks such as lower GDP, declining export growth, real exchange rate depreciation, non-concessional borrowing and even an additional debt on concessional terms. This underscores the need for the government to exercise extreme caution in incurring new debt, to carefully vet large-scale investment projects, and to ensure efficient utilization of external resources. Sound macroeconomic policies and acceleration of structural reforms would also be essential to maintain debt sustainability by enhancing growth potential and safeguarding external stability. D. Poverty and Social Developments 20. Strong growth driven by Table 2: Poverty Headcount, 2003-2007 remittances contributed to impressive progress on poverty (Poverty line: PPP US$ 2.15) Poverty reduction in Tajikistan. According Headcount Number of Population to the 2007 Tajikistan Living Poor (%) Standards Survey (TLSS), and using 2003 (actual) the poverty line of US$2.15 per day National 63.5 4,233,341 6,667,510 Urban 59.1 1,066,293 1,804,290 in Purchasing Power Parity (PPP), Rural 65.1 3,167,048 4,863,220 the poverty headcount declined from 2007 (actual) 64 percent in 2003 to 41 percent6 in National 40.9 2,886,561 7,061,249 2007. In absolute terms, about 1.35 Urban 40.3 747,778 1,856,865 Rural 41.1 2,138,783 5,204,564 million Tajiks (of which 1 million Source: World Bank estimates based on the 2003 and 2007 TLSS. 4 Including noticeable improvement in the PPG debt to GDP ratio from 38.8 percent in 2005 to 28.9 percent in 2008. 5 The recent IMF update of the DSA (April 2010), shows that debt ratios for external debt look significantly better when remittances included into the denominators of the modified debt burden ratios. The vulnerability indicators are substantially lower than previously assessed and remain below their respective thresholds. However, this does not change Tajikistan’s high risk rating, which is based on indicators without accounting for remittances inflows. Debt- to-export ratio significantly exceeds the threshold throughout the projected period, and debt-to-GDP ratio breaches the threshold during 2014-2019, albeit marginally. 6 This is the expected reduction in poverty between 2003 and 2007 as estimated by the WB using the 2003-2007 economic growth rate (in per capita terms) applied to the 2003 household survey data. Alternatively, based on the absolute poverty line derived from the 2007 TLSS, the poverty headcount declined from 72 percent in 2003 to 54 percent in 2007. 8 live in rural areas) escaped poverty in recent years, though about 2.9 million remain poor (Table 2). The incidence of extreme poverty7 declined from 42.1 percent in 2003 to 17.3 percent in 2007, dropping more rapidly in rural areas. The strong growth in remittances between 2003 and 2007 accounts for about half of the observed reduction in poverty.8 Poverty is mainly a rural phenomenon in Tajikistan, with the rural poor accounting for 75 percent of all poor and 72 percent of the extreme poor (Box 1). Box 1: Poverty in Tajikistan Poverty in Tajikistan is largely a story of the working poor in the rural sector. Though employment—especially in non-agriculture sectors—does reduce the risk of poverty, 58 percent of poor people in Tajikistan live in households where the household head is employed. Rural areas account for nearly 80 percent of the working poor, as employment is concentrated in agriculture and related activities. Other characteristics of poor households include three or more children, household heads with limited education, landlessness or ownership of small plots in rural areas, and location at high altitudes. Many households in Tajikistan send workers abroad as a poverty-coping strategy. About 25 percent of households participating in the 2007 TLSS included a migrant worker who was abroad or had returned in the past year. Employment abroad does reduce the risk of poverty, as the total and extreme poverty headcounts (using a cost- of-basic-needs approach) among households with over 20 percent migrant workers were 43 percent and 13 percent, respectively, as compared to 54 percent and 17 percent among households with fewer migrant workers. Yet Tajikistan’s dependence on remittances is a source of considerable vulnerability. Scenario analysis based on TLSS data suggests that a 30 percent decline in remittances would increase the national poverty rate by 6 percentage points and inequality by 3 percentage points. This effect would be expected to be stronger in rural areas due to the higher concentration of migrant workers in those areas. Non-income dimensions of poverty show limited progress. Pressure on public service delivery grew significantly after independence due to rapid population growth and reduced public spending. As a result, infrastructure is of poor quality; access to electricity, heating, and safe drinking water is limited; and unofficial payments for services are high and prevalent. The social protection system is rudimentary, dominated by old-age and disability pensions with virtually no social assistance. Together, these factors have constrained access to education and health services, especially for the poorest of the poor in rural areas. Food security remains a concern. Food insecurity is high among the extreme poor and worsens between late winter and early spring. Common coping strategies include reducing the number of meals to two or fewer per day and altering the nature of food consumed. As a result, the poorest quintile of the population consumes fewer than 2,000 calories per person per day on average. Source: World Bank. Republic of Tajikistan Poverty Assessment. October 2009. 21. The decline in some social indicators has improved. Social indicators such as school enrollment, infant mortality, and child mortality were poor at the end of the 1990s, as a consequence of the post-independence civil conflict, weak governance and deterioration of public services. As peace and stability took hold, the environment became conducive to the implementation of structural reforms, increased public expenditure, and strengthened social sector management. In time, indicators began to reflect these improvements. School enrollment 7 Extreme poverty refers to food poverty. It reflects the cost of a typical food basket needed to consume 2,250 calories per person per day with typical needs. The value of this extreme poverty line is equivalent to 89 somoni per month at end-2007 prices. 8 World Bank. Republic of Tajikistan Poverty Assessment. October 2009. 9 rates increased at all levels of education between 2000 and 2006.9 The primary completion rate rose from 95 percent in 2000 to 99 percent in 2005. Improved maternal health services, combined with a reduction in poverty, contributed to a significant decline in infant mortality (from 75 per 1,000 live births in 2000 to 56 in 2007). Similarly, child mortality declined from 93 to 68 per 1,000 live births. Gender equality improved, with the ratio of girls to boys enrolled in primary school rising from 93 in 2000 to 95 in 2007. 22. Despite this important progress, it is unlikely that Tajikistan will achieve its Millennium Development Goals (MDGs) by 2015. The indicators related to infant mortality (per 1,000 live births), under-five mortality (per 1,000 live births), and maternal mortality (per 100,000 live births) stand at 56, 68, and 97, compared to the 2015 MDG targets of 25, 30, and 30, respectively. The incidence of tuberculosis (TB) and HIV/AIDS has been increasing, and the use of contraception and knowledge of HIV/AIDS prevention remains limited. The percentage of the rural population with access to safe water stood at 55 percent in 2007, compared to a target of 74 percent by 2015. The reasons for this have much to do with the limited financial, institutional, and human resources available to the country to adequately address its basic social challenges. Social sector expenditure remains lower than those prevailing in other Commonwealth of Independent States (CIS) countries due to budget constraints. Despite efforts to improve its social sector, the quality of education and health services remains below Soviet-era levels. A large proportion of the population still has only limited access to basic services. The social safety net system that was established to protect the vulnerable, including the unemployed, is rudimentary. E. Governance 23. Development in Tajikistan depends on improvements in the governance. The civil war took a heavy toll on Tajikistan’s institutional and human capacity. Efforts to rebuild that capacity are impeded by specifics of the country’s political economy and limited financial resources to upgrade institutions and retrain workers with outdated technical skills to properly manage the transition to a market economy. Capacity limitations constrain the government’s effectiveness in designing and implementing programs to achieve priority development objectives. In addition, the political arrangements between the national and sub-national government that are required to keep peace appear to limit the scope of governance reforms. 24. The government’s effectiveness needs to be increased at both national and sector levels. During the last CPS period, political interference, weak capacity, and lack of transparent institutional arrangements in Tajikistan contributed to critical domestic policy slippages. Uneven progress has been achieved in: (a) resolving long-standing rural reforms,10 (b) effectively managing macroeconomic policy, (c) addressing successive energy and food price crises, and (d) inspiring confidence in dealing with the impact of the global economic crisis on the Tajik economy. The disruption in energy supplies during the severe winter of 2008 further highlighted 9 According to the TLSS, gross pre-primary enrollment increased from 73 to 91 percent, net primary enrollment from 96 to 97 percent, net secondary enrollment from 71 to 80 percent, and gross tertiary enrollment from 14 to 18 percent. 10 These rural reforms include land restructuring, resolution of the cotton farm debt, freedom-to-farm initiatives, and reduction of state interventions in cotton production and marketing. 10 the government’s inability to overcome low capacity and weak corporate governance among state-owned energy enterprises (especially Barki Tajik and Tajiktransgaz). Increasingly viewed as having limited capacity to manage crises, the government’s effectiveness in managing conventional economic duties is also in question as a result of the misuse of public funds (discovered to have been kept completely off-budget) and the belated admission of misreporting to the IMF in 2007. 25. Work is underway to strengthen public financial management (PFM) and public sector performance in Tajikistan. PFM reforms initiated over the last decade have begun to bear fruit, including the introduction of a partially automated Treasury system, development of a new budget classification system, efforts to strengthen planning and resource allocation in the social sectors, and promulgation of a new procurement law. To strengthen public sector performance more broadly, the government streamlined the structure of central public administration to eliminate excessive fragmentation of institutions, clarify mandates, and strengthen institutional capacity. Civil service reforms have been initiated, including efforts to introduce competitive recruitment and pay linked to job descriptions. A functional review of the administration and delivery of social services has led to the amendment of key legislation and institutional improvements in priority sectors (e.g., streamlining education service delivery and financing, piloting patient fees in health care institutions, introducing policy-based budgeting). Service delivery standards have been designed and institutional changes needed to improve the quality of social services have been initiated. 26. However, public finance management system needs to be strengthened and transparency and accountability improved to avoid potential risks to public funds. A 2007 Public Expenditure and Financial Accountability (PEFA) Assessment indicated that the budget process remains fragmented and there are substantial deviations between budget allocations and execution, both in amount and composition. Tracking and control of commitments are not well linked to the procurement function. In March 2007, the government adopted a strategy for improving internal control and established pilot internal audit units in a number of line ministries. Yet internal audit remains weak, focusing more on individual transactions than on systemic issues and effectiveness of public resource use. Development of legal and institutional structures that will support the establishment of an independent external audit institute is ongoing. Accounting does not comply with international standards and is still done manually at all levels except the central treasury, though basic systems of accounting, recording and reporting are in place. There is still no reliable, modern financial management information system to ensure quality and reliability in reporting. In an effort to address these concerns, the government of Tajikistan adopted a comprehensive PFM Reform Strategy for 2009-18 in March 2009 and the Ministry of Finance (MoF) has prepared a more targeted Action Plan for 2009-11. 27. Cross-country indicators show that tackling governance problems in Tajikistan must become a priority. Tajikistan has recently improved on the ease of doing business (DB), according to the joint World Bank Group Doing Business 2010 survey (paragraph 40) and was among the top 10 world reformers. However, the country’s ranking remains low at 152nd out of 183 countries, as compared to the LIC average of 141. The quality of public administration, as measured in the 2008 Country Policy and Institutional Assessment (CPIA), is stable at 2.5 (out of 6) as compared to the average among IDA borrowers of 2.9. At the same time, the 2008 World Governance Indicators rank Tajikistan in the bottom 15 percent of countries on voice and 11 accountability, rule of law, and control of corruption, significantly below ECA and LIC averages (Figure 2). Figure 2: Governance in Tajikistan, 2008 2a: Comparison with regional average 2b: Comparison with LIC average Note: Top bar = Tajikistan; Bottom bar = Former Soviet Union Note: Top bar = Tajikistan; Bottom bar = Low-income countries Source: Kaufmann, Kraay, and Mastruzzi 2009: Governance Matters VIII: Governance Indicators for 1996-2008. III. TAJIKISTAN’S DEVELOPMENT AGENDA AND PRIORITIES A. National Development Agenda 28. In 2005, Tajikistan adopted the NDS for 2006-2015. The NDS aims to support the creation of a democratic and prosperous state where the benefits of political and economic development are available to the population as a whole. Key priorities include improving public administration, developing the private sector and attracting investment, and developing human potential. 29. A follow-up PRS III for 2010-2012 presented a medium-term program to implement the NDS vision, building on the lessons learned under PRS II. It builds on the overarching objective and strategic building blocks of the PRS II. The PRS III’s overarching objective is to promote sustainable improvements in living standards, particularly of vulnerable groups. It maintains the three strategic programming blocks spelled out in the PRS II: (i) a functional block on public administration reform, macroeconomics, investment climate, private sector, regional cooperation and global economic integration; (ii) a production block on food security, agriculture, infrastructure, energy and industry; and (iii) a social block on health, education, water and sanitation, housing, and social welfare. It recognizes several crosscutting issues, including institutional reforms, demographic change, environmental management, and gender equality. 12 30. The PRS III updates key reforms to support economic growth and poverty reduction. Measures to improve governance in public administration and SOEs include reducing corruption at all levels of government, strengthening public procurement and financial management systems, and reducing involvement of the state in economic activities in order to promote private sector development. Strengthening Tajikistan’s investment climate is seen as the key to stimulating growth, and the PRS III aims to achieve this goal by simplifying complex and non-transparent business regulations, strengthening property rights, and improving infrastructure services. Under the PRS III, the government plans to increase public spending on education and health in order to promote attainment of the MDGs. Financing reforms aim to improve the efficiency and equity of public spending, while structural reforms (targeting institutions, human resource management, and infrastructure) are expected to improve the quality of and access to public services over the medium- to long-term. 31. The PRS III reflects lessons learned from implementation of the PRS II. It presents a comprehensive description of how poverty analysis and monitoring will be strengthened over time. It responds to the need for post-crisis recovery and growth and outlines the measures being taken to accelerate structural reforms, including securing property rights and enhancing the business environment. It also discusses actions to improve public sector governance and public sector management, especially through reform of the public administration and pay system. The PRS II presents a clear process for costing, prioritizing and sequencing interventions, and aims to enhance the coordination of development partner support. Therefore, it is better prioritized by focusing on the energy sector and sustainable agricultural development. 32. The Joint Staff Advisory Note (JSAN) suggests areas of improvement and notes that PRS III program remains ambitious in light of unidentified financing sources. The JSAN suggests that the PRS III specify the priority programs that promote rural livelihoods and improve access of the poor to social services, thus reducing poverty. To ensure sustained economic growth over the medium-term, the PRS III should deepen structural reforms to improve the business climate and strengthen property rights. The JSAN notes that the energy sector strategy should provide an integrated framework that links energy development challenges with other critical poverty and growth challenges. It suggests that the government continued focus on human capital development to build on the gains of the past decade, improve mechanisms to protect vulnerable groups, and strengthen governance to ensure that resources are used to achieve lasting development results. Finally, the staffs recommend that the authorities either need to identify additional financing sources for their ambitious program or reprioritize further across different objectives. 33. The PRS III provides an adequate framework for CPS support. The ongoing global financial crisis has prompted the government to better prioritize the agenda in the context of an anti-crisis action plan. The plan aims to reinforce macroeconomic stability, maintain delivery of essential public services, and address vulnerabilities faced by the population. This action plan, combined with the unfinished PRS II agenda, form the basis for the PRS III. The CPS aligns its strategic objectives with those of the PRS III and will support the implementation of this action plan, monitoring the process and adjusting support as needed. IDA will focus on areas where it has a comparative advantage, complements activities carried out by other development partners, or involvement is requested by the government. 13 B. Key Economic and Social Priorities 34. Tajikistan faces the economic crisis from a weak position, but amid the significant challenges ahead lie important opportunities to advance the development agenda during the next CPS period. In order to unleash the potential of key assets such as land, water, and human capital, Tajikistan needs to deepen structural reforms and spur much needed private investment. As discussed above, however, the fiscal space available for such reforms is limited in the wake of falling remittances and revenues, and an increasing public debt burden. Macroeconomic management capacity is limited, and government credibility has suffered in the wake of governance missteps such as the NBT’s misreporting of data to the IMF. In this context, the government will need to refocus its efforts on addressing critical near-term challenges: mitigating the negative impact of the crisis on poverty and vulnerability, and reducing the medium-term constraints to reaping the full benefits of a sustainable post-crisis recovery. i. Reducing the negative impact of the crisis on poverty and vulnerability 35. Building on its anti-crisis action plan, the government formulated a program for immediate economic stabilization and rationalization of public expenditure in April 2009.11 Maintaining prudent monetary and fiscal policies will be essential for macroeconomic stability, and these efforts will be guided by the macroeconomic framework agreed with the IMF under the ECF arrangement. Monetary policy will aim to maintain a competitive exchange rate and stabilize inflation to offer greater incentives for private investment. In particular, the authorities have committed to a flexible exchange rate while aiming to rebuild international reserves. On the fiscal side, while still committed to the deficit target of 0.5 percent of GDP, the government revised its budget in May 2009 to reflect downgraded revenue estimates. The revised budget followed three main principles: (i) ring-fencing social expenditure to maintain delivery of key public services such as education and health; (ii) prioritizing social assistance to vulnerable groups; and (iii) scaling back non-essential expenditure items including operation and maintenance spending. The capital spending on the rehabilitation of the construction site of a large hydropower plant at Rogun has been kept at the original budget level (US$120 million) as it is considered a strategic development priority to achieve energy independence and provide a basis for growth and develop regional trade through hydroenergy exports within Central Asia and with South Asia.12 Given that revenue collections and funding for budget support were better than expected, the macro-fiscal targets agreed with the IMF were met nearly fully with a small deficit in 2009. 36. To ensure continued delivery of basic public services necessary for the poor during the crisis, the government is committed to protect social spending. As agreed with the IMF, the ECF program includes an indicative target on the level of social spending. Towards this end, budgetary allocation for the education and health sectors were kept at the same level as that of 2008. This ensured that provisioning of public services by schools and health facilities are 11 The Government of the Republic of Tajikistan. 2009. Macroeconomic Policy Response to Financial Crisis. Resolution #232 April. 12 The hydropower plant at Rogun was started during Soviet times in the 1980s, but construction stalled in the early 1990s due to the breakup of the Soviet Union and the Tajik civil war. In 1993, the half-finished works were severely damaged by a major flood, causing serious loss of built assets. Since 2008, the government has been financing construction activities to restore the site to its pre-1993 status. 14 sustained during the crisis. Education and health personnel can continue serving the population as sufficient budgetary funds will be allocated for wages and salaries as well as some relevant recurrent expenditure. The government also agreed to track these expenditures and monitor their performance through the introduction of a Virtual Poverty Fund (VPF) with assistance from donors. However, actual spending on the social sectors increased in 2009 (43.6 percent of the total state budget excluding PIP and extra-budgetary fund, as compared to approved spending of 42 percent). The 2010 budget envisages an increase in social expenditures due in part to increased public sector wage for education and health personnel. 37. The government plans to strengthen the social protection system to reduce the vulnerability of the poor to future domestic and external shocks. Though poor people are especially at risk during social downturns, the social protection measures currently in place in Tajikistan are not adequate for effective crisis response as they are inefficiently designed, targeted, and administered. Implementation is fragmented and institutional capacity is limited. The anti-crisis program provides a small fiscal stimulus to generate employment, including priority measures such as unemployment benefits, skills training, micro-credit, and public works programs. Those unable to find employment following training can receive employment benefits for up to six months provided they have a recent employment history. Public works programs include mainly mini-hydropower and small road maintenance projects. The government is also working with donors to scale up food programs and to provide high quality wheat seeds and fertilizer to farmers in order to mitigate food insecurity. Quarterly surveys indicate that the economic crisis, coupled with recent increases in food prices, has had a visible impact on rural households in Tajikistan.13 More unemployment, fewer remittances, and even bankruptcies of small businesses have reduced access to food. Finally, the government is working with the European Commission (EC) and IDA to develop a social protection strategy encompassing: (i) a labor market and migrant strategy; (ii) targeting of social benefits and privileges; (iii) expansion and physical upgrading of care institutions; and (iv) capacity building in relevant public institutions. 38. The anti-crisis action plan aims to maintain the stability of the financial system by reducing its vulnerability to further deterioration of economic fundamentals. While Tajikistan's financial sector, primarily commercial banks, has not been affected directly by the global financial crisis, it has become more vulnerable on account of indirect linkages (for example, through trade credits). First, there has been an increase in the number of non- performing loans to cotton farmers,14 impairing banks’ asset quality and lowering their capital and liquidity. Widespread loan defaults could turn into a banking crisis given low capital levels at the NBT, which limits its ability to implement effective monetary policy. Second, the rate of growth of foreign and local currency deposits have declined due to the slowdown in remittances and lower deposits from large corporate clients such as the Tajik Aluminum Company 13 World Food Program and Department for International Development, Food Security Bulletin, May 2009 and September 2009. 14 In 2008, the government extended TJS 140 million (US$41 million) to selected commercial banks to on-lend to cotton farmers at capped interest rates (the credit represented 17 percent of total outstanding loans in 2008), with the banks bearing the credit risk. In 2009, the government allocated another TJS 180 million (US$40 million) to the cotton sector. However, the cotton sector historically has a poor repayment record due to poor governance, which is now being exacerbated by lowered world demand and falling cotton prices. 15 (TALCO). A number of banks have experienced liquidity problems and have used the NBT’s liquidity facility (with a lending volume of about Tajik somoni (TJS) 2 million (US$0.4 million) for up to three months). Finally, a high degree of dollarization15 has increased the banking system’s vulnerability to somoni depreciation, as many businesses that have borrowed in dollars have local currency revenues. To address these issues, the NBT has intensified banking supervision and developed contingency plans to deal with a potential collapse in confidence. 39. The NBT’s internal transparency, accountability, and banking supervision capacity will be improved to maintain the public’s confidence in the banking system. In December 2008, the NBT ceased its financing of the cotton sector and abolished cotton export licenses. In June 2009, the NBT approved an action plan in response to the findings of the special audit carried out under the SMP, and posted it on its webpage. During May-August 2009, with technical assistance (TA) from the WB, amendments to the Law on the National Bank of Tajikistan and a new Law on Banking Activities were passed by Parliament and signed into law by the President. The amended laws prohibit the NBT from engaging in direct lending, strengthen the independence of the Board of Directors, and will lead to stronger and more predictable supervision of banks. The NBT will require banks to apply modern governance and transparency principles, including the obligation to disclose beneficial shareholders. The role of the NBT’s internal audit function is also being strengthened. ii. Reducing constraints to a post-crisis recovery and sustained economic growth 40. To achieve a post-crisis recovery and sustained growth, Tajikistan needs to expand the productive capacity of physical assets including land, water, and human capital. Strong growth during the past decade has pushed Tajikistan close to its production possibility frontier. Without expanding this boundary, a post-crisis economic recovery may not be sustained over the medium-term. The solution is to reduce constraints to growth, an undertaking that will require Tajikistan to renew its commitment to deepening structural reforms that have been initiated. Private investment will follow once improvements have taken hold in the business environment at both the macroeconomic and business levels. The productive capacity of arable land, water, and labor—the main sources of growth in Tajikistan—must be significantly enhanced to increase the benefit from the country’s comparative advantages. Fortunately, the country’s water resources can be harnessed to provide hydropower for domestic use and for export to rapidly growing neighboring economies (such as Afghanistan, Pakistan, the Kyrgyz Republic and Uzbekistan). Human capital must not only be preserved but also enhanced in order to supply the private sector with healthy and skilled workers. 41. A sound business environment will stimulate the private investment necessary to sustain growth over the medium term. The government has recently taken steps to improve business and investment climate, as reflected in its place among the world’s top ten reforming countries in Doing Business 2010.16 In July 2008, a presidential decree placed a two-year 15 At end-2008, deposits and loans denominated in dollars accounted for 67 and 56 percent of total deposits and loans of Tajik commercial banks. 16 Tajikistan ranked 152 out of 183 countries in the Doing Business 2010, up from 159 out of 181 countries in the 2009 survey. Areas of concern include starting a business (143rd dealing with construction permits (177th), getting credit (176th), paying taxes (162nd), and trading across borders (179th). See: Doing Business 2010: Reforming through Difficult Times. 16 moratorium on inspections regulating SMEs, with some exceptions. In July 2009 the government launched the “200 days of reform” program, with the aim of improving the business environment and making the country more attractive to investors. With support from the EC, the government has introduced One-Stop Shop in 50 out of 68 tax inspectorates to simplify business registration process. The inadequate protection of property rights and inconsistent application of laws and regulations discourage private investment in Tajikistan. It should be noted that some external factors beyond the government’s control also hinder trade and growth in Tajikistan including difficulties in importing electricity and transit of goods through neighboring countries. Costs are high due to the unreliable supply of electricity, fragmented and poorly maintained infrastructure, time-consuming customs procedures, and labor skill shortages in some sectors. The cost of doing business is further increased by corruption and bribery. As a result of the poor investment climate combined with a low level of migrants’ income, remittances—a major source of incoming finance in Tajikistan—are generally spent on consumption or real estate rather than on private sector investment. 42. Private sector growth and investment would also benefit from increased access to finance at a lower cost. Tajikistan’s financial system is underdeveloped and has limited capacity to serve the investment needs of business. Weak governance, low transparency, and poor service quality in banks lower public confidence and limit deposits, thus raising the cost of funding. The legal framework is inadequate, and the capacity to implement and enforce applicable laws is weak. Legal and institutional arrangements for secured lending are particularly problematic, restricting the range of collateral that can be used to secure loans. The availability of diverse financial products and services catering to specific business needs is limited, especially in rural areas. Further, high interest rate spreads, short loan duration, widespread reliance on insider/related lending, and low branch density discourage the private sector from seeking financing from the banking sector. The insurance sector is undeveloped and operates within a weak regulatory and supervisory framework. To address some of these weaknesses, the government has begun to implement the recommendations of the Financial Sector Assessment Program (FSAP) with support from the Bank Group and IMF. Measures undertaken include adoption of new legislation and development of a financial sector strategy. 43. Agriculture reform will be critical to enhancing Tajikistan’s productive capacity and reducing poverty in rural areas. Good progress has been made in wheat production following the government’s use of IDA support to import and supply drought-tolerant and rust- resistant varieties of wheat seeds to compensate for the limited capacity of the domestic seed industry. Recently, the government has taken concrete actions to reduce its intervention in production as well as to resolve the cotton farm debt that hinders agricultural growth. In the wake of the crisis, the government has been working steadily with donors to develop a broad- based reform program and measures to remove policy distortions, strengthen land rights, and increase competition among ginneries and investors. A Presidential Decree for cotton debt resolution was promulgated and a government resolution and an action plan to resolve the cotton debt and reform the agriculture sector was approved (Box 2). The action plan will serve as the platform for developing and implementing agrarian reforms to ensure freedom to farm, accelerate efforts to ensure proper land titling, improve farmers’ access to finance and collateral practices, and increase returns to farmers and cotton sector recovery. The government is also committed to supporting sustainable agricultural development in the non-cotton sub-sector, including irrigation and drainage infrastructure and institutions, rural finance services, and farm 17 input markets. This is because non-cotton sector products from household plots, especially staple food commodities (cereals, meat, milk, vegetables, and potatoes) have recently emerged as a main driver of agricultural growth for the immediate future. They are relatively low cost commodities to produce, have significant potential to raise the current level of productivity, and can be readily sold in domestic markets. Going forward, the Bank will support the government in the implementation of the action plan together with the strategy to strengthen the non-cotton sub- sector. 44. The government is planning to take on a new agenda to strengthen natural disaster risk management, weather forecasting, and climate change adaptation to reduce vulnerability and thus increase agricultural output. Because of its geography, topography and climate, Tajikistan is regularly affected by natural disasters such as floods, mudflows, landslides, avalanches, earthquakes, droughts and epidemics. Climate change is expected to exacerbate natural disasters associated with hydro-meteorological conditions, with associated damages affecting the rural economy disproportionately. The government recognizes that reducing environmental disaster risks is key to mitigating macroeconomic risks and improving welfare. 18 Box 2: Progress in Addressing Constraints to Expanding Agricultural Capacity in Tajikistan The agriculture sector is composed of two sub-sectors, each of which is regulated by its own policy framework. The cotton sector accounts for 65 percent of arable land and 75 percent of irrigated arable land but only about 9 percent of agriculture value added. The policy framework for the non-cotton sector is more open, but government support is minimal. Recent trends are instructive: the cotton sector has performed poorly and cotton producers are the poorest and most food-insecure people in rural areas, while the non-cotton sector has grown steadily. The government is working to expand agricultural capacity by resolving the cotton farm debt, reducing government intervention, encouraging financing decision by farmers, and improving the security of land tenure. The government is actively implementing policy reform to address the underlying structural problems in the cotton sector. A small group of powerful cotton financiers had required farmers’ to provide raw cotton at low prices in return for financing. Local government authorities facilitated this system by coercing farmers to grow cotton rather than other crops, and by minimizing the competition faced by favored cotton investors. The local and regional monopsonies thus created have stifled competition in the sector, decreased farm profitability, reduced producer incentives to raise output, inhibited the growth of alternative sources of rural finance, and slowed the development of alternative markets for farm inputs and cotton output. As a result, cotton production has declined markedly since 2004, and returns to farmers have fallen. Overdue (internal) farmer debt to investors has grown to an alleged US$ 435 million. The government’s attempt to sustain this system by facilitating investor access to external credit through the NBT has undermined the external debt sustainability. The government and donors are working steadily to remove policy distortions, strengthen land rights, and increase competition among ginneries and investors - as the basis for increasing returns to farmers and fostering cotton sector recovery. The farm debt write-off will enable farmers to borrow from commercial banks as they would no longer be indebted to investors. In line with the commitments made under the IMF’s new Extended Credit Facility (ECF) program, the government has recently approved an action plan to write off the debt owed by farmers to cotton ginneries (“investors”) and commercial banks.. Investors who obtained finance through the government-backed scheme will be obliged to take this loss in full. Non-cotton loans made by investors will be repaid to the NBT at concessional rates. The farm debt owed by farmers to cotton ginneries (“investors”) and commercial banks will be assumed by the government after debt-restructuring.. Within the next six months each individual farmer will be issued a certificate that states that he is free from any debt. The disclosure of the IMF misreporting sheds light on the unsustainability of existing state financing of the cotton sector, underscoring the need for alternative financing mechanisms. The NBT ceased to fund private sector cotton investors in 2008, and cotton export licensing was abolished. The government introduced a temporary and ad hoc cotton financing mechanism through which it extends domestic credit financed by the budget to commercial banks to on-lend to cotton farmers. These credits amounted to 140 and 180 million somoni in 2008 and 2009, respectively. The new mechanism raises concerns about fiscal burden and risk to the banking system, so the government with donor support is now implementing a private financing mechanism through which commercial banks extend credit to farmers based on their profitability (Tajikistan’s Agricultural Finance Facility) as supported by EBRD and the Bank Group. The government’s cotton sector interventions have declined gradually and competition has increased. The government traditionally intervened in agricultural production by enforcing cotton production targets and confiscating land that was used “irrationally.” These restrictions made it difficult for farmers to switch production out of cotton into more profitable agricultural activities, thus inhibiting agricultural growth. In response, has begun implementing a Cotton Farm Debt Resolution and Action Plan (Decree 111 and Decree 312) to assure the right of farmers to use their land as they choose (“freedom to farm”) and has established open competition among the processors and exporters who buy the harvest. Competition has increased, with the market share of the largest five cotton investors falling dramatically and 75 investors exporting about 60 percent of cotton fiber. A 2009 farm survey found that local government intervention in cropping decisions has decreased steadily, especially in the Khatlon region. Land certificates are being issued at a faster pace to increase farmers’ access to land. Since the beginning of 2009, the number of properly registered collective dehqon farms has grown to 41,093, almost double the number in 2005 (23,322). Land use choices are still constrained, however, as is the transfer of land through sale. Lease and mortgage practices are underdeveloped and convoluted. Together, these factors prevent farmers from choosing crops based on market forces and managing land sustainably. Farm restructuring is needed to strengthen farmer independence, but this has been delayed by political and technical constraints, especially in cotton-growing areas. 19 45. Improving energy sector performance is a priority for sustainable economic growth. Tajikistan’s hydropower potential is estimated at about 140 GW with an annual generation capacity of 527 TWh, of which only 5 percent is developed. The country’s domestic energy consumption is therefore met quasi totally by hydropower which represents 97 percent of the electricity production. About one-third of the electricity is consumed by the aluminum company TALCO, which has key importance for socio-economic development of the country. The energy infrastructure inherited from the Soviet era is deteriorating rapidly and costly to maintain. Low tariffs and blanket subsidization of power prices contribute to waste of electricity and fail even to cover operation and maintenance costs further contributing to the deterioration of the antiquated assets. Moreover, the energy system is also affected by high technical losses. Corporate governance among energy SOEs (Barki Tajik and Tajiktransgas) has improved in the last few years but remains weak due to low institutional capacity and by slow progress in improving transparency and accountability in financial management and operation. 46. The increased dependence on hydropower after the breakup of the Soviet Union led to increased vulnerability of the system owing to the seasonal variability of water flows. Tajik authorities estimated that generation deficit during winter months is in the range of 2.5 to 3 TWh (about 20 to 23 percent of the total electricity consumption in 2008) and the generation in excess of domestic demand in the summer is about 2.5 TWh because reservoirs are managed to meet irrigation needs of downstream neighbors, according to water sharing agreements dating back to the Soviet era. The country faced severe energy shortages during the past few years due to the collapse of the previous working mechanism for water and energy exchange. The recent disconnection of the Tajik power system from the Central Asia Power System (CAPS) will likely increase the vulnerability of the fragile and now weakened power system. 47. The 2007 power sector strategy developed by the Government of Tajikistan aims to ensure reliable electricity supply to meet the needs of the population and productive sectors to sustain growth and contribute to poverty reduction. The target is to become self-reliant by the year 2017 and gradually develop power exports and strengthen regional cooperation to increase electricity export revenues and generate a new source of growth. The three pronged strategy focuses on: x Reducing energy waste and rationalizing demand. Actions taken to date include significant tariff increases (an increase of about 250 percent from 2007 to late 2009) – even though sales prices remain well below costs of supply. Under the First Phase of the Energy Loss Reduction Project the following works have been performed: installation of electric meters, cabling, the replacement of transformers which resulted in significant increase of payments, and implementation of some measures to optimize and increase functionality of Dushanbe distribution network. There has also been extensive deployment of compact fluorescent lamps (CFLs) to reduce lighting peak loads. x Rehabilitating and modernizing existing assets to increase electricity supply. After the completion of the Sangtuda I and II, several small hydropower plants are being constructed and planned, the rehabilitation of key hydropower facilities built during the Soviet era are being evaluated, and the rehabilitation of the underground work of the Rogun hydropower plant has been initiated. 20 x Attracting private and donor funding to develop hydropower and regional transmission infrastructure to develop export markets and generate stable revenues that would contribute sustained growth. x Prioritizing construction of transmission lines for their connection to the national grid (about 300 km), including PTL 500 kV Dushanbe–Sangtuda I, enhancing the national dispatch center with SCADA, and construction of PTL 220 kV Khujand-Aini with substations. 48. Rehabilitation of Rogun Hydro Power Plant has resumed since 2008. The construction of the Rogun HPP is of the highest strategic importance to address Tajikistan’s energy deficit and thus lay the foundation for future growth and poverty reduction through employment generation. Work on the project, which was initiated in 1983 and substantially damaged by a flood in 1993, was resumed in 2008 with a view to rehabilitate the project site to its pre-1993 status and to commission the first two turbines by 2014. The government has recently established Rogun Open Joint Stock Company (Rogun OJSC) with an authorized capital of SM 6 billion that will be state owned for 75 percent. The remaining 25 percent of the shares (SM 1.5 billion) is currently being sold to the public that so far has contributed SM 800 million (USD 180 million). The government’s share will be paid for by budget transfers throughout the construction contingent to the preparation of a sound financial plan. Recently, the government has reached an agreement with the IMF in the context of the ongoing ECF to suspend public campaign for share sale to the population. Further share sale will be reassessed against the financing options of the country and the outcome of the WB economic and social and environmental studies. To ensure full transparency and a strong governance structure for the Rogun project, the government is planning to set up a supervisory board to oversee all financial aspects of the Rogun OJSC. It will publish regularly report to the public about the sources and uses of funds, including detailed information on the contractors hired by Rogun OJSC, their ownership structure, and the bidding process used to award all contracts. 49. As part of its efforts to meet health care MDGs, the government intends to improve access to safe water. Evidence shows that a high rate of infant mortality is highly correlated with limited access to safe water.17 According to the 2007 TLSS, 38 percent of respondents rely mainly on lakes, streams, rivers, or unprotected wells for drinking water, especially in rural areas. Given high rates of contamination among these water sources, this situation compromises health outcomes through high risk of gastric illness, cholera, and typhoid. Coverage of water supply services is reported to be 59 percent nationwide (93 percent in urban areas and 47 percent in rural areas). Service hours in urban areas have declined, and bacteriological water quality is no longer safe. In rural areas, many systems are inoperative due to the lack of maintenance and trained operators. Piped wastewater collection reaches about 15 percent of the population (44 percent in urban areas and 3 percent in rural areas), reflecting very little improvement over the past two decades. Many wastewater treatment plants operate at reduced capacity, which lowers treatment efficiency. To meet its MDG targets by 2015, Tajikistan would need to increase coverage of safe water supply services to 79 percent of the total population—a target that is made even more difficult to reach by high population growth rates. With the support of the Bank and other development partners (the European Bank for Reconstruction and Development 17 The World Bank. May 2009. “Multi-sectoral Determinants of Child Mortality in Tajikistan.” Unpublished draft. 21 (EBRD) and the Kreditanstalt für Wiederaufbau – Entwicklungsbank (KfW Development Bank)), the government is in the process of rehabilitating the water supply and sewage system in the main urban areas. 50. Strengthening Tajikistan’s stock of human capital will be a significant challenge with important implications for medium-term growth. Insufficient and inequitable allocation of public resources to the education and health sectors, together with the exodus of workers overseas due to limited job opportunities and low wages, has contributed to an acute skill shortage in the country and thus to a lowering of productive capacity and support for private sector growth. The government’s anti-crisis action plan includes a small training program for returned migrants as well as a small public works program to create jobs. The government is committed to increasing social spending in order to maintain poor people’s access to basic social services in a time of crisis and to deepening institutional and policy reforms in the social sectors in order to strengthen human capital. IV. WORLD BANK GROUP ENGAGEMENT A. Bank Group Track Record i. Portfolio performance 51. The size of the Bank’s portfolio has remained stable over the last four years, with the agriculture, energy, and water supply infrastructure sectors receiving almost 70 percent of total financing. During FY06-09, the portfolio included an average of 15 investment projects and one development policy operation (DPO) each year. At the end of FY09, the portfolio consisted of 16 investments, with commitments amounting to US$187.5 million, of which about US$102 million were grants (IDA, Global Environment Facility (GEF), and trust funds). About 60 percent of outstanding commitments have been disbursed. An Emergency Food Crisis Grant of US$5 million and a DPO of US$20 million were fully disbursed in FY09. The average portfolio age is 4.1 years. The largest share of the portfolio is in agriculture (31 percent), followed by energy and water supply infrastructure (20 percent each), education (16 percent), health (8 percent), and public sector (5 percent). Ongoing IDA operations in education and agriculture are complemented by two stand-alone projects financed out of Bank-administered trust funds for a total of US$23.4 million.18 Trust funds form an important part of the Bank’s Tajikistan portfolio, amounting to US$60.4 million in active commitments. Sectors of focus include health, education, food security, private and financial sector development, agriculture, and energy. 52. The pace of IDA financing has picked up, and portfolio risks have been mitigated. The financing of the previous CPS has included both grants and loans, as the debt sustainability outlook changed during the CPS period. The disbursement ratio increased from about 18 percent during FY07-08 to 40 percent at the end of FY09, the highest in the ECA region (for which the average is 16.6 percent). In tandem with the acceleration of project implementation, 18 These include the Education for All Fast-Track Initiative (EFA-FTI, US$18.4 million) and the fully disbursed Food Security and Seeds Import Project (US$5 million) financed out of the Food Price Crisis Trust Fund. 22 commitments at risk intensified from 5.6 percent in FY07 to 28.5 percent in FY09. The rising number of problem projects was largely attributed to difficulties in implementing project-related structural reforms and slow progress in building implementation capacity. Thanks to regular Country Portfolio Performance Reviews (CPPR), the 2008 Country Portfolio Fiduciary Review (CPFR) and close monitoring by the country team, problems have been addressed within 12 months and non-performing projects were restructured before the end of FY09.19 53. Since 2004, Country Portfolio Performance Reviews (CPPRs) have been carried out with the Asian Development Bank (ADB) and joint action plans have been implemented.20 The most recent joint portfolio review (December 2009) focused mainly on improving the implementation of ongoing operations and ensuring development impact and sustainability of the Bank’s operations. The review recommended the following: (i) strengthening the capacity of implementing agencies, especially procurement, financial management, and monitoring and evaluation; and (ii) ensuring retention of capacities in the implementing agencies with a view to enable line ministries to implement projects in the long term and ensure sustainability of the Bank’s operations. 54. The 2008 CPFR revealed that the great majority of Bank-financed projects were being managed satisfactorily. However, a number of deficiencies were noted in physical inspections of civil works in nine projects, which is an area that has not received adequate attention during project supervision. The review also highlighted weaknesses in contract management, systems and procedures, staff capacity, and understanding of Bank requirements and procedures for procurement, disbursement, and financial management. It was noted that capacity in PIUs was generally stronger, as these units were able to attract better-qualified and more experienced staff. On the other hand, projects implemented directly by recipient agencies faced greater capacity constraints and lower performance standards. Addressing these weaknesses in project implementing agencies will be a priority during the CPS period. In addition, as Tajikistan’s overall governance environment continues to pose risks to the effectiveness of Bank operations, the CPS program will work to manage country-level fiduciary risks and improve transparency in public financial management. At the project level, the Bank will mitigate these risks through implementation of the newly developed CGAC strategy (Annex 3), including through the use of a Governance Checklist to ensure that fiduciary and other governance considerations are integrated into program design and supervision. 55. IDA will regularly monitor its portfolio through follow-up fiduciary reviews, and procurement and financial management training will be provided to the PIUs. Efforts will also be made to manage fiduciary risks in trust-funded activities, including by better integrating PIUs and implementing agencies, strengthening supervision, and ensuring that these activities do not overwhelm limited administrative capacity. 19 The pro-activity index at the beginning of FY10 is 100 percent, which means that within 12 months after a project was rated unsatisfactory, appropriate action was taken. In FY2008, problem projects were Land Cadastre, Dushanbe Water Supply, and Cotton Sector Recovery. Potential problem projects were Avian Flu Risk Mitigation and Energy Emergency. The Dushanbe Water Supply, Land Cadastre projects, and Avian Flu were restructured in June, July, and December 2009, respectively. The Cotton Sector Recovery was restructured in March 2010. 20 Implementation of the detailed action plan developed jointly by the Government of Tajikistan, ADB and WB (approved in December 2008) is being monitored closely and serves as the basis for tracking performance of the ongoing portfolio. 23 56. IFC’s investment and advisory services portfolio has continued to expand, with strong results. In FY05-09, IFC invested a total of US$32.0 million in ten projects. Of this amount, US$23.0 million was in 8 projects in the financial sector, including US$6.3 million for microfinance. In addition, IFC approved US$2.5 million trade finance to Eskhata Bank under its Global Trade Finance Facility. In the real sectors, IFC invested US$9 million in two projects in the energy and hotel sectors. IFC commitments grew strongly in recent years, reaching around US$16 million in both FY08 and FY09 (from less than US$1 million in previous years). Investment projects have provided access to finance for micro, small and medium enterprises (MSMEs); strengthened access to electricity in remote areas; and created jobs. Advisory Services (AS) spending has grown to nearly US$3 million annually, with demonstrable results in the financial sector and policy arenas. The Tajikistan leasing portfolio across all financial institutions grew by 860 percent from 2006 to 2008, reaching US$21.7 million. AS projects made significant contributions to the passage of the Inspections Law, Mortgage Law, and Credit History Law, and implementation of simplified taxation mechanisms. IFC manages US$11.8 million in active trust fund commitments, focusing on the business enabling environment, SMEs, banking, microfinance, and agricultural finance. 57. IFC’s engagement in Tajikistan is limited by the size of potential investments and high levels of public ownership and control of private sector enterprises, but combining investment and AS is addressing these challenges. IFC’s global expertise, together with a significant local and regional presence, is a strong formula for results in an IDA country such as Tajikistan. Business environment reforms take several years of advisory and implementation assistance to show results. For example, after many years of working on inspection reforms, the Business Enabling Environment Bank (BEE) project is finally beginning to produce concrete results for businesses. Similarly, success on the Leasing and Mortgage Laws has or is expected to pave the way for expansion of these markets. On the other hand, with a relatively undeveloped manufacturing and industrial base, investment and AS in the real sectors is a continuing challenge. ii. Implementation of the last CPS 58. Implementation of the CPS program for FY06-09 has proceeded largely on track, albeit with some delays. The mix of investment and development policy operations has been consistent with the CPS, though the program has been modified at the margin based on government requests and emerging needs. For example, given strong progress on poverty reduction, the government felt that another poverty alleviation operation was unnecessary and Poverty Alleviation III was cancelled. Instead, additional financing was provided to three existing operations (Community and Basic Health Project (CBHP), Pamir Private Energy, and Dushanbe Water Supply). In 2008 three new emergency projects were launched in response to the energy and food crises: the Energy Emergency Recovery financed out of unallocated IDA14 and the Emergency Food Security and Seed Imports and additional financing to CBHP financed by the Food Price Crisis Trust Fund. Preparation and delivery of some operations (treasury modernization, sector-wide approach (SWAp) for education) took longer than expected due to operational complexities, donor coordination delays, and government capacity limitations. The Health SWAp under preparation was postponed due to limited IDA funding, and half the allocation envisioned in the previous CPS was reallocated as additional financing for the CBHP in 2009. 24 59. A series of Programmatic Development Policy Grants (PDPG) drove policy dialogue with the government and helped coordinate implementation of the CPS program. As such, the PDPG contributed to the achievement of a significant share of CPS results in coordination with IDA sector departments, IFC, and other development partners. Its agenda was broad, touching on all of the core areas of the CPS, including private sector development, agriculture, energy, education and health services, public sector reform, and public financial management. PDPG implementation was most successful in areas that benefited from strong government ownership, complementary technical assistance, consensus among development partners on the way forward and long-term engagement on the part of the Bank Group.21 Drawing from this experience, continued PDPG implementation is expected to help deepen progress on the country’s ongoing reform agenda and to support reforms in emerging areas. 60. Analytical and advisory activities (AAA) have helped understand and demonstrate the benefits of reform in areas where there is limited buy-in from the authorities. A policy note on aviation paved the way for Bank Group engagement on removing constraints to accessing Tajikistan by air. The 2007 and 2008 Programmatic Public Expenditure Reviews (PPERs) have underpinned coordination with other donors working in the social sectors (education, health, and social protection) and thus helped improve public service delivery by strengthening linkages between sector policies and budgeting. A Poverty Assessment and subsequent update, based on the 2007 TLSS, have shed light on the nature and extent of poverty in Tajikistan, helping to target assistance programs to those most in need—particularly in the context of the ongoing crisis. The effectiveness of some AAA has been constrained, however, by delays in delivery and uptake due to weak planning on the part of the Bank team. 61. Though many of the results anticipated in the CPS have been achieved, it has become clear that some objectives were somewhat ambitious given limited capacity and weak government commitment to structural reforms in Tajikistan. The impact of the first pillar—fostering broad-based growth in urban and rural areas—has been moderate, with some progress in improving the business climate and enhancing access to finance. The gains that have been made are at risk due to the global crisis and the government’s policy of financing the cotton sector through banks. Agricultural reforms remain incomplete, though cotton-grading standards have been introduced and the practice of cotton exports licensing by the NBT has been eliminated. Objectives under the second pillar—preserving and enhancing the quality of health and education—have been met for the most part. School attendance and completion rates, and provision of health services have improved in regions where the Bank has provided support. In the health sector, however, high out-of-pocket payments, combined with increasing hardship as a result of the economic crisis, have caused utilization of health services in project areas to decline. Access to clean water has improved in Dushanbe, but preliminary data suggest that overall access has not changed since 2003. Objectives under the third pillar—improving delivery of energy services and exploiting the country’s hydropower potential—were partially achieved. The poor quality of energy supplies for the domestic market and weak corporate governance in the energy and water sectors continues to constrain production. Though good progress has been 21 An Implementation Completion and Results Report (ICRR) for the Tajikistan PDPG is under preparation and will provide a thorough assessment of the program’s contribution to the country’s reform agenda in a difficult environment. 25 made in developing a regional energy market, further large hydropower investments will be required together with regional diplomatic initiatives to address geopolitical concerns. 62. CPS interventions to improve governance and state capacity were below expectations. The CPS emphasized governance and capacity building as crosscutting themes, but interventions were limited to working with the central government. Some progress has been made, in particular on civil service wage reform and recruitment, adoption of a public financial management strategy, and promulgation of a new procurement law. Progress on public sector restructuring has been less noticeable given the lack of an appropriate counterpart for the overhaul that was envisaged. In general, the impact of the CPS program on the broader governance picture in Tajikistan has been minimal. 63. The main lesson learned from CPS implementation is not to overburden an administration that suffers from poor capacity in planning, coordination, and execution with an ambitious agenda. Moderate realism in program design, combined with strict prioritization, can go a long way in ensuring the prompt delivery of results. A selective approach helps to scale down overambitious goals, manage expectations, identify sources of risk, and provide effective, appropriate capacity building support. While additional legal amendments in selected areas will continue to be necessary, the next strategy should focus on implementing the laws and strategies already in place, and, when trying to arrive at new institutional frameworks, draw first on experimentation and dialogue rather than imposing new designs before attaining sufficient understanding and buy-in from the authorities. 64. The CPS Completion Report (Annex 5) completed in October 2009 provides strategic and operational recommendations for the preparation of a new CPS. While both the CPS agenda and the government’s 2007 PRS remain valid, the current global crisis has added new urgencies that must be addressed within a long-term framework to prevent the recurrence of slippages that took place over the last four years. Strategically, the CPSCR recommends that the new CPS review the relevance and adequacy of ongoing operations and focus on achieving realistic results in the context of current economic challenges and the country’s capacity to meet them. The new CPS should thus aim to help Tajikistan develop the capacity to address shocks, rebuild credibility and strengthen governance, increase energy potential, enable private sector development, and consolidate fragile gains in health and education by further strengthening the relevant ministries and scaling up successful pilot initiatives. Operationally, the CPSCR recommends that the new CPS pursue greater selectivity; embed the capacity development and governance agendas fully into sector work and, where necessary, assess ownership and commitment capacity through political economy analysis; retain the mix of budget support and investment operations; disseminate the results of AAA to generate broad public understanding of and support for reforms; and adopt a gradual approach to harmonization among development partners in order to improve implementation performance and reduce costs. The CPS experience shows that reforms can be achieved under a program that is well targeted with well-defined outcomes, and that is underpinned by solid AAA, TA, and sufficient time and resources dedicated to policy dialogue and capacity development. 26 B. Proposed WBG Strategy i. CPS objectives 65. In line with government priorities and the lessons learned through past implementation, the CPS is designed to focus on two objectives: (i) reducing the negative impact of the crisis on poverty and vulnerability; and (ii) paving the way for post-crisis recovery and sustained development. In order to support sustainable progress toward these objectives, efforts to improve core governance will be tackled directly and also mainstreamed across the CPS program within the context of the CGAC strategy (Annex 3). Attention to capacity development and gender equality will be mainstreamed across sectors and projects. 66. The CPS will rely on a mix of instruments, including the continuation of the PDPG series, investment activities, and targeted AAA. Selectivity within and across sectors, and according to the Bank Group’s comparative advantage in relation to other development partners, will be critical given the limited resources available. The indicative IDA15 allocation for Tajikistan is projected to be about US$86.6 million (SDR 55.9 million), about 13 percent lower, in absolute terms, than under IDA14 (SDR 64.6 million). About US$30 million of the IDA15 envelope was allocated in FY09 to implementation of the CPS for FY06-09. The remaining allocation (about US$57 million) will finance the first two years of the CPS. More than half the IDA15 allocation will support the PDPG, and the remainder will be distributed across investment activities. Trust funds, which will almost match the IDA allocation in FY10-11, will continue to play an important role in supporting the CPS program. In addition to these resources, Tajikistan will receive additional funding equivalent to US$23.4 million (SDR 15.3 million) in FY10 from the IDA Crisis Window to address the impacts of the global crisis and it may be eligible to access IDA regional funds and IBRD enclave loans for economically viable infrastructure. ii. Expected CPS results 67. The expected results of the proposed CPS program are listed in Table 3 below. Table 3: Summary of Expected Results from CPS Implementation CPS Objectives Expected Results Reduce the negative impact 1. Maintain fiscal stability of the crisis on poverty and 2. Maintain access to critical public services vulnerability 3. Reduce risk for vulnerable groups through enhanced social protection Pave the way for post-crisis 4. Strengthen the business-enabling environment recovery and sustained 5. Improve conditions for a sustainable increase in agricultural productivity development 6. Improve reliability and efficiency of electricity and gas services and increase energy export potential 7. Improve the provision of safe water in Dushanbe and selected municipalities 8. Strengthen the quality of public services to enhance human capital potential Mainstream core 9. Strengthen incentives for better performance of civil servants governance reforms 10. Improve transparency and accountability in public financial management 27 68. Governance reforms cut across the entire CPS program. The Bank Group’s governance interventions will take three forms: (i) transparency and accountability measures; (ii) capacity development; and (iii) supporting demand for good governance. These interventions will be carried out at the country, sector, and project levels. This approach to “mainstreaming” governance reform has been developed in response to lessons learned under the previous CPS, where efforts to address governance were restricted to the central government level and not well integrated into sector approaches or individual program design. Mainstreaming does not mean abandoning central-level governance reforms, but complementing them with an equal emphasis on sector- and project-level interventions. While core governance initiatives such as public sector reform and public financial management will be tackled directly at the country level, Bank support to governance reforms at the sector level will be mainstreamed across all expected CPS results with heightened attention to priority areas (private and financial sector development, agriculture, and energy). At the project level, the Bank will apply a Governance Checklist to all new projects and additional financing throughout the project cycle in order to ensure that project design helps strengthen transparency, accountability, capacity, and demand for good governance, while safeguarding against political economy and fiduciary risks. Objective I: Reduce the negative impact of the crisis on poverty and vulnerability 69. Result 1: Maintain macroeconomic stability. Macroeconomic stability is a prerequisite for both short-term economic viability and medium-term recovery. The CPS program, jointly with the IMF’s ECF, will help Tajikistan develop and maintain a positive track record of stable macroeconomic management to bolster investor confidence in the economy’s potential. The CPS will provide financial support and TA on fiscal and expenditure management to help the country address the ongoing economic crisis in the context of limited fiscal space and without harming its debt sustainability. This will contribute to strengthening governance by supporting the development of central government capacity to transparently manage its finances. IFC will contribute to macroeconomic stability through direct investment in the real economy, as well as through investments in financial institutions to expand access to finance for MSMEs in order to help maintain and create jobs, support trade finance, and attract further foreign investment, thus creating demonstration effects for other investors. 70. Result 2: Maintain access to critical public services. There is an urgent need to ensure that access to education and health services is preserved during the economic crisis, especially for the poorest segments of the population. Through the PDPG, IDA will provide budget support to help the government protect pro-poor spending in the education and health sectors, focusing resources on the most critical areas of basic and general education and primary health care (PHC). The Education Modernization project and the Education for All-Fast Track Initiative Catalytic Fund (EFA-FTI CF) are helping to maintain access to education through the rehabilitation of school infrastructure, provision of higher-quality equipment and textbooks, upgrading of personnel capacity, improvement of management capacity, and strengthening of education spending efficiency. Additional financing provided to the CBHP will scale up efforts to introduce capitation and output-based payments for PHC, building on reforms financed by the United States Agency for International Development (USAID). In addition, the project will rehabilitate PHC facilities in selected areas and expand training of doctors and nurses. Efforts to 28 improve the efficiency and transparency of spending on education and health will also support the governance agenda. 71. Result 3: Reduce risk for vulnerable groups through enhanced social protection. To mitigate the vulnerability of poor people during the crisis, the CPS will support efforts to reduce food insecurity, create short-term employment opportunities, and strengthen management of the social protection system. To support the immediate food security of the poorest farmers and female-headed households and help these groups recover production losses, IDA will allocate additional financing to the Food Security and Seed Import project to provide inputs needed for agricultural production and livestock management. The Second Community Agriculture and Watershed Management project will help provide rural people in uplands (non-cotton growing) areas with investment capital and skills needed to increase agricultural yields. The CPS will also support activities to generate jobs and income, especially in rural areas. Additional financing provided to the Ferghana Valley Water Resources Management project and a new Emergency Employment program, financed by the EC and administered by IDA, will support rehabilitation of irrigation and drainage systems, thus creating short-term employment in key areas of the country. In addition, it will support the development, adoption, and implementation of an integrated policy and institutional reforms necessary for the effective management of the country’s water resources through strengthening the linkages between the agriculture development and water resource management strategies to ensure sustainable and environmentally friendly development. Finally, IDA will provide TA to improve targeting and administration of the safety net system as a whole, and to strengthen administration and capacity for pension policymaking. The TA will be designed to complement PDPG support for the development of a methodology for effectively targeting social assistance. IDA will also collaborate with the EC to assist the government in developing and implementing a social protection strategy. Efforts to increase coverage and reduce leakage in social protection benefits will bolster governance reforms. Objective II: Pave the way for post-crisis recovery and sustained development 72. Result 4: Strengthen the business-enabling environment. The Bank Group will continue to support government initiatives to improve Tajikistan’s Doing Business ranking. The IFC’s BEE project seeks to reduce administrative barriers in inspections and permits and to lower tax compliance costs by simplifying tax administration. The IFC BEE project is working with the government to significantly reduce the number of permits applied to businesses through a quick review methodology, generating cost savings for the private sector and setting the groundwork for Regulatory Impact Assessment in Tajikistan. Through its Agri-Finance and Business Environment program, IFC will help strengthen the regulatory framework for private investment, improve access to finance for agri-business via investments in financial institutions (banks and microfinance institutions), and support leasing development. The project will work with financial institutions to build capacity to evaluate credit for medium-term leasing and equipment finance products, resulting in improved access to finance and equipment for agribusiness to improve productivity. Governance reforms related to private sector regulation are critical to fostering private sector growth and employment creation. The IFC infrastructure advisory service’s assistance in conducting an international tender for the exploration and development of the Bolshoi Konimansur silver deposits is intended to have demonstration effects 29 for the transparency of the broader international tender process, thus helping to attract the foreign investment needed for large infrastructure projects. IDA will work with other development partners to strengthen the capacity of the State Property and Investment Committee through ongoing TA. IDA will also work - in collaboration with the UK DFID and the Doing Business Reform Advisory Team - with the relevant Tajik institutions to simplify business start-up, construction permits, property registration, and border trading procedures that are instrumental for private sector development in Tajikistan. IDA will also work with the relevant institutions to simplify construction permits, property registration, and border trading procedures that are instrumental for private sector development in Tajikistan. The multi-year PDPG will provide the framework for policy dialogue to push these reforms forward.22 IDA will also explore the growth potential of the mining sector, conducting a mining institutional assessment through a grant from the Institutional Development Fund, reviewing the mining law, and undertaking in-depth mining sector reforms under the PDPG.  73. In the financial sector, the immediate priority is to strengthen governance of the NBT by increasing its capacity and restoring its credibility in full. Through a grant from the Financial Sector Reform and Strengthening (FIRST) Initiative, IDA will continue to provide TA to help improve financial stability and strengthen access to financial services; IDA may also support a project on strengthening access to finance, if warranted on the basis of a planned rural investment climate assessment (RICA).23 IDA will help the authorities finalize and implement a medium-term financial sector development strategy and action plan, drawing upon the recommendations of the 2008 FSAP and focusing on sustained improvements in the legal and institutional framework. IFC will provide investment funds, including debt, equity, and trade finance to financial and microfinance institutions. IFC will provide AS on financial risk management, credit management, and development of a private credit bureau. Over the medium term, IFC will work with the government to expand secure access to finance for individual consumers and MSMEs under the Azerbaijan and Central Asia Financial Markets Infrastructure project and Microfinance Transformation project. The Azerbaijan and Central Asia Financial Markets Infrastructure Project will increase the availability and use of credit information for financial institutions to evaluate borrowers; the Microfinance Transformation Project works with microfinance institutions that are existing or potential IFC investment clients to expand deposits and the range of financial services, leading to increased ability of microfinance institutions to raise funds in the market. 74. Result 5: Improve conditions for a sustainable increase in agricultural productivity. The recent government resolution to resolve the outstanding cotton debt and enhance freedom to farm will help enable the realization of agricultural sector potential. These initiatives will also support efforts to lower rural poverty because cotton producers—particularly in the Khatlon and Sogd regions—are the poorest and most food insecure people in rural areas. The CPS will support efforts to develop a sustainable solution for rural finance, as the new cotton financing mechanism of on-lending budgetary funds to the agricultural sector through commercial banks poses considerable risks to the banking system and to agricultural sustainability. IDA will 22 Key partners in this area include the EC, Swiss Economic Cooperation (SECO), United Kingdom Department for International Development (DFID), and USAID. 23 The RICA will be carried out with support from DFID. 30 support implementation of the government’s action plan to secure land use rights, eliminate government intervention in cotton production, and resolve farm debt. 75. Policy dialogue on these issues will be underpinned by AAA (including the RICA), PDPG, and existing investment operations on the Land Cadastre Registration System and Cotton Sector Recovery.24 The Bank Group will also increase its support to non-cotton areas. The Community Agriculture and Watershed Management project is working to reduce land degradation, soil erosion and water pollution.25 Additional financing will be provided to the Ferghana Valley Water Resources Management project to support the rehabilitation of irrigation and drainage systems, and a new Emergency Employment program will support government efforts to rehabilitate irrigation systems in Soghd and Khatlon oblasts. IFC’s Agri-Finance and Business Environment project will continue to improve agricultural finance in the cotton sector, helping to support the governance agenda. IFC will also seek investments in private agri- business companies. 76. The improvement of agricultural productivity will depend in part on efforts to prevent, mitigate and adapt to disaster and climate change risks under the newly launched regional disaster risk mitigation (DRM) program. Tajikistan has been selected as one of nine pilot countries taking part in the Pilot Program on Climate Resilience (PPCR), which is expected to bring an additional fund about US$35 million in grant resources to support initiatives such as drought-proofing agricultural activities, strengthening resilience to climate change among vulnerable rural populations, modernizing hydromet services, developing a water adaptation plan for the Amu Darya river basin, and reducing financial vulnerability (among households and in the broader economy) to the adverse impacts of disasters and climate change. Tajikistan is also one of three countries benefiting from a regional project, funded by the Global Facility for Disaster Risk Reduction (GFDRR), on improving weather and climate service delivery in high- risk, low-income countries. CPS support for the elimination of hazardous Persistent Organic Pollutants (POPs) will help reduce the risk of land pollution and help Tajikistan meet obligations under the Stockholm Convention on POPs. 77. Result 6. Improve the reliability of electricity and gas services and increase energy support potential. In the short run, IDA will continue to support government efforts to urgently increase the volume and reliability of energy supply through an additional financing to the Energy Emergency Recovery Assistance Project by pooling $15 million IDA funds with government budget and other donor resources to ensure reliable gas supply to the Dushanbe combined heat power (CHP) plant, electricity supply from commercial hydropower entities and electricity imports for the 2009-2010 and the 2010-2011 winters. IDA will continue supporting loss reduction in the power system through a follow up to the Energy Loss Reduction Project which will also strengthen Barki Tajik’s planning, financial management and operational functions. 24 IDA’s Cotton Sector Recovery Project is being restructured to provide a credit line for post harvest finance and support to farmers to raise production through reputable commercial banks. 25 These represent the three environmental issues with the most detrimental impact on GDP. See World Bank. 2008. Country Environmental Analysis. 31 78. Developing hydropower in a responsible way will secure the country’s energy supply and gradually generate electricity export revenues. The World Bank recognizes the unique value hydropower brings to the Central Asia region. It also recognizes the close connections to difficult issues of water management, connections that are even more important in the context of climate change. As part of a regional program on energy and water, the World Bank will work with the Government of Tajikistan and regionally recognized institutions to strengthen the technical and institutional basis for cooperation on energy and water and, over time, for mutual economic, environmental and social benefits. In addition to regional benefits, this work will increase attractiveness of hydropower investments in Tajikistan and reduce risks related to water management. IFC will be examining hydropower investments in Tajikistan for potential investment. 79. The Bank and the government agreed to join efforts to revise and refine the 2007 energy strategy and align it with the government’s long term objectives. The management of the isolated power system requires the development of stronger planning, engineering and operation functions in addition of reinforcement of commercial functions. The Bank has already incorporated capacity building in the projects under implementation at the country level and these efforts will be amplified in follow up projects under consideration. Complementary needs will be identified during the preparation of the energy strategy under preparation by the World Bank in cooperation with Tajik authorities and energy institutions. The World Bank Group and the Government of Tajikistan energy partnership will focus on: (a) electricity loss reduction, (b) improving energy system efficiency and security, and (c) development of hydropower resources of the country, including for the purpose of export. 80. In terms of engagement in large hydropower programs such as Rogun, the Bank is supporting the preparation of comprehensive technical, social and environmental assessments. Subject to confirmation of the project’s technical soundness, economic viability and compliance with all relevant environmental and social safeguards – the World Bank would consider leading the consortium to implement the Rogun project. Tajikistan has a significant potential to achieve increased production from the rehabilitation of existing hydropower facilities, such as Nurek and Karaikkum, and these programs will be evaluated further. Regional transmission programs for power exchange, such as CASA1000 and other transmission linkages would be evaluated and implemented. The World Bank Group is committed to ensuring that regional projects are proven to be economically, socially and environmentally sustainable at the regional level. To meet the funding requirements of many of these projects, the Bank would consider IBRD enclave loans, partial risk guarantees for projects that increase exports to reliable power off-takers in the region which could lead to sufficient credit enhancement for loan repayment. Hydropower projects with private sector participation and sufficient credit quality will be considered for IFC loans and equity participation. IFC also remains willing to support regional transmission projects with private sector participation, subject to their feasibility. The Bank plans to access Regional IDA resources for projects that strengthen regional cooperation and increase power exchange/trade leading to optimal use of resources. 81. Result 7: Improve the provision of safe water in Dushanbe and selected municipalities. Under the CPS, IDA will continue to improve access to safe water in the capital city (with a population of 600,000, one-quarter of Tajikistan’s urban population) through a repeater project, Dushanbe Water Supply. This operation will help reduce poverty through the 32 provision of continuous safe water. The program will also support governance improvements by reducing wastage and improving efficiency and transparency through extended metering of households, public institutions, and industries, and by strengthening the corporate governance of SOEs through the corporatization of the Dushanbe Municipal Vodokanal. Should the central government and Dushanbe municipal governments wish, the additional financing could also be used to strengthen the role of the private sector through outsourcing of selected functions to specialized private companies. These efforts will also help mitigate the economic crisis through employment generation. IDA will also provide additional financing to the ongoing Municipalities Development project to increase access to safe water in eight other municipalities. 82. Result 8: Strengthen the quality of public services to enhance human capital potential. In education, the government’s National Strategy for Education Development (NSED) for 2006-2015 and its associated action plan provide a common framework for a SWAp to be supported by development partners. In addition, IDA’s Education Modernization project will continue to support the institutionalization of fair and transparent student assessments, upgraded training modules for teachers, improved monitoring and evaluation, and policy reform. In parallel, the FTI CF26 will help scale up reform efforts supported by the previous CPS in education financing, school infrastructure rehabilitation, and education management. Key governance reforms in the education sector include increasing transparency and accountability through per capita financing, and improving fairness and transparency in university admissions through unified university entrance examination. Finally, the Bank is cooperating with Russia to implement a program to Improve Central Asian Migrants’ Life Skills, including improving their understanding of Russian labor regulations and procedures and building financial literacy. This initiative will give Tajikistan’s migrant workers a stronger understanding of their rights and raise their bargaining power and marketability abroad. 83. In health, the CPS will scale up ongoing efforts to improve the equitable allocation of resources and efficiency in health service provision, thus improving quality of care. Priorities include scaling up per capita financing for PHC, introducing output-based financing for hospitals, reforming payment systems in PHC centers and hospitals, rehabilitating infrastructure, and training medical and fiduciary staff in the Ministry of Health (MoH). These initiatives will help strengthen governance in the health sector through improved transparency and fiduciary capacity. 26 In December 2005, the ECA-FTI CF agreed to grant US$18.4 million to Tajikistan in support of the NSED. The first-year allocation (FTI-1) of US$9.2 million was made available in mid-2006. The Ministry of Education (MoE) is implementing the second-year allocation (FTI-2) and is preparing an application package for the third year to be considered by the FTI-CF in October 2009. 33 Crosscutting Initiatives to Support CPS Objectives 84. To achieve the above objectives, the CPS will place governance at center stage. Strengthening governance systems is crucial for ensuring long-term development effectiveness. In addition to direct, country-level work on public sector reform and public financial management (Results 9 and 10), governance will be mainstreamed in sectors and projects— especially in agriculture, energy, and private and financial sector development—to support achievement of the objectives in the context of the CGAC strategy (Annex 3). Moreover, there is a need to better understand governance at all levels in Tajikistan. In this context, the CPS will carry out an Institutional and Governance Review (IGR) with a focus on national-subnational government relations, exploring the relationships between the institutional structure and governance outcomes, such as service delivery at the local level. The key sectors to explore the structure of national-subnational relations are energy, rural development, health and education. The CPS will also explore the potential for Tajikistan’s participation in the Extractive Industries Transparency Initiative (EITI), which promotes the publication and verification of company payments and government revenues from resource extraction. These initiatives represent critical steps along the long-term path to strengthening governance in Tajikistan. As shown in other countries with governance weaknesses, progress on governance reforms in Tajikistan will require patience and perseverance. 85. Result 9: Strengthen incentives for better performance of civil servants. The government is working to develop a new Law on the Organization of Public Administration, which will establish the hierarchy, competences, and accountability of public entities in Tajikistan. Functional reviews are planned in seven ministries, followed by the preparation of detailed institutional development plans by the end of 2010. The Bank will support these efforts through the ongoing Public Sector Reform project, though it is anticipated that progress will remain slow in the absence of a dedicated unit within central government that is responsible for leading and coordinating the reform effort. Under this CPS, the Bank will work with the government to achieve greater synergy between central public administration reforms and sector reforms aimed at strengthening the efficiency and effectiveness of social service delivery. This will be achieved through targeted institutional restructuring in the sectors, improved planning and budgeting, introduction of merit-based recruitment and performance appraisal systems linked to pay and career progression, and support for capacity building and accountability in the civil service. The PDPG will support policy actions in this area. 86. Result 10: Strengthen transparency and accountability in public financial management. To help ensure that scarce public resources are used for their intended purposes, the Public Financial Management Modernization project will support reforms outlined in the action plan for the government’s Public Financial Management Reform Strategy. In collaboration with development partners, this project will focus on improving the basic building blocks of public financial management (budget preparation, budget execution, public accounting, and fiscal reporting); reforming business processes and institutional arrangements; and strengthening capacity. The PDPG will support the government’s ongoing efforts to strengthen transparency and accountability through the establishment of an independent external audit agency. IDA will work with the government to develop an information and communication technology (ICT) or “e-government” strategy to improve efficiency in public service provisioning using limited public resources. IDA’s work on public financial management and 34 SOE corporate governance will be undertaken in collaboration with the IMF’s ongoing ECF. A multi-donor trust fund on Public Finance Voice and Accountability (PFVA) will help create visible citizen demand for efficient and effective use of state finances to upgrade essential public services by strengthening Parliamentary oversight, media communication and citizen involvement in public finance and service delivery. 87. Recognizing the significant capacity constraints faced by the government, and their potential role in slowing implementation of the CPS program, the Bank Group will focus on capacity development and human capital formation across interventions. The CPS will continue existing efforts to build capacity in key ministries involved in the execution of CPS programs, focusing on both institutional reforms and skills training. Ongoing TA on macroeconomic management will be underpinned by training for civil servants on fiscal and expenditure management. Programs in the education sector will focus on strengthening policy development and management capacity within the Ministry of Education, together with training programs for teachers and migrant workers. Health sector initiatives will strengthen capacity to administer a basic package of health services at central and local levels. Work in the agriculture sectors will support training for communities on productive farming techniques, farmland restructuring, and micro-credit principles. Infrastructure development programs in energy and water will focus on strengthening technical and financial management capacity of relevant SOEs. Support for public sector reform and public financial management modernization will include substantial capacity development components, including development of new training modules on organizational management and human resources management, knowledge transfer and change management workshops, and in-service training to help improve the effectiveness and efficiency of public financial management in the public administration. Across the program, application of the Governance Checklist will ensure that the design and review of individual projects takes into account capacity development needs and opportunities. The World Bank Institute (WBI) will buttress the country team’s efforts to build capacity development into the design of specific projects and programs (paragraph 103). The CGAC strategy will review capacity development experience during the last CPS and provide recommendations for improved project-based capacity development results framework. 88. The CPS will also mainstream efforts to address gender disparity in Tajikistan, recognizing the important contribution that gender equality can make to economic growth and poverty reduction, and thereby the achievement of the MDGs. Gender disparities in Tajikistan are significant, despite existing legal frameworks intended to manage them. The ratio of female-headed households is high in Tajikistan as a result of the civil war, the migration of young men to other countries in search of work, and the lower life expectancy of male workers. Nearly 35 percent of Tajikistan’s migrant households and 17 percent of non-migrant households are headed by women. Female-headed households are highly dependent on remittances and thus more vulnerable to shocks. Though women account for half of the country’s active labor force, their participation is low and their earnings are lower than those of male workers, especially in agriculture where women are predominantly employed. Women’s access to land and finance is limited. In view of these obstacles, the CPS will seek to mainstream gender initiatives across elements of the program where gender disparities exist, including access to primary education, labor force participation and remuneration, and access to land and credit. Gender-related support will be included explicitly in relevant programs, and results will be measured through the collection and use of gender-disaggregated data where appropriate. 35 iii. CPS results framework 89. The results expected from CPS implementation will be influenced significantly by the ongoing investment portfolio. Seventeen projects are currently under implementation, with about US$62 million still to be disbursed as of March 31, 2010. New commitments under the CPS from regular IDA resources amount to US$ 140.4 million and from trust funds amount to US$57 million. New interventions will support the achievement of results in selected areas, including reducing vulnerability in the face of limited economic diversification and difficult geography. 90. The results matrix (Annex 1) is designed around clear principles: selectivity and measurability of indicators based on the availability and reliability of baseline data; and realism about the role of the Bank Group in contributing to the achievement of results. Anticipated results are closely linked to national strategies to demonstrate the proposed CPS program’s contribution to country development objectives. Where possible, results indicators have been clearly defined on the basis of monitoring exercises already being undertaken or planned by the Bank Group and other development partners. The PDPG will support regular monitoring of a subset of CPS results, and the remainder will be addressed through sector dialogue. 91. Progress in achieving expected CPS results will be reviewed mid-stream. A CPSPR will be prepared in early FY12 to evaluate the relevance of the strategy outlined in the CPS, review progress toward achieving CPS objectives and outcomes, and lay out proposed program adjustments over the remainder of the CPS period. In particular, the CPSPR will serve as the platform to further define activities for the last two years of the CPS period (FY12-13). C. Implementing the CPS i. Principles of engagement 92. Frontloading. In order to provide a timely and effective response to the ongoing crisis and any subsequent economic deterioration that may occur, the Bank Group will frontload some IDA resources. This will be achieved by channeling more IDA resources through the PDPG. 93. Flexibility. Given uncertainties regarding the duration of the global recession and its impact on Tajikistan, the CPS program is designed to be flexible. A specific program is outlined only for FY10 and FY11. IDA activities for the remaining CPS period (FY12-13) are indicative and will only be laid out in detail following completion of the mid-stream CPSPR. This flexibility will enable the CPS to adapt to changing circumstances as the crisis plays out and its impact on Tajikistan is measured. 94. Selectivity. The CPS will take a selective approach, recognizing the limitations in IDA resources and administrative budgets, and the need to intensify supervision of individual programs to mitigate fiduciary risks. The Bank Group will focus its advisory services in areas that are expected to enhance the effectiveness of its programs and the development impact on its client. Selectivity will be achieved by: (i) focusing the bulk of new investments on a few sectors (e.g., agriculture, energy, urban water supply, and social services) where it has a long-standing engagement and a comparative advantage vis-à-vis other donors; (ii) scaling up only successful pilot investment projects through additional financing; and (iii) limiting the number of new IDA 36 investment projects to only one to two projects per year in order to increase the resources devoted to program supervision. Where government ownership and reform progress are considered weak and uncertain, the Bank Group will withdraw its interventions. In sectors where the presence of other donors is significant, the Bank Group will complement their efforts with advisory services and global knowledge, and only if necessary. 95. Leveraging. The Bank Group will leverage its global knowledge and expertise to attract co-financing from traditional and non-traditional development partners. Under the CPS, the Bank will also seek to leverage multi-door trust funds to finance investment in global public goods (e.g., public participation, climate change and disaster management) while ensuring that these activities do not detract from the Bank’s capacity to implement the core IDA program. The JCPS recently developed by key development partners in Tajikistan, including the Bank Group will also help attract additional financing from donors based on the agreed framework. ii. Instruments of support 96. The proposed CPS program will maintain a mix between budget support and investment activities. Budget support will be programmatic and will serve as an important instrument for policy reform and dialogue with the government, in combination with investment projects and TA. Investment activities will support government implementation of priority reforms. The design of these initiatives will be informed by targeted AAA, which will include analysis and TA to assist the government in implementing identified reforms. The Bank and IFC can also access various trust funds to extend the reach of AAA and investments, subject to the country’s absorptive capacity and Bank staff resources. In addition, IFC will provide direct investments to the private sector. 97. A new PDPG series is proposed for fiscal years 2010, 2011, and 2012. This programmatic operation will focus on addressing the impact of the economic crisis and deepening reforms that were initiated under the previous PDPG series. While the specific objectives and reform actions are still to be agreed with the government, the PDPG is expected to support reforms in several areas critical to Tajikistan’s growth and development: (i) maintaining macroeconomic stability; (ii) strengthening the private and financial sectors; (iii) enhancing the transparency of energy SOEs; (iv) diversifying agriculture; and (v) improving the social safety net. The PDPG may also cover regulatory reform and public service delivery improvements. The operation will include only core areas where there is strong government ownership, where underlying TA resources can readily be mobilized from the Bank or other development partners, and where there is a strong analytical basis for moving forward. The Bank will take the lead in coordinating development partners’ budget support under the PDPG. Budget support will be disbursed upon confirmation by the IMF that the ECF is on track. 98. In the short term, the PDPG will provide fiscal space to allow the authorities to reduce vulnerabilities. Interventions will be designed and sequenced not only to help the government cope with the pressing consequences of the global economic crisis, but also to support medium-term reforms to ensure a sustained recovery and continued development of the country’s human capital. With additional budget support, the government will be able to protect critical expenditures from budget cuts due to revenue shortfalls. To assess the performance of 37 PDPG support, a virtual poverty fund will be created to ring-fence expenditures in pro-poor areas. A tracking mechanism will be established to monitor spending and impact in these areas. 99. The indicative CPS program for FY10-13 is laid out in Table 4. As mentioned above, the strategy relies largely on additional financing for ongoing programs with a proven track record, allowing for shortened preparation time and accelerated implementation. Where appropriate, ongoing operations have been or will be realigned to conform to the objectives of the new CPS. New investment operations will address the impact of the crisis and contribute to achievement of the medium-term objectives. To ensure that scarce IDA resources are utilized fully and effectively, in case the government undermines macroeconomic stability objective and PGPG program is delayed, the CPS will accelerate planned additional financing that will have direct impact on the livelihoods of poor people in Tajikistan. In a fragile state such as Tajikistan, continued IDA engagement is necessary to help keep the country from falling deeper into crisis. Specific CPS activities for FY12-13 will be more specifically laid out following the completion of a mid-term CPSPR and after the indicative IDA16 funding envelope is known. Only the FY10 allocation is firm while estimates for FY11, 12 and 13 are indicative only and can change. Actual allocations in these years will depend on: (i) total IDA resources available; (ii) the country’s performance rating; (iii) the performance and assistance terms of other IDA borrowers; (iv) the terms of IDA's assistance to Tajikistan (grants or credits); and (v) the number of IDA-eligible countries. FY12 and FY13 indicative allocation assumes a similar level of replenishment in IDA16 as in IDA15. IDA allocations are made in SDRs based on performance, and the US$ equivalent is dependent upon the prevailing exchange rate. Finally, the terms of the assistance (i.e., grants, credits or a mix of the two) will depend on Tajikistan's debt sustainability position. In addition to IDA performance-based allocation, Tajikistan benefits from funding under the IDA Crisis Window in the amount of SDR 15.3 million (about US$23.4 million) in FY10. 100. AAA will focus on “just in time” TA driven by client demand and selected analytical work to address knowledge gaps. Table 5 presents AAA planned during the CPS period. Macroeconomic monitoring will help the government manage the crisis budget during the next few years. A poverty assessment update will analyze the impact of the crisis on poor households by geographical location. IDA will also work with the government to develop a comprehensive energy sector strategy to ensure that energy investments are prioritized and integrated in a holistic approach. An Institutional Governance Review (IGR) is proposed to deepen understanding about political economy at the local level. Finally, follow-up activities will be undertaken to ensure progress in implementing the recommendations of previously completed diagnostic work, such as the CPFR, PEFA, and the Accounting and Auditing Report on the Observance of Standards and Codes (A&A ROSC). 38 Table 4: Indicative CPS Program Financed by IDA and Trust Funds FY10-FY13 Sources of Financing Reduce the (US$ millions) negative impact of Pave the way for Lending Activities the crisis on sustained post-crisis IDA Other poverty and recovery vulnerability TOTAL FY10 55.4 32.8 PDPG I 25.4* X X Ferghana Valley Water Resource Management 10 X X (AF) Emergency Food Security Crisis and Seed Imports 7 (Russia) X (AF) EFA-FTI 13 X X Emergency Employment Program 7.8 (EC) X X Education Modernization (AF) 2 5 (READ) X Winter Energy Emergency Support Facility 15 X Community and Basic Health Project - AF 3 TOTAL FY11 24.0 16.5 PDPG II 10 X X Dushanbe Water Supply II 10 X X Social Protection Technical Assistance 2 2.5 (Rapid X Social Response) Regional Program for Disaster Management – 2 X Hydromet1/ Persistent Organic Pollutants Management 4 (GEF) X X Life Skills Development for Future Migrants 10 (Russia) X TOTAL FY12-13 61.0 12.7 PDPG III 10 X Regional Transmission Interconnection (CASA- 3 10 (IDA X 1000)1/ Regional) Second Upland Agricultural Livelihoods and 10 2.7 (GEF) X Environmental Management Project (SUALEM) Municipal Infrastructure Development (AF) 5 X Health 10 X Public Financial Management (APL2) 8 X ELRP II 15 X * Includes $5.4 million from the Crisis Response Window – subject to re-allocation in case PDPG is presented to the Board in FY 11. READ – Russian Education Assessment Development; AF – Additional Financing. Note: The program is indicative. The actual size of the projects in the pipeline will be determined in line with available resources calculated using the IDA Performance-Based Allocation system. 39 Table 5: Analytical and Advisory Activities I. Reduce the negative impacts on poverty and vulnerability Macroeconomic Monitoring Poverty Assessment Update and Social Protection Dialogue Social Protection Strategy Impacts of farmland restructuring and sustainable land management on rural vulnerability II. Pave the way to post-crisis recovery and sustained development Country Economic Memorandum Private Sector Development Policy Dialogue Post-Financial Sector Assistance Program Energy Sector Strategy Rogun Assessment Studies Transmission Line Studies (CASA 1000 and northern interconnection) Nurek HPP Modernization Feasibility Study Improving Irrigation and Drainage Investment Planning and Management Rural Investment Climate Assessment Doing Business Reforms Mainstreaming of Climate Resilience into Tajikistan's development programs and policies III. Mainstreaming Core Governance Institutional Governance Review A&A ROSC Follow-up Fiduciary Review Follow-up CGAC Strategy PEFA Public Finance Voice and Accountability iii. IDA-IFC collaboration 101. Recognizing the critical role of private sector development in ensuring sustainable growth and poverty alleviation in Tajikistan, IDA and IFC will continue to collaborate closely. The assistance programs of each organization will be coordinated to maximize the Bank Group’s overall impact on the expected CPS results. IDA programs will target the Bank’s comparative advantage in providing global knowledge and TA to underpin investment operations in support of the government’s development agenda. IFC programs will support the private sector through advisory services and investments in the business environment, financial sector development, and in support of the agriculture and energy sectors. IFC and IDA will continue to work closely on fostering private investment; strengthening the soundness and stability of the financial sector; improving service reliability, governance, and export potential in the energy sector; and improving conditions for a sustainable increase in agricultural productivity. iv. The Multilateral Investment Guarantee Agency (MIGA) 102. MIGA is prepared to support foreign direct investment into Tajikistan through the provision of political risk guarantees. However, MIGA’s activity in Tajikistan in FY10-11 will be primarily driven by foreign investors’ demand. MIGA will coordinate its potential involvement in support of foreign investments into Tajikistan with IDA and IFC. 40 v. WBI program 103. WBI will continue to support capacity building efforts in the areas of public financial management (PFM), procurement, trade, health, climate change, and public- private partnerships. WBI will focus on facilitating structured learning in partnership with regional and local institutions and practitioner networks, emphasizing just-in-time practitioner exchanges and South-South learning to address key capacity constraints to achieving development results, and focusing on the “how” of reform (practitioner knowledge, leadership and multi-stakeholder consensus building). WBI will provide support through the two of its new business lines - the Global Partner platform and the Practitioner Exchange platform. WBI will also help national institutions to connect globally and to draw on a range of relevant experiences. Activities will include upgrading skills, updating curriculum, sharing lessons learned and best practices, consensus-building workshops, and long-term TA to strengthen the capacity of key government staff. vi. Regional cooperation 104. During the CPS period, the Bank will continue to support a number of regional initiatives through the Central Asia Regional Economic Cooperation (CAREC) program. Areas of CAREC support include energy, transport and trade facilitation, and communicable disease prevention and disaster management. The Bank Group will work with Tajikistan and other Central Asian countries to elaborate a Regional Energy-Water Development Framework covering existing and potential energy generation resources in the region, including hydropower, coal, thermal energy, and others. This framework would propose a sequence of actions to ensure a proper balance between the urgent domestic energy needs of the upstream countries during winter, and the environmental and hydrological needs of the downstream countries during summer. The proposed framework would also focus on maximizing energy export potential within the region during winter and beyond the region during summer. The latter would be supported by the establishment of a Central Asia-South Asia Regional Energy Market (CASAREM), a set of projects for enabling power trade within and between Central and South Asia. In addition, in the context of the elaboration of a Regional Energy-Water Development Framework, the Bank Group plans to contribute to the identification of immediate and medium- term investment priorities in the region for consideration by all Central Asian countries and potential investors to maximize gains from regional cooperation. In parallel, the Bank Group will review water resource development and water management issues with stakeholders and partners in Central Asia with a view to supporting the development of and access to these resources (Box 3). In transport and trade facilitation, the on-going Bank financed study on the performance of selected road transport corridors in Central Asia is now being complemented by a series of technical assistance activities (financed by a grant from the Trade Facilitation Facility) in the area of transport and logistics. Activities will include (i) logistics chain analysis for specific products and transport routes, as well as (ii) policy advice on issues pertinent to the development of logistics and transport. 41 Box 3: Regional Energy-Water Development Framework The WB is working with the governments of the five Central Asian countries to develop a comprehensive, long- term program to increase regional cooperation, encourage efficient energy resource development, and address water management challenges. It is intended that this program will draw on Central Asian regional institutions—including the International Fund for Saving the Aral Sea (IFAS) and others—to conduct the analysis and coordinate stakeholder consultations on key development choices and trade-offs. Work on the Central Asia Energy-Water Development Framework (CAEWDF) aims to help Central Asian countries take advantage of their energy and water resource base in an environmentally and socially sustainable manner, while respecting national priorities and safeguarding regional stability. The Bank has initiated the development of this program in consultation with regional governments and international development agencies active in the region. The program addresses three main themes: (a) balancing energy options to take advantage of the region’s rich diversity in energy resources while addressing winter energy deficits, including new energy investments; (b) expanding energy trade within and outside the region by strengthening regional dispatch and investing in transmission infrastructure; and (c) working with regional organizations on energy-water linkages by securing strong analytical foundations, supporting dialogue among Central Asian countries, and (d) improving water use productivity in both the energy and agricultural sectors. D. Partnerships and Participation 105. The Bank Group is developing strong partnerships with key development partners in Tajikistan in the context of the JCPS. Two recent studies showed that the delivery of donor assistance in Tajikistan has been sub-optimal in the past due to weak donor coordination, limited government ownership, misalignment between donor and government programs, and a lack of predictability and timeliness in donor funding. In 2007, an initial group of development partners led by DFID came together to develop a JCPS with the aim of enhancing aid effectiveness through alignment and harmonization, in line with the 2005 Paris Club Declaration and the 2008 the Accra Agenda for Action. JCPS partners27 decided in early 2009 that the strategy would be developed in two phases. The first phase, completed in September 2009, focused on developing a joint aid coordination strategy to improve aid effectiveness. The aid coordination strategy defines shared principles and a common basis for actions to improve aid effectiveness. The shared principles reflect the five underlying principles of the Paris Declaration and Accra Agenda that are applicable to circumstances in Tajikistan. These principles will guide the delivery of aid to Tajikistan and cooperation between the government and its development partners, both on a bilateral basis and in extended multi-donor partnerships (Annex 5). The shared principles will be applied through greater use of sector working groups, joint missions, and diagnostic reviews, and development of a common arrangement for planning, funding, disbursement, monitoring, evaluation, and reporting on development partner activities and aid flows. The overall goal is summarized as “One Strategy, One Coordination Mechanism, and One Monitoring and Evaluation and Results Framework.” The second phase of donor cooperation efforts will focus on identifying specific programs of joint donor assistance to support implementation of the government’s PRS III. 27 The JCPS group has expanded to include: ADB, DFID, EC, Sweden, Switzerland, UN organizations (UNICEF, UNDP, and WFP), USAID, and the WB. The Government of Tajikistan is represented by the Chairman of the State Committee on Investment and State Property Management (SCISPM). 42 106. As mentioned above, the CPS has been designed with other development partners’ activities in mind (Table 6) and focuses in the sectors where the Bank Group has a long- standing engagement, a comparative advantage, and/or complementary global knowledge and expertise. Taking into account of existing and planned activities of the JCPS partners, the Bank Group will continue to focus on agriculture, energy, private sector development, water and sanitation, and the social sectors. In agriculture and energy sectors, the Bank Group’s involvement will build on existing engagements in response to client demand. In the private and financial sectors, Bank Group activities will focus mostly on advisory services and technical assistance in coordination with other JCPS partners. Activities in the social sectors will be scaled up, as some JCPS partners have withdrawn interventions. In areas where other donors are highly active, such as ADB’s strong engagement in the transport sector, the Bank Group’s involvement will be limited. 107. The Bank Group will expand collaboration with new bilateral development partners. These partners, including China, Russia, Kazakhstan, Iran, and Saudi Arabia, have been increasing their development assistance to Tajikistan, thereby contributing to an overall growth in aid flows to the country. These investments, sometimes significant, prompt for better coordination and monitoring to ensure an efficient and effective division of labor. Specifically, China provided US$281.2 million credit to finance the construction of the road connecting Dushanbe and the northern part of Tajikistan. Two loans were contracted for the construction of a North-South electricity transmission line (US$267.2 million) and Lolazor-Khatlon electricity transmission lines (US$58.1 million). Russia invested US$480 million Ln hydropower (Sangtuda I). Iran invested about US$200 million for construction of hydropower (Sangtuda II). Recently, Russia has contributed to Bank-administered trust funds to address the food price crisis and regional issues in Central Asia, especially education, migration, and blood safety. 43 Table 6: Key Donor Involvement in Tajikistan, by Sector Social Agri- Trans- Private Financial Educa- Public Energy Health Water Protec- culture port Sector Sector tion Sector tion Mulitlateral ADB X X X X X X X EBRD X X X X X X EC X X X X X X IMF X X IsDB X X X X UN X X X X X X X X X Agencies WBG X X X X X X X X X Bilateral (traditional) DFID X X X X X Germany X X X X X JICA X X X SDC X X X X X X SIDA X X X X USAID X X X X X X Bilateral (non- traditional) China X X Iran X X Russia X X X X Civil Society Aga Khan X X X X X X Foundation OSCE X X 44 108. The Bank Group has sought to strengthen its engagement with parliament, civil society organizations (CSOs), the media, and the private sector. The aim of these efforts has been to strengthen implementation effectiveness by involving a broad array of stakeholders with a direct interest in the outcome of reforms, as well as to build awareness of the Bank Group’s role in Tajikistan. IDA has involved local community groups in rehabilitating rural infrastructure in their communities and CSOs in the monitoring of distribution of winter wheat seeds and fertilizer to poor households. Implementation of reforms to the business-enabling environment has been carried out in consultation with the private sector. The design of the CPS itself has benefited from the input of a wide range of development partners (Box 4). Box 4: Consultations on the Tajikistan CPS In preparing the Tajikistan CPS, the Bank Group country team conducted a series of consultations with key stakeholders in central and local government, parliament, the private sector, civil society organizations and the media. Consultations were held during September 8-17, 2009, in the capital, Dushanbe, as well as in Kurgan Tyube, Khujand, and Khorog. Due to postponement of the CPS Board date from November 2009 to May 25, 2010, the second round of consultations was held with the government on December 2009 and February 2010 (on the Bank’s involvement in hydropower development and the use of IDA crisis window) and with CSOs on March 31, 2010 (on the revised CPS). Overall, consulted groups expressed strong support for the CPS objectives, and the proposed program and instruments. Government appreciated the emphasis on short-term initiatives to reduce the impact of the crisis and endorsed the proposed program and instruments, especially during the first two years. Government stakeholders also agreed on the proposed prioritization of agriculture, energy, private and financial sectors, and social sectors over the medium term. Development partners agreed with the overall strategy and its approach to governance and stressed the need to continue strengthening donor cooperation in the context of the JCPS. Parliament called for improved collaboration even at the project level. Stakeholders in civil society and the media expressed a preference for stronger transparency and accountability in the implementation of Bank-financed projects and closer involvement of non-governmental organizations in implementation, monitoring and evaluation through greater dissemination of information on WB activities in Tajikistan using various communication channels. They raised concerns about the development of Rogun hydropower and requested the Bank to work close with the government to ensure transparency of government operations and to improve investment climate, and be (Annex 2). V. MANAGING RISKS 109. Macroeconomic. Implementation of the CPS could be delayed by a slow recovery in Russia and other developed countries as well as not meeting the requirements under the IMF ECF. Under this scenario, external demand for Tajikistan’s exports and migrant workers would continue to weaken and further delay economic recovery. Macroeconomic stability would be jeopardized if the government were to adopt an inappropriate policy framework to deal with a deteriorating situation. According to the IMF latest assessment, continued sale of the Rogun shares would undermine macroeconomic stability through reducing disposable incomes and liquidity access, and increase quasi-fiscal deficit associated with SOEs’ subscription of the Rogun’s equity shares. The Bank Group’s program, especially budget support under the PDPG, could be brought into question. Response: The Bank Group will work closely with the IMF in the context of the ECF program to help maintain macroeconomic stability. In addition, the Bank will closely 45 monitor macroeconomic developments and budget implementation in collaboration with the government. In case of unsatisfactory performance under the ECF program, the Bank Group will scale up investment projects aimed at reducing vulnerabilities in the social sector. 110. Delayed Reform. Weak government commitment to deeper reforms in productive sectors could delay reforms envisaged under the CPS program. As the impact of the crisis diminishes, the desire to implement difficult reforms may lessen in the face of strong resistance from vested interests. This would slow much needed progress in expanding productive capacity of agriculture, energy, and the private and financial sectors. Response: The CPS has identified several steps to reduce the risk of delayed reform. First, CGAC implementation will help highlight governance constraints in key sectors and identify measures to address these constraints within Bank Group operations. Second, the new PDPG series could include, as prior actions for obtaining budget support, policy initiatives to reduce constraints to growth and poverty reduction. Under the previous PDPG operation, delivered in 2009, inclusion of such prior actions succeeded in accelerating policy reforms in agriculture and energy. Third, the Bank Group will collaborate closely with JCPS partners to encourage the government to renew its reform commitment. Finally, the CPS will concentrate on additional financing of ongoing investment operations that have demonstrated a strong track record of government commitment and development results. 111. Institutional capacity. Weak capacity and high turnover of key civil servants could slow CPS implementation. Institutional deficiencies, unless addressed, could significantly constrain the ability to formulate, implement and monitor the government’s program at the national level. Such constraints would hamper the effectiveness of public service delivery, especially social services that are vital for achievement of the MDGs. Weak capacity at the project level could delay implementation of investments and exacerbate fiduciary risks, thus hindering the achievement of expected CPS results. Response: The CPS will emphasize follow-on investments in areas where prior operations have yielded tangible results, building on capacity improvements that are already underway. The Governance Checklist outlined in the CGAC strategy (Annex 4) will be applied at the project design stage and again during mid-stream reviews in order to ensure that individual projects address institutional capacity requirements and individual technical capacity needs, and that sufficient funding is allocated for this purpose. 112. Geo-political. The deteriorating security situation in Afghanistan and Pakistan could result in an influx of refugees to Tajikistan. A surge of Afghan refugees would place a heavy economic burden on Tajikistan and pose significant social problems, particularly in the context of a global economic crisis. A security crisis on its periphery could lead the government to divert attention away from its development agenda and reallocate resources at the expense of its own population, a situation that could quickly lead to tensions within its own borders. 46 Response: This risk can be mitigated by closely monitoring inter-regional developments, and adjusting the CPS implementation to these developments given the flexibility of CPS instruments proposed. In addition, the Bank will continue working closely with development partners in building donor and government’s capacity in risk management, including the risks associated with disaster and emergency. 47 Annex 1: Results Framework for the Tajikistan CPS FY10-13 Country level development goals Outcomes influenced by the CPS Bank Group supported Strategic/higher Results the Bank Group expects to interventions and Gaps and challenges to Intermediate progress indicators by order country level influence by end-FY13 and related partnerships be addressed 2011 unless otherwise indicated outcomes indicators Strategic Objective I: Reduce the negative impact of the crisis on poverty and vulnerability Ensuring 1. Maintain fiscal stability Ongoing AAA: macroeconomic x Increased x Macroeconomic stability [and] macroeconomic risk due x Fiscal policy maintains support for x Semi-annual monitoring of budget Monitoring balanced fiscal policy to reduced revenues and social services, as measured by preparation and execution to ensure x CEM (NDS p. 8) remittances and volatile proportion of social expenditures in state social spending on education, health, New Projects: prices budget* and social protection remain at the same x PDPG FY2010-2013 Baseline: 42% (2008) level (7.3% of GDP in 2008) New AAA: Target: 42% (2013) x Macroeconomic Monitoring Partners: ADB, EC, IMF Broadening the x Economic crisis has 2. Maintain access to critical public Ongoing Projects: availability of social reduced fiscal space, services x Education services for the poor threatening public x Access to basic education maintained x Public expenditure on primary Modernization Project (NDS p. 34) spending on critical at or above 2008 levels for both girls and education does not decline in real terms* (EMP) public services such as boys, as measured by gross enrollment x 60 classrooms benefitting around x Community & Basic primary and general rate in basic education 3,000 students constructed or Health (CBHP) & AF education and primary Baseline: 97% (2008) (93.6% girls, rehabilitated in Sugd province and Ongoing AAA: health care (PHC) 99.7% boys) Region of Republican Subordination x Social Assistance x Public spending on Target: not less than 2008 Targeting and Poverty education insufficient to Dialogue meet sector needs x Access to PHC maintained in pilot x Public expenditure on PHC does not New Projects: x Public spending on oblasts with high poverty rates, as decline in real terms* x PDPG FY2010-2013 health care lowest in measured by utilization rate in project x PHC budget pooled at oblast level in x EMP AF (FY2010) ECA areas at least one oblast Trust Funds: Baseline: 4 visits per capita per year in x 36 PHC facilities constructed in x EFA-FTI II Khatlon and Sogd (2008) project oblasts and 2 PHC facilities Partners: Target: 4 visits per capita per year in rehabilitated by 2010 ADB, AKF, Australia, Khatlon and Sogd (2013) EC, GTZ, SDC, SIDA, UNICEF, USAID,WHO 48 Country level development goals Outcomes influenced by the CPS Bank Group supported Strategic/higher Results the Bank Group expects to interventions and Gaps and challenges to Intermediate progress indicators by order country level influence by end-FY13 and related partnerships be addressed 2011 unless otherwise indicated outcomes indicators Provide social 3. Reduce risk for vulnerable groups Ongoing Projects: protection for through enhanced social protection x Ferghana Valley Water vulnerable segments x More visible impact x Risk of food insecurity reduced, as Resources Management of the population of crisis and recent food measured by: (FVWRMP) (NDS p. 10) price increases among  Increased domestic cereal output x 11,500 hectares of cropland planted x Emergency Food rural households among food-insecure households with improved winter wheat and maize Security and Seed Baseline: 0 tons (2009) seeds Imports (EFSSIP) AF Target: 35,000 tons (2013) x Community  Improved ability of poor households x 3,000 people in project area trained Agriculture/Watershed to deal with seed shortages, with new through extension programs Management (CAWMP) local community groups actively x 300 tons of seed and 750 tons of x Public Sector Reform participating in financial and technical fertilizer delivered to community Ongoing AAA: management of irrigation systems* production groups x Social Assistance Baseline: 0 groups (2009) Targeting and Poverty Target: 65 groups (2012) Dialogue New Projects: x Access to short-term jobs expanded in x Irrigation systems rehabilitated in x PDPG FY2010-2013 x High unemployment, rural areas, as measured by cumulative poor areas with good agricultural x Social Protection TA falling remittances, and person-days of work created for skilled potential in at least 3 districts using x FVWRMP AF bankruptcies of small and unskilled workers (including short-term labor x CAWMP AF businesses returning migrants) x Emergency Baseline: 0 (2009) Employment (FY2010) Target: 2 million person-days (2012) Trust Funds: x Global Food Crisis x Weak social safety x Social assistance coverage expanded x Public expenditure on social Response Program net due to ineffective among poorest population quintile assistance does not decline in real Partners: targeting Baseline: about 0% of poorest quintile in terms* Russia, ACTED, EC, 2008 x Social safety net streamlined and GTZ, JICA, SECO, Target: 15% of poorest quintile in 2013 new targeting mechanism based on SIDA, TLSS-derived income adopted and under implementation* x Comprehensive social protection strategy developed and adopted 49 Country level development goals Outcomes influenced by the CPS Bank Group supported Strategic/higher Results the Bank Group expects to interventions and Gaps and challenges to Intermediate progress indicators by order country level influence by end-FY13 and related partnerships be addressed 2011 unless otherwise indicated outcomes indicators Strategic Objective II: Pave the way for post-crisis recovery and sustained development Improvement of the 4. Strengthen the business-enabling Ongoing Projects: investment climate environment x Cotton Sector and development of x Excessive x Total time and cost of acquiring x Yearly improvements of DB Recovery Project the private sector and administrative barriers to permits (in particular construction Indicators (Starting a Business, x Land Registration and entrepreneurship business start-up and permits) reduced Registering Property, Protecting Cadastre System (NDS p. 15) operation, as measured Baseline: 250 days and US$ 4.7 million x Business Enabling Investors , and Trading Across by low ranking on Doing (2008) Environment (IFC) Borders Business indicators Target: 150 days and US$ 2 million x Konimansur x New permits law adopted (2013) Infrastructure Advisory x Permits quick review completed with x High tax burden for Mandate (IFC) reduction of at least 20% in business businesses x Average time and compliance cost of x Central Asia Corporate permits. paying taxes reduced Governance (IFC) Baseline: 224 hours and 85.9% of profits x Central Asia Micro (2009) finance Transformation Target: 185 hours and 80% of profits x Taxpayer outreach continued x Tax process mapped to streamline (IFC) (2013) x Central Asia Financial x Underdeveloped, administrative procedures (2010) Infrastructure (IFC) inefficient, fragile x Financial sector legislative and Ongoing AAA: financial system with regulatory framework strengthened* x CEM inadequate legal x FIRST TA framework, weak x Doing Business capacity, and high risk x Amendments/revisions to NBT Law, Banking Law, Deposit Insurance Law, Reform TA exposure to cotton sector secured lending regime, and related New Projects: x Weak governance and regulations adopted as per FSAP x PDPG FY2010-2013 insolvency of NBT x Medium-term post-FSAP strategy x Agri-Finance Advisory and action plan adopted and Service (IFC) x Restricted access to x Number of bank or micro finance implementation underway New AAA: finance organization (MFO) accounts and x Doing Business associated deposits expanded Reform TA Baselines: 3% of population; 11% of GDP (2008) x IFC investment debt and equity in x Rural Investment Targets: 6% of population; 18% of GDP financial institutions and MFOs Climate Assessment (2013) increased x FIRST TA Trust Funds: x IDF: PSD Reform 50 Country level development goals Outcomes influenced by the CPS Bank Group supported Strategic/higher Results the Bank Group expects to interventions and Gaps and challenges to Intermediate progress indicators by order country level influence by end-FY13 and related partnerships be addressed 2011 unless otherwise indicated outcomes indicators x Private sector access to non-directed x IDF: Tax Service credit increased Capacity Strengthening Baseline: 14% of GDP (2008) Partners: Target: 20% of GDP (2013) x Value of agri-leasing increased DFID, EC, IMF, SECO, x US$ 4 million in investment USAID facilitated by IFC AS projects x Credit Bureau established and banks adopting credit procedures to utilize credit bureau information Raising the 5. Improve conditions for sustainable Ongoing Projects: productivity of increase in agricultural productivity x CAWMP agricultural x Incomplete x Farmer access to land improved, as x Survey mapping capacity and spatial x Land Registration and operations (NDS p. restructuring and measured by new land use certificates database established for land Cadastre System 27) privatization of farms issued administration, infrastructure (LRCSP) x Lack of secured land Baseline: 808 (2009) development, and natural resource x FVWRMP ownership Target: 61,200, of which 44,500 to management x Cotton Sector family farms (2011) x 37,500 land use certificates issued Recovery x Avian Influenza x Inadequate crop x Crop yields in project area increased x 3 WUAs legally registered and x EFSSIP yields due to poor by 10% operating in project area x South Tajikistan irrigation infrastructure Baseline: 1.8 tons/ha for cotton; 2.7 x 4 irrigation and drainage systems (2 Cotton Lending (IFC) and limited capacity tons/ha for wheat (2008) in each rayon) rehabilitated and Ongoing AAA: Target: 2 tons/ha for cotton; 3 tons/ha improved in project areas of Ferghana x CEM for wheat (2013) Valley New Projects: x Limited access to x PDPG FY2010-2013 advisory services, x Reduction of flooded and waterlogged x 37,000 households in common x FVWRMP AF markets, and financing land areas within project perimeters near interest groups benefiting from embankments x CAWMP AF CAWMP rural production investments Baseline: 5,000 ha x Agri-finance Advisory Target: 3,500 ha Services (IFC) x Public Employment x Annual incremental revenue per Program CAWMP beneficiary household New AAA: increased x Enhanced Livestock Baseline: US$ 400 from farm Productivity x Government productivity investments; US$ 140 from x Irrigation/Drainage land resource investments (2009) Investment Planning and 51 Country level development goals Outcomes influenced by the CPS Bank Group supported Strategic/higher Results the Bank Group expects to interventions and Gaps and challenges to Intermediate progress indicators by order country level influence by end-FY13 and related partnerships be addressed 2011 unless otherwise indicated outcomes indicators enforcement of cotton Target: US$ 550 and US$ 550, Management production targets limits respectively (2013) x TA for PPCR Strategic freedom to farm Program preparation x Overhang of cotton x Proportion of farmers and other x 50% of farmers report little or no Trust Funds: debt stakeholders reporting little or no government interference (based on x GEF: CAWMP x Insecure land right government interference in project social regular farm surveys undertaken by the x GEF: POP survey increased* World Bank and other stakeholders) Partners: x Land degradation Baseline: 35% (2009) x 15,000 debt write-off certificates ADB, AKDN, CIDA, exacerbated by risk of Target: 75% (2013) DFID, EBRD, GTZ, natural disasters and KfW, SECO, UNDP, climate change effects, USAID with greatest effects on rural economy x National and sectoral strategies and programs do not incorporate disaster risk reduction and climate adaptation Expansion of the 6. Improve reliability and efficiency of Ongoing Projects: country’s energy electricity and gas services and increase x Energy Loss Reduction potential, which energy export potential (ERLP) should include x Limited investment in x Percentage of firms experiencing x Experienced Power Outages as x Pamir Private Power alleviating electricity energy sector services power outages over the last 12 months measured by BEEPs declined and AF (WB and IFC) shortages improving declined x Lake Sarez efficiency and Baseline: 61% (2008) Hydropower (IFC increasing electricity Target: 40% (2013) InfraVentures) exports (NDS p. 27) x Inefficient electricity x Energy Emergency and gas systems with x Commercial and technical losses in x Electricity tariffs realigned to cost Recovery Assistance high commercial and electricity and gas reduced* recovery levels, reaching 3 cents per Ongoing AAA: technical losses Baselines: 19.3% electricity and 16.8% kilowatt hour x A&A ROSC gas (2008) x 160,000 electricity meters installed New Projects: Targets: 12% electricity and 15% gas in Dushanbe and 80,000 gas meters x ERLP II (2013) installed countrywide x PDPG FY2010-2013 x Weak financial x Regional Transmission performance and x Transparency in financial x Migration of energy SOEs (Barki Interconnection Project I 52 Country level development goals Outcomes influenced by the CPS Bank Group supported Strategic/higher Results the Bank Group expects to interventions and Gaps and challenges to Intermediate progress indicators by order country level influence by end-FY13 and related partnerships be addressed 2011 unless otherwise indicated outcomes indicators corporate governance of management of energy SOEs (Barki Tajik and Tajiktransgaz) to IFRS/ IAS- Regional Transmission energy SOEs Tajik and Tajiktransgaz) improved, as based accounting system completed Interconnection Project II measured by the timeliness and public (CASA-1000)New AAA: availability of audited financial x Energy Sector Strategy statements on their website* x Rogun Assessment Baseline: Not available (2009) Studies Target: publically available (2012) x Final Feasibility Study x Inability to export for CASA 1000 surplus generation x Regional transmission network x Commercial agreements on export x North Connection capacity in summer Baseline: No construction (2008) electricity market negotiated with Transmission Study Target: Construction underway (2013) governments of Kyrgyz Republic, Trust Funds: Afghanistan, and Pakistan x Financial Management Improvement Program at x Better reservoir management x Number of day below dead zone (18 Barki Tajik and Baseline: Number of days below dead days) Tajiktransgaz (SECO) zone in winter 2008 (36 days) Partners: Target: Number of days below dead ADB, DFID, IMF, KfW, zone: (Zero) SECO, USAID Expansion of access 7. Improve provision of safe water in Ongoing Projects: to water supply and Dushanbe and selected municipalities x Dushanbe Water sanitation services x Limited improvement x Population with access to safe water x Water chlorination based on local Supply (and AF) (NDS p. 50) in access to safe water expanded in Dushanbe and 8 chlorine production piloted x Municipal x Reduce by half the municipalities x Existing filtration system at Infrastructure proportion of people Baseline: 1.3 million (2008) Napornaya treatment plant upgraded Development (MIDP) without sustainable Target: 1.6 million (2013) Ongoing AAA: access to safe drinking x High technical and x Water Supply and water (MDG #7) commercial losses x Combined technical and commercial x Sections of existing distribution Sanitation Sector Note x Low tariffs losses reduced* system replaced and separate pressure New Projects: x Low collection rates Baseline: 70% (2008) zones established to reduce leakage and x Dushanbe Water Target: 50% (2013) waste in booster pumping stations Supply II (FY2010) (2013) x MIDP AF x Weak corporate x Water meter installation in major Partners: part of Dushanbe completed (2013) 53 Country level development goals Outcomes influenced by the CPS Bank Group supported Strategic/higher Results the Bank Group expects to interventions and Gaps and challenges to Intermediate progress indicators by order country level influence by end-FY13 and related partnerships be addressed 2011 unless otherwise indicated outcomes indicators governance of water x Corporatization of Dushanbe ADB, EBRD, SOE Municipal Vodokanal approved Switzerland, UNICEF, USAID Development of 8. Strengthen quality of public services Ongoing Projects: human potential to enhance human capital potential x EMP aimed primarily at x Shortfall of qualified basic school x 600 teachers completed training to x CBHP and AF increasing the x Low quality of teachers reduced as measured by number upgrade professional skills x Central Asia quantity and quality teaching of teachers who have completed training HIV/AIDS of social services for to upgrade their professional skills: x Public Sector Reform the poor (NDS p. 11) Baseline: n/a (2008) Ongoing AAA: x Achieve 100% net Target: 1,000 (2013) x CEM enrolment in primary x Weak education x Transparency and efficiency in x Social Assistance school (MDG #2) management capacity education management improved,* as Targeting and Poverty x Increase ratio of x Limited transparency measured by: Dialogue girls completing 9 in school examinations  Rollout of EMIS-2 and per capita New Projects: years of education to and admissions financing x EMIS-2 design reviewed and x EMP AF (FY2010) 98% (MDG #3) Baseline: 0% and 2,441 schools recommendations adopted x Life Skills x Reduce infant (2008) x National Testing Center (NTC) Development for Future mortality (MDG #4) Target: 70% of the EMIS-2 modules operationalized Migrants x Reduce maternal and 3,800 schools (2013) x Unified university entrance exam and x Health (FY2012) mortality (MDG #5) standardized classroom assessment after Trust Funds: x Reduce prevalence  Administration of fair, transparent Grade 4 piloted by NTC x EFA-FTI III of infectious diseases university entrance exam and x Russian Education Aid (MDG #6) standardized classroom assessments for Development Baseline: 0 entrance exams and 0 x Training curriculum designed to help (READ) class assessments (2008) improve migrant workers’ life skills, x Norway: Results-Based Target: Unified exams administered including financial literacy and Financing annually; class assessments twice per understanding of Russian regulations x GAVI TF: Evaluation year (2013) and procedures of Family Medicine Training and Vital x Migrant workers trained on financial Statistics literacy and Russian regulations and x Capitation payment implementation x Earning capacity and Partners: procedures for PHC in target rayons bargaining power of ADB, AKF, Australia, Baseline: 0 (2008) Tajik migrant workers is EC, GTZ, IOM, KfW, Target: TBD (2013) low due to low quality of Russia, SDC, UNICEF, USAID, WHO education and limited 54 Country level development goals Outcomes influenced by the CPS Bank Group supported Strategic/higher Results the Bank Group expects to interventions and Gaps and challenges to Intermediate progress indicators by order country level influence by end-FY13 and related partnerships be addressed 2011 unless otherwise indicated outcomes indicators skills x Health care efficiency improved, as x Family medicine training expanded measured by implementation of provider to 2 more rayons x Out-of-pocket payment reforms that change providers’ payments comprise 75% financial incentives* of total health Baseline: Capitation payments expenditures, highest in implemented in 15 rayons (2008) ECA Target: Capitation payments implemented in 42 rayons (2010) x Quality of PHC services improved in project areas, as measured by number of doctors and nurses trained in family medicine Baseline: 183 doctors and 453 nurses (2009) Target: 257 doctors and 573 nurses (2010) Crosscutting Agenda: Mainstream core governance reforms Reform of public 9. Strengthen incentives for better Ongoing Projects: administration with a performance of civil servants x Public Sector Reform view to creating a x Limited use of merit- x Greater use of merit-based recruitment x Draft Law on Organization of Public New Projects: national development based recruitment in for public service, as measured by the Administration approved by government PDPG FY2010-2013 system in the public service average ratio of applicants per vacant New AAA: country, the principal post (grades 3 and below) filled x IGR features of which are competitively* Trust Funds: transparency, Baseline: 1.4:1 (2008) Partners: accountability and a Target: 2:1 (2012) DFID, EC, IMF, Japan, focus on combating SDC, USAID corruption (NDS p. x Weak administrative x Improved capacity for day-to-day x Public sector reform unit in EOP 11) capacity across the policy making and crisis management at established with competent personnel public service EOP and ministerial levels, as measured (2010) by existence of an orderly and legally x Government regulations on policy determined process for coordinating planning system approved government policies and ex-ante impact x Reorganization plans for 8 ministries assessment of policy proposals * and central entities approved 55 Country level development goals Outcomes influenced by the CPS Bank Group supported Strategic/higher Results the Bank Group expects to interventions and Gaps and challenges to Intermediate progress indicators by order country level influence by end-FY13 and related partnerships be addressed 2011 unless otherwise indicated outcomes indicators x Inability to attract and x New grade and performance-based, x New grade-based, transparent salary retain skilled specialists transparent salary grid introduced grid piloted in 4 central entities in civil service due to throughout central government x Performance appraisals linked to pay low pay levels and administration (2012)* and career progression introduced in 5 uncertain career path central entities Increase 10. Improve transparency and Ongoing Projects: responsibility and accountability in public financial x PFMMP transparency in the management x Budget classification compatible New Projects: management of x Administrative x Budget comprehensiveness and with 2001 GFS implemented for 2012 PDPG FY2010-2013 government finances segment of budget transparency improved, as measured by budget New AAA: and strengthen the classification not yet PEFA indicator PI5 (budget x Unified budget classification and x IGR potential for the implemented; still being classification) * Chart of Accounts consistent with 2001 x PEFA development and designed for local budget Baseline: D (2007) GFS adopted for public sector (2012) New Projects: execution of the organization Target: B (2013) x Budget execution reports covering x PDPG FY2010-2013 republican and local central and local governments published x PFM II budgets (NDS p. 17) and disseminated by government in a Trust Funds: timely manner (2012) x EC-DFID MDTF: Co- financing PFMMP x DFID TF: Public Voice x Weak budget x Improved control of budget execution, x Law on external audit adopted & Accountability execution and reporting as measured by timely submission of the x Independent external audit body Partners: x Fiduciary risks in use annual audit reports to the parliament * established (2012) DFID, EC, IMF, USAID of public funds due to Baseline: 0 (2009) weaknesses in Target: timely submission of annual procurement, internal audit reports to the Parliament(2013) and external control systems *Governance-related indicators are mainstreamed at the sector level. 56 Annex 2: Country Partnership Strategy (FY05-FY09) Completion Report I. INTRODUCTION 1. The Completion Report for the Tajikistan Country Partnership Strategy (FY05-FY09) is drawn from inputs from the country team, available projects and AAAs. The Report is organized into five sections. Following the introduction, the second section recounts the challenges the country faced in 2004 and the strategies put in place to address them, including the CPS. The third section reviews the evolution of key development outcomes and results expected from the CPS program, identifying gaps between results attained and results expected. The fourth section examines the performance of the Bank based on the CPR conducted in October 2008 undertaken jointly with the ADB. The last section puts forth recommendations for the preparation of the next Country Partnership Strategy for FY10-FY13. 2. The rapid economic growth during the 2005-2008 CPS period contributed to poverty alleviation and, aided by increasing public expenditure, reversed a negative trend in social indicators. The global crisis, however, exposed the frailty of this growth, which had been driven by remittances and favorable international commodity prices. A number of governance missteps (among the most prominent was the mismanagement of the National Bank of Tajikistan under the purported intent to finance cotton) brought into question the quality of national economic stewardship and strained relations with the donor community. 3. The ambitious CPS program, which had sought an across-the-board transformation of the economy, produced mixed and uneven results. Progress was made when programs targeted well- defined outcomes and factored in capacity constraints through intensive AAA, well-designed programs, and allow for time and dedication for policy dialogue and technical assistance (examples of which include the liberalization of aviation and work in health and education). The government placed high priority on exploiting the country’s energy potential and the electrical interconnection of the region. Efforts to transform agriculture, however, were inadequate (reform of the cotton sector, land restructuring and secured land use rights, irrigation), as have attempts to modernize the state. 4. A key lesson from this CPS Completion Report (CPSCR) is that an ambitious reform agenda in the context of a weak institutional environment can easily overburden the authorities. The result was dispersed and incomplete results that jeopardized the credibility of the initiatives. Therefore, this review calls for greater realism in program design and adherence to strict prioritization. This approach should assure a more timely delivery of coordinated results, and the benefit of generating a virtuous cycle of reform. The Bank showed flexibility in delivering the program during periods of unforeseen challenges (energy and food crises). It also maintained delivery of the core program, especially the Programmatic Development Policy Operation (PDPO) and AAAs. The CPS also delivered the expected level of financial support. Coordination with other development partners improved. 57 II. CHALLENGES AND STRATEGY A. Background 5. Tajikistan became independent in 1991. Internal conflict, however, delayed its transition to a market economy. After the civil war ended in 1997, the government under President Rahmon worked to establish state authority, concentrating on political consolidation and security and rehabilitating and developing the war-torn country. Three years later, although much had been accomplished, the economy was fragile with a per capita income of only US$310 for its 6.7 million inhabitants. 6. Between 2000 and 2004 the economy grew by almost 60 percent, driven by an expansion of services and construction fuelled by remittances and favorable world prices for country’s main export commodities—aluminum and cotton. Good macroeconomic management helped bring inflation down to 7 percent in 2004, stabilized the exchange rate, and reduced the debt burden by restraining new borrowing and by restructuring agreements with bilateral creditors. External debt to GDP dropped from 85 percent in 2002 to 40 percent at end-2004. Gross international reserves increased to US$189 million at end-2004. Economic growth reduced the poverty rate from 81 percent in 1999 to 64 percent in 2003, (although regional differences remained significant, ranging from 84 percent in Gorno-Badakhshan to 45 percent in Rayons of Republican Subordinated, RRS). B. Challenges (2004) 7. The 2005 CPS identified three sets of challenges, which remain valid today. 8. Daunting geography complicated by man-made barriers. The nearest port is found 2,000 kilometers away and high mountains separate Tajikistan from Kyrgyz Republic and China. In addition, man-made restrictions limit access to Uzbekistan and the long-border with Afghanistan raises security and drug trafficking concerns. Constraints to aviation further isolated the country. 9. Major governance challenges due to a complex political economy. The government, which had achieved the necessary political consolidation to establish security throughout the country through a complex web of political agreements after the war, faced significant governance challenges. The authorities confronted difficulties in transitioning towards a modern government grounded on transparency and accountability. Governance challenges were particularly troubling in the aluminum and cotton sectors. The opportunities and incentives for corruption were high in a public administration with the structure and procedures inherited from the Soviet system, beset by low public sector wages (around US$10 a month on average) and a lack of accountability. 10. Demography challenge. A rapidly growing population was exerting severe pressure on service delivery, and, as a result, trends in school enrollment, child mortality, maternal mortality, and HIV/AIDS prevalence appeared to be moving in the wrong direction. The challenge was how to stem the decline in these indicators while retaining and expanding the human capital inherited from the Soviet system. 58 C. Government Strategy 11. The Poverty Reduction Strategy Paper (PRSP-2002-2005) articulated the government’s view of development and poverty reduction around four primary objectives: To encourage equitable, labor-intensive economic growth, with an emphasis on exports. To support the efficient and fair provision of basic social services. To target support to the poorest groups of the population. To improve governance and security. 12. First, the government prioritized state-building efforts around public sector reform—to improve administrative effectiveness and reduce corruption—and address critical governance challenges in the management of state enterprises and cotton sector reform. Second, the government foresaw a greater role for the private sector through continued privatization and a lower regulatory burden on business. On rural development, the government envisioned sorting out the cotton debt, continuing the farm land privatization program, improving competition in farm inputs and cotton marketing, and rehabilitating irrigation infrastructure. Third, the government placed a high priority on developing the country’s hydropower infrastructure for electricity and aluminum exports as a strategic answer to Tajikistan’s geographical isolation. Finally, the priority on health and education was to halt the deterioration of public service delivery and to subsequently recover and come as close as possible to the MDG targets. D. Country Partnership Strategy (CPS) 13. The Bank and the authorities met in Warsaw to agree on the key priorities of support. The dialogue emphasized selectivity (given the limited IDA resources) and maintaining the growth trend, while preparing the country for sustained growth over the longer term. The partners identified three strategic objectives for the CPS: (a) improve business opportunities in rural and urban areas; (b) preserve and enhance the quality of health and education; and (c) improve the delivery of energy services and exploit the country’s hydropower potential. IFC participated actively at the Warsaw discussions and in the preparation of the CPS and took leadership of improving the business environment and facilitating access to credit. 14. Efforts to improve national governance and reduce corruption through strengthening of the state’s institutional capacity were designed to support the three pillars. The CPS relied on an on-going program covering most of the result agenda. In addition, it introduced a DPO series of three operations to lead the policy dialogue with the authorities and help finance the budget. The CPS design was relevant to the government priorities and addressed the challenges facing the country. However, its scope was ambitious in light of the limited capacity of the government to implement the program and the limited IDA resources. E. Risks 15. The strategy document pointed to external risks related to potential spillovers from a tense regional situation in Afghanistan, the volatile Fergana Valley, and the drug trade. In addition, the CPS identified two likely sources of external economic shocks: (a) a decline in remittances from Russia, and (b) a fall in the world prices for aluminum or cotton. Lastly, the 59 CPS was concerned that IDA and other donors may not be able to generate a level of support sufficient to fund even a narrow set of development challenges given that other development partners allocated resources based on the country’s performance. 16. As major internal risks, the CPS saw the limited implementation capacity and weak governance, and the likely complacency in the face of an improving external environment. Given Tajikistan's fragile economic and social setting, the CPS noted that any slackening of the reform effort, related to governance (state owned enterprise accountability, cotton, and energy sectors), would risk recent gains and would make the CPS goals unattainable. Lastly, the CPS alluded to potential instability arising from a growing and youthful population. III. ANALYSIS OF RESULTS 17. The analysis of results begins with a brief overview of the broad national development outcomes relevant to the CPS program. Subsequently, it provides a detailed discussion of the CPS program with emphasis on results from the program and, as possible, its contribution to development outcomes. A. Development Outcomes 18. The level of poverty has decreased but remains high, especially in rural areas. Preliminary findings from the 2007 Tajikistan Livings Standards Survey (TLSS) indicate that economic growth and remittances improved the livings standards of the Tajik population since 2003, when the rate of poverty incidence stood at 64 percent. The same survey shows that remittances accounted for around 17 percent of the disposable household income on average and contributed to poverty reduction more than social transfers, which account for only 2 percent of disposable income. Still, by the end of 2007, 41 percent of the population was poor and 17 percent was extremely poor.28 In addition, considerable income volatility in rural areas, where 72 percent of the poor live, exposes its population to periodic deeper drops in consumption. About 50 percent of the poor are working poor, meaning that labor market participation does not reduce the risk of falling into poverty. 19. The economy grew rapidly. From 2004 to 2008 the economy grew on average at an annual rate of 8 percent. Remittances and increasing public expenditure drove demand. Supply was relatively elastic, given that private investment remained low (around 7 percent of GDP which is scarcely above 5.1 percent in 2003.) Increases in the domestic supply of goods relied for the most part on existing capacity. Public investment as a share of GDP (increasing from 8.1 percent in 2004 to 14.1 percent in 2007) was driven by electricity investments. In 2009, with the backdrop of the global recession, fears of an economic slowdown have materialized. 20. Availability of resources to the public sector increased considerably. The resources available to the government to finance its expenditures increased on account of (a) the rapid rate of growth of GDP; (b) the increase in the ratio of domestic revenue to GDP from 17.3 percent in 2004 to 20.5 percent in 2007; and (c) external assistance. Public expenditure jumped from 20.3 28 The 2007 WB poverty estimate applies the 2003-2007 rate of per-capita income growth to the 2003 household survey data. 60 percent in 2004 to 27.6 percent of GDP in 2007. The government increased (a) financing of social sectors, (b) wages and salaries of public officials, and (c) public investment. 21. But the macroeconomic environment has deteriorated since 2007. Inflation was exacerbated—the rate of inflation rose from 5.1 percent in 2004 to 19.8 in 2007. Concurrently, the external position of the economy deteriorated as the current account deficit moved up from 4 percent in 2004 to 9.5 percent of GDP in 2007 and unencumbered foreign exchange reserves fell to slightly above US$100 million at the end of 2007. The domestic cotton debt problem, the international financial crisis, and the declining liquidity of commercial banks have weakened the stability of the financial sector. The frail position of the National Bank of Tajikistan (NBT) has reduced the scope for monetary policy. 22. The perception of the quality of governance has worsened. Tajikistan’s CPIA in 2008 remained the same as that of 2004 (3.2, at the bottom of the IDA ECA scale). Governance proper within the CPIA (property rights, public expenditure management, public administration, transparency and revenue) remained static at 2.6. Only social sectors showed an improvement from 3.0 (2004) to 3.4 in (2008). While governance might not have deteriorated during the period, the cracks became more evident and are affecting the credibility of the state. The developments at the Central Bank concerning the non-transparent provision of guarantees and loans to KreditInvest and cotton investors and the lack of proper accounting and the absence of internal controls at the NBT are clear example of the governance shortcomings. These concerns extend to other areas such as the management of public funds, and the handling of large public enterprises, where improvements in governance have also been hard to come by. 23. Tajikistan faces the emerging crisis from a very weak position. Despite the rapid rate of economic growth and rising public revenues, structural reforms in key strategic sectors have been slowly implemented. Today, the government is in a weak position to face the current crisis: remittances have dropped, prices for cotton and aluminum products are lower, and it faces a substantive loss in credibility resulting from the mismanagement of the cotton farm debt. B. Results from CPS Interventions Pillar I: Foster broad based growth in urban and rural areas 24. Under this pillar, the CPS supported actions to remove institutional barriers to economic growth. The strategy envisaged the development of a highly competitive investment climate as the compensating factor for the extreme isolation of the country. In addition, the strategy emphasized the development of agriculture, as the majority of the population, in particular the poor, live in rural areas. The pillar defined two sets of results clusters around: x Improving the business climate and access to finance x Improving the competitiveness of agriculture. 25. To help achieve the objectives, the World Bank Group drew on a wide range of instruments; most notably the three operations under the Programmatic Development Policy Grant (PDPG), several operations in support of agricultural reform, IFC through technical assistance, availability of credit lines to finance small and medium enterprises and a series of analytical notes in support of the policy dialogue. The following paragraphs take stock of the 61 results achieved. A key lesson that emerges is that in a weak institutional environment major efforts are needed to set the basis for progress and that initial change can be slow. Marginal progress in improving the business climate and access to finance Results expected by the CPS Results Achieved Other Achievements Improved business environment by Implementation of Inspections In July 2006, the law on Inspections was reducing costs and time imposed by and Tax Administration adopted; successive regulations have government regulation on businesses as reforms yielded savings to followed. Amendments to licensing law measured by surveys (IFC SME survey) businesses of US$11.2 million approved in July 2006 reduced the [IFC]. number of activities to 65. Created conditions for better access to Tajikistan leasing portfolio IFC has provided about US$21 million of financing by SMEs through the Tajik Micro across all financial institutions its funds in 8 projects in the financial & Small Enterprise and Regional Leasing grew 860% from 2006 to 2008, sector. IFC extended US$2.5 million for facilities reaching US$21.7 million. trade finance and US$5.5 million for (IFC support) micro finance. In addition, IFC Corporate Governance Project is helping improve institutional capacity in banks; Increased the share of the private sector Private sector share in the Some 500 medium and large enterprises (from 50% in 2004) including through economy had increased. (See were privatized through a process most completing the 2004-2007 Privatization Plan CPS Progress Report) observers deem as transparent. for Medium and Large Enterprises Supporting Program: PDPG I, II and III, Private Sector Development Note; Aviation Policy Note; Banking TA. IFC TA, IFC Corporate Governance Project; IFC direct lending; and IFC lending through regional instruments. 26. IDA has led the dialogue to improve governance and competition in aviation through the PDPG series. A new institutional architecture for the aviation sector has separated policy making from technical regulation and from operations. The government adopted a resolution to restructure Tajik State Airlines by end 2008, leading to separation of airlines, airports, and air tariff control. These reforms have improved access and safety and the expectation is that they will lower costs as well. This hard-won progress illustrates how time and effort can pay off in building capacity and institutions. 27. IFC and IDA have supported simplification of business inspections and licensing. PDPG dialogue and IFC support have helped achieve significant results in both inspections and taxation reform. To implement the 2006 Law on inspections, the IFC supported amendments to more than 20 laws, regulations, and instructions to comply with the Law. In 2008, the IFC assisted in the adoption and implementation of a simplified tax reporting system for individual entrepreneurs. In addition, WBG support was behind the adoption of the July 2006 law “On Inspections” and legislative and regulatory changes needed for its implementation. Reportedly the number of activities subject to licensing has been reduced from 1,500 to about 113; new rules and procedures have been established to reduce arbitrariness. 28. Access to financial services has improved, but the gains are at risk. By June 2008 credit to the private sector was estimated at 20.7 percent, compared to 14.4 percent of GDP in 2005. Banking assets have increased rapidly from 11 percent of GDP in 2005 to 25.3 percent at the end of 2007. Microfinance institutions have grown in number and types and now serve 50,000 clients. Lending by micro-credit organizations grew by 200 percent in 2006 and a further 80 percent in the first half of 2007, but the sector remains small with a portfolio of US$37 million. Still, high interest rates, lack of long-term sources of funding, a weak secure lending framework, and accounting and auditing shortcomings remain formidable barriers to improved access to 62 finance. Not surprisingly, the 2010 Doing Business places “Getting Credit” in Tajikistan 167 among 183 economies. Recently, the financial sector is coming under stress from the forced lending from the government to commercial banks to on-lend to the cotton sector, now up to 19 percent of the banking sector capital (April 2009.) The likely effects of the global crisis on the banking sector represent an additional risk factor, even if the banking system appears well capitalized and non-performing loans are at 7.9 percent in June 2009. The gains of the last four years are at risk. 2008-BEEPS--Problems Doing Business (Percent of firms that identify activity as constrain) 80% and more Inadequately Educated Labor Force; Tax rates 60% - 80% Business licensing and permits; Access to land; Electricity; Crime theft and disorder; Practices of competitors in the formal sectors; Access to finance; Business inspections 40% - 60% Compulsory certificates; zoning restrictions; Transportation of goods, supplies and inputs; Telecommunications; Customs and trade regulations; Corruption; Courts; Political stability; Practices of the informal sector 20%- 40% Labor regulations 0-20% None 29. IFC actively supported financial sector development. During FY05-09, IFC committed a total of US$23.0 million in 8 projects in Tajikistan’s financial sector. Of this amount, US$6.3 million was provided to First Microfinance Bank of Tajikistan (FMBT) support their microfinance IFC also provided a $2.5 million trade finance line to Eskhata Bank (under the Global Trade Finance Facility). To increase microfinance lending, IFC provided US$3 million to FMBT and to IMON to support their microfinance lending operations. In addition, IFC provided a US$2.5 million trade finance line to Eskhata Bank (under the Global Trade Finance Facility). IFC also invested US$10 million in Aureos Central Asia fund, which will invest in SMEs in the region. In addition, IFC’s role in the development and growth of financial services in Tajikistan includes specific advisory services to financial institutions on agricultural financing, and the leasing market. Its portfolio across all financial institutions grew by 860 percent during 2006- 2008, reaching US$21.7 million. IFC South Tajikistan Cotton Lending Project’s partner financial institutions saw their cotton portfolio reaching 95 percent repayment, much higher than the national cotton portfolio repayment rate. The support of the IFC Central Asia Mortgage Market Development Project helped draft the Mortgage Law of the Republic of Tajikistan (2008), which allows banks to start mortgage operations; IFC is providing TA to develop the needed skills. The IFC Corporate Governance Project has increased knowledge and training capacity on Corporate Governance, along with consultations on Board structures and requirements to companies in both the financial and real sectors. 30. The available evidence shows a mixed picture in the quality of the business climate, with some successes. IFC SME Survey results reveal improvements in the prevalence of some administrative procedures from 2005 to 2007. Fewer SMEs were inspected in 2007 than in 2005, reflecting good implementation efforts of the 2006 Inspections Law. The 2006 Inspections Law and its implementation resulted in annual savings to the Tajik SME sector of $9.3 million in direct and indirect costs. The percentage of SMEs that report obtaining a permit also dropped significantly, particularly for dekhan farms. The government undertook comprehensive reform of 63 the licensing regime with the 2004 Licensing Law, and fewer small and medium companies and dekhan farms report obtaining a license in 2007 than in 2005. 31. Challenges remain to implement and expand business environment reforms. 2010 Doing Business, IFC SME Survey, and 2008 BEEPS continue to report many impediments to doing business in the country. The 2010 Doing Business ranks Tajikistan 152 among 183 countries (an improvement from 2009 when it was 164). The ranking of some categories improved, for example protecting investors ranked 73 and enforcing contracts ranked high at 39. Starting a business ranked 143 and registering a property ranked 78. Overall, entry (creating companies) and obtaining construction permits appears to be difficult. Such barriers can easily negate efforts that have been made to increase competition through amendments to the competition law and to the law of natural monopolies. Operating a business is difficult as underscored by the rankings: (a) taxation (162), (b) trading across borders (179), (c) getting credit (167), and (d) employing workers (143.). The IFC SME Survey shows that certification procedures for products and services are more prevalent; the main administrative procedure requirements for SMEs in Tajikistan impose direct costs of approximately $18 million per year. 32. Information from the 2008 BEEPS survey confirms that most firms in Tajikistan continued to face hurdles in all fronts. These findings should concern the Bank, IFC and other donors that have been working hard on areas such as business licensing and permits, business inspections, access to credit, competition, and electricity. 33. A strategy is in place to foster private sector development, the present crisis provides the opportunity to speed up implementation and increase the supply response of the economy. At the request of the government, IDA in close collaboration with IFC and other donors developed a Private Sector Development (PSD) Strategy in March 2007. Implementation of the strategy started slowly but the pace has picked up in 2009. The renewed effort is welcome given the limited participation of the private sector in the economy-- around 55 percent29--despite the implementation of the 2004-2007 Privatization Plan which transferred around 500 medium and large enterprises to the private sector. In the present environment, the chances for further privatization are low. Emphasis should be on fostering the entry of new enterprises and the growth of existing firms. Reform and performance in agriculture continue to lag. 34. Bank support for agriculture has been guided by the dual objectives of assisting the government (a) develop policies for sustainable agriculture growth; and (b) resolve the cotton crisis. The CPS targeted results in the agriculture sector was highly relevant because the majority of the population and the poor live in the agriculture sector that underperformed the rest of the economy since 2003 and because cotton utilizes around three-fourth of irrigated land. Various factors have constrained the cotton sector growth including slow progress in issuing land use certificates, weak price incentives for cotton farmers from a group of non-competitive and closely held ginneries, continued state management of production targets,30 and difficult access 29 See CPS Progress Report. 30 On paper, freedom to farm exists. On 5 March 2007, the President signed Decree #111 Action Plan (Road Map) for the Implementation of the Farm Debt Resolution Strategy in the Republic of Tajikistan for 2007-2009, provided 64 to finance. The high and mounting debts of cotton farmers to a select group of input suppliers were further crippling the sector. Results expected under CPS Results achieved under CPS Other achievements x More competitive cotton x Commercial credit procedures applied x Reform of the Commodity market as measured by to cotton loans for IFC Partner Exchange completed market-conforming changes in Financial Institutions. Repayment x International Cotton Grading farm gate prices of inputs and reached 95% in 2009. standard introduced; outputs x IFC enabled financing of $7 million in x Cotton Export licensing x Increased income loans to farmers in the cotton sector, removed; opportunities for farmers, covering nearly 6,500 hectares. x Passage of the Water Users including by rehabilitating x Not achieved. An equitable and pro- Association Legislation as part irrigation and drainage poor farm debt resolution strategy for of the implementation of the infrastructure on 60,000 ha of cotton farms agreed and under Water Code; agricultural lands implementation x Land Code amended. x Not achieved on account of the slow progress with titling (only new 808 certificates issued) and infrastructure rehabilitation but opportunities have improved with the increase in non- cotton agriculture prices. The supporting program: PDPG I, II and III, Cotton Recovery Project, Land Registration and Cadastre System for Sustainable Agriculture Project. 35. Bank AAA supported preparation of an Agriculture Sector Strategy in 2007. This strategy identified land titling and resolution of the cotton crisis as priorities. The strategy gave way to a Roadmap, which the government adopted in 2007 through a Presidential Decree 111 and later decree 313 in 2008. However, progress in reform was minimal, thus, affecting the implementation of the Bank’s assistance program and the delivery of expected results. On May 30, 2009, the government announced a Presidential decree related to cotton debt resolution and in July 2009 approved an action plan to write off cotton debt owed by farmers to ginners and commercial banks. 36. The objective of a more competitive cotton market has not been met, but partial gains have been made. The Bank has pursued a dialogue on cotton grading standard and export licensing through the PDPG series and the Cotton Sector Recovery Project.31 Recent achievements include deregulating the grading of cotton and lifting licensing of cotton exports by the NBT in late 2008, so the barriers in the cotton sector were in place during most of the CPS period. Most importantly, the production target for cotton farming remained mandatory throughout this period. However, the authorities have reduced the area under mandatory cultivation by 50,000 hectares (around 25 percent of the total area) for the on-going season. Forcing cotton production has weakened reform efforts. For instance, opening to competition in ginning with the idea of bringing in foreign investment has not delivered expected results as potential investors are driven away by the present uncertainties. Implementation of the Cotton Sector Recovery Project has been slow and has been restructured. for freedom to farm without Government interference. However, slow implementation means that even non-cotton farms must report on the acreage used for each crop, herd numbers, etc. In the Dairy sector, government control has lead to low levels of production of fodder crops, reduced fodder available for milk cows, and therefore lower production of milk. 31 The Cotton Sector Recovery Project was effective September 2007. 65 37. Financing cotton has given rise to several governance failures. The Cotton Sector Recovery Project sought to address the cotton debt and proposed a mechanism to do so. This came to naught, and unbeknownst to the public; the NBT extended loans to and guaranteed foreign borrowing by private investors under the assumption that they would finance farmers. As investors defaulted on their obligations the NBT took on their debt, affecting its capital and net reserve position. The recent audit of the NBT (March, 2009) pointed to a number of deficiencies and questioned the involvement of the NBT in cotton financing. While this involvement stopped as of 2008, the Ministry of Finance lends funds to commercial banks to on-lend to cotton farmers (in 2008) and for the agricultural sector (2009), thereby engendering a problem for the banks or further fiscal costs. 38. Titling of the land is behind schedule due to lack of political will especially in cotton areas. Efforts to advance land titling through the Land Registration and Cadastre System for Sustainable Agriculture Project have fallen short of expectations and only 509 land certificates had been issued as of the September 2008 midterm review. Recently, there has been some acceleration and as of end April 2009 a cumulative total of 2,488 certificates had been issued. The mid-term review of the project suggested lowering the final target to 37,500 certificates rather than 75,000 as in the original project document and to focus attention on removing institutional barriers to the introduction of a land-property system. The multi-donor dialogue is helping improve the legal framework as the Land Code limits the government’s discretion to revoke land rights without fair compensation and due process was amended in early 2008. In addition, a new law has been approved for the creation of a unified registration system. Overall, while progress towards a modern legal framework for land has been incomplete and at times contradictory, it has nevertheless taken important steps forward with CPS support. 39. The tardiness in titling is delaying improvements in irrigation. Bank support for building irrigation institutions came through a pilot supported by the Fergana Valley Project. Lack of proper titling slowed down implementation, specifically the creation of water user associations. The already established water user associations in the pilot areas worked with local governments to issue land titles so that irrigation infrastructure could be rehabilitated. This fact reinforced the findings of IEG’s Project Performance Assessment Report (PPAR) for the Farm Privatization Support Project (FPSP) that efforts at improving and manage infrastructure are less sustainable in the absence of clear property rights.32 It downgraded the outcome’s rating of the FPSP from satisfactory to moderately satisfactory. In addition, IEG’s review of the Rural Infrastructure Rehabilitation Project downgraded the project outcomes from moderately unsatisfactory to unsatisfactory, showing the difficulties in improving infrastructure in an institutional weak environment. Lastly, the fact that agriculture is performing better outside of cotton areas, suggesting that farmers respond to market incentives. 40. IFC is the only IFI that has remained substantially engaged at a grassroots level in the cotton sector. The Farmers Ownership Model that forms, trains and empowers farmer-owned 32 The FPSP, concluded in 2004, help privatize 10 collective farms, rehabilitate infrastructure and create nine user associations have assumed water distribution to members collecting fees for their services. Also it helped issue 6000 titles. An IEG PPAR for the FPSP noted that while the repair needs for irrigation had been carefully assessed under the project, in the absence of cropping freedom, access to free markets , etc. the farms were unlikely to maintained- repaired systems. 66 finance cooperatives has produced results on the ground. SugdAgroServe (SAS), the recipient of IFC support, currently has more than 1,080 member shareholders (from 400 shareholders at the beginning) and a loan portfolio of over US$1.15 million that finances a variety of crops and livestock. Through its retail business, SAS provides high quality fertilizers, crop protection products, seeds and machinery. The marketing division ensures that farmers receive the best possible price for their crops. SAS is now operating independently without IFC Advisory Services support. This experience allowed IFC to launch the South Tajikistan Cotton Lending Project that partners with banks to introduce commercially viable loan products tailored to financing cotton production (average loan size is $20,000). The project now works with two IFC investment client banks that have expanded their lending portfolio to small and medium sized cotton farmers from almost zero to $2.7 million over 2 years. Through both the South Tajikistan Cotton Lending Project and IFC support for SAS, IFC approved more than $7 million in loans for the cotton sector, covering nearly 6,500 hectares. 41. In addition, the Agribusiness Supply Chain project that began implementation from 2007 has provided more than 300 hours of consultations to 100 farms and 20 organizations. The results are tangible: demonstrated increases of at least 8 percent in milk production at the larger dairy farms. Outreach on farmers’ rights has also been successful with farms taking independent decisions to expand fodder crops by 5-10 percent. The project has been very successful at the farmer level but has encountered challenges in establishing a strong anchor client around which to build a supply chain. First pillar contribution to long-term outcomes 42. The Bank program under this pillar was to help the country prepare for the long-term by removing critical barriers to private sector economy activity. By this account the impact of the program has been subdued, although there is a fair amount of work in progress. The salient outcome is the reform of the aviation sector that is already having an impact. Towards the end of the CPS the government introduced some reforms on cotton—lifting the exporting licenses and reforming the cotton grading process. However, there is evidence that mandatory cotton farming is still in place, even if the area under cultivation is going down. The financing of cotton gave rise to considerable governance missteps that have damaged the credibility of the nation, and that will require fiscal resources to capitalize the NBT. Even today, financing cotton from the budget through the banking system carries both fiscal and financial risks given the relatively low rate of repayment of loan obligations. Now that the legal background is in place, land titling could take off during the next strategy (assuming adequate government commitment), setting a basis for rapid improvement in irrigation and increased investment in rural areas. During this CPS, land titling and irrigation recovery has fallen below expectations. The work of IFC and IDA in search of a better business environment is on-going, contributing to the modernization of the framework for permits, tax administration, licensing and inspections. Intensive work to develop and implement the Inspections Law by IFC has led to the development of inspection checklists, enabling regulations in inspectorates, and training for all inspectors in the two pilot inspectorates. The focus on implementation has yielded results in decreasing the coverage of inspections, number of inspections, and duration of inspections, yielding cost savings for the private sector of US$9.3 million. Tax administration has been identified by SMEs as a constraint in IFC SME Surveys. In 2008, IFC implemented a simplified taxation regime for individual entrepreneurs (patent) which has also yielded cost savings of US$2 million to SMEs. However, the low level of 67 private investment raises questions about the pace and scope of deregulation, and whether the on-going pace suits an increasingly difficult external environment. Analytical work should inform rapid and coherent actions to trigger a fast supply response in this time of crisis. Pillar II: Preserve and enhance the quality of health and education 43. Under this pillar the CPS supported government efforts to reverse the negative trends in health and education induced by the lack of financing and deteriorating delivery systems. The government program committed to turn the situation around by increasing budgetary allocations to the health and education sectors (which had gone down respectively to 0.9 and 2.7 percent of GDP in 2004), and modernize institutions to increase coverage and efficiency. The aim was to improve the likelihood of delivering on the Millennium Development Goals. The CPS results can be grouped in two results packages: x Improving the health of the population x Improving education for the population Improve health of the population. Results Expected Under the CPS Results achieved under the CPS Other Achievements Improved access to and quality of health services, Achieved---increased access of the Initiated a process for the as measured by (i) increased utilization of poor to health services-see text.. development of the Health primary health care by children and women of Concept and Strategy, but a childbearing age, (ii) increased immunization fully-cost health strategy is not coverage rates, and (iii) increased number of yet in place. trained family doctors in areas covered by the IDA program Increased patient satisfaction with health services Proper indicator not available. in areas supported by IDA programs as measured by surveys Progressive reallocation of public health In 2008, Government adopted a Separate management and spending from hospitals to primary health care decree on allocation at least of financing of primary health 40% of total health expenditure to care and hospitals is now district level which is complied mandatory. with. . More equitable financing of health services, both Progress in implementing per in primary health care (through per capita capita financing for primary health financing) and hospitals (through basic benefit care in WB project pilot areas but package implementation) oblast pooling has yet to be implemented. Limited progress implementing the basic benefit package. Reduced the growth rate of HIV prevalence The TLSS reports that knowledge Tajikistan is benefiting beyond among identified intravenous drug users, of preventive measures has initial expectations from the commercial sex workers, prisoners, migrants, and improved (See text.) regional Central Asia Aids out of school unemployed youths. Fund Increased consumption of safe water in Dushanbe Partially achieved. (See Text) Rehabilitated water supply and selected municipalities in Tajikistan, to be activities in 8 towns, have measured by: (a) increased consumption of safe improved availability and water in liters per capita; (b) quality measured by quality of water supply by 20% meeting WHO/national standards on average. Supporting program: Community and Basic Health Project (CBHP), sector investment grant co-financed by SIDA, and regional operation on HIV/AIDS, 2007 Tajikistan Living Standards Survey (TLSS). 68 44. The Bank program supporting health was relevant, but the lack of a comprehensive strategy complicated implementation. The Bank instruments have been a Community and Basic Health Project (CBHP), and a sector investment grant co-financed by SIDA. In addition, a regional operation financed work on HIV/AIDS. The Bank project supported development and pilot implementation of (a) primary health system financed with capitation grants, and (b) a basic benefits package. The pilot approach took account of the capacity limitations in the country. Regretfully, during implementation lack of a comprehensive health strategy created duplication and fragmentation from piecemeal intervention of players in multiple PIUs. The government and development partners are now working towards a comprehensive strategy. 45. The poor have better access to health services in the regions of Bank support. The preliminary results from the 2007 Tajikistan Living Standards Survey (TLSS) report improvements in the access to health services by the poor. For Sogd and Khatlon oblasts (where the seven rayons the Bank project is working with are located), the percentage of the households that do not seek access to health services because they cannot afford them dropped to 29 and 37 percent respectively from a 2003 baseline of 57 percent. In turn, the share of health in household expenditure has dropped from a baseline of 9 percent to 4.8 and 3.1 percent respectively in these two oblasts. 46. The implementation of the strategy has achieved definite progress in the introduction of per-capita financing in primary health care: the per capita financing system has been designed and piloted. The legal/regulatory framework for implementing the first phase of the Public Health Care Centers financing reforms is in place. The provisions include, amongst others, (a) consolidation of the PHC at the rayon level; (b) separation of hospital and PHC budgets; (c) increased autonomy of PHC facilities, (d) separate execution, control and reporting of per capita health budgets, and (e) separate information systems. The per capita financing (capitation) program is under implementation in two oblast that cover 60 percent of the population. However, currently per capita allocation of funds is done on a district level, while the largest disparity in public expenditure is observed among districts and regions. In the next phase of reform, it is envisioned to redistribute health public funds for primary health care at the regional level (i.e., pool the fund at regional level). 47. Progress with the implementation of the Basic Benefit Package (BBP) is somewhat mixed. The BBP has proven an effective tool for converting a large share of out-of-pocket payments into legal payments; however, the broad coverage of the benefit package and the inefficiencies of the service delivery make the package unsustainable given the limited resources the state assigns to health. In September 2008, government redefined the basic package structure to help financial sustainability; a pilot to implement these ideas is underway in eight rayons. The PDPG operations supported these reforms. 48. AIDS awareness improves. Tajikistan has received around 30 percent of the small grants allocated under the Central Asia AIDS project during the first and the second cycles, which exceeded original expectations. The grants helped to increase AIDS awareness as was intended. Preliminary results show that knowledge of HIV prevention increased from 43 percent of respondents in the relevant age group in 2005 to 57.5 percent in 2007. However, it is still below the PSRP set for 2009—75 percent. 69 49. Partial improvements in safe water availability in Dushanbe have taken place. The quality of safe water in Dushanbe has improved despite a slow start and protracted implementation of the supporting Dushanbe Water Project. With the rehabilitation of the daily sedimentation pond and installation of pumps, the quality of the water in the supply network of Dushanbe has improved, with turbidity remaining low even on rainy days. 75 percent of the population now receives continuous, 24-hour service; more than 65 percent of the population now receives water with low turbidity as compared to 52 percent in 2003. Outside, water availability is improving in the 8 towns participating in the Municipal Infrastructure Development Project (FY06). A recent impact assessment under the project shows that water availability has increased by 20 percent. Improve education of the population. Results expected under the CPS Results Achieved under the CPS Other Achievements Increase primary completion rates in 7 rayons covered Fully achieved--Completion rates in Strong donor alignment by the IDA program (benchmark to be established 7 rayons increased and now around the National during CPS implementation) 99.85%. Education Strategy (NES) used for Improved learning conditions (as proxy for improved Achieved (See text.) EFA/FTI funding and learning achievement) in schools in 7 rayons the design of the new (increased access to textbooks; improved teaching SWAp. practices and enhanced physical conditions of schools) Rationalized resource management by: x More equitable regional allocation of x (Not relevant, the system of per- capita financing has to be in place expenditures by movement to formula allocation for regional equalization to be a based on per capita financing criteria feasible.) x public expenditures allocation to schools based x Per capita funding implemented on per-capita financing criteria in at least one in 12 rayons, ready to be rayon expanded nation-wide x increased community participation in decision x 100% of PTAs in schools covered making process in schools in 7 rayons by IDA program active. Supporting Program: Education Modernization Project (EMP); EFA/FTI financed project; 2007 Tajikistan Living Standards Survey (TLSS); Programmatic PER. 50. The Bank education program was relevant to the government priorities that were well articulated in a comprehensive strategy. The government, jointly with stakeholders, has put forth a National Strategy for Education Development (NSED) that is guiding program design and implementation towards the medium term. Bank support has come through the Education Modernization Project (EMP) predating the CPS; the Bank has also helped coordinate approval and is implementing an EFA/FTI financed project. Both projects are focused on improving access and quality from grades 1-11 and strengthening education institutions. In addition, the EFA/FTI is contributing to donor harmonization with the government. The authorities recently developed and approved a better prioritized and costed strategy as part of the preparation for FTI 3. 51. Attendance and completion rates are up in areas of Bank project implementation; also in these areas the bases have been set for improving the quality of the service. In the seven rayons covered by the Education Modernization Project, enrollment is close to 100 percent and completion rates are at 99.85 percent. Nationwide, the TLSS estimates school attendance at about 95 percent, although quality of education is an issue. To address quality, the government, 70 with donor support, has been undertaking various activities: (a) new curriculum framework for two primary education subjects has been developed and distributed nationally; (b) 300 teachers with secondary education have been trained in the pilot areas; (c) fourth grade assessment has been developed and pilot tested; and (d) refurbishing of the basic textbooks with 50 new titles complete. One hundred percent of schools in pilot rayons have functioning Parent Teacher Associations (PTAS) and 416 Parent Teacher Associations have been created. In the targeted rayons, 132 schools buildings have been rehabilitated. 52. Progress in implementing education per capita financing has exceeded expectations. Per-capita funding of schools is the centerpiece for rationalizing resource utilization in the education sector. The progress here has gone beyond CPS expectations, with per-capita funding in 12 rayons rather than one and plans underway to expand nationwide based on the findings of an evaluation of the results thus far. 53. Going forward the priority should be given to protecting and consolidating the gains that have been made. These include: national rollover of pilot experience, institutionalization of per capital financing and school autonomy, engagement of the community, curriculum up-grading and teacher training. Achievement of results expected under the CPS was aided by realistic design, commitment of government, and increased capacity at the education ministry. The NSED continues to provide the framework for the EFA/FTI funding and the forthcoming SWAp. The 2008 BEEPS Tajikistan preliminary results point to lack of skilled personnel as one of the major constraints to business. Brief and pointed analytical work can delve in greater detail to identify the nature of this limitation, and help inform the government and development community on ways to address it. Second pillar contribution to development outcomes 54. The objectives set by the CPS under the second pillar were realistic and have been met for the most part, although improvements in water availability (mostly Dushanbe) have been slow to come. Downward trends in health and education indicators seem to have been halted; definite information will be available with the final publication of TLSS. In water, the situation is less clear. Preliminary information from the TLSS suggests the percentage of households having access to safe water remains the same as 2003. The compatibility between project information and general survey results needs to be examined. 55. Overall, the situation in health, education and the availability of potable water remains dire, with country indicators lagging the region by far. The on-going crisis puts at risk the gains that have been achieved. These can be protected by maintaining funding levels, including the salaries of teachers and health personnel so that service delivery units can remain open. In addition, the partners should forge ahead with components that have been tested successfully, like per capita financing in education and health. The challenge will be to maintain the levels of investment. For instance, in education, the Multi-cluster Assessment survey finds that the quality of school and health facilities are still not appropriate, especially when it comes to functioning properly in winter conditions. 71 Pillar III: Improve delivery of energy services and exploit the country’s hydropower potential 56. The authorities set a high priority on developing the energy potential of the country, which already contributed five percent to GDP and was a critical direct input into the production of aluminum and indirectly into cotton through irrigation. The CPS strategy centered on improving governance, financial performance, and quality of service delivery in the internal markets. With a longer term perspective in mind, the CPS focused on helping build the basis for Tajikistan to supply regional electricity markets. The main instruments of assistance have been the Energy Loss and Recovery project (which is half way through implementation), the Pamir Private Power project (close to completion), and dialogue around the preparation of a regional project to complete the interconnections. Emergencies made it necessary to provide additional financing for Pamir and a self-standing operation (Emergency Energy Assistance project) to help with the effects of the harsh winter of 2007-08 (among which was a drastic drop in electricity) and to improve the country’s readiness in dealing with future emergencies. The DPO series has taken on the policy dialogue. Results Expected under the CPS Results Delivered under the CPS Other Achievements x Improved reliability of service provision Hard figures are not available. Some 63,566 gas meters at of both electricity and gas, measured by Enterprise surveys—2008 BEEPS-- households and 6000 electricity increased hours of uninterrupted service identified electricity as one of the meters were installed in Dushanbe and GBAO. (Benchmark main constrains to business. to be established during IDA projects’ implementation) x Improved financial viability of energy Partially achieved (the internal cash The government increased utilities, measured by: (a) increasing flow generation has improved, but electricity tariffs in January 1, contribution of investment from internal targets unmet.) 2009, by some 15%. The annual resources to 30%; (b) improvements in weighted average posted tariff for cash collections by at most 5% annually 2008 equaled to US$0.0131/kWh. (baseline –53% in 2003) x Improved transparency and reduced quasi-fiscal deficit in the gas and Achieved (quasi-fiscal now at 12% of Gas tariffs are adjusted to follow electricity sector from 15% GDP) the imported price that doubled in 2009 to $300/1000 cu. m. Cost recovery is expected to be achieved in 2012. x Create conditions for substantial growth Not achieved, but satisfactory work in Sangtuda I and II co-financed by in revenues from electricity exports and progress. Russia and Iran, under construction, their transparent use will generate a surplus of electricity in the summer for export. Tajikistan signed Power Export Agreement with Afghanistan in September 2008 to export electricity surplus in summer beginning in 2010. x Improved institutional and financial Partially Achieved—the ratio of performance of Dushanbe Vodokanal, as revenue to costs has improved (see evidenced by increased cash collections text). and reduced revenue arrears x At least 3 municipalities achieve 30% Not achieved improvement in cost recovery x Increase poor people’s access to 125 micro-projects approved in essential economic and social services communities, lacking economic and (225,000 people) social infrastructure ( CAWMP) Supporting program: PDPG I, II, and III; Energy Loss and Recovery Project ; Community and Agricultural Watershed Management Project; Pamir Private Power Project; Additional Pamir Financing; Emergency Energy Assistance Project; Dushanbe Water Project. 72 57. The quasi-fiscal deficit of the energy sector has been reduced, but by less than expected. The CPS sought to help the government reduce the quasi-fiscal deficit associated with public enterprise activity, especially energy. The strategy combined tariff realignment, improved collection and management improvements in the state companies. Progress includes bringing gas sector tariffs to the cost recovery ahead of the original target date (2010). Collection rates in gas and electricity are well above targets. The 2008 quasi-fiscal deficit stands at 12 percent, well below the level of 15 percent in 2004. However, the contribution of internal funds to finance investment is below the 30 percent target, as servicing debt with China to finance the construction of the transmission line connecting the country from north to south has reduced the availability of internal resources. The country is on track to improve the finances of the sector, but must accelerate investments to meter consumption and reduce losses. 58. Progress in improving corporate governance at Barki-Tajik has been slow. Although delayed, an audit of Barki-Tajik is now available. And because the auditors lacked proper information on financial accounts, the audit is incomplete. Overall, concerns with the governance of BT continue to linger and are shared by the authorities and development partners. The urgency remains to bring to international levels governance in BT so that the company can play a central role in the ambitious regional program. 59. A more prolonged and bitter cold season than had been the norm and a low water level at the main dam created a dire situation during the 2007/2008 winter. The Bank fielded an emergency operation that became effective almost a year after Board approval, an indication that the country is not adequately prepared to address risks in a timely manner. While the Bank helped address the energy crisis, electricity remains a major constraint to business and production in general, especially during the winter months (2008-BEEPS). In addition, results from the recent Multi-Cluster Assessment survey (October 2008) show that households remain at risk due to lack of fuel at hand or resources to purchase it when needed. 60. The regional electricity interconnection agenda is roughly on track. The electricity inter- connection line, built with the support from the Republic of China, is designed to connect the south and the north of the country. This will break the interdependency with Uzbekistan, which now operates the electricity grid control center it inherited from Soviet times. This interconnection will not only help connect the country but eventually the region (Kyrgyzstan, Tajikistan, Pakistan and Afghanistan) once complementary investments (CASA 1000, financed by IDA and others) link regional markets are completed, possibly as early as 2013. In the meantime, RAO UES of Russia provided financing and completed the construction of Sangtuda 1, which helps reduce domestic energy shortages and generate summer surpluses for sale to neighbors—possibly Afghanistan. Iran is financing the construction of Sangtuda II. 61. Institutional upgrading of the water sector has moved slowly. The initial design of the Dushanbe Water Supply Project envisaged private sector management and participation through contract management; ultimately, this did not prove politically feasible. The project has been managed by the local water company under the Mayor’s office. Tariff increases and better collection practices have raised the ratio of collected revenues to the sum of operational costs, adequate maintenance, and project related expenses from 21 percent in 2002 to 65 percent in the first nine months of 2008. Improvements have been made in the finances of the companies through upward water tariff readjustments and better collection practices, which are feasible now 73 that the quality of the service has improved. Still, the governance of the water company remains a concern and is hindering other development partners from making sizeable financial contributions needed to carry out the necessary investments, which IDA cannot cover given the available envelope. In addition, the Municipal Infrastructure Development Project (FY06) has the objective of increasing institutional capacity at the central agency responsible for municipal services in small towns outside of Dushanbe and Khodjand. Progress has been slow given the weak institutional capacity and, as a result, the financial and institutional performance of KMK has not yet improved significantly. Pillar Three: contribution to long-term objectives 62. The poor quality of energy supply for the domestic market continues to constrain production and has the potential to significantly limit the supply response in the short to medium-term. It is likely that the country will remain vulnerable for some time, especially if procuring regional supplies of energy continues to be difficult. Governance remains a concern for energy and water. In energy, it has (and may continue to) affect the willingness of sound and credible international partners to invest in the government’s ambitious plans to be a regional player in energy. The lack of transparency at TALCO remains a concern as the country; in fact, the firm did not benefit from high world aluminum prices during the past several years due to a questionable tolling arrangement. The current drop in international prices is affecting the company’s profitability, raising fiscal risks related to lower tax contributions. Good progress has been made in developing the regional energy market, which augurs well (for now) given such an ambitious undertaking. However, further large hydro investments will require attention on account of geopolitical risks and the need to improve the investment climate to attract the large foreign investment necessary for its construction. Underpinning the strategic objectives: Improve governance and state capacity 63. The spirit of the CPS was for the governance work to help all pillars deliver their expected results. Hence, governance work was conceived as complementary to the achievement of the CPS results and not as an objective in itself. Within the resulting broad governance agenda, the Bank focused the bulk of its support on building the capacity of the central government as the backbone of a long-term strategy to address the constraints. The main components have been (a) public expenditure reform, (b) fiduciary reform, and (c) public administration and civil service reforms. Bank support has come through policy dialogue under the DPO, the Public Administration Reform Project, analytical work (Programmatic Public Expenditure Review (PPER), and Public Sector Pay Policy Note) and the National Statistical Capacity Building Project. 74 Results Expected under the CPS Results Delivered under the CPS Other Achievements x Rationalization of budget process and Achieved: (i) PRSP and NDS were The EC initiated automation of investment planning in key sectors as aligned and integrated into the 2007- expenditure flows and 4 rayons measured by (i) alignment between the 2009 PRSP and allocations to health in RRS have dial-up connections. national objectives and expenditure and education have increased; and (ii) An administrative classification allocations (e.g., real progressive PETS in education and health were has been developed and will be increase in health expenditures); and carried out in 2006. introduced in the budget (ii) expenditure tracking management and treasury system during 2010. x Public procurement and financial Partially Achieved. Public accountability systems modernized Procurement Law adopted in 2007 and and strengthened implementation has begun. x Improved statistical capacity Information not available. x Improved civil service performance as No information available on changes Bonus consolidation increased a result of improved incentives, in civil service performance total pay and pay decompression increased transparency, and merit has been introduced gradually. based recruitment and promotion New Civil Service Law in place within management tier. promotes merit practices. x Conditions created for improved Not achieved, constitutional changes policy making and execution by are needed. redesigning architecture of executive Supporting Program: PDPG I, II, and III; Public Administration Reform Project; PDPG I, II, III; PEFA (2007); Programmatic PER. 64. The government brought all of its development strategies under a single umbrella—PRSP 2007. The government met its commitment to consolidate all existing development strategies at the time the CPS was approved under a single framework, the National Development Strategy (NDS 2006-2015). In 2006, it produced a second and more comprehensive PRSP (2007-2009). The strategic integration would help facilitate development of a single budget and the alignment between budgetary allocations and national objectives. Already, the allocation of resources to health and education has increased in line with national priorities and preliminary expenditure tracking for health and education has been undertaken. Given the various crises that have occurred since 2007, the bulk of the PRSP activities remain to be implemented. 65. Gains have been made in setting the basis for better civil service practices. The objective to decompress the pay scale has been met; further decompression is not advisable given that wages for entry level specialists would not be competitive. Transparency in the pay system has been improved as bonuses and in-kind payments were integrated into the base pay, thus reducing the remaining payments to less than 30 percent of total pay (compared to 75 percent in 2006). A new Civil Service Law, approved in 2007, separates political and administrative functions and makes merit recruitment through open competition compulsory for administrative positions. Between 2006 and 2008, the number of posts advertised for competitive recruitment increased from 640 to 1,707. Knowledge of the legal framework is adequate. Although merit based selection is an increasing practice, merit based promotion is not well established as the “cadre reserve approach” remains the norm. At present, the impact of these measures on actual performance has not yet been evaluated as the conceptual framework for a performance appraisal system is being put in place during 2009. 66. Some progress has been made in public expenditure reform, but capacity remains a major constraint. A 2007 Public Expenditure and Financial Accountability (PEFA) assessment provided benchmarks to track progress in public financial management (PFM) and identify 75 weaknesses. Tajikistan was at a relatively low stage in public expenditure reform (see CPIA rating—2.6) and the Bank agenda on the ground is ambitious, including gradual introduction of a MTEF and a move towards use of country systems. Partial results include the adoption of a new Public Procurement Law (May 2006); an impact assessment will be available only with the next PEFA. External control was reversed when the President restructured public agencies in late 2006. The restructuring limits the independence of the external audit body, the State Financial Control Committee that was merged into the anti corruption agencies reporting to the President. Subsequently, some progress has been made towards the establishment of an independent external control. The Public Financial Management Modernization project, which was preceded by the Public Sector Reform project, was recently approved by the Board in May 2009. 67. Reforms of the structure of public administration have lagged expectations. Progress in reforming public administration includes the reduction in the number of ministries and central agencies and the introduction of the principle of separation of service delivery from policy formulation. Progress in implementation has been slow as shown by various vertical reviews of individual ministries. As a result, achievement of the proposed CPS result “clarification of responsibilities between different layers of government at the central, regional and local level” remains in mid-stream, with the remaining agenda to be addressed during the next CPS. It is difficult to proceed in an environment where a dedicated institutional structure, one that is expected to design, manage and monitor broad public administration reforms, is absent. CPS contribution to improving governance 68. Although the CPS emphasized governance and capacity building as cross-cutting themes, this pillar included only work with the central government on civil service, financial management and administration. Some progress has been made towards the ambitious agenda, which was defined with the long-term in mind. Civil servant salaries are higher and new rules are in place for hiring. A strategy for PFM has been adopted as has a new procurement law. On administration, progress is less noticeable given a lack of appropriate counterpart for the overhaul envisaged. With hindsight, and especially now given the on-going crisis, perhaps greater attention should have been given to help the authorities address the multiple crises that arise regularly. 69. On the broader governance picture, the impact of the CPS program has been subdued and not much progress has been made in improving sector governance, as had been expected. The collapse of governance at the NBT caught all external observers by surprise. The IMF is now leading the dialogue on getting NBT on track and taking the corrective measures that follow from the recent audit. It remains to be seen what corrective actions the authorities will take outside the NBT pursuant to the audit’s findings. Such measures will signal the willingness of the authorities to move towards greater accountability. Governance improvements in energy include the completion of the Barki-Tajik audit (although with a delay and a disclaimer due to inadequate financial information on the company’s operations). The CPS kept the program out of aluminum by design, but governance concerns remain with regard to the Tajik Aluminum Plant (TADAZ) and with TALCO, a new company carved out to deal with international transactions. Governance issues in cotton remain intractable. 76 IV. BANK PERFORMANCE 70. Delivery of operations set out in the FY06-09 CPS is on track but with a delay, as Table 1 shows. One operation was dropped (Poverty Alleviation III) and three operations are under preparation (Regional Electricity, Health and Education SWAp). Several operations were added to the indicative IDA program outlined in the CPS: (i) an Avian Flu Project in FY07; (ii) a supplemental credit to the ongoing Dushanbe Water Supply Project; and (iii) a Youth Development Grant funded by the Post-Conflict Trust Fund. Emergency projects including a standalone Energy Emergency project, additional financing for Pamir Private Power, and Food Security and Seeds imports were delivered in 2008. Tajikistan also benefited from the FTI in 2006 (IDA and other donors contributed US$18 million in grant terms over a two year period). 71. A large number of small projects consume the supervision budget, reducing the resources available for AAA. Today, 15 IDA operations are under implementation and the balance of funds (approved and not yet disbursed) adds up to US$141.9 million. The distribution of approved and undisbursed resources is aligned with the CPS. The portfolio also included 30 operations financed by trust funds (including IFC, WBI, Avian Flu, FTI, Food Price Crisis, GEF) with total commitment of US$65 million (equivalent to the remainder of IDA15 allocation), of which US$30 million are undisbursed. Jumbo Trust Funds represent the bulk of the portfolio, and the education sector accounted for about 30 percent of all trust funds. There are also smaller sized Trust Funds, such as 3 Institutional Development Funds (IDFs) (characterized by slow implementation), a First Initiative grant, and PHRD grants for project development. 72. The CPS delivered financial resources to the budget in line with the initial estimates. During the CPS period, IDA disbursed U$410 million, which was slightly less than the US$433.5 million in the original disbursement estimates. Most of the projects disbursed much quicker than originally expected. However, the Ferghana Valley, Land Registration and Cotton Sector Recovery projects brought the performance down. 73. The mix of investment and development policy lending has been in line with the CPS outline. As planned, a PDPG series is providing a platform for policy dialogue with government on a broad range of themes (mostly capacity and competitiveness) and supporting the implementation of the investment projects. The full PDPG series (3 operations) have been delivered, with a delay in the delivery of PDPG III due to the need for the government to complete the IMF SMP. An ICR for the PDPG series is pending. 74. The three PDPG operations drove the policy dialogue with the authorities and helped coordinate implementation of the CPS program, contributing to the achievement of a significant share of CPS results. Its agenda was broad, touching on all of the core areas of the CPS. It has helped to promote private sector development by supporting liberalization of the aviation sector, encouraging transparency in the privatization of SOEs, and supporting adoption of laws to prevent monopolistic practices. With IFC, it has moved along the agenda on reducing the regulatory burden of inspections and licenses. In agriculture, it has targeted measures to give farmers a better deal, with positive results towards the end of the period. It has supported the dialogue on financing of education and health services and helped to ensure that budget allocations for the services were protected during the recent global economic crisis. It has promoted greater efficiency and financial viability of the energy sector through support for better 77 corporate and financial management. On public sector management, the PDPG has supported significant public financial management reforms, including adoption of a new procurement law, establishment of an external audit function, strengthening of internal audit, and civil service pay reform. To achieve these results, PDPG worked with sectors and IFC where investment operations are ongoing, and mobilized additional resources from other donors to advance the agenda. However the degree of coordination with sector teams varied considerably from one sector to another and this is an area for further improvement. 75. Despite its successes, the difficult environment has affected PDPG implementation, particularly the crisis at NBT, which led to delays in preparing PDPG 3. The PDPG operation has been most successful in areas for which government ownership has been strong, technical assistance has been available (from the Bank or other donors), consensus among other development partners on the way forward has been forged, and engagement on the issues has been long term. A thorough assessment of its contribution to the country's reform agenda, in this difficult environment, will have to wait for the ICR. Continuing with the PDPG operation will help to deepen the reform agenda that is underway and to support reforms in emerging areas. 76. AAA has contributed to advancing the program in various ways, but some have come with a delay. AAA work contributed to the preparation of the 2006-2009 PRSP, the PDPG dialogue and project design. The PPER process supported Tajikistan’s first PEFA self- assessment, in partnership with the Swiss Economic Cooperation (SECO), in January 2007. In addition, the PPER has taken stock of health and education issues and debt sustainability. The TLSS completed and under processing, covers health, education, labor market participation, food security, and access to financial services, children immunization, and other themes. Its results will allow the government and the development partners to take stock of progress towards PRSP outcomes. Policy notes include a poverty profile at the national and regional levels; migration and labor markets; food security; gender aspects of access to land and financial assets; access to and quality of public health and education services; and social safety nets. UNICEF, DFID, and the government are the main contributors. Other AAA includes a Fiduciary Assessment of the Education and Health Sectors, Fiduciary Assessment of Tajikistan’s Portfolio, sector strategies for agriculture and private sector development, and three policy notes on Enhancing Development Impact of Remittances, Civil Service Wages, and Aviation. AAA work has been of good quality, informative, and, for the most part, timely (with an exception of the CEM that is expected to be completed in FY10). 77. Portfolio quality has deteriorated slightly during the implementation of the CPS. At the beginning of the CPS, the portfolio did not have problem projects (although 3 projects were rated not likely to meet their Development Objectives). Today, 5 projects are at risk, of which one has a moderately unsatisfactory development objective that represents a significant deterioration in portfolio performance since the start of the CPS. The disbursement rate is at 38.1 percent in FY09, compared to an ECA average of 17.1 percent. 78. IDA has emphasized training for policy makers, including several high-level leadership seminars. IDA, in collaboration with WBI, organized a high-level workshop in February 2006 for the economic and social team of the government, which was very well received. A subsequent leadership seminar for the new Cabinet of Ministers was held in April 2007 and focused on the strategic reform priorities for Tajikistan and showcased the experiences of a 78 number of more advanced countries. Most recently, a high level seminar for crisis management brought to Tajikistan several high level international practitioners to share their experiences with the authorities. 79. Periodic CPPRs have tracked gradual progress in addressing key implementation concerns. The action plan agreed to at the third government-IDA-ADB CPPR, held in October 2006, focused on resolving four systemic issues: mainstreaming Project Implementation Units (PIUs); orienting project implementation towards outcomes; resolving taxation issues; and expediting government procedures on project selection, approval and implementation. The fourth government-IDA-ADB CPPR (2008) took stock of progress in implementing the recommendations of the 2006 CPPR and reports: x Development partners’ efforts to reduce the costs of project implementation through more integrated mechanisms and the use of country institutions have brought several projects under the same implementation unit, such as in the energy sector the Center for Management of Projects that implements eight energy infrastructure projects. However, differences in fiduciary, reporting and accountability systems of the government and development partners are retarding implementation of more integrated agendas. To address this concern, ADB and the WB have streamlined and harmonized their operational procedures. In addition, the WB has been moving away from self-standing PIUs for project implementation. , Of 18 projects, 10 are implemented by stand-alone PIUs, six are implemented by their respective ministries or agencies, two by a state- owned enterprise (Barki-Tajik), and another by a private company (Pamir Energy). The gradual approach to phasing out PIUs has been necessary to avoid potentially sharp drops in performance. x A recent fiduciary review of Bank operations in Tajikistan did not find any evidence of fraud, but did find ample room for improvement. Physical inspection of the works undertaken showed that 67 percent had deficiencies due to poor quality of materials and workmanship, use of second hand materials in construction, and lack of proper maintenance. Only 37 percent of procurement was rated fully satisfactory, while only 16 percent was unsatisfactory. The review identified the following: (a) the need for tighter adherence to agreed procurement procedures, (b) inadequate competition from inside and outside Tajikistan, and (c) weak Borrower’s contract administration procedures. As to financial management, the review rated 39 percent as fully satisfactory with 17 percent either fully or highly unsatisfactory. The review found that competitive and adequate salaries strengthen implementation by attracting better qualified and experienced financial management and disbursement staff. x Since the 2006 CPPR, efforts to improve the monitoring and evaluation of projects has produced gains but monitoring & evaluation (M&E) remains weak with several projects still lacking them on account of limited in-country capacity and training opportunities. The consequence is that the government and development partners lack information for a timely assessment of performance and the needed corrections to avoid delays and deliver on results. 79 80. Coordination among development partners is improving. At the beginning of the CPS, partners faced a large number of fragmented operations that increased the cost of delivering assistance and, at times, provided contradictory advice. Partners are now working on developing joint project implementation units and co-financing interventions around common agendas. Examples include an FTI grant; co-financing for the Basic Community Health Project from the Swedish Agency for Development Cooperation (SIDA) and the Swiss Development Corporation (SDC); co-financing of the National Statistical Capacity Building Project by SIDA and DFID; work on public expenditure management with DFID, Swiss SECO; and cooperation with UNICEF. IDA has led the way for the establishment of the Donor Coordination Council in Dushanbe. 81. The CPS identified the risks well, but the country and partners could have done a better job of developing and implementing remedies. While the CPS foresaw the risk to the country associated with a global slowdown, the authorities did not take advantage of the four good years for building up reserves. Nor did the country take advantage of the favorable climate to implement reform to improve supply conditions and generate income opportunities; instead, it relied on exporting labor to release the political and economic pressures emanating from a growing population. The energy crisis, not foreseen in the CPS, evidenced the vulnerability of the economy to external shocks. Despite all of this, the country has maintained political stability. V. LESSONS AND RECOMMENDATIONS 82. The implementation of the CPS teaches that ambitious reform agendas in weak institutional environments can easily overburden the authorities. Acknowledging the lack of capacity is not enough; the program should also embed this awareness in a credible way. In this CPS, the strategy of building the capacity of the central government represented a long-term approach, which was not fully relevant to the challenges that the authorities faced. As a result, despite high growth and improvement in social indicators, governance failures became even more evident. Today, the country faces several crises: a drop in remittances, low world prices for cotton and aluminum, a drop in public revenues, a frail financial system, returning migrants, weak capacity, and tarnished credibility. 83. CPS implementation teaches that progress comes when programs target well-defined outcomes and factor in capacity constraints through intensive AAA, and allow adequate time and dedication for policy dialogue and technical assistance, all characteristics of the PDPG operation. Therefore, this review calls for realism in program design and adherence to strict prioritization. Such an approach will assure prompt delivery of results that generate a virtuous cycle, rather than disperse and lead to incomplete efforts that harm the credibility of the initiatives. A more realistic approach requires scaling-down overambitious goals, identifying risk sources, and providing capacity-building support according to needs. The next strategy may focus on implementing the laws and strategies currently in place; and when trying to arrive at “new institutional frameworks,” it should consider using experimentation and dialogue rather than imposing the design on the client and thereby risking limited understanding and buy-in. 80 A. Strategic Recommendations: Sharpening the Results Agenda 84. The CPS agenda remains valid as does the 2007 PRSP, but the crisis adds new urgencies that must be addressed within a vision that acknowledges that the favorable events of the last four years are not likely to recur over the medium to long-term. In facing this new reality, the team must review the relevance and adequacy of the operations in place and then focus the next strategy on realistic results concomitant with the capacity of the country and the emergency of the situation. 85. Building credibility and addressing the current emergencies. The loss of credibility from the various governance failures handicaps the ability of the country to deal with the current crisis. Reportedly, under IMF guidance, the authorities will be taking corrective measures at the NBT, but the authorities have yet to address issues of accountability. The extent and enthusiasm of development partners’ support will depend on assurances of a proper use of resources that help the poor and preserve the gains made thus far. The credibility of the government will hinge on decisions made about the allocation of resources, their use in the budget, and impact on the ground. Over the longer haul, credibility based on better governance will help bring in the international partners that Tajikistan needs to carry out its vision of development, especially in the energy sector. 86. Generating an elastic domestic supply of goods and services is critical to handling the short, medium and long-term challenges. Constraints to domestic supply remain high. The analytical work either completed or nearing completion (2008 BEEPS, CEM, LSS, etc.) can inform partners on the immediate priorities to generate a healthy supply response. Attention will have to be paid to energy availability, which ranks as one of the highest constraints, and access to finance. The Bank needs to think of alternative forms of engagement in agriculture, such as reallocating efforts away from cotton to agricultural diversification, rural finance and institutional building. Expansion of the non-cotton economy offers considerable opportunities. Developing regional energy markets remains relevant, but the partners must face the hurdles in place systematically and promptly. These include improving drastically the governance in Barki- Tajik, addressing the concerns of the neighboring countries on the impact on water supply downstream, and developing solid contractual schemes for energy export. 87. A priority in health and education should be consolidating the gains by further strengthening the ministries, scaling up the pilot experiences, and addressing skill shortages. A short-term priority should be maintaining the gains by protecting expenditure, including salaries of teachers and health workers. The forward agenda could consider strengthening the social assistance system to help the needy through the crisis. Over the longer-term, the scaling-up of pilot experiences will require resources and selecting adequate technologies—not necessarily those used at the pilot scale–that give maximum impact. Improving the quality of water will need massive resources, which requires the engagement of the broader donor community and improvements in sector governance. The crisis should not hinder continuation of key initiatives, such as per-capita allocation of budget resources in education and primary health care and the basic package of health services. 81 B. Operational Recommendations 88. Embrace a selectivity policy. The previous strategy announced a policy of selectivity but did not deliver on it. The new strategy has to. Managing a large number of small operations consumes valuable budget resources that could be used for strengthening supervision, AAA and policy dialogue. Besides reducing the number of operations, a policy of selectivity must also be applied at the sector level as part of a strategy to avoid an overambitious agenda. For instance, it is not only about remaining engaged in agriculture but about whether to engage a broad agenda or rather a few, select, and targeted interventions at a lower scale. 89. Continue a mix of DPO and investment. As noted, the DPO was affected by an overambitious CPS design in a difficult environment. The DPO did not achieve much, but the few results of the CPS (except for health and education) were achieved with the DPO. The success of DPO in aviation was due to its focus and a lot of effort. To make the DPO more effective, its design should be more focused, and the crisis provides that opportunity. Continued DPO will help the government finance the fiscal gap that has emerged with the crisis (even after government’s corrective actions to rationalize expenditure). It has proven to be an effective instrument for policy dialogue with the government. The theme and prior actions to be included in the DPO must benefit from the lessons learned of past experience, new analytical works, and emerging realities. The past teaches that DPO works best when it is well focused on concrete outcomes and is complemented by intensive technical assistance, given the limited capacity of government. It is important that the DPO agenda align with the CPS and be based on analytical work, especially the forthcoming CEM. This will help sharpen insights on constraints to growth, especially in agriculture. The emerging circumstances call for a focus on the crisis by maintaining or protecting the mid-term agenda. The DPO can help organize the Bank support as well as cooperation with other development partners. As to investment, priority should be placed on completing the ongoing agenda through additional financing. 90. Utilize AAA to open new vistas where the issues are unclear or a common view has not yet emerged. AAA needs to be used more aggressively as an advocacy instrument in areas where there is limited buy-in from the authorities and to raise the relevant issues nationally. Hence, greater attention should be placed on dissemination. 91. Continue efforts to harmonize development partners’ support. Harmonization of development partners’ activities can help improve implementation performance, but care should be taken that the costs of harmonization and coordination do not outweigh its gains. The partners can heed the lessons from the 2008 ADB and WB PCPR that advises working under well developed sector agendas that include: (a) fully cost activities, strengthening of capacity (planning, budget execution, procurement, tracking and reporting, etc.) at the level of the ministries and other executing bodies, (b) the gradual absorption of PIU’s into the administrative structures, (c) realistic result frameworks, and (d) agenda or time table to move towards the use of country systems. Because it takes time to field such an agenda, the partners may want to proceed gradually with a focus first on operational aspects. 82 Table 1: Tajikistan – Planned Lending Program and Actual Deliveries FY2006-FY2009 CPS PLANS (October 3, IDA IDA FY COMPLETION REPORT (June ,2009) 2005) US$(M) US$(M) 2006 Policy-Based Credit 10 Approved (July 2006) 10 2006/07 Rapid Response TA: Treasury; 10 National Statistical Capacity Building (Approved 1 Procurement; Statistics 5/31/2006) 2006 Municipal Infrastructure 15 Approved 1/19/2006 15 2006 Community Basic Health 10 Approved 12/15/2005 10 2006 Ferghana Valley 13 Approved 7/26/2005 13 Additional Actual Projects: - Avian Influenza 5 Subtotal 58 Subtotal 54 2007 Central Asia Aid Control 2 Approved 3/15/2005 2007 Cotton Development 15 Approved 5/30/2007 7.2 2007 Poverty Alleviation III 5 Dropped .. Additional Actual Projects: - Public Sector Reform (Approved 7/06/2006) 5 Subtotal 22 Subtotal 12.7 2008 Policy-Based Credit 10 PDPG2 Approved (7/19/2007) 10 Additional Actual Projects: - Energy Emergency (Approved 11/26/2008) 6.5 - Additional Financing Community Basic 4 Health (6/13/2008) - Emergency Food Security and Seed Import 5 (Approved 6/13/2008) Subtotal 10 Subtotal 25.5 2009 Education SWAp 15 Not delivered in the CPS .. 2009 Health SWAp 15 Not delivered in the CPS .. Additional Actual Projects: - Pamir Private Power – Additional Financing 2.5 - PDPG3 – Approved 3/2/2009 20 - Community and Basic Health - AF 5 - Public Financial Management Modernization (Approved 3/18/2009) 5 Subtotal 30 Subtotal 32.5 83 Table 2: Planned Versus Actual Non-Lending Deliverables FY PRODUCT PLANNED IN CPS CURRENT STATUS Private Sector Policy Note Completed FY07 Farm Debt Resolution TA FY06-07 Institutional and fiduciary review of the Completed FY08 MOH Participation of Tajikistan in the Ongoing Education for All Fast Track Initiative Energy Sector TA FY07 Programmatic PER Completed FY07/FY08 Programmatic Poverty Policy Notes Completed FY08 PRODUCT PRODUCT NOT PLANNED IN YEAR OF DELIVERY CPS BUT DELIVERED ESW Social Dimensions of Regional FY06 Differences ESW Agriculture Sector Review FY06 ESW Pension System Review FY08 ESW Education Sector Fiduciary Capacity FY07 Assessment ESW Education IFA FY09 ESW Public Sector Pay Reform FY08 ESW ROSC FY09 ESW Poverty Assessment FY09 TA Banking Sector TA FY06 TA Poverty Dialogue TA FY08 TA Financial Sector Policy Dialogue TA FY08 TA PSD Policy Dialogue TA FY08/FY09 TA FSAP Follow-up FY09 TA Water Sector Support Strategy FYY09 84 Table 3: Summary Table CPS Completion Report TAJIKISTAN Long Term Goals Status at the CPS Design Status at Completion Lessons Learned Pillar I: Foster broad based growth in urban and rural areas Foster Growth in rural Business regulations and Laws on inspections and Providing the needed and urban areas inspections are excessive licensing adopted. Despite business environment to and cumbersome. efforts, Tajikistan continues generate an elastic response to lag most of the rest of the and help address the crisis world on the quality of the needs a concerted effort, business environment. The moving beyond the selected 2008 BEEPS survey found a interventions of the past. wide range of constrains to growth. A backlog exists of Implementation of the 2004 Tajikistan has reached the inefficient public Privatization Program led to limits of privatization as enterprises. the sale of around 500 large privatization of the large and medium enterprises. enterprises seems unlikely; However, state continues to priority should now go to own the largest and most improve public enterprise strategic enterprises in the corporate governance. country. The banking sector remains The Banking sector has The frailty of the banking small and fragile; medium- grown but it remains fragile, sector could amplify the to-long-term finance of the in part because the crisis if unattended. SME sector remains government’s channeling of inadequate cotton finance. Slow growth in agriculture Non-cotton agriculture is Rapid transformation of due to (i) incomplete taking off, not so cotton areas agriculture requires restructuring and where poverty is on the certainty of property rights privatization of farms; (ii) increase. Restructuring and and freedom to farm, the urgent need to privatization of farms including the cotton areas, rehabilitate the irrigation continues at a slow pace, which are the most fertile in infrastructure; (iii) the especially titling of the land, the country. Clear property unresolved cotton farm which fell below expectations rights will speed debt problem; and (iv) the and affected negatively improvements in irrigation. limited competition in progress on irrigation. The Likewise, given the high input and output markets so-called “cotton farm debt fiscal cost of direct lending for cotton. problem” led to a serious to cotton, the state should governance failure carrying a minimize its intervention high fiscal cost as the central and markets work. government absorbs the bulk of the debt. The government introduced competition in the input and output markets towards the end of the period (2008/2009.) State monopoly in aviation Deregulation of the aviation The experience in aviation maintained Tajikistan sector has brought in new is an example of the gains isolated from the region players improving the Tajikistan can achieve and the world at large. connection of Tajikistan to through deregulation. the rest of the world. 85 Long Term Goals Status at the CPS Design Status at Completion Lessons Learned Pillar II: Preserve and enhance the quality of health and education Improve health of the The poor have little access The percentage of households The pilot approach to health population to health care; often of that cannot access health reform has proven an poor quality. services because they cannot effective way to deal with x Reduced infant afford them dropped from the severe capacity mortality from 57% in 2007 to 29% and 37% constraints. The challenge current level of in Sogd and Khatlon oblasts now is to maintain the gains, where IDA project is despite of the crisis, and to 87 per 1000 live working. scale up nationally. In births addition, an effort should be made to maintain the drive to provide separate finance x Reduce maternal for primary health care and mortality from to right-size the basic health current level of care package. 100 deaths per The number of trained Likewise, the number of 100,000 live family doctors is severely trained doctors in these areas limited, especially in rural has increased. births areas. Public spending in primary Public spending in primary x Reduce health care is the lowest in health is higher now (2008) prevalence of Europe and Central Asia than in 2004. infectious Household contribution to The share of household deceases healthcare/treatment is very expenditure has dropped to high (9% of household 4.8% and 3.1% in Sogd and expenditure according to Khatlon oblasts where IDA survey evidence from project is working. 2003.) High risks of rapid spread Surveys show that knowledge of HIV/AIDS and TB of HIV prevention increased to 57.5% in 2007 from 45% in 2005. High incidence of water The availability of safe and After a delay, finally water borne diseases due to treated water has increased in quality is improving in consumption of unsafe and Dushanbe. Dushanbe. Onwards, the untreated water size of the investment needed is such that a broader engagement of the development community is needed; however, this requires addressing governance concerns at the municipal level. Improve education of the Declining enrollment and Primary enrollment is at Like in health, the pilot population attendance in primary 100% and completion rates at approach has helped address x Increase school schools 99.85% in the areas with IDA capacity constraints. In completion rates support. Nationwide the addition, the education enrollment rate is at 95%. strategy is perhaps the most x Improve learning Deficient learning At the pilot level, teachers advanced in the country. achievements due to: with secondary education The crisis calls for attention achievements inadequate curriculum; have been trained, textbooks to preserving gains and lack of appropriate learning provided, assessments tested scaling up, primarily the materials; and poor and parent and teacher nationwide implementation teaching techniques. associations created (416.) At of per capita financing, the national level, new curricula training of teachers and the for two subjects have been modernization of the introduced. curriculum. 86 Long Term Goals Status at the CPS Design Status at Completion Lessons Learned Deteriorating physical In the rayons with IDA infrastructure support 132 school building have been rehabilitated. But, nationwide a wide deficit remains given the limited resources available for investment. Significant regional With the adoption of per- disparities in allocation of capita financing, which has public resources already been tested, regional disparities in the allocation of public resources are expected to decrease. Low level of public The budgetary allocation of spending in education resources to education has increased substantially. Pillar III: Improve delivery of energy services and exploit the country’s hydropower potential Improve living conditions Energy and gas service Electricity service delivery Progress in energy has come of the population and the delivery remains unreliable remains unreliable, partly slow because of the size of potential for economic during the winter, especially complexity of the challenges growth through: 2007/2008. Firms rate the and endemic governance x Infrastructure availability and quality of constrains. The last four upgrades; electricity as one of the main years showed that Tajikistan constrains to operating a is vulnerable in the energy x Production of business (2008-BEEPS). front. Efforts to reduce that Gas shortages continue due to vulnerability are on-going reliable supply of (a) lack of fiscal resources with the building of energy in a and (b) unstable relations additional hydropower market oriented with Uzbekistan. capacity and increasing and socially Poor financial viability of Tariff increases and improved interconnections sustainable the energy sector (gas and collections have reduced the domestically and with the manner electricity) limits quasi-fiscal deficit from 15% region. This is an area of the availabilit5y of resources of GDP in 2004 to 12% in highest priority for the x Increased for system maintenance 2008. government, which explains and investments But, Bark-i-Tajik capacity to the progress. But not the electricity exports finance investments with its same priority has been given own resources remains to increasing capacity and x Improve delivery limited. improving governance and of municipal Hydropower potential not Sangtuda I and II co-financed thus although the finances services (water, exploited by Russia and Iran are under of public companies sewage, waste construction. Sangtuda I is (electricity, gas, water) have management) near completion and will improved through tariff generate a surplus of increases and collection electricity in the summer for practices, but service export; In September 2008, reliability still lacks., due in Tajikistan signed Power part to slow project Export Agreement with implementation. Afghanistan to export electricity surplus beginning the summer of 2010. Inefficient delivery of Tariff increases and better services through public collection practices have water supply utilities is improved the financial stand draining public resources of Dushanbe water operations. Limited progress in 87 Long Term Goals Status at the CPS Design Status at Completion Lessons Learned improving corporate governance in the water and energy sector. Underpinning the strategic objectives: Improve governance and state capacity Improved capacity of the National objectives are not The 2006-PRSP is now the The CPS shows that state: aligned to public single medium-term strategy improving the capacity of x More efficient expenditure allocation in place, angle on the long- government is a long-term public term vision given by National objective and substantive administration Development Strategy (NDS) achievements over a 4-year for 2006-2015. period are limited especially Budget execution and Limited PFM progress; IDA when capacity is scarce. x Better use of reporting systems are weak has just approved an An alternative approach public resources operation to advance the PFM should combine a long-term agenda. view with efforts that yield A new law on public results over the short to procurement is in place and medium-term in critical under implementation. areas, such as dealing with the current crisis. External Control remains In addition, it is advisable to very weak. truly mainstream capacity building and governance concerns in various components of the program. 88 Annex 3: CPS Stakeholder Consultations 1. Process. CPS consultations were held in four cities in Tajikistan (Dushanbe, Kurgan- Tube, Khojand, and Khorog) during September 8-17, 2009 with representatives of various stakeholders including central and local regional governments, non-governmental organizations and private sector representatives, the Parliament and donor organizations. The CPS outreach was broad especially in the regions and discussions with stakeholders were highly participatory and interactive. The consultations sought to validate the analytical underpinning of the CPS, share the lessons learned from implementation of the previous CPS, and seek their inputs on the CPS strategic objectives, the proposed program and priorities. The challenges and opportunities for CPS implementation were discussed with various stakeholders. This included fiduciary, institutional, environmental and the external risks. These inputs will enable the WBG to respond to new demands and to adjust its program appropriately during the implementation period. 2. As the CPS Board discussion was postponed from November 2009 to May 25, 2010, the WBG held the second round of CPS consultation both with senior government officials and Civil Society Organizations (CSOs). Consultation with senior government officials held at various times during December 2009-February 2010. Consultation with CSOs was held on March 31, 2010 because the CSOs requested to broaden and deepen consultation of the CPS. CSOs expressed their high appreciation to the Bank in organizing the second consultation and they actively participated in the CPS discussions and provided their comments and inputs to the Bank team. In total representatives of 42 CSOs participated during the second consultation including international organizations and academic institutions. 3. Topics for discussion. The consultations served as a platform for informative exchange with the central and regional governments, civil society organizations, and development partners on the key development challenges affecting Tajikistan. They also sought inputs from the stakeholders on the proposed CPS program that address these challenges. The main topics discussed included (a) economic and governance context; (b) lessons learned from past World Bank Group engagement; (c) CPS Strategic Objectives; and (d) the proposed program and priorities. During the last round, the consultation with the government focused mostly on specific issues including the Bank’s support in conducting assessments for the construction of the Roghun hydropower plant in the CPS context and the use of IDA Crisis Window. The consultation also focused on recent changes introduced to the CPS including the WBG commitment in conducting techno-economical, environmental and social assessments, PRSP III, and the use of IDA Crisis Window. During the discussion, the participants raised issues of CSOs’ participation in the CPS program, construction of Rogun hydropower station in Tajikistan, and transparency of WB activities in Tajikistan. 4. Results. The consultations provided excellent opportunity for the WBG to learn the views of various stakeholders both government and non-governmental partners about the relevance of the proposed CPS in Tajikistan. The issues of governance at national and local levels and weak fiduciary control were major concerns raised by participants. They were in agreement with the CPS objectives and the proposed program that focuses on community agriculture and rural development, climate changes, energy and water infrastructure rehabilitation, education, and health. There was a diversity of views on sectoral coordination and 89 capacity related issues. Stakeholders welcomed closer collaboration and dialogue in the course of CPS implementation, its monitoring and evaluation. 5. Feedback inputs from consultations include general issues related to the CPS. Participants raised concerns about (a) the commitment and capacity of the government to design and implement needed reforms and weak implementation capacities at both central and local administrations; (b) limited transparency and accountability of governmental structures utilizing donor’s aid; (c) prioritization among economic, infrastructure and social priority in view of limited available resources; (d) transparency of WB activities through timely dissemination of information about the WB activities using the web and TV and to conduct a joint consultation meeting with the other stakeholders, such as ministries and other government actors. They supported the Bank’s role in (a) protecting social sector expenditure to meet its social obligations through budgetary support; (b) easing the complexity and implementation of the regional water and energy projects, involving neighboring countries, (c) improving donor’s coordination; and (d) greater involving non-governmental organizations in the monitoring and evaluation, especially in some projects such as migration, Emergency Food Crisis and Seed Imports, gender issue, health and education, and anti-corruption. CSOs noted that the Civil Society Small Grant program is too small given the many important issues that need to be addressed in Tajikistan. 6. Participants in the CPS consultations also provided feedback specifically related to sector issues. In the energy sector, participants suggested the WBG to identify a key energy sub-sector that could be developed in a sustainable manner. They recognized the need to explore hydro power generation opportunities and identify the environmental risks for downstream countries. They suggested that Tajikistan make use of the Clean Energy Development Mechanism and wanted to know the role of CSOs in the technical, economical and social impact studies of the Rogun. CSOs raised concerns about the government’s sales of the Rogun shares to the public and businesses and the transparency in the use of the Rogun’s funds. In the agricultural and rural development sector, participants recognized the need to rehabilitate agriculture and irrigation infrastructure and to provide high-quality seeds that critical for farmer survival. They supported private farming and agribusiness through value chain management, equitable land reform and transparent process of cotton debt resolution, improved access to the rural finance, and mountainous regions economic development and tourism. In the education sector, they encouraged the Bank to support school rehabilitations in remote regions, expand FTI to train more teachers, and continue education financing reform. In the health sector, participants suggested the Bank to revisit family medicine, rehabilitate rural health facilities, and pay more attention to HIV/AIDS, especially among returning migrants. In migration, participants suggested the Bank to expand vocational skills development programs, and use returning migrants for private sector development and new businesses. In the finance and banking sector, they suggested that the Bank improve access to long-term credit, expand microfinance scheme, increase trade financing and support leasing financing. To address cross cutting issues, participants indicated the need to update gender analysis, girl’s education to receive more priority and address climate change issues such as analysis of glaciers melting and land degradation. On Gender, the CSOs suggested that international organizations coordinate their effort in addressing gender issues; On Youth, participants suggested that the WB develop a poverty strategy document for the young people. 90 7. Overall Conclusions. a. The Bank has been a respected partner for Tajikistan and still has a role to play due to its expertise and its analytical works. b. Main priorities for further Bank work in Tajikistan should address the need to meet long-term challenges in sustainable economic and social development, improved capacities and governance reforms. c. Key areas for development in partnership with the Bank include water and energy, agriculture and rural development, health, education. d. The Bank will encourage the government to increase CSOs involvement in the Bank- financed projects through intensification of communication to CSOs about the WB activities, and about potential areas of involvement. 91 Annex 4: Country Governance and Anti Corruption Strategy I. INTRODUCTION 1. Tajikistan as a CGAC Country. Tajikistan was selected by regional management as one of four countries in the ECA region to pilot the CGAC process. This approach involves increased attention to governance in both strategic and operational aspects of World Bank assistance to client countries. Based on lessons learned during implementation of the previous CPS, the World Bank’s engagement on governance in Tajikistan will move toward mainstreaming governance at the national, sector, and project levels. “Mainstreaming” is the approach to governance reform in Tajikistan that has been developed in response to lessons learned under the previous CPS, where efforts to address governance were restricted to the central government level and not well integrated into sector approaches or individual program design. Mainstreaming does not mean abandoning central government governance reforms, but complementing them with emphasizing sector and project level interventions.33 2. Basic Framework for the Tajikistan CGAC Strategy. Within the CGAC framework, the World Bank will assist the Government of Tajikistan in tackling three principal governance challenges: (a) strengthening transparency and accountability; (b) developing capacity; and (c) fostering demand for good governance. Governance interventions will be mainstreamed throughout the portfolio, with an emphasis on consolidating and/or scaling up existing instruments of engagement to achieve strategic goals. A major innovation of this strategy is the development and adoption of a Governance Checklist for Tajikistan, a new project-level tool to ensure proper attention to three governance challenges at all stages of the project cycle in all new and reviewed operations. 3. Tackling the Three Governance Challenges. x Strengthening Transparency and Accountability is a wide-ranging challenge in Tajikistan, which requires diverse interventions in the Bank Group’s portfolio. These include, but are not limited to: supporting audits of SOEs; developing a transparent civil service classification and pay grading system; improving transparency of budget preparation and execution through effective business processes; installing digital electricity meters to ensure transparency of usage, charges, and payments; and introducing per-capita financing in schools and primary health care facilities. x Capacity Development refers not only to individual skill-building initiatives, such as training, but also to institutional and organizational development, and strengthening 33 Governance challenges and risks at the country and sector levels relate to legislative and regulatory frameworks for ensuring transparency, accountability and appropriate incentives for government and economic agents. Governance issues at the project level are much more specifically targeted in terms of (sub-) sectoral details, locations, agents, etc. Yet these various levels are inextricably linked: governance challenges at country and sector level (e.g., unsatisfactory sector policy framework, lack of policy coordination, lack of reform ownership, fiduciary risks) translate into risks to successful project implementation and achievement of project’s development objectives. Addressing governance challenges at the country and sector level must therefore go hand in hand with efforts to address operational governance challenges and risks. 92 the government’s capacity for policy development and management. Specific interventions in this area include: supporting the PFM Council to manage various aspects of PFM agenda; providing technical assistance (TA) to the health sector on budget management; providing TA to strengthen management of infrastructure and energy utility service operations; and building capacity in the Ministry of Education to engage in data-driven policy making and results monitoring. x Fostering Demand for Good Governance focuses on partnering with entities other than the executive branch of government to promote accountability in the executive and societal ownership of reforms. Interventions include: strengthening parliamentary oversight of the budget process; creating and working with Parent-Teacher Associations (PTAs) in pilot schools; creating and empowering community-based organizations to manage communal water distribution systems; training and providing information to rural cotton producers; and involving Water User Associations in issuing land certificates in pilot areas. Table 1 provides an overview of existing instruments in the Bank portfolio that will carry out and/or scale up these interventions. 93 Table 1: Scaling Up Current Instruments to Mainstream Governance along Three Dimensions Transparency and Capacity Development Demand for Good Accountability Governance Country x Public Sector Reform Project x Public Sector Reform Project x Public Finance Voice and Level x PFM Modernization Project x PFM Modernization Project Accountability Trust Fund x Programmatic Development x PDPG Series: Policy Dialogue (parliamentary oversight Policy Grant (PDPG) Series: over budget) Policy Dialogue x Institutional and Governance Review (Decentralization) Sector Sustainable Development Level x Emergency Food Security x Community Agriculture/ x Community Agriculture/ x Community Agriculture/ Watershed Management Watershed Management Watershed Management x Land Registration and Cadastre x Land Registration and x Land Registration and x Ferghana Valley Water Cadastre Cadastre Resource x Ferghana Valley Water x Cotton Sector Recovery x Cotton Sector Recovery Resource x Energy Loss Reduction x Avian Flu Preparedness x Cotton Sector Recovery x Pamir Private Power x Energy Loss Reduction x Emergency Food Security x Dushanbe Water Supply x Pamir Private Power x Dushanbe Water Supply x Dushanbe Water Supply x Municipal Infrastructure x Municipal Infrastructure Human Development x Community and Basic Health x Community and Basic Health x Community and Basic x Education Modernization x Education Modernization Health x Education for All Fast Track x EFA-FTI x Education Modernization Initiative (EFA-FTI) x EFA-FTI Private and Financial Sector Development x Policy Dialogue on Business x IDF Grant on Capacity x Support for Entrepreneur Environment Building for State Investment Hotline Committee Project x Strengthening Fiduciary x Procurement and Financial Level Safeguards Management Training for PIUs (PF) x Adopting Governance Checklist 4. Tajikistan Portfolio Governance Checklist. One of the main innovations of the Tajikistan CGAC is to mainstream efforts to tackle the three governance challenges through the application of a Governance Checklist in all sectors for every new operation, additional financing, or midterm review. The checklist contains a series of questions to be asked by the country management unit (CMU) to ensure that governance implications are considered in the design and implementation of programs, that governance interventions are channeled through operations, and that each operation in the portfolio contributes to improving the governance environment in Tajikistan. This tool is also designed to identify sectors and projects where additional fiduciary or non-fiduciary safeguards, such as political economy analysis or stakeholder analysis, are necessary. The checklist is discussed in Section V and attached in Table 1. 94 5. The CGAC Process in Tajikistan. The formulation of Tajikistan’s CGAC strategy has relied on an inclusive and participatory process, building a strong ownership within the Bank’s country team. The process began with a brainstorming session among country office staff in Dushanbe in December 2008, during which a CGAC Matrix was developed. The matrix presented a list of governance challenges, as well as entry points and instruments for tackling them at the country, sector, and project levels. The main lesson from this brainstorming session was that the Bank’s portfolio already contained many governance interventions, but these interventions often went undocumented and did not follow an explicitly defined, coherent strategy. Consequently, the Tajikistan portfolio underwent a mini-governance review in March- April 2009. Most governance interventions being undertaken within ongoing lending operations were recorded and categorized, and the basic storyline for approaching governance in the Tajikistan CPS for FY10-12 was developed. The process culminated with a Country Team CGAC Workshop in Dushanbe in May 2009, during which the country team provided valuable inputs to the CPS approach to governance and participated in structured brainstorming to develop the Governance Checklist. 6. Roadmap for This Document. Section II of this CGAC strategy document provides some background on the governance approach undertaken in the previous CPS and reviews the most recent governance developments in Tajikistan. Section III discusses governance at the country Level, including an analysis of cross-country governance indicators and their implications for the three governance challenges. Section IV reviews strategies for tackling governance at the sector level, particularly in sustainable development, human development, and private and financial sector development. Section V proposes a governance strategy at the project level, including adoption of the Governance Checklist and strengthening of fiduciary safeguards. Section VI describes how these interventions will be scaled up at all levels, given that the Governance Partnership Facility Window 1 funds have become available. Finally, Section VII outlines a process for M&E of CGAC results in the context of the CPS. II. BACKGROUND 7. Governance in the Previous CPS. The CPS (FY06-FY09) considered governance a significant challenge to development in Tajikistan, drawing on the premise that the main governance weaknesses stemmed from the legacy of the civil war, necessitating a move from security consolidation to construction of a modern state, and resulting in a complex political economy. The aluminum and cotton sectors were considered to be particularly plagued by interference of political power and vested interests. Low salaries in the public service led to low accountability. Under the last CPS, the Bank focused the bulk of its support on building capacity within the central government as the backbone of a long-term strategy to address governance constraints. The main components of this governance strategy were public expenditure reform, fiduciary reform, and public administration and civil service reforms. Bank support took the form of policy dialogue under the PDPG, Public Administration Reform Project, Statistical Support Project, and analytical work such as functional reviews and a Public Sector Pay Policy Note. Progress has been slow, however, and achievement of the CPS results has been less than expected due to insufficient political will, weak commitment, and lack of capacity. 95 8. Current Governance Situation: Rebuilding Credibility at the National and Sector Levels. During the previous CPS period, dysfunctional governance arrangements in Tajikistan were revealed in a series of critical domestic policy slippages. In 2007, it was discovered that the NBT provided a series of guarantees and pledges to private companies in the cotton sector without reporting them to the IMF. This misreporting constituted a misstep in monetary policy and contributed to undermining macroeconomic performance. In addition, the government’s credibility in the eyes of its own people was eroded by critical energy shortages during the severe winter of 2008, poor performance of SOEs in the energy sector (especially Barki-Tajik and Tajik Gas), and low capacity to manage global food and fuel crises that erupted in 2008. However, some long-standing institutional reforms being undertaken in the executive branch have begun to show results recently. Rule-based management is taking root in the civil service. The MoF is introducing a new administrative budget classification to better track public expenditure. The Ministry of Labor and Social Protection is improving its systems through more efficient functional assignments and efforts to enhance accountability. The Ministry of Justice is improving access to justice through the Adliya database of legislative information and the monthly Official Bulletin of Legal Acts. 9. Current Governance Situation: Fiduciary Risks at the Project Level. In addition to creating challenges for overall national development, Tajikistan’s governance environment also poses risks to Bank operations. Though ongoing efforts to strengthen country systems are expected to help lower these risks over the medium-term, the Bank needs to safeguard against them in the short term. The weak fiduciary environment results from low government capacity combined with limited transparency in public financial management. A CPFR conducted in 2008 found that, in virtually every project, procurement did not adhere to agreed-upon procedures. In some cases, procurement proceeded despite inadequate competition for goods, works, and services among vendors within and outside Tajikistan. Weak contract administration was identified as a problem, as physical inspections of civil works in nine projects revealed deficiencies in quality of materials, workmanship, and maintenance of equipment, as well as instances of procured goods not being used for their intended purpose. Though most projects earned marginally satisfactory or better ratings on financial management and disbursement, with no evidence of fraud or ineligible expenditures, the review concluded that staff in PIUs had a poor understanding of the Bank’s requirements in these areas. These weaknesses represent fiduciary risks that must be ring-fenced in project design and implementation. 10. Government’s Efforts to Improve the Governance Environment. The government appreciates that the gravity of the situation in Tajikistan is such that general statements about improving governance will not suffice; instead, there is a need for clear and significant steps to demonstrate the government’s commitment to increasing transparency and accountability in the country. The government has begun taking such steps, including: (1) completing a special audit of the NBT and other parties involved in the misreporting of financial information in the cotton sector, with support from Ernst & Young; (2) revising the NBT and commercial banking laws to improve transparency and eliminate conflicts of interest; (3) contracting an internationally reputable auditing firm to conduct financial audits of TALCO and the state electricity company (Barki Tajik) in 2007; (4) establishing a supervision unit within MoF to regularly monitor the financial operations of the ten largest SOEs; (5) establishing a reporting regime for contingent 96 liabilities, covering SOEs, public institutions and the NBT; (6) abolishing cotton export licensing by the NBT; and (7) agreeing to pursue resolution of the cotton debt resolution in a systematic manner, by adopting a Presidential Decree (May 2009), Government Resolution (June 2009), and Action Plan agreed to with donors. The latter is expected to become the platform for development and implementation of agrarian reforms to ensure freedom to farm, accelerate land titling and improve farmers’ access to finance and collateral practices. All of the above steps notwithstanding, this process is at an early stage, and implementation is complicated by low management capacity, an unfavorable external environment, multiple economic and financial crises, limited resources and support, and the potential threat that popular discontent could lead to civil unrest if expectations are not carefully managed. 11. Proposed Governance Approach for the Current CPS. In the complex governance environment described above, the Bank must find a meaningful way to engage on governance reform in Tajikistan while setting realistic goals and expectations for what can be accomplished over the CPS period. In the long run, development effectiveness can be achieved only if governance systems are strengthened; the long-term goal of the Bank’s governance engagement is therefore to build a transparent and efficient governance system that will make the government accountable to its citizens for delivering public goods and services. In the short term, the Bank aims to assist the Government of Tajikistan in regaining its credibility among citizens and the international community and to engage with a wide range of non-state actors to hold the government to account. The Bank will attempt to tackle three principal governance challenges— strengthening transparency and accountability, developing capacity, and fostering demand for good governance—while ring-fencing against risks posed by the complex governance environment. III. ENGAGING ON GOVERNANCE AT THE COUNTRY LEVEL Diagnostics: Governance Indicators. 12. Tajikistan in Cross-Country Comparisons.34 Country-level data suggest that Tajikistan fares worse, on average, than regional and income group comparators in addressing the three governance challenges addressed in this strategy. Table 2 shows how Tajikistan compares with the regional and low-income country averages on governance outcomes (economic growth, control of corruption, quality of economic and social policies); governance institutions (quality of public administration, rule of law, executive constraints); private sector governance (ease of business start-up, management time spent dealing with regulations); and other dimensions of governance (public financial management, judicial system, gender empowerment). 34 Many cross-country governance indicators are available to assess a country’s performance on various dimensions of governance as compared to regional and income-group peers. Some of these indicators are “broad,” using statistical models to aggregate several pieces of underlying data and provide a general picture of a broad governance dimension, such as Voice and Accountability or Rule of Law. Other indicators are “actionable,” measuring a narrow governance issue, such as the number of days it takes to register property, or the extent to which the availability of budget funds is predictable. The WB supports the development of both types of indicators, including the Worldwide Governance Indicators (WGI), BEEPS, DB, PEFA, CPIA), and others. Many other governance indicators are available from development partners, non-governmental organizations (NGOs), and academic institutions, including Polity IV, Freedom House Nations in Transit, Reporters without Borders Freedom of Press Index, and others. 97 x Strengthening Transparency and Accountability: The most widely discussed governance outcome related to transparency and accountability is Control of Corruption. WGI 2007 ranks Tajikistan in the 20th percentile (20.3) in the world on Control of Corruption, lower than ECA (36.9) and LIC (22.9) averages. As a testament to Tajikistan’s non-transparent and burdensome business regulations, DB (2009) ranks Tajikistan 168th among 181 countries with respect to the ease of starting a business, worse than both the ECA (77) and LIC (119) averages. x Capacity Development: Tajikistan’s CPIA score for Quality of Public Administration was 2.5 out of 6.0 in 2008, as compared to the ECA and LIC averages of 3.3 and 2.9, respectively, implying that Tajikistan lags in institutional and human capacity in public administration. The same index ranks the Quality of Economic Policies at 3.6, as compared to ECA (4.1) and LIC (3.4) averages. At 3.0, Tajikistan’s Efficiency of Revenue Mobilization also lags behind ECA (3.8) and LIC (3.2) averages. x Fostering Demand For Good Governance: According to Polity IV 2006, Executive Constraints in Tajikistan are scored at 3.0, which is below both ECA (5.30) and LIC (3.9) averages and suggests that civil society and non-executive branches of government need further strengthening in order to ensure accountable and efficient executive power. Similarly, WGI ranks Tajikistan in the 10th percentile in the world (10.6) on Voice and Accountability, significantly below ECA (40.5) and LIC (27.5) averages. 13. Country-Level Strategy. The data presented above suggest that country-level governance challenges in Tajikistan are much more profound than in other countries in the region or low-income group. Particular caution must therefore be applied in creating realistic expectations as to what can be achieved during this CPS period. The most prudent approach is to build on existing initiatives and expect incremental gains. a. Strengthening Transparency and Accountability at the country level will involve the following initiatives: i. Policy dialogue on wage reform, PFM reform, external audit, privatization, and audit of energy SOEs; civil service reform; public sector restructuring (Instrument: PDPG series) ii. Enhancing transparency and accountability of regulatory management; improving access to justice for government and businesses through the Adliya legal database; developing a transparent civil service classification and pay grading system (Instrument: Public Sector Reform Project) iii. Improving transparency of the budget preparation and execution process; strengthening internal controls; installing a Financial Management Information System (FMIS); supporting an improved budget classification and chart of accounts to enhance transparent reporting on budget execution (Instrument: Public Financial Management Modernization Project) 98 b. Capacity Development at the country level will include the following activities: i. Developing sound procurement practices in the Public Procurement Agency (Instrument: PDPG) ii. Facilitating international training for high-level civil servants; developing the training capacity of the Institute for Higher Qualification of Civil Servants; strengthening the role of the Executive Office of the President in policy coordination; providing budget management TA to improve job classifications and wage grid in the health sector (Instrument: Public Sector Reform Project) iii. Analyzing capacity gaps in PFM and developing a functioning training infrastructure for PFM; supporting the PFM Council in integrating and managing different aspects of the PFM agenda (Instrument: Public Financial Management Modernization Project) c. Fostering Demand for Good Governance at the country level focuses on enhancing parliamentary supervision of the budgetary process (Instrument: Public Finance Voice and Accountability Trust Fund). The objectives of this new DFID-supported, Bank-executed initiative are three-fold: (1) enhancing parliamentary oversight of budget preparation and execution; (2) strengthening communication and media coverage of budget issues, both in terms of quantity and quality; and (3) increasing citizens’ participation in the budget process at the local government level. 14. Analytical and Advisory Activities. An Institutional and Governance Review (IGR) will be undertaken during the CPS period to assess how fiscal decentralization institutions function, both de jure and de facto. Particular attention will be paid to how the existing institutional setup contributes to the transparency of fiscal processes, as well as how the accountability of the local and central officials is influenced by the institutional structure. This study will provide further understanding of institutional incentives and constraints and shed light on more efficient ways to tackle governance challenges in this environment. 15. Mitigating Governance Risks at the Country Level: The Virtual Poverty Fund. Given that a development policy operation is in place in Tajikistan, questions on the proper use of budget support resources naturally arise in the context of the country’s complex governance environment. In order to ring-fence the budget support funds provided under the auspices of the PDPG, and thus respond to oversight requirements, a VPF has been created to track crisis-related spending of budget support funds. The VPF will tag specific budget expenditures using existing budget classifications, link specific resources to ensure budget allocation for these expenditures, and thereby monitor the performance of donors’ budget support in supporting pro-poor activities (such as improved service delivery to the poor and other priorities set out in the government’s Poverty Reduction Strategy), responding to the crisis, and supporting the foundations of a medium-term development agenda. The VPF will likely include the following core expenditures: (a) untied transfers from the central government to supplement local revenues in poorer local governments, (b) subsidies to poorer households for electricity consumption, and (c) adult training centers for returning migrants. To monitor the use of funds, the VPF will report on all protected expenditures at the central and local levels on a quarterly and annual basis. 99 IV. ENGAGING ON GOVERNANCE AT THE SECTOR LEVEL 16. Tackling Governance Challenges in the Sustainable Development (SD) Sector. SD represents the largest portion of the Bank’s portfolio in Tajikistan, comprising the following sub- sectors: agriculture, energy, water, and infrastructure. Because governance issues in these sub- sectors vary widely, generalizations of governance challenges and interventions are often problematic. Table 3 provides more detail on governance interventions in the SD sub-sectors. a. Transparency and Accountability: Engaging at the lowest possible level (microcredit to farmers, support for local banks, installing household energy and water meters) to increase transparency and improve efficiency of service delivery; requiring audit of the financial statements of the large energy SOEs (Barki Tajik, Tajik Gas) b. Capacity Development: Strengthening government policy development capacity (cotton debt, competition, land use, role of local government); providing TA for implementation of the energy policy framework; providing capacity building for the first Tajik Pamir Private Power Project. c. Demand for Good Governance: Providing training and information campaigns for rural populations regarding application for land use certificates and irrigation investment; supporting community-based organizations to manage communal water distribution systems d. In addition, activities that combine capacity development and demand for good governance include: Building capacity among villagers to become independent farmers and take management decisions; creating and training Water User Associations to support improved irrigation; training trainers in environmental land management 17. Tackling Governance Challenges in the Human Development (HD) Sector. Though significantly smaller than the SD portfolio in Tajikistan, the HD sector is a pioneer in tackling governance challenges in education and health, especially in fostering demand for good governance by strengthening PTAs, introducing per-capita financing in education, and capacity development in health. Table 4 lists planned HD-sector governance interventions in detail. a. Transparency and Accountability: Piloting management autonomy and per- capita financing in general education and primary health care; supporting the development of an Education Management Information System and Health Management Information System () to enhance accountability by collecting data on service utilization, financing, and outcomes; supporting provider payment reforms with tracking of funds; introducing transparent co-payments for health services b. Capacity Development: At the central level, providing training to the Ministries of Health and Education in evidence-based policy making, public procurement, financial management, and M&E; at the local level, training PTAs and schools to 100 strengthen school autonomy, procurement and financial management; building fiduciary capacity in health at the oblast level c. Demand for Good Governance: Supporting participation of PTAs in school budget allocation; supporting public access to school budgets; communicating to citizens on progress made in health reforms by building the Ministry of Health website and developing relationships with the media to report on progress (opening of new health facilities, training, etc.) 18. Governance Challenges in PFSD. Though there is no investment lending in this sector, the Bank has a long-standing engagement on private and financial sector issues in Tajikistan. Many private sector development activities have been included in the PDPG series, and the Bank is collaborating closely with (IFC to strengthen the business-enabling environment and improve the investment climate. a. Transparency and Accountability: Policy Dialogue on Business Environment b. Capacity Development: IDF on Capacity Building for State Investment Committee c. Demand for Good Governance: Support for Entrepreneur Hotline V. ENGAGING ON GOVERNANCE AT THE PROJECT LEVEL 19. Project-Level Governance Issues in the Context of Country and Sector Level Governance. As discussed above, governance challenges at the country and sector levels eventually affect project implementation. Projects are ne instrument for tackling governance challenges, and this is done through careful project design. The key question becomes: Is a given project’s design conducive to tackling broader governance challenges and safeguarding against governance risks? 20. Governance Checklist. One of the main innovations of the CGAC strategy is the use of a Governance Checklist (Table 1) to mainstream governance initiatives in all sectors for every new operation, additional financing, or midterm review. The checklist will be applied to each new project throughout the project cycle. The responsible manager is denoted in the Checklist at every stage. The officer’s responsibility will be to ask the Checklist questions and ensure that the issues at hand are addressed in the project design. The Checklist has two parts: Governance Challenges and Governance Risks. Where open-ended questions are asked, it is the discretion of the responsible manager to evaluate whether the project’s treatment of the governance issue is acceptable. This provision is introduced to recognize that “no one size fits all” projects, and there must be a certain degree of specificity and flexibility embedded in the Checklist. 21. Governance Challenges versus Governance Risks. The Governance Checklist differentiates between governance challenges and governance risks. Challenges are governance issues that can be addressed during the current CPS period, such as transparency and accountability, capacity development, and demand for good governance. Risks, on the other hand, refer to the systemic governance problems that the Bank needs to safeguard against in the design and implementation of operations, including fiduciary (procurement and financial 101 management) risks and non-fiduciary (political economy) risks. The checklist contains questions to help identify sectors and projects where additional safeguards, such as political economy analysis or stakeholder analysis, are necessary. 22. Strengthening Fiduciary Safeguards. As a complement and prerequisite for the Governance Checklist, the Bank will continue to work with the government to follow up on the recommendations of the 2008 CPFR. The Bank Group will work with the government to implement an action plan for individual projects and will closely monitor implementation to reduce fiduciary risk. The CMU will identify projects that require enhanced supervision for contract administration and will develop a list of local and regional technical consultants (e.g., engineers, architects) to include in supervision teams. Fiduciary capacity will continue to be strengthened through continued delivery of regular procurement and financial management training. The Bank will strengthen supervision of procurement under the portfolio, with special emphasis on projects where a number of deficiencies have been identified. Moreover, the scope of external audit by additional third-party assurance should be expanded to include more in- depth reviews of systems, procedures and processes, including technical and operational reviews. The Bank will adopt a norm for implementation of high-risk projects in which a joint fiduciary review and physical inspection are carried out by independent engineers. VI. SCALING UP: GOVERNANCE PARTNERSHIP FACILITY (WINDOW 1) 23. Two compatible resource scenarios. The strategy outlined above relies on the existing (limited) IDA and Bank administrative resources. As a CGAC country, however, Tajikistan was awarded US$2 million in additional financing for governance-related activities from the Governance Partnership Facility over the CPS period. The CGAC Strategy outlined above represents a baseline scenario that will benefit tremendously from additional resources to deepen the Bank’s existing governance engagement. 24. Mainstreaming Governance in the Tajikistan Portfolio through GPF Window 1 Grant. The grant is designed to implement CGAC strategy beyond the existing interventions in the portfolio. The grant consists of four components mirror CGAC strategy elements: (i) Resourcing Governance Checklist, which includes training and manual for TTLs and additional resources for project-level political economy analysis; (ii) Enhancing Transparency and Accountability in Key Sectors (Agriculture; Energy; Private Sector Development) that involves stocktaking of what the Bank is already doing in these sectors, developing sector-wide approach to transparency and accountability; and resourcing the implementation; (iii) Developing Capacity: taking stock of what the Bank has done in the field so far and what it should be doing, leading to designing a comprehensive strategy for WB in capacity development, and eventually piloting this strategy; (iv) Fostering Demand for Good Governance includes broadening existing engagement with CSOs (grants for CSOs monitoring of the Bank projects) and deepening engagement in Social Sectors through scaling up our work with PTAs and via community health scorecards. VII. MONITORING AND EVALUATION 25. Alignment between CPS and CGAC M&E. Because this governance strategy is an integral part of the CPS, the M&E process will be fully integrated with that of the CPS. As 102 governance interventions are mainstreamed into projects, the CPS results matrix will be used to assess the implementation of the CGAC strategy at mid-term and at completion. At the country level, progress on the CGAC strategy will be evaluated against the objectives of the Public Sector Reform Project, Public Financial Management Modernization Project, PDPG, Public Finance Voice and Accountability Trust Fund, and IGR. At the sector level, progress toward sectoral improvements in transparency and accountability, capacity development, and demand for good governance will be assessed. At the project level, the adoption of governance checklist and improvement of the fiduciary safeguards will be appraised. 26. Communication Strategy. The alignment of CPS and CGAC communication strategies is also crucial, as successful implementation of the CGAC strategy is impossible without a sustained effort to maintain dialogue on governance and institution building throughout the CPS period. The CGAC strategy will be a part of CPS consultations with the government and stakeholders. Continuous dialogue will be supported through the existing program (e.g., PDPG policy dialogue, workshops for the Public Sector Reform Project and Public Financial Management Modernization Project, PFVA TF, dissemination of the IGR and CEM, as well as through occasional governance-related roundtables (e.g., a seminar with the government on WGI). The Bank team will also engage in regular internal communication on CGAC activities, especially to support use of the Governance Checklist among task team leaders. 103 Table 1: Governance Checklist Application Stage 1/ AIS (Id) CN Risk QE DM/ Decision to ISRs of the Assess- R RO proceed w/ Governance ment C Board Checklist Review Presentation Responsibility 2/ CD CD/ TTL SM CD CD SM CM/ SM GOVERNANCE CHALLENGES Transparency and Accountability Is there a reliable champion for the ¥ ¥ ¥ ¥ ¥ ¥ ¥ project (institutions, individuals, organizations)? Who (among counterparts) is ¥ ¥ responsible and accountable for the deliverables of the project? Do we have evidence that the ¥ ¥ ¥ ¥ ¥ ¥ government is ready to have this project? What mechanisms do we use for ¥ ¥ ¥ ¥ proper targeting? How do we know we have reached the targeted beneficiaries? Capacity Development Is there an assessment of the ¥ ¥ ¥ capacity of the implementation agency? If yes, is there an action plan for improving capacity? If yes, is there a budget for the action plan implementation? How do we plan to overcome the ¥ ¥ ¥ capacity challenges? Does the project include a training program with appropriate budget to strengthen capacity of the implementing agencies/units in planning, policy decision making and execution? Demand-Side Involvement Is there a consultation and ¥ ¥ communication strategy for the sector and the project? Do we have a survey of the ¥ ¥ beneficiary? At what stages of the project ¥ ¥ ¥ ¥ 104 Application Stage 1/ AIS (Id) CN Risk QE DM/ Decision to ISRs of the Assess- R RO proceed w/ Governance ment C Board Checklist Review Presentation Responsibility 2/ CD CD/ TTL SM CD CD SM CM/ SM have/will CSOs been involved? Can the project use CSOs for ¥ ¥ monitoring and evaluation, and for implementation? GOVERNANCE RISKS Fiduciary (Procurement and FM) Will the PIU or project ¥ ¥ implementing agency have sufficient FM capacity? Will the PIU/project implementing ¥ staff be selected on a competitive basis? Does the project have a training ¥ ¥ ¥ program with appropriate budget for fiduciary staff? Does the project use accounting ¥ ¥ software? What are the institutional ¥ ¥ ¥ ¥ ¥ arrangements for fiduciary matters? Is there a conflict of interest? Does this project need enhanced ¥ ¥ ¥ ¥ supervision for contract administration? (CMU needs to identify projects that require enhanced contract administration recommended by the 2008 CPFR.) Does the project include technicians ¥ ¥ (engineers, architects) in the supervision team to enhance contract administration, as recommended by the 2008 CPFR? Does the project have a list of ¥ technicians and engineers? (CMU to develop a list of technical consultants locally and regionally.) Non-Fiduciary (Political Economy) Who are the actors who will be ¥ ¥ ¥ ¥ involved in the project and affected by it? Who are the winners and the losers ¥ ¥ ¥ ¥ 105 Application Stage 1/ AIS (Id) CN Risk QE DM/ Decision to ISRs of the Assess- R RO proceed w/ Governance ment C Board Checklist Review Presentation Responsibility 2/ CD CD/ TTL SM CD CD SM CM/ SM from the reform? What could be the vested interests ¥ ¥ ¥ ¥ involved? Who will the head of the PIU report ¥ ¥ to? Is there a problem? Is the implementing agency fully ¥ ¥ ¥ empowered with the implementation of the project? Do we need a strategic political ¥ ¥ ¥ economy analysis to have an effective aid support? (NB: strategic projects, such as DPOs, hydropower or infrastructure projects, hospital restructuring, public sector reform, etc., should require a political economy analysis.) If political economy analysis is ¥ ¥ ¥ warranted, what is the channel through which the design of the project is to be informed or affected by the recommendations of such analysis? 1/ AIS=Activity Initiation; CN=Concept Note; QER=Quality Enhancement Review; DM=Decision Meeting; ROC=Regional Operations Committee Review; ISR=Implementation Status Report 2/ CD=Country Director; CM=Country Manager; SM=Sector Manager; TTL=Task Team Leader. 106 . . . _. _4_ _ _- Table 2: Governance at a Glance – Tajikistan 2008 l~ ... """o~',~a"'1AGlMCE .... .... . • ----........ . . - .. • • - u .. .... . . . -- _ " __ fII4 _~ , ._ .. • - -_. • • • '-' . w~ • • .. .- • _.. _ I • • , --_.• -• • _ .. _ _ _ fII _ _ _ _ '-4 _ _ _ _ _ lU .. "'~ ... lUI» ". "-, , .. "'~ ... • • u .. u u - - -'. . ..• • • .. -~- ---.----- . -- _4 - ______u . _ --- ... ._--- .- - " - .. . ."" U '-,. ---~ _..... _- - .. ... .- - - U .... _- .. .. m_ ... -'- --- - -~ .. - ," --- ---.-- •. ..... --- -- U .... - =-* =- - -- -- - .- ..... .- -~ _' _ _ _ fIOl , ,. - _ _ _ PI - __ -~_ .. ... _ _ N ~ .. . ... .. . .. ..- --- - _1"4_"'_ ~ - . -- u ,.. .... ('0 _ _ "" . . _ ... · _ - _ . _ ..... _ ..... _1 -- - - --. - - - «-~---"I) - , .. . .• • --'~/r~,," - - - - « - ',--- ~ --- . T_ _ ' _ _ fII4_"" - T_ .. _ _ _ _ ... _ _ 18I , U , --- =- --- -- -- - ---- T_ _ .. _ _ ... ... _ ~ • • • • Source: Actionable Governance Indicators Data Portal (WB Intranet Website) 107 Table 3: Sustainable Development – Sector Level Engagement and Instruments Project Name Transparency and/or Capacity Building Demand-Side Interventions Accountability Measures Community Provide direct grants to Institutional support and capacity x Project beneficiaries select sub- Agriculture and participating villagers who building in: project investments within a Watershed identify and choose their own x Selection and design of land fixed budget constraint for Management priorities and solve their own resource and other rural villages and households, which problems. Project mechanisms production investments by ensures demand-driven, site- for funding sub-projects for villages, common interest specific prioritization local people help promote groups, and householders with x Project requires local good governance and prevent support of Jamoat Development contribution of at least 25% of leakage by: Committees as well as NGO the value of the sub-project x Using a transparent Facilitating Organization grants, which also helps ensure allocation formula that partners ownership limits the value of sub- x Research and demonstration to x More than 50% of project area project grants to any one help scientific institutions and residents in participating household or village (and line ministries provide technical villages are directly benefiting ensures widespread services including training to from subproject investments distribution) communities x Channeling funds to local x Establishment of Non-Banking recipients through a local Farmer’s Organization to bank provide microcredit for farming x Providing a financial and other income-generating manual for accounting and activities on Grameen Bank processing the flow of principle funds These mechanisms could be utilized for other community- driven projects in Tajikistan. Land Registration Establishing performance Capacity building in farmland x Land use certificates issued in and Cadastre standards (transparency, restructuring to enable more rural accordance with applications System for fairness, social inclusion, people to become independent from local citizens Sustainable efficiency, documentation that farmers and take management x Potential applicants are Agriculture reflects field realities) for decisions in response to market provided with detailed farmland restructuring and forces. information through mass registration of land usage The project includes: media and direct training on rights, including through x Processing of land use farmland restructuring process, community-wide meetings certificates in accordance with with a systematic approach to Project includes establishment agreed standards by seven reach youth and women of new geodetic coordinate newly established Regional x Provision of on-farm irrigation system required for Land Cadastre Centers investment support and transparent base maps and x Increasing local people’s capacity building in cadastral information awareness of land use rights environmental land use and the farmland restructuring management for newly process independent farmers x Associated on-farm irrigation support (including creation of water user associations) x Training of trainers in environmental land management Cotton Sector After restructuring, project Component on “Support for Policy Component on producer support Recovery will provide access to pre- Analysis and Reform” intends to will provide TA, training and export finance in a more strengthen government capacity information to rural populations, competitive environment and through policy analysis on debt including community outreach 108 Project Name Transparency and/or Capacity Building Demand-Side Interventions Accountability Measures focus on establishing a mode resolution, competition, land use programs conducted by NGOs and of transparent payment to and local government activity other organizations with a strong cotton farmers track record of working with rural communities Emergency Food Local NGOs check Household survey conducted to Security and Seed compliance with project assess project’s impact on Import selection criteria household food security Energy Loss x Audit of Barki-Tajik and x TA for implementation of the Reduction (and Tajik Gas financial policy framework Energy statements by reputable x Capacity building for project Emergency external auditor (Big Five implementation Response) audit firm, first time in the x Gas and electricity industry country) acceptable to IDA restructuring and utility x Financial management of management, including the two SOEs improved to corporate financial be in line with international management and audits standards x At the household level, digital meters introduced to minimize individual discretion in billing Pamir Private Corporate governance is Capacity building for the first Power addressed Pamir Public Private Partnership in Tajikistan, providing TA to Pamir Energy (a special purpose company for the project) on: x Project engineering and Implementation x Operations and management x Environmental and social impact monitoring and mitigation Dushanbe Water Setting up a transparent water x Supporting capacity building of DWS II can focus on complaints Supply tariff schedule, computerizing Dushanbe Vodokanal in mechanism (and Dushanbe the billing system, installing financial management and Water Supply water meters accounting Parallel project was carried out to Rehabilitation) x Strengthening capacity in water support the creation and The second project (if distribution network and leak empowerment of community- included in the CPS) will detection based organizations to manage improve corporate governance x Improving energy efficiency communal water distribution of Dushanbe Municipal systems, collect fees to maintain Vodokanal through the system, and pay the water corporatization utility for its services Ferghana Valley Institutional development and TA Water user associations involved Water Resource to: in issuing land certificates in pilot Management x Establish water user areas Project associations x Improve agricultural productivity and efficient water use patterns x Improve reservoir and dam operations Tajikistan Component on institutional Participatory planning process Municipal capacity building covers TA to Infrastructure develop capacity to manage 109 Project Name Transparency and/or Capacity Building Demand-Side Interventions Accountability Measures Development infrastructure and utility service operations and identify: (a) priority investment projects through a participatory planning process; and (b) measures to improve management and performance monitoring systems. 110 Table 4: Human Development: Sector Level Engagement and Instruments Project Name Transparency and/or Capacity Building Demand-Side Interventions Accountability Measures Avian Influenza Component on implementation Preparedness [NB: support and M&E assists in HD or SD?] strengthening public structures for the coordination and management of planned emergency activities to combat any dangerous infectious disease in the country, including arrangements for financial management, procurement, and M&E Community and x Health strategy Capacity building to strengthen x Media to document progress Basic Health formulation with MOH stewardship in: (e.g. food distribution, opening implementation plans x Evidence-based health policy of new health facilities, including master plan, HR making training of staff) plan, HMIS strategy, etc. x Strategy formulation x Community participating in x Invest in HMIS in selected supervision of food distribution health facilities, and x Fiduciary capacity at MOH and collect data on utilization, oblasts x Regular surveys of population finance and health outcomes x Transparency in health x MOH webpage financing x Provider payment reforms with improved tracking of x Health management funds x Provision of care x Transparent copayment policy x Regulation of reforms x NHA Education x Piloting of school x Capacity building in textbook PTAs established in project Modernization autonomy and per-capita and curriculum development schools financing x Training and facilitation for x Direct grants to PTAs schools, community, and PTAs x Training to PTAs in procurement and FM x TA for project M&E EFA-FTI x Building fiduciary and At central and local levels in x Public access to the school financial management education sector, building budgets; capacity in MOE capacity to: x collect, process and analyze x Participation of the PTAs in the x Introducing EMIS at education data school budget allocation; national and local levels x support project M&E x BA (beneficiary assessment) of x Introducing per-capita the textbooks; financing in all schools x move slowly to data-based from 2010 decision making x PCF evaluation. 111 Project Name Transparency and/or Capacity Building Demand-Side Interventions Accountability Measures x TA to supervise CWs x introduce, implement and monitor per-capita financing: x TA to develop technical specifications x guide priority investments in CWs; managing CWs, x TA for project M&E textbooks publishing and equipment procurement; At school level, strengthening school autonomy in procurement and financial management 112 Table 5: Potential Scaling up – Suggested Areas for Governance Partnership Facility Window 1 Proposal Low Resources (no GPF) High Resources (GPF Window 1) COUNTRY LEVEL x Public Sector Reform Project +Take stock of current x Public Financial Management engagement in Modernization Project capacity development x PDPG Series: Policy Dialogue, and demand- VPF side governance + Devise a x IGR strategy to scale up engagement SECTOR LEVEL Sectoral Strategies based on + Resource +Resource Governance Portfolio sectoral scaling up Review/CGAC Matrix initiatives to improve transparency and accountability: SD, HD, PFSD PROJECT LEVEL x Adoption of Governance + Develop a “manual” based on Checklist Governance Checklist to instruct TTLs how to properly pay attention to x Strengthening Fiduciary Safeguards governance throughout the project (following up on recommendations cycle; of 2008 CPFR) + Financial support for TTLs for governance reviews/political economy analysis at concept note stage or midterm review 113 Annex 5: Donor Coordination and Harmonization in Tajikistan 1. Despite growing foreign aid in Tajikistan, resources – estimated at approximately US$36 per capita in 2006 - remain scarce compared to the development needs. The success of the CPS implementation will also depend on continued improvements in donor cooperation and harmonization. 2. Overseas development assistance (ODA) has increased in terms of the volume of funding, the number of projects and development partners. Based on the UNDP Principals data, China has now become the largest donor in Tajikistan, followed by the United Sates. Their development aid accounts for, respectively, 43 and 15 percent of total aid disbursed during 2003- 2007.35 The WB ranks third (tied with the EC) and accounts for 7 percent. Together, China, USA, EC and WBG provide an estimated 64 percent of all development aid to Tajikistan. The IMF, which is ranked fifth, accounts for 5 percent of the total aid. The remaining 31 percent is comprised of ODA from other agencies, mostly bilateral organizations. 3. However, aid flows are unpredictable and uneven and impacts of development aid remain mixed due to ineffective donor engagement and coordination as well as weak government capacity to absorb and coordinate aid. There is greater scope for better use of aid resources by improving donor coordination and strengthening government capacity. This annex is organized as follows: first, it provides a picture of current ODA programs as well as existing coordination mechanisms in the sector; it then discusses the steps taken by the World Bank to strengthen government ownership, harmonization, alignment, results and mutual accountability. A. An Overview of Development Aid under the proposed CPS Strategic Objectives 4. An overview of major development aid activities in Tajikistan is organized around the two strategic objectives. The mapping was based on records of aid programs from the sectoral reviews carried out as part of the JCPS) the latest draft JCPS, and updated information from the ODA agencies. The purpose of this exercise is to identify potential areas for further Bank engagement, as well as areas where the role of the Bank Group needs to be delineated. 5. The overview does not present a comprehensive picture of all activities and areas of involvement of all development partners active in Tajikistan. The mapping presented in this Annex does not capture activities of development partners that have smaller programs. In addition, many development partners only participate in the policy dialogue through the Donor Coordination Council (DCC) working groups. 35 Total aid disbursed from 2003 to 2007 is estimated at about US$1.7 billion. 114 Strategic Objective 1: Reducing the negative impact of the crisis on poverty and vulnerability Result 1: Maintain Fiscal Stability 6. The ADB, EC, WB and IMF are the major development partners whose financial assistance through grants, project loans, and/or policy-based program loans contribute to macroeconomic stability, i.e., management of prudent monetary and fiscal policies. In 2009, their support has been shifting towards short-term budgetary assistance to address financing gaps in the balance of payments and fiscal account emerging from the impact of the global economic and financial crises. The IMF’s ECF for 2009-12 will provide US$70 million in 2009 to boost international reserves and support the country’s external position. ADB, WB, and EC provided budget support to Tajikistan in the amount of US$72.5 million in 2009. ADB’s Development Policy Support Programs and TA projects support policy reforms related to, among others, customs modernization, revenue administration, macroeconomic management, and public expenditure issues. The Bank also coordinates closely with the IMF on policy advice and technical assistance related to macro-economic management, tax administration reforms and other structural reforms. Result 2: Maintain access to critical public services 7. ADB, EC, and the WB have provided budget support to assist the government in protecting public spending in the social sectors (education, health, and social protection) to protect recent gains in poverty reduction and social development achieved during the past decade of strong growth. This effort is also reinforced by ongoing investment activities by several donors. In the education sector, since 2006, all donors support the government through the National Strategy for Education Development (NSED) for 2006-2015 and its subsequent action plan. The FTI Catalytic Fund is providing support to the General Education Reforms through a US$ 18.4 million trust fund implemented by the Ministry of Education (MoE), administered by the World Bank and co-led by the WB and UNICEF. Key donor agencies (ADB, GTZ, KfW, UNICEF, USAID and WB) support a variety of interventions (loans and grants): management (data collection, including policy analysis, costing, planning and M&E), efficiency, access, quality, gender parity, and infrastructure. A Medium-Term Expenditure Framework (MTEF) linking the NSED to the budget and the Education Management Information System (EFMIS) were introduced. Per capita financing in general education will be scaled up countrywide in 2010. Joint FTI review became a good example of good donor coordination supporting the implementation of the NSED and taking pilot initiatives into a broader scale. FTI provides a basis for future SWAp by bringing donors around the government strategy, moving from the use of the project systems to the country structure, and building capacity inside those structures. 8. In the health sector, several development partners including SIDA, SDC, WB, USAID and KfW actively support the government in strengthening primary health care services, reform of the health financing system, fighting tuberculosis and malaria, improving maternal and child health and strengthening family medicine. Additional key partners (WHO and the USAID- funded ZdravPlus Project) are working on health financing reform. A broader group, which also includes UNICEF and ADB, has been active as participants in policy dialogue around implementation of the Basic Benefit Package and per capita financing in the health sector. The 115 Aga Khan Foundation also plays an active role in supporting primary health care and health financing reform. The EC is supporting health information management and the elaboration of a MTEF and, together with DFID and other partners, supports the development of a health sector strategy. ADB and SIDA are planning to phase out their engagement in the health sector in 2009 and 2010, respectively. Efforts are being made to improve development partner coordination and aid effectiveness in the sector. In 2008, health sector coordination has been evolving from a development partner driven process with an information sharing output only, to a sector coordination led by the Ministry of Health with the technical assistance supported by WHO and the active collaboration of other development partners. Today the dialogue between the Ministry of Health and development partners is more oriented toward joint planning and implementation of the key health sector reforms. Result 3: Reduce risk for vulnerable groups through enhanced social protection 9. Vulnerable groups are at risk during the crisis. Reduced remittances and economic growth have led to a decline in their disposable income, and therefore increase risk to food security, especially in the rural areas. Further, the social system is too weak to provide adequate protection to the poor. In the areas of food security, there are several donors working together to provide food to vulnerable groups. UN organizations including UNICEF, FAO, and WFP are the main donors. IDA and EC are now working together to rehabilitate agricultural infrastructure (irrigation and drainage systems) in the region to generate employments and income for the population in time of crisis. In the area of Social Protection, EC has a long-standing engagement with the government supporting measures to improve efficiency of the Social Assistance System. Recently, the WB is becoming engaged in this area working closely with EC. Strategic Objective II: Pave the way for post-crisis recovery and sustained development Result 4: Strengthen the business enabling environment 10. Given the broad coverage of the CPS Results Area of Reducing Administrative Barriers to Doing Business this area has a large confluence of ODA programs. The July 2008 Private and Financial Sector Review, conducted by the World Bank, mapped 53 initiatives focused on PSD, 36 of which are currently under implementation, representing US$64.7 million for the (2007Ǧ2009) period. Aside from partnerships on specific operations, the State Investment Council coordinates at the policy level with all the active players in this area through the Business Enabling Environment working group, facilitated by IFC with the financial support of DFID and SECO. The EC, GTZ, OSCE, MSDSP, ADB, SECO and USAID have trade facilitation and other trade-related assistance that support the country’s overall investment climate and competitiveness. Other partners, such as the ACTED, AKDN, CARITAS, DFID, EBRD, EU, GTZ, OSCE, SECO, SIDA, UNDP and USAID, support activities that indirectly address productivity, livelihood and competitiveness through various entry points such as support for agricultural productivity, youth employability, sustainable livelihoods, community enterprises, and other interventions mostly at the grassroots level. Private sector development has been one of the cross-cutting issues extensively discussed at the DCC. The joint Private Sector Development Strategy, developed with the government by the WB, identifies the key issues requiring donor support in the PSD area in the coming years. 116 11. In the financial sector, donors currently involved in the area of regulatory reform include ADB, USAID and the WB, while virtually all donors active in the financial sector (ADB, EBRD, GTZ, IFC, KfW, USAID, and SECO) have contributed to advance microfinance in Tajikistan through various types of projects. The Canadian International Development Agency (CIDA) has provided support to the WBG through IFC’s South Tajikistan Cotton Lending Project, which has increased private bank lending to the critical agricultural sector, and SECO supported IFC's Azerbaijan and Central Asia Leasing Project, which led to strong growth in Tajikistan's leasing sector. Result 5: Improve conditions for a sustainable increase in agricultural productivity 12. In agriculture, key donor agencies include the multilaterals (the WB, EC, the Islamic Development Bank (IsDB), UNDP, and FAO), bilateral donors (USAID, GTZ, SDC, DFID, SIDA, and NGOs), and the Aga Khan Foundation (see Agriculture Sector Review). SIDA, ECA and ADB have expressed their intention to disengage from this sector in the future. ADB and the WB are currently the two largest donors in the cotton sector, with commitments of US$120 and US$55 million, respectively. There is no comprehensive agricultural sector policy or strategy agreed on by the government and other key stakeholders to serve as a coordination tool. However, mechanisms to facilitate better cooperation and coordination are only now emerging with the Donor Coordination Council (DCC) Agricultural Sub-group, which was created in late 2007, and the three joint DCC-Government Working Groups on land reform/irrigation, finance and debt resolution, and the informal Legal Aid Center Coordination Group. Two DFID funded long-term consultants are also assisting in donor coordination. Additionally, donors are working towards consolidating PIUs in the sector. For example, the WB and ADB have a joint PIU for the sector. 13. Only a few partners have specific programs on Disaster Risk Management -- UN, EC. However, the development community, with actors such as FAO, WFP and UNICEF, is prompt to bring an emergency response to crises (the devastating rains in May 2009 and the food crisis in 2008). Yet disaster preparedness and contingency planning are areas that are currently not being fully supported by the donor community. The WB, through its ongoing avian flu project, is providing some support. Result 6: Improve the reliability of electricity and gas and increase energy export potential 14. IFI/Donor interest in the energy sector has been limited and is mainly providing support for rehabilitation of existing systems and improving efficiency under the Energy Loss Reduction Project (WB/Swiss SECO), Pamir Private Power Project (WB/IFC/Swiss SECO/AKFED), Energy Emergency Recovery Assistance Project (WB), and Energy Rehabilitation (ADB)). The development partners active in the sector have been ADB, IsDB, KfW, Kuwait Fund for Arabic Economic Development, Swiss State Secretariat for Economic Affairs and the WB, in addition to the newcomers Iran, China (PRC) and the Russian Federation. ADB and WB have been particularly involved in regional energy trade. ADB, with commitments of about US$60 million in the energy sector, along with KfW (US$40 million) are the most active donors with activities ranging from power distribution in urban areas to regional energy trade initiatives. Currently, there is no formal development partner coordination mechanism in the energy sector. A 117 centralized Project Management Unit (PMU) reporting to the President’s Office has been established to manage energy sector projects, except those financed by the WB that are implemented by Barki Tojik and Tajik Gas. The WB’s activities mainly focused on policy dialogue (e.g., corporatization of the energy utilities, energy tariff adjustment program) as well as specific investments targeted at commercial loss reduction (e.g., Energy Loss Reduction Project) and operations efficiency enhancements (e.g., Energy Emergency Recovery Assistance Project). It had prepared an energy sector development policy advisory note for the government that sets the directions for the development of energy sector on a two-track basis: (i) strengthening of the domestic energy sector through tariff adjustments to cost viability levels, energy loss reduction program implementation, improvement of financial management systems and corporate governance, and (ii) export orientation of new hydro/thermal energy projects. The government, with the help of its international consortium of advisors led by Taylor-DeJongh, is preparing a comprehensive two-pronged strategy that would encompass both short-term and medium-to-long term sets of measures. Result 7: Improve the provision of safe water in Dushanbe and selected municipalities 15. SDC/SECO has been the main actors in the sector among the IFIs and bilateral agencies. Their involvement include: (i) a regional rural water supply project and improvement of community-based water supply systems in the south Muminobad rayon; (ii) support to “UNDP rural water supply dialogue” to bring together key governmental institutions, donors and organizations working in the field of drinking water; and (iii) grant co-financing to Khujand water supply improvement project; and (iv) co-financing of a new EBRD-financed rural water supply project (through its Khujand water supply project, phase 1 and 2; and a new project for Kulyab, Dangara and Kurgan Tube, scheduled for approval in 2009). JICA supports the reconstruction of rural water supply systems in Khamadoni rayon of Khatlon oblast; regular training of sector professionals in Japan; and Master Plan and Feasibility study of sustainable supply of drinking water to South districts of Khatlon region, including proposal for feasibility study for reconstruction of Vakhsh trunk main). The WB currently finances the Dushanbe water supply and the Municipal Infrastructure Development project (includes water supply and sanitation components in 8 regional cities). There is currently no formal development partner coordination mechanism in the water supply and sanitation sector. The Water Supply and Sanitation Sector Strategy Workshop, conducted by the Government of the Republic of Tajikistan in April 2009 was the first initiative in the country to focus attention of both the Government and the donor community on Tajik water supply and sanitation, and, in particular, on the priorities, included in the Tajikistan water supply and sanitation sector note, prepared by the government with financing by the World Bank; and to bring together the government and the donor community. To strengthen donor coordination similar workshops will be conducted on an annual basis during the CPS period. Result 8: Strengthen the quality of public services to enhance human capital potential 16. Donor activities in the education and health sectors have contributed to two results under both strategic objectives: reducing the negative impact of the crisis, and paving the way to sustained post-crisis recovery. Their activities contributed to improvements in the quality of 118 education and health services, thus enhancing the human capital potential that is required to support economic growth. Compared to efforts to strengthen basic and secondary education (see strategic outcome 12), Vocational and Technical Education (VTE) has received comparatively marginal attention. Currently, the only existing coordinating tool of the government is the Labor Market and Migration Policy, which is being finalized. The WB’s Life Skills Development for Future Migrants project (financed by Russia) will provide training to Tajik migrants on basic life skills to improve Russian language skills and knowledge of that country’s laws and procedures. Result 9: Strengthen incentives for better performance of civil servants 17. Improving the Performance of Public Sector is another area where multiple partners are engaged, and the forms of engagement include technical assistance for local planning and expenditure management, local government financing, and budget reforms at the provincial and municipal levels. Active development partners here include ADB, Sweden, UK, UN, and the USA. ADB has a program loan and technical assistance for local government financing and budget reforms. Most assistance is directed through sector support. However, the Public Sector Reform Project supports the implementation of reforms envisaged by the Public Administration Reform Strategy (2006) in the areas of restructuring of state agencies, reform of civil service administration, pay reform, and strengthening strategic policy coordination. Result 10: Improve transparency and accountability in public financial management 18. On Improving Transparency and Accountability in Public Financial Management, the EC and the WB are leading the efforts working closely with other partners. There are many active development partners but all resources are aligned with the priorities identified in the Public Financial Management Strategy for 2009-2018 and the Public Financial Management Project. The WB’s Public Finance Management Project (US$5 million) is co-financed by DFID and the EC (US$5.5 million). Additional financing in the amount US$0.97 million comes from a PHRD Grant for project preparation. The Swiss State Secretariat for Economic Affairs expressed willingness to participate in financing PFM reforms in close coordination with the WB, the EC and DFID through a Swiss Trust Fund. B. Implementing the Paris Declaration in the 2009-2013 CPS 19. Tajikistan has signed the Paris Declaration on Aid Effectiveness on ownership, harmonization, alignment, results and mutual accountability. The government is committed to the Paris Declaration and the subsequent 2008 Accra Agenda for Action and its implementation. 20. Although donor coordination mechanisms are present in many sectors of intervention of the new CPS (as described in the previous section), a recent study on aid effectiveness in Tajikistan concluded that there is scope for better use of aid resources. Overall, the findings suggest that improving coordination, both in terms of planning, joint implementation, monitoring and evaluation, would bring benefits. Currently, development partner fragmentation in many sectors creates considerable coordination challenges and costs for the government. Some aid remains supply driven and the lack of predictability creates problems for government planning. 119 21. The CPS will benefit from a strong coordination mechanism through a JCPS supported by an important number of donors36 that is currently being completed and formulates “the principles and mechanisms that will guide the delivery of aid to Tajikistan, the cooperation between the Government of Tajikistan and the development partners, and the coordination mechanism to be used to implement the commitments of the Paris Declaration as expressed in the core principles.” Box 1 outlines a shared list of principles of aid effectiveness. Box 1: Draft Shared Principles of Aid Effectiveness to Assure Ownership, Harmonization, Alignment, Results and Mutual Accountability 1. Tajik authorities will take the lead in coordinating donor assistance in support of and aligned with the priorities of the NDS and PRS, and clarifying key points of contact between donors and the overall Government structure. 2. Donors will provide support to enhance Government’s capacity for coordination and will provide timely information on their budgets and activities to allow effective government planning, monitoring and reporting on aid projects, programs and flows. 3. Tajik authorities, with the support of donors, will link the annual national budget, public investment program and aid- supported programs in an integrated programming process for greater realism, relevance and consistency. 4. In specific sectors Donors will work with Government towards a sector-wide approach of: one strategy, one coordination point and one M&E framework, including : (i) agreeing on sector strategies endorsed by Government; (ii) moving towards clearer division of labor, and (iii) joint monitoring and evaluation of sector programs. 5. Donors will work towards ensuring that Technical Assistance is demand-driven and responds to national needs 6. Donors will focus on scaling-up successful project interventions for policy development and nation-wide outcomes where appropriate and feasible. Scaled up programs will be designed for sustainability and with clear linkages to policy-based and results-based budgeting 7. Government and donors will not only monitor outputs over a 12-month period but measure outcomes within the medium-term framework of the JCPS, and the MTEF where it exists 8. Donors will develop common arrangements for planning, funding, disbursement, monitoring, evaluating and reporting on donor activities and aid flows. They will promote joint missions, diagnostic reviews and training activities. 9. Tajik authorities and donors will work together to integrate project preparation and implementation management fully into the ministerial structures and processes and reduce the number of project implementation units by creating joint units responsible for multiple projects. 10. Donors will seek to provide predictable, multi-year programmatic financial support and support Government’s efforts to improve fiduciary systems to increase the flow of funds directly into the budget 11. Tajik authorities and donors will jointly consult with a wide range of stakeholders (including Parliament, local government and communities, academic institutions, civil society, the diplomatic and aid community) in planning, implementing, monitoring and evaluating donor supported programs 12. Donors agree to hold themselves to greater self accountability to monitor if aid coordination is meeting national goals and objectives (through Paris Declaration and IDA indicators) 13. Donors will support the Government to ensure its greater accountability and transparency to the citizens of Tajikistan 1. Country Level Policy Dialogue 22. The DCC was established in early 2006. Among others, its objectives are to (i) promote country ownership through joint dialogue, (ii) enhance harmonization through promoting joint activities and ultimately, sector wide approaches (SWAp), (iii) secure future alignment through supporting country systems reforms, (iv) facilitate networking and broader collaboration within the donor community, and (v) align country strategies of the donors through a single country 36 The JCPS is being developed with the combined support of ADB, EC, Sweden (SIDA), SDC, DFID, WB and the UN and include the Government of Tajikistan represented by the Chairman of the State Investment and Property Management Committee. 120 operational strategy. The DCC meets biweekly with an annually rotating chairmanship, currently chaired by DFID. To facilitate the process, a core DCC group, comprising members representing the WB, ADB, SIDA, DFID and SDC/Seco, has been set up. 23. The DCC has had good dialogue with the government on PRSP2 development and has proven to be an efficient mechanism in coordinating donor activities. It has also been involved in various sector issues, such as cotton debt and land reform initiatives. Donor coordination is well advanced at the national level through Monitoring and Evaluation of PRSP (joint ADB-EC- DFID mission) and at the sector level in education, health, and energy. The JCPS is identifying good practices behind the success of this donor coordination (e.g., systematic Chairmanship by Government representatives), and hoping that coordination in other sectors will benefit from these practices. 24. One of the lessons learned from the first PRSP pointed to the need for a single government counterpart or agency responsible for coordinating with donors. The State Committee on Investments and Public Property is now assuming this function. It is in charge not only of the dialogue with the donors on issues related to monitoring and evaluation of the implementation of the Paris Declaration, but also to perform a coordinating role in this field within the government. The Aid Coordination Unit remains the focal point on information management related to donor assistance. 2. Developing Country Systems 25. Procurement. The latest Tajikistan CPAR was prepared in 2003. It recommended the gradual decentralization of public procurement to procuring entities. With technical assistance and financial support from the Bank, the necessary conditions conducive to transparent, economic, and efficient public procurement in the country were created. A comprehensive public procurement law (PPL) that is consistent with international standards was adopted in March 2006. Subsequently, implementation regulations and Standard Bidding Documents (prepared in Russian language and translated into Tajik and English) according to the new law were developed with the support from the Bank; they were approved and registered with the Ministry of Justice in January 2008. The capacity of the Procurement Agency was strengthened: five staff were trained as trainers in designing and delivering training to public officials at all levels of government in conducting procurement according to the law. 26. Efforts by the government to improve transparency in procurement bidding include organization of the public procurement workshops and initial procurement training for procuring entities and different levels of public officials; publication and dissemination of new PPL, introduction of implementation regulations and SBDs; and raising awareness of the procuring entities on the provisions of public procurement law. In June 2007 the government established the Qualification Committee to give the status of qualified procurement entity. At the moment 7 agencies have received such a status. To speed up further implementation of the new PPL and decentralize the procurement responsibility, the PA will prepare the national training strategy for public procurement, covering all the levels of administration and implement and deliver the training programs. It appears, however, that the PA’s own funds are not enough for sustaining and further developing the public procurement system reform program; there is certainly a need for more funding to complete the decentralization of the procurement responsibility. The World 121 Bank IDF grant to the TJ Public Procurement Agency was closed in FY08. It will assess the financial and technical assistance needs for the Public Procurement Agency during the CPS period. 27. Financial Management. A Country Financial Accountability Assessment (CFAA) for Tajikistan 2003 concluded that the country’s fiduciary environment is extremely weak and the risk to public funds is high. The findings, supported by PEFA of 2007, point out that systems of public accountability function poorly and public sector transparency is still a problem at all levels of government. Most project implementing entities use the cash basis of accounting, which in most cases is sufficient for proper accounting of project resources and expenditures. 28. Internal and External Control. The internal audit function has been established within the Ministry of Finance (Internal Control & Audit Department), and carries out inspections in budget organizations, mainly to ensure compliance with laws and regulations. The internal audit function is still weak and focuses on regularity in individual transactions rather than on systemic issues and on effectiveness with which public resources are used. The EU has been working with the government to develop a strategy for improving internal control and audit. External audit is practiced by the Agency for Financial Control and Anti Corruption (formerly State Financial Control Committee), the equivalent of a Supreme Audit Institution (SAI). However, this agency’s capacity is weak and its conduct of audit is not reliable. As a result, audits of IDA portfolio have been performed by private audit firms pre-qualified by the Bank and contracted by the Committee for Investments. It conducts a block audit of WB financed projects in Tajikistan. 29. To minimize financial risk, there has been a need to “ring fence” financial resources in Bank projects in order to provide the appropriate fiduciary safeguards. Most Bank-financed projects in Tajikistan are implemented through stand-alone project implementing agencies that install parallel accounting systems to those used in the respective line ministries. The project implementing entities use the cash basis of accounting, which is not in accordance with IFRS, but is allowed under IPSAS, and in many cases sufficient for proper project accounting. A small number of projects are implemented by borrower/recipient agencies, which are required to follow WB financial management procedures rather than the country’s financial management systems. 30. Based on assessments of the country PFM system, only some elements of the country FM systems are planned to be used under the project. These include budgeting and treasury system for payments in local currency. Full use of the country PFM systems for project implementation will be considered, as the government progresses with the implementation of the PFM reforms, some of which are included under the PFMM. 31. The strength of safeguards systems have not yet formally been assessed by the Donor’s community. 122 3. Effective and Inclusive Partnerships for Development 32. The Tajikistan regular Consultative Group (CG) and Development Forums have served as an effective mechanism for facilitating substantive policy dialogue on the country’s development agenda. However, representation still needs to be broadened to include representatives from civil society, academia, private sector and the legislature. 33. Aside from the bi-annual PDF event, working group meetings are held around thematic areas - MDGs and social progress; growth and investment climate; economic and fiscal reforms; governance and anticorruption; decentralization and local government; sustainable rural development throughout the year to follow through on issues and agreements reached and facilitate consultations across a broad range of stakeholders. Each working group is typically convened by the head of the relevant government agency and a development partner as co- convener. Key initiatives and achievements of the Working Groups are discussed in the section on development aid programs in the context of the CPS. 4. Mutual Accountability and Managing for Results 34. Specific modalities for joint operational engagement by donors can increase effectiveness and reduce the costs of implementation for the government and donors. A good example of this type of synergy comes from the joint WB-ADB portfolio reviews that have been alleviating the weight on government implementing and oversight agencies. 35. The recent Aid Effectiveness Study suggests there are high transaction costs for aid in the country, particularly given capacity constraints. In an effort to address this imbalance, and maximize the impact of the aid available, the government and donors jointly reviewed current overall coordination mechanisms and concluded that a number of improvements need to be made. This included greater use of sector working groups, joint missions and diagnostic reviews, as well as developing common arrangements for planning, funding, disbursement, monitoring, evaluating and reporting on donor activities and aid flows. Currently, donors are considering joint project implementation units in the context of SWAps in the health and education sectors,37 but much work remains to be done to ensure the conditions are right for success. Before this approach can be effective, JCPS partners agree that certain prerequisites need to be in place to achieve sustainable results, including: (i) a strong prioritized country-led sector strategy; (ii) strong country systems for absorbing resources (fiduciary and procurement); (iii) sector strategies that is rationalized, fully costed and linked to a medium-term budget expenditure framework; and (iv) improved aid harmonization, particularly for monitoring and information systems. The overall objective is to put in place sustainable mechanisms that will lower the cost of aid and improve donor effectiveness. 37 A SWAp is an approach to support a country-led program for a coherent sector in a comprehensive and coordinated manner. It is characterized by: (i) country-owned sector policies and strategies; (ii) a sustained, country- led partnership among development partners and key stakeholders; (iii) a common program and an expenditure framework (usually a medium-term framework and an annual budget) based on agreed priorities and strategies; (iv) a financing plan that aligns government’s and external resources under the common program; and (v) significant movement toward common approaches in planning, implementation, monitoring and evaluation with increasing reliance on country’s systems and procedures. 123 Table A2: Country at a Glance Tajikistan at a glance 4/2/10 E u ro p e & P O VE R T Y a n d S O C IA L C e n t ra l Lo w- Development diamond* T a jik is t a n A s ia in c o m e 2008 P o pula tio n, m id-ye a r (m illio ns ) 7.5 460 2,403 Life expectancy GNI pe r c a pita (A tlas m e tho d, US $ ) 640 4,796 650 GNI (A tlas m e tho d, US $ billio ns ) 4.8 2,206 1,562 A v e ra g e a n n u a l g ro wt h , 2 0 0 0 - 0 6 P o pula tio n (%) 2.1 0.0 1.9 La bo r fo rc e (%) 3.2 0.5 2.3 GNI Gross per primary M o s t re c e n t e s t im a t e ( la t e s t ye a r a v a ila b le , 2 0 0 0 - 0 6 ) capita enrollment P o ve rty (% o f po pulatio n be lo w natio nal po v e rty line ) .. .. .. Urba n po pula tio n (% o f to tal po pulatio n) 26 64 30 Life e xpe c ta nc y a t birth (ye ars ) 72 69 59 Infa nt m o rta lity (pe r 1,000 liv e births ) 85 28 75 C hild m a lnutritio n (% o f c hildre n unde r 5) .. 5 .. Access to improved water source Ac c e s s to a n im pro ve d wa te r s o urc e (% o f po pulatio n) .. 92 75 Lite ra c y (% o f po pulatio n age 15+ ) .. 97 61 Gro s s prim a ry e nro llm e nt (% o f s c ho o l-age po pulatio n) 103 102 102 Tajikistan M a le 104 103 108 Low-income group F e m a le 102 100 96 KE Y E C O N O M IC R A T IO S a n d LO N G - T E R M T R E N D S 19 9 6 2000 2008 2009 Economic ratios* GDP (US $ billio ns ) 1.0 0.9 5.1 5.0 Gro s s c a pita l fo rm a tio n/GDP 40.2 19.5 4.7 4.7 Expo rts o f go o ds a nd s e rvic e s /GDP 76.6 98.8 16.8 16.4 Trade Gro s s do m e s tic s a vings /GDP 5.6 1.4 30.9 26.9 Gro s s na tio na l s a vings /GDP 4.3 3.0 46.6 47.6 C urre nt a c c o unt ba la nc e /GDP -7.9 -1.9 -7.7 -7.3 Inte re s t pa ym e nts /GDP 7.3 7.8 1.5 1.7 Domestic Capital savings formation To ta l de bt/GDP 74.1 122.8 42.1 44.5 To ta l de bt s e rvic e /e xpo rts 20.0 15.9 3.9 3.7 P re s e nt va lue o f de bt/GDP .. .. .. .. P re s e nt va lue o f de bt/e xpo rts .. .. .. .. Indebtedness 19 9 0 - 9 6 19 9 6 - 0 6 2008 2009 2 0 0 9 - 12 (av e rage annual gro wth) GDP -11.9 6.2 7.9 3.4 4.4 Tajikistan GDP pe r c a pita 68.8 16.7 35.3 -5.0 4.6 Low-income group Expo rts o f go o ds a nd s e rvic e s 54.0 0.9 12.8 -5.5 6.3 S T R UC T UR E o f t h e E C O N O M Y 19 9 6 2007 2008 2009 Growth of capital and GDP (%) (% o f GDP ) 100 Agric ulture 36.0 19.8 21.8 19.9 Indus try 29.2 24.0 23.7 21.0 50 M a nufa c turing 18.8 13.3 10.7 9.6 S e rvic e s 7.8 2.1 1.8 1.7 0 Ho us e ho ld fina l c o ns um ptio n e xpe nditure 64.3 114.3 112.6 95.0 02 03 04 05 06 07 -50 Ge ne ra l go v't fina l c o ns um ptio n e xpe nditure 16.8 17.5 29.0 28.3 Im po rts o f go o ds a nd s e rvic e s 80.0 68.8 72.1 56.7 GCF GDP 19 9 0 - 9 6 19 9 6 - 0 6 2008 2009 Growth of exports and imports (%) (av e rage annual gro wth) Agric ulture 313.4 61.6 51.7 7.0 45 Indus try 307.8 58.4 36.1 3.9 30 M a nufa c turing 310.0 58.3 10.6 5.4 15 S e rvic e s 321.5 89.4 32.4 31.3 0 Ho us e ho ld fina l c o ns um ptio n e xpe nditure -7.5 8.0 5.1 4.9 -15 02 03 04 05 06 07 Ge ne ra l go v't fina l c o ns um ptio n e xpe nditure 4.9 0.3 1.2 1.2 -30 Gro s s c a pita l fo rm a tio n -12.3 -9.1 0.9 -1.1 Exports Imports Im po rts o f go o ds a nd s e rvic e s -9.5 5.3 17.6 7.7 This ta ble wa s pro duc e d fro m the De ve lo pm e nt Ec o no m ic s LDB da ta ba s e . * The dia m o nds s ho w fo ur ke y indic a to rs in the c o untry (in bo ld) c o m pa re d with its inc o m e -gro up a ve ra ge . If da ta a re m is s ing, the dia m o nd will be inc o m ple te . 124 Tajikistan P R IC E S a nd G O V E R N M E N T F IN A N C E 19 9 6 2006 2008 2009 Inflation (%) D o m e s t ic pric e s 50 (% change) 40 Co nsumer prices 418.3 10.0 20.4 6.5 30 Implicit GDP deflato r 362.3 20.3 27.7 13.3 20 G o v e rnm e nt f ina nc e 10 (% o f GDP , includes current grants) 0 Current revenue 14.3 23.6 22.1 23.3 02 03 04 05 06 07 Current budget balance -4.4 8.6 9.5 8.7 GDP deflator CPI Overall surplus/deficit -8.8 1.7 -5.9 -5.3 TRADE 19 9 6 2006 2008 2009 Export and import levels (US$ mill.) (US$ millio ns) To tal expo rts (fo b) 770 350 457 458 2,000 A luminum 263 1,050 1,013 589 Co tto n Fiber 157 129 108 100 1,500 M anufactures 32 75 89 146 1,000 To tal impo rts (cif) 786 1,336 3,179 2,387 Fo o d 53 77 207 175 500 Fuel and energy 231 293 574 451 Capital go o ds 78 142 276 238 0 Expo rt price index (1997=100) 101 22 28 31 01 02 03 04 05 06 07 Impo rt price index (1997=100) 91 85 148 123 Exports Imports Terms o f trade (1997=1 00) 111 25 19 25 B A LA N C E o f P A Y M E N T S 19 9 6 2006 2008 2009 Current account balance to GDP (%) (US$ millio ns) Expo rts o f go o ds and services 800 656 865 818 0 Impo rts o f go o ds and services 836 1,618 3,703 2,825 01 02 03 04 05 06 07 Reso urce balance -16 -986 -2,721 -1,929 Net inco me -76 -1 01 -53 -67 Net current transfers 30 1,191 2,867 1,978 -10 Current acco unt balance -82 -79 -393 -363 Financing items (net) .. .. .. .. Changes in net reserves 12 -20 -87 -29 -20 M emo : Reserves including go ld (US$ millio ns) 14 111 193 347 Co nversio n rate (DEC, lo cal/US$ ) 0.3 3.3 3.4 4.1 E X T E R N A L D E B T a nd R E S O UR C E F LO WS 19 9 6 2006 2008 2009 (US$ millio ns) To tal debt o utstanding and disbursed 881 1,201 2,223 2,335 IB RD 0 0 0 0 95 IDA 30 339 396 427 38 To tal debt service 209 257 198 184 339 IB RD 0 0 0 0 IDA 0 4 5 6 Co mpo sitio n o f net reso urce flo ws 347 Official grants 0 82 101 81 Official credito rs -97 22 369 413 44 P rivate credito rs -2 0 -3 -3 Fo reign direct investment (net inflo ws) 18 66 300 54 P o rtfo lio equity (net inflo ws) 0 0 0 0 291 Wo rld B ank pro gram Co mmitments 56 35 30 20 Disbursements 30 16 9 10 A - IBRD E - Bilateral P rincipal repayments 0 1 2 3 B - IDA D - Other multilateral F - Private C - IMF G - Short-term Net flo ws 30 15 7 7 Interest payments 0 3 3 3 Net transfers 102 361 836 478 No te: This table was pro duced fro m the Develo pment Eco no mics LDB database. 4/2/10 125 Millennium Development Goals Tajikistan With selected targets to achieve between 1990 and 2015 (estimate closest to date shown, +/- 2 years) Tajikistan Goal 1: halve the rates for extreme poverty and malnutrition 1990 1995 2000 2007 Poverty headcount ratio at $1.25 a day (PPP, % of population) .. .. .. .. Poverty headcount ratio at national poverty line (% of population) .. .. 74.9 .. Share of income or consumption to the poorest qunitile (%) .. .. 8.1 7.8 Prevalence of malnutrition (% of children under 5) .. .. .. .. Goal 2: ensure that children are able to complete primary schooling Primary school enrollment (net, %) 77 .. 96 97 Primary completion rate (% of relevant age group) .. 99 95 106 Secondary school enrollment (gross, %) 102 .. 74 83 Youth literacy rate (% of people ages 15-24) 100 .. 100 .. Goal 3: eliminate gender disparity in education and empower women Ratio of girls to boys in primary and secondary education (%) .. .. 89 88 Women employed in the nonagricultural sector (% of nonagricultural employment) 40 44 .. .. Proportion of seats held by women in national parliament (%) .. 3 3 18 Goal 4: reduce under-5 mortality by two-thirds Under-5 mortality rate (per 1,000) 115 114 93 68 Infant mortality rate (per 1,000 live births) 91 90 75 56 Measles immunization (proportion of one-year olds immunized, %) 68 70 87 87 Goal 5: reduce maternal mortality by three-fourths Maternal mortality ratio (modeled estimate, per 100,000 live births) .. .. .. 170 Births attended by skilled health staff (% of total) .. 79 71 83 Contraceptive prevalence (% of women ages 15-49) .. .. 34 38 Goal 6: halt and begin to reverse the spread of HIV/AIDS and other major diseases Prevalence of HIV (% of population ages 15-49) .. .. 0.1 0.3 Incidence of tuberculosis (per 100,000 people) 112 65 117 204 Tuberculosis cases detected under DOTS (%) .. .. 2 33 Goal 7: halve the proportion of people without sustainable access to basic needs Access to an improved water source (% of population) .. 56 59 67 Access to improved sanitation facilities (% of population) .. 83 86 92 Forest area (% of total land area) 2.9 .. 2.9 2.9 Nationally protected areas (% of total land area) .. .. .. 18.6 CO2 emissions (metric tons per capita) 4.4 0.9 0.6 0.8 GDP per unit of energy use (constant 2005 PPP $ per kg of oil equivalent) 2.9 1.9 2.2 2.8 Goal 8: develop a global partnership for development Telephone mainlines (per 100 people) 4.5 4.6 3.5 4.3 Mobile phone subscribers (per 100 people) 0.0 0.0 0.0 4.0 Internet users (per 100 people) 0.0 .. 0.0 0.3 Personal computers (per 100 people) .. .. .. 1.3 125 100 10 100 75 75 50 50 5 25 25 0 2000 2002 2004 2006 0 0 1990 1995 2000 2006 2000 2002 2004 2006 Primary net enrollment ratio Ratio of girls to boys in primary & secondary Tajikistan Europe & Central Asia Fixed + mobile subscribers Internet users education Note: Figures in italics are for years other than those specified. .. indicates data are not available. 9/24/08 Development Economics, Development Data Group (DECDG). 126 Table B2: Selected Indicators* of Bank Portfolio Performance and Management As of 03/31/2010 Indicator 2007 2008 2009 2010 Portfolio Assessment Number of Projects Under Implementation a 14 15 15 17 Average Implementation Period (years) b 2.8 3.1 4.1 4.4 Percent of Problem Projects by Number a, c 0.0 13.3 13.3 0.0 Percent of Problem Projects by Amount a, c 0.0 18.7 14.0 0.0 Percent of Projects at Risk by Number a, d 7.1 20.0 26.7 15.0 Percent of Projects at Risk by Amount a, d 5.6 21.7 30.0 28.5 Disbursement Ratio (%) e 19.5 19.8 42.5 29.0 Portfolio Management CPPR during the year (yes/no) Supervision Resources (total US$) Average Supervision (US$/project) Memorandum Item Since FY 80 Last Five FYs Proj Eval by OED by Number 15 4 Proj Eval by OED by Amt (US$ millions) 277.1 61.3 % of OED Projects Rated U or HU by Number 26.7 25.0 % of OED Projects Rated U or HU by Amt 29.6 35.1 a. As shown in the Annual Report on Portfolio Performance (except for current FY). b. Average age of projects in the Bank's country portfolio. c. Percent of projects rated U or HU on development objectives (DO) and/or implementation progress (IP d. As defined under the Portfolio Improvement Program. e. Ratio of disbursements during the year to the undisbursed balance of the Bank's portfolio at the beginning of the year: Investment projects only. * All indicators are for projects active in the Portfolio, with the exception of Disbursement Ratio, which includes all active projects as well as projects which exited during the fiscal year. 127 Table B3: IDA Program Summary38 a Proposed IBRD/IDA Base-Case Lending Program Strategic Rewards Fiscal year Proj ID US$(M) b (H/M/L) 2010 DPO PDPG 1 25.4 Ferghana Valley Water Resource Management A 10.0 Winter Energy Emergency Support Facility 15.0 Education Modernization Additional Financing 2.0 Community and Basic Health Project - AF 3.0 Result 55.4 2011 DPO PDPG 2 10.0 Dushanbe Water Supply Additional Financing 10.0 Social Protection Technical Assistance 2.0 Result 25.0 Regional Program for Disaster Mgmt - Hydrome 2.0 DPO PDPG 3 10.0 2012-2013 CASA-1000 Regional Project 3.0 2nd Commmunity Agriculture and Watershed M 10.0 Municipal Infrastructure Development (AF) 5.0 Energy Loss Reduction 15.0 Health 10.0 Public Financial Management (APL2) 8.0 Result 61.0 141.4 Overall Result 38 Note: The program is indicative. The actual size of the projects in the pipeline will be determined in line with available resources calculated using the IDA Performance-Based Allocation system. 128 Table B3: IFC Investment Operations Program As of 2/28/2010 2005 2006 2007 2008 2009 2010* Commitments (US$m) Gross 0.67 0.18 0.00 17.10 16.20 0.99 Net** 0.67 0.18 0.00 17.10 16.20 0.99 Net Commitments by Sector (%) Finance 100 100 0 100 44 100 General Manufacturing 0 0 0 0 43 0 Infrastructure 0 0 0 0 13 0 Total 100 100 0 100 100 100 Net Commitments by Investment Instrument (%) Equity 100 100 0 0 12 44 Loan 0 0 0 100 88 56 Total 100 100 0 100 100 56 * As of February 28, 2010 ** IFC's Own Account only 129 Table B4: Summary of Non-lending Services As of 12/01/2009 Recent completions Edu. Sector Fiduciary Capacity Assessment FY07 119 Government/Bank Energy Dialogue TA FY07 185 Government/Bank Priv Sect Policy Note FY07 207 Government/Bank PPER FY07 528 Government/Bank AML/CFT Assessment Tajikistan FY07 158 Government/Bank Pension System Review FY08 259 Government/Bank Poverty Dialogue TA FY08 265 Government/Bank Prog Poverty Monitoring FY08 334 Government/Bank FSAP FY08 478 Government/Bank PPER 2 FY08 77 Government/Bank Health IFA FY08 92 Government/Bank Public Sector Pay Reform FY08 N/A Government/Bank Financial Sector Policy Dialogue TA FY08 68 Government/Bank PSD Policy Dialogue TA FY08 108 Government/Bank Education IFA FY09 57 Government/Bank Rosc Follow-Up Ta - Tj FY09 35 Government/Bank Multi-Sector Constraints Assessment FY09 139 Government/Bank FSAP Follow-up FY09 55 Government/Bank PSD Dialogue TA FY09 48 Government/Bank Poverty Assessment FY09 185 Government/Bank/Donor/Pu WSS strategy TA FY09 43 Government/Bank/Donor/Pu Women'S Access to Land and Fin Markets FY10 194 Government/Bank/Donor/Pu Capacity Bldg. in Use Of Geospatial Tool TA FY10 174 Government/Bank Health RBF feasibility Study FY10 50 Government/Bank Underway Post-FSAP Reforms and Strategy TA FY10 272 Government/Bank Prog. Country Economic Memorandum FY10 443 Government/Bank Growth Diagnostics FY10 36 Government/Bank READ - SPN TA FY10 30 Government/Bank HNP Statistics and Indicators FY10 5 Government/Bank FSAP Follow-up TA FY10 33 Government/Bank PSD Dialogue TA FY10 1 Government/Bank Social Assistance Reform & Pov Dialogue FY10 20 Government/Bank Energy Sector Policy Note FY10 0 Government/Bank ROSC Follow-up TA FY10 0 Government/Bank Tajikistan IGR FY10 0 Government/Bank ____________________ a. Government, donor, Bank, public Dissemination b. Knowledge generation, public debate, problem-solving 130 Table B5: Tajikistan Social Indicators Latest single year Same region/income group Europe & Central Low- 1980-85 1990-95 2002-08 Asia income POPULATION Total population, mid-year (millions) 4.6 5.8 6.8 441.3 972.8 Growth rate (% annual average for period) 2.9 1.7 1.3 0.1 2.1 Urban population (% of population) 33.2 28.9 26.5 63.7 28.7 Total fertility rate (births per woman) 5.5 4.5 3.5 1.7 4.0 POVERTY (% of population) National headcount index .. .. 44.4 .. .. Urban headcount index .. .. .. .. .. Rural headcount index .. .. .. .. .. INCOME GNI per capita (US$) .. 200 600 7,418 524 Consumer price index (2000=100) .. .. 311 133 132 Food price index (2000=100) .. .. .. .. .. INCOME/CONSUMPTION DISTRIBUTION Gini index .. .. 33.6 .. .. Lowest quintile (% of income or consumption) .. .. 7.7 .. .. Highest quintile (% of income or consumption) .. .. 41.4 .. .. SOCIAL INDICATORS Public expenditure Health (% of GDP) .. .. 1.1 3.6 2.2 Education (% of GDP) 8.5 2.2 3.7 4.1 3.6 Net primary school enrollment rate (% of age group) Total .. 77 98 92 78 Male .. 78 99 93 79 Female .. 76 95 91 76 Access to an improved water source (% of population) Total .. 56 67 95 67 Urban .. 91 93 99 86 Rural .. 42 58 88 60 Immunization rate (% of children ages 12-23 months) Measles .. 70 85 97 78 DPT .. 80 86 96 80 Child malnutrition (% under 5 years) .. .. 15 .. 28 Life expectancy at birth (years) Total 63 63 67 70 59 Male 61 59 64 65 57 Female 66 67 70 74 60 Mortality Infant (per 1,000 live births) 95 89 57 21 78 Under 5 (per 1,000) 122 114 67 23 120 Adult (15-59) Male (per 1,000 population) 190 168 211 304 302 Female (per 1,000 population) 129 106 139 125 258 Maternal (modeled, per 100,000 live births) .. .. 170 45 790 Births attended by skilled health staff (%) .. .. 83 95 43 Note: 0 or 0.0 means zero or less than half the unit shown. Net enrollment rate: break in series between 1997 and 1998 due to 131 ages 12-23 months who received vaccinations before one change from ISCED76 to ISCED97. Immunization: refers to children year of age or at any time before the survey. World Development Indicators database, World Bank - 15 September 2009. Table B6: Tajikistan - Key Economic Indicators Actual Estimate Projection Indicator 2006 2007 2008 2009 2010 2011 2012 2013 National accounts (as % of GDP) Gross domestic product 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Agriculture 24.8 22.4 24.7 22.4 21.5 20.3 19.2 18.1 Industry 27.4 27.2 26.9 23.7 22.2 20.6 19.2 17.9 Services 47.8 50.4 48.4 53.9 56.3 59.0 61.6 64.0 T otal Consumption 97.2 108.6 124.6 106.8 104.3 104.1 100.0 95.7 Gross domestic fixed investment 12.8 22.0 20.5 14.3 14.4 16.7 16.5 16.2 Exports (GNFS)b 23.3 20.7 16.8 16.4 15.9 16.0 16.4 16.3 Imports (GNFS) 57.5 68.8 72.1 56.7 56.9 56.6 57.0 56.7 Gross domestic savings -21.7 8.9 9.0 6.5 5.3 6.2 6.1 6.0 Gross national savingsc 17.1 14.3 13.6 11.5 11.4 13.0 11.9 9.9 Mem orandum items Gross domestic product (US$ million at current prices) 2811 3712 5134 4982 5499 6086 6665 7398 GDP per capita (US$) 398 514 696 661 714 773 829 900 Real annual growth rates (%, calculated from 2000 prices) Gross domestic product at market prices 7.0 7.8 7.9 3.4 4.0 5.0 5.0 5.0 Gross Domestic Income -17.9 -2.0 -20.0 15.5 -3.6 3.7 5.7 3.7 Real annual per capita growth rates (%, calculated from 2000 prices) Gross domestic product at market prices 4.8 5.5 5.6 1.2 1.8 2.7 2.7 2.7 T otal consumption 3.2 2.9 2.6 2.4 2.2 2.0 1.8 1.7 Private consumption 4.5 2.4 2.9 2.6 2.4 2.2 2.0 1.8 Balance of Payments (US$ millions) Exports (GNFS)b 656.3 766.9 864.9 817.7 877.1 973.3 1096 1204 Merchandise FOB 349.5 385.2 457.4 458.0 468.3 533.1 627.7 694.9 Imports (GNFS)b 1618 2555 3703 2825 3130 3445 3801 4196 Merchandise FOB 1336 2058 3179 2387 2655 2936 3263 3578 Resource balance -961.4 -1788 -2838 -2008 -2253 -2472 -2706 -2992 Net current transfers 1191.0 1911 2867 1978 2165 2311 2508 2731 Current account balance -78.7 -318.3 -392.8 -362.5 -437.2 -530.6 -608.2 -688.5 Net private foreign direct investment 65.9 160.0 300.0 35.0 90.0 110.0 210.0 320.0 Long-term loans (net) 71.7 308.3 352.1 241.3 271.9 284.6 284.9 277.8 Official .. .. .. .. .. .. .. .. Private .. .. .. .. .. .. .. .. Other capital (net, incl. errors & ommissions) -165.2 -185.9 -141.0 90.0 25.0 4.0 -2.0 -1.0 Change in reservesd -20.3 4.7 -86.9 -29.4 -65.0 -70.4 -69.9 -99.9 Mem orandum items Resource balance (% of GDP) -34.2 -48.2 -55.3 -40.3 -41.0 -40.6 -40.6 -40.4 Real annual growth rates ( YR97 prices) Merchandise exports (FOB) 12.7 2.3 -0.6 -9.2 6.6 7.3 13.4 8.1 Primary 9.5 1.1 2.2 -11.2 9.6 7.3 13.9 8.3 Manufactures 53.8 14.0 -23.1 12.7 -18.7 7.3 6.8 6.4 Merchandise imports (CIF) 5.8 18.4 15.6 -9.2 0.0 2.3 1.6 16.6 (Continued) 132 Tajikistan - Key Economic Indicators (Continued) Actual Estimate Projection Indicator 2006 2007 2008 2009 2010 2011 2012 2013 Public finance (as % of GDP at market prices)e Current revenues 18.9 20.5 20.5 22.3 22.7 23.8 22.8 22.4 Current expenditures 15.0 13.6 12.6 15.9 16.7 16.6 16.7 16.8 Current account surplus (+) or deficit (-) 3.9 6.9 7.9 6.3 6.0 7.2 6.1 5.6 Capital expenditure (including externally financed 6.8 15.0 14.5 15.2 13.1 12.1 11.4 10.8 PIP) Foreign financing 1.6 7.4 6.5 4.2 4.6 3.7 3.2 2.8 Overall Public Sector Balance (incl. externally 1.7 -6.1 -5.5 -5.4 -5.9 -4.7 -3.6 -4.5 financed PIP) Monetary indicators M2/GDP (average M2-to-GDP) 3.6 10.0 9.7 8.4 8.3 7.7 7.2 6.8 Growth of M2 (%) 26.2 80.0 5.7 35.6 22.1 19.3 17.1 17.1 Private sector credit growth / 79.8 56.0 19.2 0.7 19.8 -2.5 6.4 6.0 total credit growth (%) 26.2 80.0 5.7 34.4 15.8 -1.9 12.1 10.8 Price indices ( 2000 =100) Merchandise export price index 21.6 23.3 27.8 30.7 29.4 31.2 32.4 33.2 Merchandise import price index 85.4 111.1 148.4 122.7 136.5 147.5 161.4 151.7 Merchandise terms of trade index 25.3 21.0 18.7 25.0 21.5 21.1 20.1 21.9 Real exchange rate (US$/LCU)f -0.1 -0.2 -0.1 0.0 0.0 0.0 0.0 0.0 Real interest rates Consumer price index (% change) 10.0 13.2 20.4 6.5 7.0 8.3 6.7 5.5 GDP deflator (% change) 20.3 27.9 27.7 13.3 15.0 13.5 12.0 11.0 a. GDP at factor cost b. "GNFS" denotes "goods and nonfactor services." c. Includes net unrequited transfers excluding official capital grants. d. Includes use of IMF resources. e. Consolidated central government. f. "LCU" denotes "local currency units." An increase in US$/LCU denotes appreciation. 133 Table B7 - Key Exposure Indicators Actual Estimate Projection Indicator 2006 2007 2008 2009 2010 2011 2012 2013 Total debt outstanding and 1200.5 1525.8 2223.3 2335.1 2673.6 2795.2 3115.4 3386.7 disbursed (TDO) (US$m)a Net disbursements (US$m)a -52.8 274.6 355.7 406.7 232.1 100.9 116.9 135.7 Total debt service (TDS, US$m)a 257.4 145.1 197.9 184.3 172.3 183.7 208.6 211.7 Debt and debt service indicators (%) TDO/XGSb 182.9 198.9 257.1 285.6 304.8 287.2 284.3 281.2 TDO/GDP 42.7 41.1 43.3 46.9 48.6 45.9 46.7 45.8 TDS/XGS 39.2 18.9 22.9 22.5 19.6 18.9 19.0 17.6 Concessional/TDO 65.9 68.9 60.5 66.3 70.5 73.0 73.0 73.0 IBRD exposure indicators (%) IBRD DS/public DS - - - - - - - - Preferred creditor DS/public DS (%)c 58.4 14.0 35.9 31.4 24.7 28.8 36.3 39.0 IBRD DS/XGS - - - - - - - - IBRD TDO (US$m)d - - - - - - - - Of which present value of guarantees (US$m) Share of IBRD portfolio (%) - - - - - - - - IDA TDO (US$m)d 339.0 360.5 396.4 427.5 558.5 489.5 520.5 551.5 IFC (US$m) Loans - - - - - - - - Equity and quasi-equity /c - - - - - - - - MIGA MIGA guarantees (US$m) - - - - - - - - a. Includes public and publicly guaranteed debt, private nonguaranteed, use of IM F credits and net short- term capital. b. “XGS” denotes exports of goods and services, including workers’ remittances. c. Preferred creditors are IDA, ADB, the IM F, IDB and EU d. Includes present value of guarantees. e. Includes equity and quasi-equity types of both loan and equity instruments. 134 Table B8: Statements of IFC’s Held and Disbursed Portfolio Tajikistan Committed and O utstanding Portfolio As of February 28, 2010 (in US$ millions) Committed O utstanding Commitment Institution LN ET QL + QE GT ALL ALL LN ET QL + QE GT ALL ALL Fiscal Year Short Name IFC IFC IFC IFC IFC Part IFC IFC IFC IFC IFC Part 2008/ 2009/ 2010 Eskhata Bank 5.30 - - 0.18 5.48 - - - - 0.18 0.18 - 2005/ 2006/ 2008 FMBT 3.00 1.26 - - 4.26 - 3.00 0.82 - - 3.82 - 2003 Giavoni - 0.41 - - 0.41 - - 0.41 - - 0.41 - 2003 Pamir Energy 0.00 0.00 - - 0.00 - 0.00 0.00 - - 0.00 - 2002/ 2004 SEF FOM 0.42 - - - 0.42 - 0.42 - - - 0.42 - 2002/ 2008 SEF TSB 1.25 - - - 1.25 - 1.25 - - - 1.25 - 2008 SEF IMON 2.50 - - - 2.50 - 2.50 - - - 2.50 - 2009 Stucky LakeSarez - - 2.00 - 2.00 - - - - - - - 2009 TPS (T) 7.00 - - - 7.00 - 3.50 - - - 3.50 - 2009 Tajik Access - 1.98 - - 1.98 - - - - - - - Total Portfolio 19.47 3.65 2.00 0.18 25.30 - 10.67 1.23 - 0.18 12.08 - 135 Table B8: Operational Portfolio (IDA and Grants) As of 03/31/2010 Closed Projects 19 IDA T otal disbursed (active) of which has been repaid T otal disbursed closed) of which has been repaid T otal disbursed (active+closed) T otal undisbursed (active) T otal undisbursed (closed) T otal undisbursed (active+closed) Active Proje cts Diffe re nc Last PSR Expe cte d Supe rvisi on Rati ng Disburs Imple m e nt De ve l opm e nt Proje ct ID Proje ct Name ation Fiscal Ye ar IDA GRANT C ance l. Undi sb. O rig. O bje ctive s Progre ss Proj ID (SPN) Latest DO IDA Latest IPApproval FY Grants Cancel. Undisb. Orig. P069055 EDUC M OD S S 2003 20 2.8 P101425 EFA - TJ FTI CF S S 2006 9.2 0.6 P078978 COM M & BASIC HEALTH S HS 2006 15 4.4 P081159 COM M TY AGRIC & WATERSHED M GM T (GE S S 2004 4.5 4.5 0.0 P100451 AVIAN FLU - TJ S S 2006 5 1.0 P077454 COM M TY AGRIC & WATERSHED M GM T S S 2004 10.8 1.5 P084035 FERGHANA VALLEY WATER RES S S 2006 13 3.4 P089566 LAND REGIS & CADASTRE MS MS 2005 10 4.6 P098889 COTTON SEC RECOV MS MS 2007 15 13.6 P115953 ADDL FIN FOOD SECURITY & SEED & IM POR # # 2010 6.25 6.3 P110555 ENERGY EM ERGENCY S S 2008 6.5 2.7 P075256 PAM IR PRIV POWER S MS 2002 12.5 1.5 P089244 ENERGY LOSS REDUCTION S S 2005 18 5.2 P079027 M UNI INFRA MS MS 2006 15 3.9 P057883 DUSHANBE WS MS MS 2002 22 3.3 P098410 TAJSTAT S S 2006 1 0.0 P099840 PFM M odernization Project MS MS 2009 5 4.5 5.0 P096861 PUBLIC SECTOR REFORM TA S S 2007 5 2.1 193.75 62.0 136 Table B9: Tajikistan Active Trust Fund Operations TF OPERATION DESCRIPTION GRANT AMOUNT, US$ TAJIKISTAN PAMIR PRIVATE POWER PROJECT 5,000,000 GEF FSP-TAJIKISTAN:COMMUNITY AGRICULTURE AND WATERSHED MANAGEMENT PROJECT 4,500,000 EFA FTI EDUCATION PROGRAM DEVELOPMENT FUND-EUROPE/CENTRAL ASIA 1,060,000 SIDA GRANT:TAJIKISTAN COMMUNITY AND BASIC HEALTH PROJECT 6,113,934 TAJIKISTAN-EDUCATION FOR ALL-FAST TRACK INITIATIVE (EFA-FTI) CATALYTIC TRUST FUND 18,400,000 TAJIKISTAN AVIAN INFLUENZA CONTROL AND HUMAN PANDEMIC PREPAREDNESS AND RESPONSE PROJECT 1,500,000 SWISS TRUST FUND: COMMUNITY & BASIC HEALTH PROJECT 1,176,000 TAJIKISTAN YOUTH SOCIAL AND ECONOMIC OPPORTUNITY GRANT 2,102,540 REPUBLIC OF TAJIKISTAN: IDF GRANT FOR TAX SERVICE CAPACITY STRENGTHENING PROJECT 496,000 REPUBLIC OF TAJIKISTAN: IDF GRANT FOR PRIVATE SECTOR DEVELOPMENT PROJECT 493,000 TJ - EMERGENCY FOOD SECURITY AND SEED IMPORTS PROJECT 5,000,000 COMMUNITY AND BASIC HEALTH - STRENGTHENING PRIMARY HEALTH CARE 4,000,000 PHRD - TAJIKISTAN: PUBLIC FINANCIAL MANAGEMENT MODERNIZATION PROJECT 971,821 POST-FSAP FINANCIAL SECTOR LEGAL AND REGULATORY REFORMS AND STRATEGY DEVELOPMENT 598,950 TJ EPDF - MONITORING EVALUATION & KNOWLEDGE SHARING 168,000 TJ EPDF - CAPACITY DEVELOPMENT 80,400 TJ EPDF - EDUCATION SECTOR PLAN DEVELOPMENT 96,000 MIGRATION: CHALLENGES AND OPPORTUNITIES IN ECA 125,000 TAJIKISTAN: STUDY TOUR TO LAOS ON HYDRO-POWER DEVELOPMENT 100,000 TAJIKISTAN - FTI CF - SPN BUDGET 151,184 TAJIKISTAN READ 280,000 TAJIKISTAN - PRIMARY HEALTH CARE AND IMMUNIZATION 106,100 Tajikistan - Seed Grant 50,000 Tajikistan: Preparation of Persistent Organic Pollutant Pesticide Elimination, Mitigation and Site Management Project 200,000 The impact of financial crisis on household welfare, poverty and food security of women and children in Tajikistan 190,000 Tajikistan HNP Statistics and Indicators 76,000 Tajikistan Additional Financing to Emergency Food Security and Seed Imports Project (P115953) 6,250,000 Tajikistan - Af EFSSIP Bank-executed supervision in FY10 110,000 Community Development of Improved Access to Quality Seed Program 850,000 Tajikistan - Fast Track Initiative Catalytic Fund Project - 3 13,500,000 MDTF - Public Financial Management Modernization Project (H463-TJ) 4,697,886 TA - Role of government in improving agriculture sector development and food security in rural areas 500,000 Swiss Cofinancing under ELRP for Energy Entities 4,017,974 WBI-PHRD BUILDING CAPACITY OF THE SCISPM TO IMPROVE THE INVESTMENT CLIMATE IN TAJIKISTAN 45,000 STRENGTHENING THE NATIONAL STATISTICAL SYSTEM OF TAJIKISTAN 3,938,963 TOTAL 87,050,851 137  68°E 70°E Rayons KAZAKHSTAN 1 2 Tursunzoda Shahrinav 20 21 Murghob Nosir Khusrav 39 Kulob 40 Baljuvon 41 Moskva TAJ IK ISTAN 3 Rudaki 22 Shahrituz 42 Shurobod SELECTED CITIES AND TOWNS 4 Hissor 23 Qabodiyon 43 Khovaling AUTONOMOUS OBLAST CENTER* 5 Varzob 24 Jilikul 44 Muminobod 6 Fayzobod 25 Khuroson 45 Pandjakent OBLAST CENTERS To 7 Vahdat 26 Qumsangir 46 Ayni Tashkent NATIONAL CAPITAL TAJIKISTAN 8 Roghun 27 Bokhtar 47 Shahriston 9 Nurobod 28 Kolkhozobod 48 Zafarobod MAIN ROADS To 57 Andijon 10 Rasht 29 Jomi 49 Istaravshan RAILROADS Fergana 11 Tojikobod 30 Vakshs 50 Ghonchi To Valley Dary UZBEKISTAN JAMOAT (SUB-DISTRICT) BOUNDARIES a 12 Tavildara 31 Yovon 51 Spitamen Tashkent Taboshar r 52 Sy To 13 Jirgatol 32 Sarband 52 Matchin Andijon RAYON (DISTRICT) BOUNDARIES 55 14 Darvoz 33 Panj 53 Jabor Rasulob Kayrakkum 15 Vanj 34 Danghara 54 Kuhistoni Mastchoh AUTONOMOUS OBLAST BOUNDARY* Khodjand Reservoir Konibodom 16 Ishkoshim 35 Farkhor 55 Ghafurov Chkolovsk 56 OBLAST BOUNDARIES 17 Roshtqala 36 Norak 56 Konibodom To 48 51 53 58 18 Rushon 37 Vose 57 Asht INTERNATIONAL BOUNDARIES 40°N Bukhoro 49 19 Shughnon 38 Sovet Isfara 58 °N 40 Ura- To * Area with no oblast-level administrative divisions, SOGD Tyube Kyzyl-Kiya 72°E where rayons are under direct republic jurisdiction. To REGION 50 KY RGY Z REP. Bukhoro 47 74°E To To Sary-Tash Osh 0 20 40 60 80 Kilometers an Pendzhikent Zeravsh Ayni 54 45 ge 46 i- Ran Jirgatal' 13 Pik Lenin 0 20 40 60 Miles Ala (7134 m ) 10 Tr ans Rasht Pik Imeni Lake 11 Ismail Samani Karakul' (7495 m ) Komsomolabad 5 7 9 12 Region under 4 8 direct Republic Obigarm GHORNO- 1 DUSHANBE 14 subordination 2 6 BADAKHSHAN Rangkul' 40 Kalaikhum Pik Revolution Nurek 43 Vanj 15 (6,974 m) A.O. CHI N A UZ B E K IS TAN 36 P ng Rukhch 20 3 a ta Murgab Murgab r 31 m Ba j Pan 44 25 38 i Lake Sarezskoye 38°N 38°N 34 18 r 29 Kulyab 39 s 32 42 Ak 27 Kurgan- 37 su To Tyube Alichur Qarshi 41 24 30 Moskovskiy 22 19 Garavuti 35 Pamir 28 Khorog 23 KHATLON Shahrtuz 26 33 REGION h Pyanj Vakhs 21 Andarob Pik Karl Marx (6723 m ) 17 Vrang nj To Pa Baghlan 16 Ishkashim IBRD 33493R AF GHA NISTA N This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information MAY 2007 PAKISTAN shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any 68°E 70°E 72°E endorsement or acceptance of such boundaries.