Document of The World Bank FOR OFFICIAL USE ONLY Report No. 89551-DO INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL FINANCE CORPORATION AND MULTILATERAL INVESTMENT GUARANTEE AGENCY COUNTRY PARTNERSHIP STRATEGY FOR THE DOMINICAN REPUBLIC FOR THE PERIOD FY15-FY18 September 3, 2014 The World Bank, Caribbean Country Management Unit, Latin America and Caribbean Region, World Bank The International Finance Corporation, Caribbean Region Unit, Latin America and Caribbean Region, World Bank The Multilateral Investment Guarantee Agency This document is being made available prior to Board consideration. This does not imply a presumed outcome. This document may be updated following Board consideration and the updated document will be made publicly available in accordance with the Bank’s policy on Access to Information. CURRENCY EQUIVALENTS (Exchange rate effective as of 1st September, 2014) Currency Unit = Dominican Peso US$1.00 = DOP43.68 FISCAL YEAR January 1 – December 31 IBRD IFC MIGA Vice President Jorge Familiar Jean Philippe Prosper Michel Wormser Country Director Sophie Sirtaine Irene Arias Ravi Vish Task Team Leader McDonald Benjamin, Ary Naïm Petal Jean Hackett Caroline Vagneron ii ABBREVIATIONS AND ACRONYMS ADESS Administradora de Subsidios Sociales IPAC Iniciativa Participativa Anti- (Social Subsidy Administrator) Corrupción (Participatory Anti- ATM Automated Teller Machine Corruption Initiative) CCRIF Caribbean Catastrophic Risk Insurance IPSAS International Public Sector Accounting Facility Standards CCT Conditional Cash Transfer IWRM Integrated Water Resources CGF Caribbean Growth Forum Management CPS Country Partnership Strategy KPI Key Performance Indicator CPS-CR Country Partnership Strategy LCR Latin America and the Caribbean Completion Report Region M&E Monitoring and Evaluation CRI Cost Recovery Index MDG Millennium Development Goal DR Dominican Republic MEPYD Ministerio de Economía, Planificación y DRM Disaster Risk Management Desarrollo (Ministry of Economy, END Estrategia Nacional de Desarrollo Planning and Development) (National Development Strategy) MWh Megawatt hours ENFT Encuesta Nacional de la Fuerza de OECD Organization for Economic Cooperation Trabajo (National Labour Force and Development Survey) OPTIC Oficina Presidencial de Tecnologías de ENIGH Encuesta Nacional de Ingresos y Gastos la Información y Comunicación de los Hogares (National Household (Presidential Office for ICT) Income and Expenditure Survey) PDO Project Development Objective EPZ Export Processing Zone PEFA Public Expenditure and Financial EU European Union Accountability FDI Foreign Direct Investment PEMFAR Public Expenditure Management and FHH Female-headed households Financial Accountability Report FY Fiscal Year PPP Purchasing Power Parity GDP Gross Domestic Product SERCE Segundo Estudio Regional Comparativo GNI Gross National Income y Explicativo (Second Regional GODR Government of the Dominican Republic Comparative and Explanatory Study) HFO Heavy Fuel Oil SIGEF Sistema Integrado de Gestión HIV/AIDS Human Immunodeficiency Virus / Financiera (Integrated Financial Acquired Immunodeficiency Syndrome Management System) HOI Human Opportunity Index SIUBEN Sistema Único de Beneficiarios (Single ICT Information and Communications Beneficiary Selection System) Technology SME Small and Medium Scale Enterprise IDB Inter-American Development Bank UMIC Upper Middle Income Country IDEC Iniciativa Dominicana para una UNDP United Nations Development Educación de Calidad (Dominican Programme Initiative for Quality Education) UNICEF United Nations Children’s Fund IFC International Finance Corporation USAID United States Agency for International IGR Institutional and Governance Review Development IMF International Monetary Fund WBI World Bank Institute INAPA Instituto Nacional de Aguas Potables y WDI World Development Indicators Alcantarillados (National Institute for WHO World Health Organization Potable Water and Sanitation) WSS Water Supply and Sanitation iii ACKNOWLEDGEMENTS This Country Partnership Strategy (CPS) was a team effort led by McDonald Benjamin (LCCDO), Caroline Vagneron (LCC3C), Ary Naïm (CLADH), and Petal Jean Hackett (MIGEC) under the general guidance of Sophie Sirtaine (Country Director, LCC3C), Irene Arias (Director, CLADR) and Ravi Vish (Director, MIGES). The CPS Core Team included: Laura Abreu (LCCDO), Horacio Alvarez (Consultant), Oscar Apodaca (LCC3C), Marina Diagou (CLADH), Maria Hermann (LCCDO), Miguel Sanchez (GMFDR), Galina Sotirova (LCC3C) and Davide Zucchini (GGODR). In addition, the following colleagues have made important contributions to the strategy: Fredemir Abel (BPSGR); Catherine Abreu (GGODR), Javier Aguilar (GEEDR), Oscar Alvarado (GWADR), Diego Arias (GAGDR), Javier Baez (GPVDR), Juan Barón (GEDDR), Sarah Berger (GSPDR), Laura Berman (GEEDR), Lisa Bhansali (GGODR), Dan Biller (MIGES), Carter Brandon (GENDR), Francisco Carneiro (LCC3C), Marc Carré (CROCR), Carine Clert (GSPDR), Françoise Clottes (SACSL), Louise Cord (GPVDR), Ruben de la Cruz (LCCDO), Alejandra de la Paz (LCREC), Augusto de la Torre (LCRCE), Diana De Leon (LCCDO), Calvin Djiofack (GMFDR), Anna Fruttero (GPVDR), Alan Fuchs (GPVDR), Safaa El Kogali (GEDDR), Doyle Gallegos (GTIDR), Andrea Gallina (GGODR), Elena Gasol (GTIDR), Sergio González (GTCDR), Peter Holland (GEDDR), Omar Jiménez (LCCDO), Alma Kanani (LCRDE), Michelle Keane (LCC8C), Sarah Keener (GURDR), Jonna Lundvall (GPVDR), Michel Matera (GURDR), Elisabeth Mekonnen (LCC3C), Juan Martín Moreno (GSPDR), Marialisa Motta (GTCDR), Pierre Nadji (LCC3C), John Nasir (OPSPQ), Christine Lao Peña (GHNDR), Elizaveta Perova (GPVDR), Leandro Pons (ITSCR), Pau Puig (GTIDR), Cristian Quijada (GTCDR), Carolina Rendón (GGODR), David Reinstein (GEEDR), Virginia Ricart (LCCDO), Christine Richaud (GMFDR), Maritza Rodriguez (GGODR), Salem Rohana (CLAAR), Frank Sader (CLASC), Roby Senderowitsch (GGODR), Raju Singh (LCC8C), Lucía Solbes (GSPDR), María Angélica Sotomayor (GURDR), Remi Trier (GAGDR), Rafael Van der Borght (GURDR), Thomas Vis (GTCDR), Eduardo Wallentin (CLASC) and Jun Zhang (CLADH). The World Bank Group appreciates the collaboration and contributions of the Government of the Dominican Republic, civil society, international development partners, the private sector, and other stakeholders in the preparation of this Country Partnership Strategy and in particular María del Carmen Tomé, the NGO Progressio and the Dominican Studies Institute of the City University of New York, who facilitated the CPS consultations in the DR and New York. iv TABLE OF CONTENTS ABBREVIATIONS AND ACRONYMS ...........................................................................................iii ACKNOWLEDGEMENTS ............................................................................................................... iv TABLE OF CONTENTS .................................................................................................................... v EXECUTIVE SUMMARY ............................................................................................................... vii COUNTRY DIAGNOSTIC................................................................................................................. 1 I. Growth, Poverty and Shared Prosperity ...................................................................................... 1 II. Challenges to a More Sustainable and Equitable Growth............................................................. 5 GOVERNMENT VISION ................................................................................................................. 17 WORLD BANK GROUP COUNTRY PARTNERSHIP STRATEGY ........................................ 18 I. Lessons Learned from the Previous CPS .................................................................................. 18 II. Consultations .......................................................................................................................... 18 III. Country Engagement Model ................................................................................................ 18 IV. Proposed World Bank Group Country Partnership Strategy ................................................... 22 FINANCIAL PORTFOLIO AND EXPOSURE MANAGEMENT .............................................. 28 MANAGING RISKS ......................................................................................................................... 30 ANNEXES Annex 1. Results Matrix ............................................................................................................................. 32 Annex 2. Dominican Republic at a Glance ................................................................................................. 34 Annex 3. Selected Indicators of WBG Portfolio Performance Management ............................................. 37 Annex 4. Key Exposure Indicators ............................................................................................................. 40 Annex 5. Operations Portfolio (IBRD/IDA and Grants) ............................................................................ 41 Annex 6. Statement of IFC’S Held and Disbursed Portfolio ...................................................................... 42 Annex 7. Key Economic Indicator .............................................................................................................. 43 Annex 8. Client Survey and Stakeholder Consultations ............................................................................. 45 Annex 9. Partnerships ................................................................................................................................. 49 Annex 10. The Caribbean Growth Forum (CGF) in the Dominican Republic ........................................... 50 Annex 11. Gender Note .............................................................................................................................. 52 Annex 12. Millennium Development Goals (MDGs) In the Dominican Republic .................................... 55 Annex 13. Dominican Republic: Country Partnership Strategy (CPS) Fy10-13 Completion Report ........ 56 Annex 14. Map of the Dominican Republic ............................................................................................... 98 v FIGURES Figure 1: Poverty and Inequality Trends in the DR ...................................................................................... 2 Figure 2: Income Growth of Bottom 40 percent (DR vs. LCR) ................................................................... 2 Figure 3: Contributions to GDP growth by sector, and investment share in GDP ....................................... 7 Figure 4: Productivity in Electric Utilities .................................................................................................. 10 Figure 5: Failure Rates on Standardized Education Tests .......................................................................... 15 Figure 6: Selectivity Matrix of the WBG Country Partnership Strategy .................................................... 21 Figure 7: WBG Country Partnership Strategy in the Dominican Republic ................................................ 22 Boxes Box 1: Extractive Industries in the Dominican Republic.............................................................................. 6 TABLES Table 1: Recent Macroeconomic Indicators and forecasts for the Dominican Republic .............................. 5 Table 2: Proposed Bank Financing Program for FY15-18 ......................................................................... 29 Table 3: World Bank Portfolio FY10-14 .................................................................................................... 29 vi EXECUTIVE SUMMARY i. Over the past two decades, the Dominican Republic has recorded exceptional growth (an average growth rate of 5.7 percent per year during 1991-2013) in comparison to the Latin America and Caribbean region, closing the gap with the region in terms of GNI per capita. However, despite such high growth, poverty and unemployment have remained high since the 2003 crisis. Trends in inequality and non-monetary poverty have improved but progress on shared prosperity has been slower than in the rest of the region. In addition, the DR has witnessed little upward economic mobility. Poverty is significantly higher in rural areas, although it is also increasingly becoming an urban problem. Income inequality and inequality of opportunities place women at a greater disadvantage than men. ii. Against the backdrop of a less favorable external environment and decreasing competitiveness, the Dominican Republic now faces the double challenge of sustaining growth and making it more inclusive and resilient. Based on Bank analysis, factors that limit further improvement in shared prosperity can be grouped around five categories: (i) the existence of an “enclave” economic model with insufficient job creation in key sectors (especially as the composition of the economy shifted from agriculture and industry towards the services sector); (ii) unfavorable climate for doing business, including limited access to finance, costly and unreliable electricity supply and insufficient ICT penetration (which disproportionately affects micro, small and medium sized enterprises, where most jobs are); (iii) high vulnerability to economic and climate related shocks; (iv) public finance management and fiscal challenges, limiting the ability of the state to redistribute income; (v) inequities in access to basic public and social services (in particular in sectors such as water and sanitation, education, health, and social protection). iii. The overall strategic goal of the CPS for FY15-18 is to support the Government’s efforts to sustain growth and make it more inclusive. The CPS is organized around five strategic results areas over the next four years: (i) improving the investment climate and fostering private sector development; (ii) improving access to efficient and reliable electrical distribution networks, ICT and other infrastructure; (iii) supporting the government in building resilience to external shocks; (iv) promoting equitable, efficient, transparent and sustainable management of public resources; and, (v) strengthening social service delivery. iv. The proposed CPS is informed by lessons learned from the previous Country Partnership Strategy (FY09-13) and by extensive strategic consultations. It is aligned with the World Bank Group’s (WBG) twin goals of ending extreme poverty and boosting shared prosperity and the Government’s development priorities as established in the National Development Strategy. It applies a systematic filtering process reflecting Government ownership, the WBG’s value-added, and potential impact on poverty reduction and shared prosperity, as identified in the Bank’s background analyses. In selected areas, such as the eradication of water borne diseases on the island, the WBG will endeavor to promote enhanced coordination with Haiti. In line with the new World Bank Strategy, work initiated in the Dominican Republic (DR) on citizen engagement will be actively sustained, and gender and governance considerations, which are critical for WBG engagement, will be mainstreamed in all activities. v. Finally, the CPS outlines mitigating measures to contain the substantial political, capacity, exposure, and natural disasters risks to the program. With elections coming up in the spring of 2016, political economy factors could slow down implementation of reforms. Weak vii technical capacity, budgetary constraints and complex procedures for project restructuring can also affect the implementation of WBG-supported projects. Structural domestic challenges and weaknesses on the external side pose a significant risk to the Bank’s ability to achieve results, while exposure to looming climate variability and climate-related natural disasters could also set the country back. The WBG will: (i) invest in knowledge services to support reforms and seek partnerships with champions in Government and a wide range of actors in the private sector, civil society and the donor community and seek to engage in investments that change local views about the potential for development in key areas; (ii) align its program closely with core Government priorities; (iii) support key reforms aimed at improving fiscal performance, equity outcomes associated with public spending, greater energy efficiency, and better debt management; and (iv) support enhanced DRM practices in the country, as well as apply strong DRM practices to the investments the WBG will support. In case of a major disaster, the Bank would make available emergency lending within the overall envelope by reallocating resources. viii COUNTRY DIAGNOSTIC I. Growth, Poverty and Shared Prosperity 1. The Dominican Republic has recorded exceptional growth in comparison to the Latin America and Caribbean region, closing the gap with the region over the past twenty years (Table 1). Between 1992 and 2000, the Dominican Republic (DR) grew at an average rate of 6.7 percent, thus becoming the top performer in the Latin America and Caribbean (LCR) region. Between 2001 and 2013, the DR grew at an average rate of 5.1 percent, the fourth top growth performer after Panama, Argentina and Peru. Overall, over 1991-2013, the DR grew at an average annual growth rate of 5.7 percent. This overall dynamic growth has enabled some convergence of the DR’s GNI per capita (US$5,620 in 20131) with that of the region, from 52 percent to 78 percent of the regional average during 1990-2011. While in the mid-1990s, the DR’s per capita income was only about 10 percent of that of the US, it had climbed to around 20 percent as of 2011. The country weathered the global economic slowdown of 2008-09 well, applying counter-cyclical policies including an expansion of its safety nets with donor support. However, declining domestic demand and weak performance in richer economies has contributed to slower growth since 2011 (growth fell from 7.8 percent in 2010 to 4.1 percent in 2013). 2. Despite such high growth, poverty and unemployment have remained high since the 2003-04 crisis. In the wake of the banking crisis of 2003-04, the Dominican economy decelerated abruptly and the country’s GDP that had grown by 6 percent in 2003 contracted by 0.3 percent in 2004. As a result, an estimated 1.7 million people moved into poverty, which reached 50 percent of the population in 2004 (up from 32 percent in 2000). According to national figures, while poverty rates began to fall when the economy started recovering after the crisis, they have not returned to their pre-crisis level (Figure 1)2, despite the DR’s strong economic performance. Evidence of decline in moderate poverty (from 11 percent in 2000 to 9.9 percent in 2010) and extreme poverty (from 5.2 to 2.2 percent) is also seen when using the poverty headcount ratio at $1.25 and $2 a day (PPP), respectively, which corresponds to applying lower thresholds than those normally used in LCR.3 The extended unemployment rate increased from 13.9 percent in 2000 to 18.4 percent in 2004 and declined to 14.1 percent in 2008. Since then, it has remained stable between 14 and 15 percent. 3. Trends in inequality and non-monetary poverty have improved but progress on shared prosperity has been slower than in the rest of the LCR region. The Gini coefficient has been falling slightly since 2000 (from 0.51 in 2000 to 0.48 in 2011), and multi-dimensional poverty, defined as the percentage of the population with more than three unmet basic needs, decreased from 29.5 percent in 2000 to 19.8 percent in 2011. However, the increase in the 1 GNI per capita, Atlas Method. World Development Indicators. 2 World Bank, 2014. “When Prosperity is not Shared: the Puzzle of the Weak Links between Growth and Equity in Dominican Republic”. Equity Assessment, the World Bank. 3 World Bank, World Development Indicators. Please, note that in Latin America and the Caribbean, the thresholds usually adopted for extreme and moderate poverty are $2.5 and $4 a day (PPP), respectively. Under these thresholds, the extreme and moderate poverty rates for DR in 2010 would be 16.1 percent and 35.1 percent respectively. See CEDLAS and the Economic Mobility and the Rise of the Latin American Middle Class Flagship Report of the LCR Chief Economist office, 2012. 1 proportion of people who are considered transitory poor (i.e., people with low incomes but not multi-dimensionally poor), which almost doubled from 15 to 29 percent over the same period, raises concerns about whether access to basic services translates sufficiently into higher employability and incomes. In addition, while there has been some progress in terms of shared prosperity with an increase of roughly 2.5 percent per year in the incomes of the bottom 40 percent of the population between 2003 and 2012, this is below the LCR average of 5 percent per year over the same period (Figure 2). FIGURE 1: POVERTY AND INEQUALITY TRENDS IN THE DR 60 6000 GINI index, Poverty headcount GNI per capita, real US$ 50 5000 40 4000 (% of population) 30 3000 20 2000 10 1000 0 0 2000200120022003200420052006200720082009201020112012 Moderate poverty (%, Official) Extreme poverty (%, Official) GINI index (official) GNI per capita (constant 2005 US$) Rha Source: MEPYD estimates based on ENFT, using the official poverty measurement methodology for the DR, and World Development Indicators. Note: these figures were calculated on the basis of the official poverty methodology, which defines four poverty lines: (1) urban moderate poverty (RD$3,238); (2) rural moderate poverty (RD$2,883); (3) urban extreme poverty (RD$1,458); and (4) rural extreme poverty (RD$1,397). Values are in Dominican pesos of June 2007, updated annually using the CPI. All numbers are identical to those officially published by the Poverty Committee. 4. In addition, the DR has witnessed little upward economic mobility, and opportunities are still constrained by circumstances at birth. The Human Opportunity Index (HOI) has gradually improved over time (at a FIGURE 2: INCOME GROWTH OF rate of 1 percent per year), implying that, if 25 BOTTOM 40 PERCENT (DR VS. LCR) current trends are sustained, it would take 20 almost 30 years to equalize opportunities for 15 Dominicans, longer than the average of 24 10 years for LCR. In terms of inter-generational Percent 5 income mobility, while 41.4 percent of people 0 rose to a higher economic group in the region, -5 only 1.8 percent did so in the DR. More than -10 three-quarters of the inequality in -15 opportunities is explained by area of residence -20 (26 percent), parents’ education (26 percent), family income (20 percent), and gender (15 percent), underscoring the need to improve DR LAC access to welfare services and ensure equal opportunities for all. Source: own estimates using SEDLAC data 2 5. Poverty is significantly higher in rural areas, although it is increasingly an urban problem too. Extreme poverty reached 15.5 percent in rural areas vs. 5.8 percent in urban areas in 2012 and overall poverty was 46 percent in rural areas vs. 26 percent in urban areas. However, most of the increase in poverty of the last decade has occurred in urban areas, where the number of poor has swelled by more than 1 million people since 2000. At the national level, incomes per capita are three times higher in Santo Domingo, La Romana and the Cibao valley’s Mao- Valverde provinces than in the southwest of the country and along the border with Haiti. Some 53 percent of poor households are concentrated in the southwestern regions of Del Valle and Enriquillo. 6. Income inequality and inequality of opportunities place women at a greater disadvantage than men. Gender gaps in the labor market are evidenced by participation rates (83 percent for men vs. 55 percent for women in 2011); access to employment (young women’s unemployment in 2007 was twice that of young men)4; wages (women earned 84 percent of what men earned in 2010), and by the lack of income sources for women (32 percent of women had no personal income in 2010 vs. 14 percent of men). This is in spite of the reverse situation in education where more girls than boys complete primary school5, and the female-male enrolment ratios are high at 1.13 in secondary and 1.59 in tertiary education. Women in the DR also suffer from exceptionally high maternal mortality and adolescent fertility rates6 by LCR and Upper Middle Income Country (UMIC) standards. Women also constitute 58 percent of persons aged 15 or more living with HIV in the DR (Annex 14). Furthermore, female headed households (FHH) are more likely to be poor: 52 percent of rural FHH and 48 percent of urban FHH were categorized as poor in 2010, versus 38 percent in rural areas and 30 percent in urban areas for male headed households7. By contrast, in terms of participation, the proportion of seats held by women in national parliament almost tripled from 8 percent in 1990 to 21 percent in 2011. 7. In addition to poverty and shared prosperity challenges, in recent years, the DR has also seen its competitiveness decrease. The DR ranked 105th out of 144 countries in the 2013 World Economic Forum’s Global Competitiveness Index, down from 95th out of 133 in 2010. Exports of goods and services have fallen from 37 percent of GDP in 2000 to 26 percent in 2013, primarily due to the loss of competitiveness in textiles manufacturing in Export Processing Zones (EPZs) after 2004, in the context of the end of the Multi-Fiber Agreement8. While these are gradually being replaced by more skill-intensive exports of machine parts, plastics, and medical instruments, EPZs still face a series of challenges in terms of competitiveness.9 A similar stagnation and decline in the general ease of doing business in the country since 2008-09 has been captured by the annual Doing Business reports. The reports highlight complex and expensive regulatory procedures and weak legal institutions. According to both the Doing 4 However, there has been a 10 percentage point increase in the percentage of women in non-agriculture employment from 32 percent in 1990 to 42 percent in 2011. 5 About 82 percent of women aged 15 to 19 had completed primary education by 2011, vs. 72 percent of men 6 There were 107 births per 1,000 women aged 15-19 (2010), which is 50 percent higher than the LCR average (69) and well above the average for Upper Middle Income Countries (43). 7 Source: ECLAC data. 8 The Multi Fibre Arrangement (MFA) was introduced in 1974 as a short-term measure intended to allow developed countries to adjust to imports from the developing world. It governed the world trade in textiles and garments from 1974 through January 1, 2005. 9 These are among the preliminary findings of a Trade Competitiveness Diagnostic under preparation. 3 Business indicators and the Enterprise Surveys, the DR shows regulatory complexity in terms of the number of procedures and the time and cost involved in undertaking simple business transactions such as registering property, resolving insolvency proceedings, obtaining a construction permit or starting a business, all above the regional average. According to the Global Competitiveness Index the DR ranks particularly weakly on anti-monopoly policies (123rd out of 144 countries) and on the prevalence of favoritism in decisions by government officials (ranking 144th out of 144 countries). The lack of competition has stifled innovation,10 with the DR ranking 118th out of 144 countries in 2013, which in turn has dampened demand for more skilled labor, and reduced competitiveness. 8. A less favorable external environment may also constrain future growth prospects. While stronger projected average US growth in 2014-18 will provide support to the Dominican economy, as will recovery in the euro zone, growth prospects in Latin America are generally affected by less supportive external conditions and domestic supply-side constraints. The recovery in advanced economies should generate positive trade spillovers to the region, but these are likely to be offset by lower commodity prices, tighter financial conditions, and supply bottlenecks in some countries. Growth in the Caribbean as a whole remains constrained by high debt levels and weak competitiveness. The DR’s persistent current account deficits and its large external financing needs (US$ 7.3 billion or 12.4 percent of GDP in 2014 for both the public and private sector11) could make the economy highly exposed to exogenous shocks. International reserves, at an average of 2.1 months of imports during 2009-2013, have been low by international standards, even though bond issues have raised reserves to more than 3 months of imports in 2014. The most immediate risk factors include the pace of the global recovery, which will influence the level of tourism demand and demand for Dominican exports, including commodities, and trends in oil prices, as well as Venezuela’s willingness and ability to sustain the PetroCaribe program, which will affect the DR’s financing costs.12 In addition, the DR economy is also vulnerable to a slow-down in China through minerals prices. 9. Overall, going forward, the DR faces the double challenge of sustaining growth and making it more inclusive and resilient. Despite the fact that growth in the DR has been stronger than in the LCR region as a whole over the last two decades, the country has been slipping on indicators of competitiveness, which will make it harder to sustain its growth performance, especially in the context of a less favorable regional environment. Moreover the DR has been falling behind in a number of equity dimensions. Largely as a result of the 2003- 2004 crisis, poverty rates remain higher than the regional average. The country is also underperforming LCR in terms of increasing access to quality public services, and, at the rate of improvement of the past decade, the DR would take longer to reach universal access to such services than LCR. Finally, upward mobility has also been more limited than in LCR. 10 See ‘Closing the Gap in Education and Technology’, The World Bank, 2003 11 IMF, Post Program Monitoring Discussions, August 8th, 2013. 12 For example, in the year to June 2013, West Texas oil prices rose 22 percent, even as the price of gold (a key Dominican export) fell by 18 percent. 4 II. Challenges to a More Sustainable and Equitable Growth 10. The Dominican Republic faces a number of key challenges to sustain growth and make it more inclusive and equitable. While there are various possible explanations for the DR’s situation, based on Bank analysis, factors that limit sustaining growth and further improving shared prosperity can in general be grouped around five categories13: (i) an “enclave” economic model with insufficient job creation in key sectors; (ii) an unfavorable investment climate, especially for SMEs, including limited access to finance, costly and unreliable electricity supply and insufficient ICT penetration; (iii) high vulnerability to economic and climate-related shocks; (iv) public finance management and fiscal challenges, limiting the ability of the state to redistribute income; and (v) inequities in access to basic public and social services. TABLE 1: RECENT MACROECONOMIC INDICATORS AND FORECASTS FOR THE DOMINICAN REPUBLIC 2009 2010 2011 2012 2013 2014* 2015* 2016* 2017* GDP Real GDP growth (% p.a.) 3.5 7.8 4.5 3.9 4.1 4.5 4.1 4.0 4.0 Nominal GDP ( billion RD$) 1,679 1,902 2,119 2,317 2,534 2,770 - - - Nominal GDP ( billion US$) 46.7 51.7 55.7 59.0 60.6 - - - - Prices Inflation (% eop) 5.8 6.2 7.8 3.9 3.9 4.5 4.0 4.0 4.0 Balance of Payments (% GDP) Exports of goods 11.7 13.1 15.3 15.4 15.9 16.2 16.8 16.5 16.1 Of which National exports 3.6 4.9 6.6 7.0 7.6 - - - - Of which FTZ exports 8.1 8.2 8.6 8.4 8.3 - - - - Imports of goods -26.3 -30.0 -31.3 -30.1 -27.8 -28.5 -29.7 -28.5 -27.2 Net services and transfers - 8.5 8.1 7.9 7.7 7.8 7.7 7.6 7.4 External current account balance -5.0 -8.4 -7.9 -6.8 -4.2 -4.5 -5.2 -4.4 -3.7 Foreign direct investment 4.6 3.7 4.1 5.3 4.4 3.5 3.0 3.0 3.0 Fiscal (% GDP) Central government revenues 13.5 13.6 13.4 14.0 14.7 15.2 14.6 14.6 14.5 Of which tax revenues 13.1 12.8 12.9 13.5 14.0 14.5 - - - Central government expenditure 16.8 16.1 16.1 20.6 17.6 18.0 17.7 17.8 17.2 Of which capital expenditure 3.6 3.8 3.6 6.5 3.7 3.6 - - - Interest payments 1.8 1.9 2.1 2.4 2.3 2.6 2.4 2.5 2.6 Central government fiscal -3.3 -2.5 -2.6 -6.6 -2.9 -2.8 -3.1 -3.2 -2.7 balance Consolidated public sector -4.5 -4.1 -4.5 -7.9 -5.0 -4.2 -4.5 -4.6 -4.1 balance Debt (% GDP) Consolidated public sector debt 38.0 38.9 40.2 43.5 47.6 49.5 50.6 51.5 52.1 Unemployment (%) Open unemployment /1 5.3 5.0 5.8 6.5 7.0 - - - - Adjusted unemployment /2 14.9 14.9 14.6 14.7 15.0 - - - - Source: Central Bank of Dominican Republic and IMF. * Forecasts. /1 Open unemployment applies to population 10 years old and older, who do not have employment but are able to start working immediately and have been looking for a job in the last 4 weeks. /2 Adjusted unemployment is defined as open unemployment plus population without employment that did not look for a job in the last four weeks, but are able to commence employment immediately. 13 World Bank, 2014. “When Prosperity is not Shared: the Puzzle of the Weak Links between Growth and Equity in Dominican Republic”. Equity Assessment, the World Bank and other World Bank reports 5 Enclave economic growth 11. Sectors driving economic growth recently have had limited linkages to the overall economy. Growth in the past decade has been driven by isolated ‘enclaves’ that have not generated much spill-over into the larger economy. The impressive average growth rate of 5.5 percent per year during 1991-2013 has been largely driven by services, including tourism and telecommunications, as well as export processing zones (EPZs) and mining (see Box 1). However, none of these sectors have been successful in building significant linkages with the rest of the economy, thereby limiting the permeation of welfare gains to the majority of the population. 12. Over the last two decades, the composition of the economy shifted from agriculture and industry towards the services sector. The shares of agriculture and industry in GDP declined from 13 percent and 35 percent to 9 and 29 percent respectively between 1992 and 2012, while the share of services rose from 51 percent to 62 percent over the same period. EPZs lost some steam over the past decade following the elimination of quotas that governed world trade in textiles and clothing, which resulted in a drop in employment during the first half of the past decade. In the tourism sector, arrivals have increased to 5 million per year, although the average length of stays declined by 8 percent during the past decade while daily expenditures remained unchanged. Overall, between 2000 and 2013, services contributed on average 3 percentage points each year to GDP growth (more than half of the recorded growth in the period), led by telecommunications and transportation (Figure 3). BOX 1: EXTRACTIVE INDUSTRIES IN THE DOMINICAN REPUBLIC In recent years, the Dominican Republic has experienced a significant expansion of its mining sector, particularly Pueblo Viejo project by Barrick, which has challenged the government's institutional, technical and regulatory capacity. This $4 billion investment into Pueblo Viejo is the largest single foreign investment in the history of the Dominican Republic and is expected to provide the government with $10 billion over its 25-year life. Mining accounted for 29.4 percent of all FDI inflows into the Dominican Republic between 2009 and 2013. Due in large part to Pueblo Viejo and other projects such as Falcondo (XtrataNickel), Las Lagunas (Panterra), Cerro Maimon (Perilya Ltd) and Las Mercedes, the mining industry grew by 157 percent in 2013, compared to the previous year, accounting for an estimated 6 percent of the GDP. Gold exports increased 582 percent to US$1.19bn, contributing to the rise of the sector’s share of Dominican total exports to 30.5 percent in 2013. Government estimates suggest that the mining sector has the potential to generate 15,000 to 20,000 direct jobs and 45,000 to 60,000 indirect jobs, primarily in Pueblo Viejo and Cerro Maimon. More jobs can be added if advanced exploration projects such as Neita (Unigold Inc.), El Romero (Gold Quest Mining Corp) and Pueblo Viejo Extension (Everton Resources Inc.) come to fruition. Mining in the DR continued to grow rapidly in the first two months of 2014, at an annual rate of 29.1 percent in January and February, faster than any other industry. Growth in the country's mining industry is mainly driven by the ramp-up of the Pueblo Viejo gold- silver mine, which started commercial production in January 2013. The recent expansion of mining sector has put enormous strain on the Dominican Republic’s capacity to manage and monitor the sector. The DR has expressed interest in joining the Extractive Industries Transparency Initiative (EITI) but is still not a candidate. 13. With such sector shifts, the labor market has underperformed in spite of rapid economic growth. Employment rates of close to 53 percent of the population in the DR are low compared to the LCR average (60 percent). While the “open unemployment” rate14, at around 6 percent during the 2000s, is not particularly high, a more comprehensive measure of 14 Share of those without a job who are actively seeking an occupation. 6 unemployment that includes discouraged workers (those no longer actively seeking an occupation) is much higher, at 15 percent as of October 2013 and is twice as high for Dominican youth.15 One important consequence of insufficient job creation over an extended period of time has been significant out-migration, with the Dominican diaspora swelling to over 1.5 million (or around 15 percent of the population), primarily in the United States and Spain.16 FIGURE 3: CONTRIBUTIONS TO GDP GROWTH BY SECTOR, AND INVESTMENT SHARE IN GDP 10 35 30 Contribution to growth (percentage 8 25 Investment (percent of GDP) 6 20 4 15 points) 2 10 0 5 -2 0 Agriculture National manufacturing FTZ Hotels, bars and restaurants Source: WB staff calculations based on official DR Central Bank data. 14. Fast productivity growth in key sectors brought limited employment gains and rising informality. Key sectors such as manufacturing, transportation, communication, and financial services have experienced a sharp rise in productivity, but their contribution to total employment has declined; in the case of manufacturing, it has gone from 18 percent in the early 1990s to 12 percent in 2011. By contrast, “other services”17, which included mainly low-skilled jobs and some public sector jobs, accounted for 25 percent of total employment in 2012, up from 22 percent in 2005. Commerce and tourism created almost 200,000 new jobs, while jobs were destroyed in manufacturing activities and their share in total employment decreased from 14.8 percent in 2005 to 10.4 percent in 2012. Agriculture kept a stable share of 14.5 percent of total employment over the period. Overall, informal sector jobs grew at twice the rate of formal sector jobs since 2000, reaching over 57 percent of total employment in 2012, and formal sector job creation since 2000 has been dominated by the public sector (an estimated 80 percent), with very 15 See Abdullaev, Umidjon and Marcelo Estevão (2013), Growth and Employment in the Dominican Republic: Options for a Job-Rich Growth”, IMF Working Paper WP/13/40, Washington, DC. 16 This has implications in terms of large flows of remittances that provide safety nets for Dominican families, but also of a higher reservation wage for recipients, and the social consequences of disarticulated families. 17 This category contains mainly low-skilled jobs, such as housekeeping (fastest growing segment prior to 2007), but also captures a significant share of public sector jobs, according to an analysis by the National Private Enterprise Council (CONEP): “Análisis del Mercado Laboral en la República Dominicana y Lineamientos Generales hacia su Formalización”, June 2013. 7 little formal private sector job creation (a mere 4 percent increase since 2000).18 In the 2014 Doing Business ranking, the DR ranks 144 out of 189 countries in terms of starting a business. This is largely due to a very high requirement for the minimum paid-in capital for a new business, equivalent in value to 46 percent of GDP per capita, compared to an average of 3.6 percent in the region. These constraints, in addition to limited access to finance, the lack of a simplified tax regime for SMEs, and low institutional capacity of firms, especially outside Santo Domingo, also contributed to the formation of a large informal sector, which not only represents lost fiscal revenue, but is also a source of lower quality jobs. 15. Most of the jobs created have been of low quality in low-productivity sectors.19 Real earnings started to fall at the end of the 1990s and this trend was accentuated by the banking crisis of 2003-04 and ensuing higher inflation. Real earnings of highly-skilled workers, which increased rapidly during the 1990s, suffered a sharp downward adjustment in 2003 and have not recovered since. Thus real private sector wages declined by 27 percent between 2000 and 2011 in spite of rapidly rising productivity. For example, transportation, communications, and manufacturing recorded high rates of productivity growth while real wages in these sectors remained virtually stagnant, in line with the pattern observed in other sectors with much weaker productivity growth.20 While it has been posited that Haitian emigration might be supplying unskilled labor that attenuates the effect on wages of increases in labor demand usually associated with high GDP growth rates, evidence to date on this hypothesis is inconclusive21. Unfavorable investment climate 16. Doing business continues to be a challenge in the DR, especially for micro, small and medium-sized enterprises (MSMEs), but recent government efforts provide an opportunity to improve the investment climate. The DR ranked 105th out of 144 countries in the 2013 World Economic Forum’s Global Competitiveness Index, down from 95th out of 133 in 2010. A similar stagnation and decline in the general ease of doing business in the country since 2008-09 has been captured by the annual Doing Business reports. The reports highlight complex and expensive regulatory procedures and weak legal institutions. According to both the Doing Business indicators and the Enterprise Surveys, the DR shows regulatory complexity in terms of 18 Manuel Diez Cabral: “El empleo formal tarea impostergable” Presentation, American Chamber of Commerce, DR, July 2013. 19 The World Bank: Social Gains in the Balance – A Fiscal Policy Challenge for Latin America and the Caribbean. February 2014. 20 See Abdullaev and Estevão (2013), op. cit., for a detailed analysis of productivity and real earnings dynamics in the DR labor market. 21 On the one hand, Aristy-Escuder (2008) argues that Haitian workforce is a substitute for the unskilled Dominican workers, resulting in a wage reduction for less-qualified jobs, whereas return to capital and wages of the skilled workforce have increased. On the other hand, Mejía (2009) finds some evidence that native workers in the construction sector of the DR are currently more affected by unemployment than Haitians, although he does not find strong evidence of deterioration in sector wages provoked by the increased participation of migrants in the workforce. Finally, the World Bank (2012) also finds only weak evidence of downward wage pressures caused by Haitian workers. See Aristy-Escuder, J., 2008. “Impacto de la inmigración haitiana sobre el mercado laboral y las finanzas públicas de la República Dominicana”. Santo Domingo. Mimeo; Mejia, J.C., 2009. “Impacto de la mano de obra inmigrante haitiana en los salarios y el desempleo en la construcción”. Working paper for the Fondo de Investigación Económica y Social. Santo Domingo. Unpublished; and World Bank, 2012. “Haiti, Dominican Republic: More than the sum of two parts.” Country Economic Memorandum. 8 the number procedures, time and cost involved in undertaking business transactions such as registering property, resolving insolvency proceedings, obtaining a construction permit or starting a business, these indicators are all above the regional average. For example, according to the Doing Business Report of 2014, while it takes 3.5 years for a firm in the DR to go through insolvency procedures and it costs 38 percent of the estate, the average in Latin America is 2.5 years and 16 percent, respectively. These obstacles and costs affect micro and small enterprises much more than medium and large companies, who have greater resources to overcome these challenges. The Government has embarked on an ambitious reform agenda to reverse this regulatory complexity, and has been engaging various public and private stakeholders on an initiative to bring significant reform in key areas of the business environment such as insolvency, access to finance, protecting investors and starting a business. 17. Insufficient access to finance, in particular for small enterprises and households, is a major obstacle to investment, growth and inclusion, which the government is keen to address. According to Findex data, 38 percent of the population has an account at a formal institution which is just below the LCR regional average of 39 percent. The most recent Enterprise Survey data shows that 64 percent of firms had a loan from a formal financial institution compared to 58 percent for the LCR region. However, only 4.5 percent of MSMEs get loans from banks, and both total credit to private sector and total deposits have the lowest penetration relative to GDP of all LCR countries (21 and 19 percent respectively). Without access to adequate financing, households are limited in their ability to take advantage of economic opportunities, and firms, especially MSMEs, cannot fund investments. Access to finance in the DR has been hampered by weak competition in the banking sector and public sector crowding-out. These problems are compounded by the banks’ high operational costs and lending rates; the need to modernize key elements of the financial sector infrastructure (especially insolvency and creditor rights), and the need to unify government programs providing support to MSMEs, including leveling the playing field for different institutions that provide credit. In addition, stronger bank supervision and transparency of banking practices could improve oversight and the efficiency of the sector. 18. Capital markets are small and face structural challenges, further reducing financing for investments and growth. There have been recent improvements in the public debt market, and the number of issuers of corporate bonds has increased from three in 2005 to 20 in 2011, while pension funds, which are the country’s main investor, have seen their assets grow substantially from one percent of GDP in 2003 to six percent in 2010. However, the amount of financing to the Dominican economy is still low as private credit to GDP is just 21 percent, and the private debt market represents less than 1.5 percent of GDP. The DR has a large and unfulfilled demand for infrastructure projects and a potential for more project financing through infrastructure bonds and other private solutions. Despite reductions in the inflation rate, domestic interest rates continue to be high22, which makes it difficult for the corporate sector to use the bond market as a financing mechanism, so that the corporate bond market has not been able to develop much. Overall, insufficient capital market development is a problem for housing, corporate, and infrastructure financing. 22 According to Central Bank data as of December 2012, the interest rate on government bonds with maturities between 4 to 7 years was 9.8 percent. 9 19. Low reliability and high cost of electricity have been some of the main drags on competitiveness in recent decades. Although coverage has risen over the past twenty years to around 98 percent of the population and black-outs have declined in duration since the early 1990s, the DR still has more than six times as many power outages per month as the average for LCR, and more than one-third of the electricity generated in the country is not recovered.23 The poor reliability of the electricity service FIGURE 4: PRODUCTIVITY IN ELECTRIC (averaging 17 hours per day) has led to UTILITIES reliance on self-generation, via an estimated 2,700 MW of highly polluting and expensive diesel gensets. The DR’s three public electricity distribution companies (EDEs) are also inefficient due to clientelism,24 employing for example 11 times more workers than the utility of Santiago, Chile (Fig. 4). The DR has chosen not to increase tariffs in recent years in line with the steep rise in fuel costs since the mid-2000s, so actual tariffs averaged 20.4 cents per kilowatt hour in 2013 versus an indexed-cost tariff Source: CIER (Regional Electrical Integration Commission), of 30 cents, which greatly increases the and OLADE (Latin American Energy Organization), 2011 fiscal burden of the sector. In 2012, the sector’s losses led to government transfers of 10 percent of the national budget and two percent of GDP (2.7 percent in 2008). The DR plans to launch a dialogue in 2014 towards an Electricity Pact to achieve a broader political consensus on essential reforms for the sector, offering an opportunity to agree on measures to reduce power outages and the high cost of electricity thereby improving competitiveness and the well-being of Dominicans. 20. There has been notable progress with regards to information and telecommunication technologies, but limited penetration reduces the impact on inclusion and competitiveness. The telecommunications sector has been a major source of growth of the economy during the past decade. Mobile subscriptions increased from 8 to 89 percent between 2000 and 2013. The DR has excellent undersea cable connectivity, but the proportion of fixed internet users (35 percent) and subscribers (four percent) in the population remain below regional averages mainly due to the under-development of a fiber optic backbone to link populations beyond the major cities at an affordable price. For the poorest households, fixed internet connectivity prices equal 79 percent of the household’s monthly earnings, and for 60 percent of households, connectivity prices are well above the maximum of five percent of household earnings recommended by the International telecommunications Union (ITU). In 26 municipalities (16.8 percent of the existing 155 municipalities) there are no fixed internet accounts registered, and only 14.4 percent of households have internet, with a maximum of 22.1 23 See The World Bank: ‘Sustainable Energy For All Tracking Tools’, 2013. One third of the generation cost is not collected from end-users as a result of commercial losses resulting from poor metering, billing and collection, as well as weaknesses in the administration of the transmission and distribution companies, and ineffective subsidies and tariffs. 24 See The World Bank: Rentismo o reforma? La economía política del desarrollo en República Dominicana. Análisis de la Situación Institucional y de Gobernabilidad. 2012 10 percent in the city of Santo Domingo and a minimum of five percent in certain rural areas. This situation puts the DR at a disadvantage in reaping the potential benefits that ICT can offer, including competitiveness, job creation, transparency and participation. High vulnerability to economic and climate-related shocks 21. The sustainability of growth and competitiveness are further affected by the DR’s high exposure to shocks, including economic shocks and natural disasters. The DR is highly sensitive to growth in Europe and the US with direct links to tourism and remittance revenues. It is also highly exposed to oil prices. In addition, the DR is among the countries that are most exposed to natural disasters in the world, ranking 8th out of 183 countries.25 The DR has been hit by 10 hurricanes in the last 50 years, the most damaging of which (e.g., David in 1979 and George in 1998) caused economic losses in excess of 14 percent of GDP.26 Natural disasters have been a source of high fiscal burden (e.g., damages and losses caused by tropical storm Noel in 2007 represented a fiscal burden that forced the government to reallocate funds representing 0.22 percent of GDP in the months following the event and issue new disaster-related debt equal to 0.61 percent of GDP). According to insurance industry models, the average expected annual losses to the economy of earthquakes and hurricane winds are more than US$600 million, and there is an eight percent chance that the country will be hit by a natural disaster that may cause damages of more than US$6 billion during the period of the CPS (CCRIF, 2014). 22. Natural disasters have a high human toll, especially on the poor. The DR ranks as one of the top five countries in LCR for disaster-related deaths: during the period 2002-2010 an estimate of 966 people were killed and 350,000 were affected in the DR by earthquakes, storms, epidemics and flooding.27 Due to precarious living conditions, poor households tend to be hit harder by natural disasters. When tropical cyclone Noel hit the DR in 2007, 90 percent of the direct victims were under the national poverty line. Adverse effects of natural disasters are not limited to short-term and temporal losses of well-being; they can push households into poverty traps from which recovery may not be possible without external assistance. 23. The government is keen to mitigate this high risk by incorporating disaster prevention and climate change adaptation measures in territorial and public investment plans to prevent disasters and manage risks to major infrastructure (e.g., dams, roads, schools, hospitals). There is also a need to better protect the private sector where insurance coverage is insufficient, notably for small agriculture producers and MSMEs. Public Finance Management and Fiscal Challenges 24. The current structure of fiscal policy, both on the revenue and expenditure sides, limits the government’s ability to provide more equitable access to quality public services and places too much of the burden on the poor. The fiscal system is hampered by low revenue collection, expenditures that are insufficiently progressive, budget rigidities that limit the ability 25 Source: Germanwatch Global Climate Risk Index 2014 26 Comisión Económica para América Latina y el Caribe (CEPAL), República Dominicana: Evaluación de los daños ocasionados por el huracán Georges, 1998, LC/MEX/L.365, 04-Dec-1998. 27 The Office of Foreign Disaster Assistance (OFDA)/Centre for Research on the Epidemiology of Disasters (CRED) International Disaster Database 11 to redirect allocations, and a heavy reliance on indirect taxes that also limit progressivity. The country’s low tax to GDP ratio limits the government’s ability to expand public services while maintaining debt sustainability, and infrastructure spending has, until 2013, long been given preference over investment in human development.28 Equitable access to basic services (e.g., primary enrolment, health insurance and potable water and sanitation) has expanded in the last decade, thereby enhancing equality of opportunities and reducing unmet basic needs. However the slow rate of progress implies that it would take more than a generation to level the playing field for the poor and the vulnerable. In addition, the quality of public service delivery remains low, so that the middle class often opts out in favor of private solutions for security, electricity, education or health.29 25. The government has been working since 2012 on strengthening the budgetary process to improve its credibility, predictability and openness. The 2012 Public Expenditure and Financial Accountability Assessment (PEFA) found that these areas had worsened since the 2010 PEFA. Public expenditure allocation remains highly discretionary and in the hands of the Executive. The progress achieved since 2006 (when the Budget law and the Procurement law were approved) was partly reversed in 201230. The DR’s integrated budget financial information system does not include decentralized and autonomous institutions and does not provide adequate and timely information during the budget process (budget formulation, execution, modification, accounting and reporting). Despite efforts to shift the focus to outcomes, budget formulation is still incremental, rather than performance-driven. There has been important progress on the Open Budget Index, which increased from 14 in 2008 to 29 in 2012, although this remains below the average of neighboring countries. The quality and comprehensiveness of information provided via the web portal and the limited degree of substantive public engagement on the budget contribute to the low relative ranking of the DR. 26. A limited tax base and rigid expenditures result in limited fiscal space, constraining the government’s ability to promote growth and greater inclusion. The authorities successfully reduced the central government’s primary deficit from 2.1 percent of GDP in 2008 to around 0.5 percent of GDP in 2011, but fiscal policy was relaxed in 2012, an election year, when the primary deficit expanded to 4.6 percent of GDP. The persistent primary deficit is due to two long-standing, structural challenges, namely the large electricity sector deficit, which absorbed 1.8 percent of GDP in public subsidies in 2012, and a narrow tax base, which has averaged 13.7 percent of GDP since 2000 and has not risen despite numerous tax reforms. Low levels of revenue collection are associated to a narrow tax base, caused by significant exemptions resulting in tax expenditures estimated at 5.9 percent of GDP in 2013, and to tax avoidance via informality. 27. As a first step to increase much needed fiscal space, the government has taken measures to increase public revenues. A tax package approved in November 2012 that 28 See World Bank (2004). “Dominican Republic: Public Expenditure Review – Reforming Institutions for a More Efficient Public Expenditure Management”. Report No. 23852-DO, March 2004. 29 Sanchez, Miguel Eduardo & Senderowitsch, Roby, 2012. "The political economy of the middle class in the Dominican Republic: individualization of public goods, lack of institutional trust and weak collective action," Policy Research Working Paper Series 6049, The World Bank 30 See World Bank (2013), Dominican Republic Public Expenditure Management and Financial Accountability Review. Also see World Bank (2012), Improving the Quality of Public Expenditure in the Dominican Republic. 12 increased VAT rates from 16 to 18 percent, and the renegotiation of the agreement with Barrick Gold are expected to help increase public revenues by 1.2 to 2 percentage points over the next four years, but this may be insufficient to expand fiscal space in the medium term. Public debt service reached 4.6 percent of GDP or 20.8 percent of central government expenditures in 2012. The ratio of debt interest to fiscal revenue rose from 8.6 percent in 2004-2008 to 14.1 percent in 2009-2012 and currently represents a significant burden for public finance. The consolidated public sector debt rose from 33 percent of GDP in 2007 to 48 percent of GDP in 2013. The stock of debt is three times the annual tax collected, the highest such ratio among 20 Latin American countries, underscoring the country’s narrow fiscal space. Furthermore, recent debt sustainability analysis shows that the DR is vulnerable in the event of an exchange rate shock, so that fiscal consolidation is a priority. Inequities in access to basic public and social services 28. Several challenges hamper public service delivery, especially in water and sanitation, education, health and social services. 29. In water and sanitation, despite significant coverage improvement, the sector faces challenges related to access, quality and sustainability of services. Access to water supply and sanitation (WSS), at 80 percent and 70 percent respectively, have improved gradually and are above LCR averages. However, these averages mask big differences between the richest and poorest quintiles of the population, ranging from 20 percentage points for water to almost 50 percentage points for sanitation. Also, actual sewerage collection is low at less than 25 percent, as is wastewater treatment at 22 percent of sewerage collection, with treatment ranging from around 60 percent in Santiago to less than 5 percent in Santo Domingo. Water quality also varies greatly: around 68 percent of the DR’s water supply is disinfected, mainly in big cities, but only 6 percent is chlorinated in rural areas. This has significant potential health impacts, especially for the poor, and notably in relation to cholera, which has re-emerged on Quisqueya, especially in Haiti but also in the DR.31 The DR’s main rivers are highly polluted and the country has struggled to maintain adequate levels of water and sewerage quality services in certain tourist areas, a challenge that is critical to sustaining its 5 million visitor beach-tourism industry. Moreover, other than in Santiago, where water is priced close to the LCR average of $0.45 per cubic meter, most regional water authorities charge less than $0.10 per cubic meter, compounding the problem of extremely low water billing and collection rates. 30. There is a need for a strong lead institution in the sector. WSS services are provided by six regional water utilities and by a National WSS Institute (INAPA), which covers the remaining urban and rural areas. However, there is no clear lead institution to set overall sector policy: INAPA blends various sector functions including regulation and service provision and the National Council on Water, which should serve as a temporary body as the DR moves towards creating a regulatory body for the sector, is inactive. Additionally, the DR has yet to establish a national WSS information system, cost recovery in the sector is weak (the 31 From the beginning of the epidemic in November 2010 to February 2014, 31,521 suspected cholera cases and 467 deaths were reported. However, the reported number of cases markedly decreased from 20,851 in 2011 to 7,919 in 2012 (cholera mortality rate dropped from 3.46 in 2011 to 0.67/100,000 inhabitants in 2012, according to MOH). The reported number of suspected cholera cases (57) for Jan.-Feb. 2014 is much lower than the number of new cases reported for the same period in 2013, 2012, and 2011 (PAHO, Epidemiological Profile, March 2014). 13 government subsidizes 100 percent of investment and 70 percent of operation and maintenance in water and sanitation), and water resources and water and sanitation laws have been under discussion in Congress for many years but have not yet been approved. A lead WSS institution is required to drive a country-wide water reform agenda for improved access and services. 31. Fragmented institutional arrangements and unclear policy direction also hamper good water resource management. Even if Water Administration and Management and Watershed management have been transferred clearly in 2000 under the jurisdiction of the Ministry of the Environment by mandate of Law 64-00, Integrated Water Resource Management (IWRM) principles are still not fully implemented in the DR. The Ministry of Environment lacks the resources and a more solid legal framework to play an effective role in promoting a sustainable water and soil management32, water quality protection33 and multipurpose use of hydraulic infrastructures34. Some IWRM-related functions and decision-making processes are still fragmented across the different water-related sectors, especially: (i) the National Institute for Hydraulic Resources (INDRHI), which is the direct or indirect administrator (through Water Users Associations) of 300,000 hectares of irrigated land, accounting for 88 percent of water abstraction and; (ii) the Hydraulic Electrical Generation Enterprise (EGEHID), in charge of operating the main hydropower facilities in the country (13 percent of total energy generation). An integrated approach to water resource management and other water users such as industry and household water and sanitation is nonexistent. This takes on increasing urgency over time because the DR faces a relative scarcity of freshwater, with renewable internal freshwater resources (two million cubic meters per capita) at one-tenth of the average for LCR. 32. The education sector continues to face challenges in terms of quality, coverage, access, efficiency and learning outcomes. Historically, low levels of investments in education resulted in low coverage, weak quality and poor outcomes in the education system, especially for rural and poor children. Investment in education, which until 2013 had averaged 2.3 percent of GDP, has been well below regional and UMIC averages, although the Government has raised this to four percent since 2013, reflecting both its clear commitment to education and strong civil society pressure. Access to Early Childhood Development (ECD) Services for children through age five is low (38 percent in 2011), equivalent to just over half the rate for LCR. It is especially low for rural areas and for those in the poorest quintile. Net completion rates at the primary and secondary levels are low compared to regional averages: less than 30 percent of the primary school age population completes primary and only 18 percent of the secondary school age population completes secondary.35 Pupil-teacher ratios are high especially at the secondary level (28:1 vs. an average of 15-16:1 for LCR and UMICs). The insufficient availability of classrooms for students, resulting in double shifts, puts pressure on student-teacher ratios (78:1 in public schools with over 500 students) and leaves little effective class time (less than three hours a day). 33. The low quality of teaching and limited educational resources for teachers and students, have contributed to poor outcomes, reflected in high repetition rates (eight percent at 32 Yaque del Sur or Yuna watersheds for example, deforestation and severe erosion processes in upper watersheds 33 Like in Ozama, Higuamo, Yuna, Yaque del Norte with water quality issues identified by MIMARENA in 2002. 34 In order to manage the potentially conflicting uses such as hydropower and flood control, or hydropower and irrigation, or irrigation and environmental flows. 35 "Situation Analysis of Children and Adolescents in the Dominican Republic 2012," by MEPyD, CONANI and UNICEF (http://www.unicef.org/republicadominicana/resources_25865.htm) 14 primary level) and high drop-out rates (boys tend to drop out earlier than girls, especially in rural areas, but girls drop out of secondary schools in larger numbers, so gross completion rates are less than 50 percent overall, with 55 percent for girls and 40 percent for boys). Moreover, the lack of pedagogical and administrative management systems at all levels resulted in poor accountability for actors in the system. The performance of students in the Second Regional Comparative and Explanatory Study (SERCE) show that over 78 percent of third-grade students are not achieving basic competencies in reading and 90 percent are falling short in basic competencies in math, far more than in comparable countries or the rest of the region (Figure 5). There FIGURE 5: FAILURE RATES ON are no early standardized tests that can be used to STANDARDIZED EDUCATION strengthen the effectiveness of teaching and TESTS learning. Moreover, curricula do not appear to be well aligned with business needs, leading to unemployment among graduates. 34. A National Pact for Education Reform was signed on April 1, 2014, which provides a unique opportunity to address the sector’s challenges. The Education Pact signed between the Government, the main political parties, members of the Economic and Social Council, private sector and civil society actors drew on a nationwide participatory process and led to agreements on key priorities to be implemented through 2030, without regard to which political party is in power. Agreements reached included free public early childhood education for all children from age three onwards; respect for the school calendar and roll-out of an extended school day to enhance learning; competitive pre-screening of teachers as well as enhanced teacher training to enhance teacher quality, and the introduction of standardized tests in basic education to diagnose challenges and inform improvements in education. 35. Outcomes in health have improved but challenges remain, especially in improving the quality of health services to reduce maternal mortality. Even though 98 percent of births are attended by health professionals and 95 percent of women receive at least four prenatal visits (both above the LCR average), maternal mortality is one of the highest in the region – almost twice as high as the regional average at 130/100,000 births (vs. a regional average of 80/100,000 births). Infant and under five child mortality are also high by regional standards (respectively 22 and 28 per 1000 live births, vs. 19 and 22 per 1000 live births on average for LCR). Progress has been made over time on child and maternal health indicators but gaps between actual results and MDGs remain and are particularly large for maternal mortality. While demand side interventions are important to further increase prenatal consultations and institutional births, available evidence suggest that poor standards of practice largely explain why these weak outcomes arise in spite of a very high ratio of births attended by medical professionals. Adolescent pregnancy also remains high and its related consequences such as poor maternal and child health outcomes and lower educational and labor prospects for young mothers would require a coordinated multi-sectoral response. In addition, while progress has also been made on reducing the incidence of dengue, malaria, cholera and tuberculosis, fatalities related to these 15 illnesses also remain high by regional standards. The recent appearance of the Chikungunya virus is creating additional health issues36. 36. While health insurance coverage has improved due to the roll-out of contributory and subsidized regimes, further efforts are needed to attain universal coverage. About 51 percent of the population is still not covered by health insurance. The Subsidized Regime (SR) still needs to reach 27 percent of its target population while the Contributory Subsidized Regime, which has a target population of approximately 3 million people, has not yet been implemented. 37. Since 2003, the Government has introduced key elements of a social protection system, and intends to continue its efforts to improve targeting and develop better linkages to economic opportunities, including via active labor market programs. An institutionalized targeting system, Sistema Único de Beneficiarios (Single Beneficiary Selection System or SIUBEN) that classifies households by poverty levels, and a safety net, known as Progresando con Solidaridad (PROSOLI), which fosters human capital accumulation through cash transfers to targeted households conditioned on verified actions to strengthen children’s health and school attendance have been put in place. These programs were critical in mitigating the effects of the 2008 global crisis on the poor, and have achieved the fifth highest coverage in LCR, with Conditional Cash Transfers (CCT) benefitting 775,000 households, at a cost of less than 0.5 percent of GDP. Going forward, a revamping of PROSOLI is envisaged to support poor households via a holistic approach that includes CCT, socio-educational support and improved housing and income-generating programs (e.g., vocational training, entrepreneurship) with the purpose to foster graduation out of poverty. This would require applying the 2012 SIUBEN to PROSOLI and other targeted services and subsidies, rationalizing social programs, improving interagency coordination, a more integrated territorial approach, and enhanced accountability through a greater use of results-based resource allocation37. Finally, while 230,000 people have received identification documents since 2010 that enable them to access public services, over 300,000 people over 18 years of age remain undocumented. 38. Governance challenges reinforce problems in the delivery of public services. Despite a lively media and active civil society, clientelism and governance and accountability issues persist at both front-line service delivery (micro) and macro levels, in particular in areas such as budgetary process and overall fiscal management, financial management, procurement and audit systems, and the overall quality and openness of government data, thus leading to the consolidation of vested interests in various sectors, a sharp fall in the perceived control of corruption since 2004,38 and a fraying of the social contract39. 36 http://www.plosntds.org/article/info%3Adoi%2F10.1371%2Fjournal.pntd.0002921 37 The 2010 census identified 12 percent of the population living with disabilities. See USAID: Dominican Republic – Gender Analysis, 2013, which documents challenges for people with disabilities. 38 See public surveys and governance indicators at www.latinobarometro.org and www.govindicators.org 39 See World Bank: Patronage or Reform? Political Economy of Policy Performance in the Dominican Republic - Institutional and Governance Review, 2013 16 GOVERNMENT VISION 39. The DR’s long-term planning is anchored on the country’s National Development Strategy (END) or Vision 2030.40 Approved by Congress in March 2012, the END is divided into four pillars with 19 general objectives, 57 specific objectives and 90 key performance indicators. Pillar one on institutional development aims to achieve a social and democratic state, with rule of law and transparent institutions, at the service of a responsible and participatory citizenry that guarantees security and promotes equity, governance, peaceful coexistence and national and local development. Pillar two on social development is to achieve a society with equal rights and opportunities, in which the entire population is guaranteed education, health, decent housing and quality basic services, and one that promotes the progressive reduction of poverty and of social and territorial inequality. Pillar three on productive development aims to develop an integrated, innovative, diversified, quality and sustainable economy that creates and de-concentrates wealth, generates high and sustained growth with equity and decent jobs, takes advantage of and strengthens local market opportunities and inserts itself competitively in the global economy. Pillar four on sustainable development is designed to foster an environmentally sustainable society that adapts to climate change. Cross-cutting policies cover human rights, gender, environmental sustainability, territorial cohesion, civic engagement and ICT for public management. The END law also calls for three major pacts on education, electricity and fiscal issues. 40. The Government’s 2013-2016 plan for the public sector, in line with the END, focuses on institutional development.41 The plan’s objectives are to establish a transactional procurement portal, consolidate public accounts into a single treasury account, implement international public sector accounting standards, expand coverage of the SIGEF, improve the budget portal and foster greater civic engagement. It also envisages institutional mechanisms for participation and oversight, e.g. the Pacts for Education and Electricity and civic oversight of all procurement by the Ministry of the Presidency and selected other public agencies. 41. The Government also has ambitious medium-term goals in the areas of social development and productive development. The Government is currently focusing efforts on expanding the coverage of CCT; implementing a strategy to help households exit poverty (“Hispaniola Sin Miseria”); adopting a territorial approach to social assistance programs, including in the areas of ECD (“Hispaniola Empieza Contigo”); eliminating illiteracy (“Hispaniola Aprende Contigo”); fostering participatory dialogues through the Dominican Initiative for Quality Education (IDEC) and the Pact for Education to build a political consensus for reforms to boost educational quality; articulating a national employment system; expanding access to public health insurance and upgrading the quality of health services; and increasing access of water supply and sanitation. As far as productive development is concerned, areas of focus include creating jobs; increasing tourism arrivals; boosting agricultural production and exports; supporting SMEs; reviewing labor laws; completing major road network and investments; reducing electricity generation costs and sector losses; expanding mining; and fostering greater connectivity (e.g., internet access, citizen participation, e-services). 40 See http://www.stp.gov.do/mepyd/estrategia-nacional-de-desarrollo-2030/ 41 This plan and the END are complemented by various sector plans, e.g. 10-year plans for education and for gender. 17 WORLD BANK GROUP COUNTRY PARTNERSHIP STRATEGY I. Lessons Learned from the Previous CPS 42. Lessons from the Completion Report of the FY09-13 Country Partnership Strategy (CPS CR) highlight the need for greater selectivity and focus on mutually reinforcing objectives. It also shows that the Bank’s knowledge and convening services were important complements to the lending program in achieving results. For example Bank support for public- private dialogues (e.g., Iniciativa Participativa Anti-Corrupción -IPAC, Caribbean Growth Forum -CGF, Iniciativa Dominicana para una Educación de Calidad- IDEC) effectively leveraged the Bank’s expertise and convening power into results with strong local ownership, while involving minimal Bank financing. The CPS CR also suggest that project design should take into account a range of factors that can otherwise slow implementation: political economy considerations, project management and capacity constraints; turnover in project management and bureaucratic hindrances on both the Bank’s and the client’s side; that strong monitoring and evaluation systems are critical to the success of the Bank’s engagement; and that political economy analysis should underpin program and project design. The IEG reviews of projects that closed during the FY10-13 CPS period and of the FY06-09 CPS Completion Report point to the need to develop more robust M&E systems that include readily quantifiable indicators; build into project design adequate risk mitigation; strengthen financial and procurement management; and ensure organizational and staffing continuity to achieve success. II. Consultations 43. The CPS draws on extensive strategic consultations. The CPS is grounded on extensive nationwide consultations, including: (i) the IPAC, IDEC, Pact for Education and CGF participatory processes, that inform programming in the areas of governance, education, skills and productivity, investment climate and logistics; (ii) the DR Dialogue Day (March 9, 2013), involving the Inter-American Development Bank, the World Bank Group, and high-ranking government counterparts in ten Ministries, as a culmination of the joint Inter-American Development Bank (IDB)-WBG elaboration of Policy Notes for the DR; (iii) CPS consultations (April and May 2013) with over 280 people in five cities around the country (Santiago, Dajabón, Barahona, La Romana and Santo Domingo) and with the Dominican diaspora in New York, complemented by further consultations with civil society and private sector actors and with donors in June 2014; these consultations reconfirmed several priorities under consideration and led directly to the addition of a focus on agriculture; and, (iv) the FY13 Country Survey, which suggests that the Bank’s program is seen as well aligned with key stakeholder priorities (including public sector governance, corruption, citizen participation, education, energy and jobs) and that the Bank is seen as a valued and knowledgeable development partner (see Annex 11). III. Country Engagement Model 44. The proposed CPS is aligned with the WBG twin goals of ending extreme poverty and boosting shared prosperity and the Government’s development priorities, as established in the END. In line with the WBG twin goals, the strategy supports operations aimed at improving the enabling environment for private sector development and job creation; building resilience to external shocks; and, promoting equitable, efficient, transparent and 18 sustainable management of public resources and public service delivery. The WBG’s proposed program of financing, knowledge and convening services has been designed to support the DR’s priorities, as established in the National Development Strategy (END) and the Government’s four year plan as well as the diagnostic of key challenges to poverty reduction and shared prosperity presented in this strategy. The program is coordinated with those of other key development partners, particularly the IDB. To maximize impact, the proposed development solutions leverage the comparative advantage of each institution of the WBG. 45. This CPS applies a systematic filtering to define focus areas and activities, including: (i) client demand/commitment; (ii) “line of sight” to the twin corporate goals; (iii) potential to achieve highest impact in the DR, in particular in shifting to a more sustainable and inclusive development path, in line with the diagnostic above; and (iv) WBG comparative advantage42. It also takes into account the assistance provided by other development partners (see Fig. 6). With such filters, the proposed program selectively supports five Results Areas. 46. To strengthen the impact of its support, the WBG will do at least five things differently than during the previous CPS period. First, the use of a systematic filtering process will allow the WBG to shift its program of support towards the most relevant areas and activities. Second, the Bank will intensify partnerships with local counterparts and external donors, building further on the strong coordination that already exists with various donors, notably the IDB. Third, the CPS will draw more on political economy and stakeholder analysis and introduce beneficiary feedback and/or citizen’s engagement mechanisms in Bank projects as applicable to understand and address reform challenges better and draw on citizen’s voices to strengthen results. Fourth, where feasible, the CPS will combine WBG engagements in a territorial approach to address challenges for marginalized communities and approach issues at the level of the island where relevant. Finally, this CPS is guided by the principles of flexibility and focus on results through tailored financial and knowledge development solutions by the WBG. The strategy is a joint effort from the IFC, MIGA and the World Bank. While proposing development solutions as one WBG, interventions have been selected based on each WBG institution’s comparative advantage and client demand. 47. In select areas, the WBG will endeavor to promote enhanced coordination with Haiti. Under the previous CPS, the Bank produced the Quisqueya report on common growth and poverty reduction opportunities in the island in order to generate more and better information to inform policy decisions in the areas of competitiveness and economic relations with Haiti. This CPS will endeavor to support selected actions needed to promote enhanced coordination and collaboration between the two countries. Bi-national trade, investments, migrations, and remittances have been identified as the most critical linkages between the two nations. The WBG will coordinate closely with the EU, which is leading this agenda among donors on the DR side, and is therefore providing much of the basic institutional strengthening support as well as leadership in this dialogue. Among others, the Bank will contribute to efforts to eradicate cholera on the island, through coordinated health and water and sanitation programs both in Haiti and in the DR. The Bank will also foster a dialogue and knowledge exchange in the energy sector. The IFC program will focus on cross-border, private sector-led investment opportunities (e.g., CODEVI, Leopard Capital). IFC expects to continue supporting manufacturing opportunities in 42 Comparative advantage was defined as measuring the WBG’s global experience, its analytical understanding and the success of its engagement in a given area. 19 the context of a bi-national operation, and to support and catalyze integration across Quisqueya in new sectors such as energy, natural gas transportation, or the financial sector. 48. Gender and governance considerations are critical to the engagement and will be mainstreamed in all activities. Building on previous efforts to strengthen social accountability mechanisms and bring multiple voices to the table through dialogues that would press for greater transparency, the program will combine significant support for strengthening PFM systems while addressing governance challenges that can constrain the transparent and equitable delivery of quality public services under each of the proposed new lending operations. A key part of this will include building on past experiences to work with clients to mainstream more systematic citizen feedback mechanisms, combined with more open data, and better articulation of the “compact” or norms of service in key sectors across the WBG program. On gender, a Country Gender Analysis (CGA) completed in 2013 and a Gender Portfolio Review conducted by the World Bank in the lead-up to the CPS, which shows that about 15 percent of inequality in opportunities in the DR is explained by gender, inform this strategy (see Annex 14). The CPS will contribute to gender mainstreaming by consistently ensuring a stronger and more complete gender perspective in supported operations, including gender consideration in analysis, actions and monitoring and evaluation as applicable across the new pipeline. At the same time, the scope of actions will be expanded to include specific programs targeting female-headed households (FHH). Finally, greater dialogue on gender issues with national partner institutions will be fostered within the framework of the priority areas of the CPS. 49. Continuing from the previous World Bank Group Strategy, work initiated in the DR on citizen engagement will be actively sustained. As the DR has been among the pioneers in ICT-enabled citizen engagement platforms, the CPS will continue to assist clients in developing beneficiary feedback mechanisms, and enhance linkages between open data and civic engagement in service delivery as possible. Citizen engagement can be promoted at three levels: (a) through integration of more systematic citizen feedback and definition of norms into Bank operations on service delivery; (b) at the policy level via coalition-building initiatives and inclusive dialogues such as those around the Pact for Education, the Electricity Pact, the Fiscal Pact and the Caribbean Growth Forum, which prove to be powerful vehicles for civic engagement; and, lastly, (c) via capacity building for civic oversight of procurement (and third party) monitoring by civil society. Bank operations will continue to encourage citizen engagement for instance through the use of scorecards in CCT, civic platform pilots in the electricity sector, social compact and social audits in the health sector, etc. 50. To enhance impact on poverty reduction, the CPS will seek to focus its interventions geographically on selected poor provinces of the country, combining various dimensions of support to targeted households in extreme poverty. Integrated Social Protection and Promotion will target 14 provinces with the highest levels of extreme-poverty and extremely- poor households that tend to be in those rural areas. These households will be provided with an integrated package of services: human capital gaps, CCT, housing improvements, and skills- enhancement. The Bank is also targeting its ongoing municipal development support to the poorest municipalities. As for reducing poverty among female-headed households and increasing women’s entry to the labor market, the proposed integrated social protection project and the proposed flexible employment services project would pay special attention to vulnerable groups, including poor women and female heads of households. 20 FIGURE 6: SELECTIVITY MATRIX OF THE WBG COUNTRY PARTNERSHIP STRATEGY WBG Alignment with Potential Demand Comp. CPS END Pillars END General Objectives CPS Results Areas WBG Goals Impact for WBG Advantage Priority in the DR 1.1. Efficient, transparent and result oriented public administration Strong Strong Yes High High Promoting equitable, efficient, t op al en ev t ion 1.2. Rule of law and citizen security Some Some No Some Low m sustainable management of public tu 1.3. Participatory democracy and responsible citizenship Strong Strong No High Medium el st i resources In D 1.4. Security and peaceful coexistence Weak Weak No None None 2.1. Quality education for all Strong Strong Yes High High 2.2. Health and integral social security Strong Strong Yes High High Improving the investment climate t en pm 2.3 Equal rights and opportunities Strong Strong Yes High High and fostering private sector elo 2.4. Territorial cohesion Some Some Some Medium Low development ev D 2.5. Dignified housing (and water) in healthy environments Strong Strong Yes High High c ial 2.6. National culture and identity in a global world Weak Weak None Low None So 2.7. Sport and physical recreation for human development Weak Weak None Low None Improving access to efficient and reliable electrical distribution 3.1. Macroeconomic stability that favours sustained economic growth Strong Strong Strong High High networks, ICT and other t infrastructure n 3.2. Reliable, efficient and environmentally sustainable energy Strong Strong Strong High High me lop 3.3. Competitiveness and innovation in an environment that encourages Strong Strong Strong High High e ev cooperation and social responsibility eD 3.4. Sufficient and dignified jobs Strong Strong Strong High High tiv Strengthening social service c 3.5. A productive structure that is sectorally and territorially articulated, du delivery o competitively integrated in the global economy, and that takes advantage Strong Some Some High Medium Pr of the opportunities of the local market 4.1. Sustainable management of the environment Strong Strong High High High t en m op 4.2. Effective risk management to minimise human, economic and Equipping the government with el ev environmental losses Strong Strong Strong High High tools to build resilience to external D le shocks ab in 4.3. Appropriate adaptation to climate change Strong Strong High High ta Strong s Su 21 IV. Proposed World Bank Group Country Partnership Strategy 51. The overall strategic goal of the CPS for FY15-18 is to support the Government’s efforts to make growth sustainable and more inclusive. The CPS will be organized around five strategic results areas over the next four years: improving the investment climate and fostering private sector development; improving access to efficient and reliable electrical distribution networks, ICT and other infrastructure; supporting the government in building resilience to external shocks; promoting equitable, efficient, transparent and sustainable management of public resources; and, strengthening social service delivery (Fig. 7). FIGURE 7: WBG COUNTRY PARTNERSHIP STRATEGY IN THE DOMINICAN REPUBLIC Results Area 1: Improving the investment climate and fostering private sector development CPS Outcomes: (1) an improved climate for doing business for microenterprises and SMEs, measured by a shorter time for a company to register; and, (2) improved access to finance, measured, among others, by additional clients benefiting from SME finance in IFC-supported institutions. 52. The CPS will support measures that foster a dynamic, competitive private sector that generates quality jobs. Bank Group engagement will focus on avoiding a dual economy and a reliance on enclave activities, by strengthening value chains and backward linkages to the local economy, and by removing barriers and disincentives to formality by improving the investment climate for microenterprises and SMEs and access to finance.43 53. This engagement will be delivered through an integrated suite of financing, knowledge and convening services by the WBG. The WBG program will focus both on vertical support to specific sectors and on general horizontal support: specifically the WBG will 43 See the 2013 World Development Report on Jobs, and the IFC 2013 Study on Jobs 22 indeed continue to help the DR strengthen the general business environment while fostering the development of specific sectors that can be drivers of growth. At the macro level, the program will include coordinated Bank-IFC reimbursable advisory services to strengthen the investment climate, the financial sector and corporate governance; subnational Doing Business analysis; possible additional knowledge services on innovation, and competition policy, and convening services via the Caribbean Growth Forum (CGF). At industry level, interventions will focus on the agribusiness and mining sectors to remove gaps in the value-chain, improve the business environment, reduce infrastructure gaps, foster higher entrepreneurship and innovation, and attract private investment. 54. A better investment climate is necessary to enhance competitiveness and facilitate a more inclusive development of the private sector. The Bank Group will advise the government in the selection of reforms priorities and the elaboration of action plans, focusing on reform areas susceptible to have the greatest impact in improving the investment climate in the country. For each reform area, the WBG will work with the government and key counterparts from the private sector to support the implementation of the Action Plans. Support activities will include technical assistance to promote better service delivery to the private sector, and capacity building. 55. Enhancing access to finance will be important to foster more inclusive growth and more spillovers into the local economy. The Bank will conduct a Development Financial Sector Assessment (D-FSAP) to provide a comprehensive diagnostic of obstacles to greater access to finance, followed by assistance to implement recommendations. The IFC will support microenterprises and SMEs, with a focus on financial inclusion, and targeting SMEs, women entrepreneurs, farmers, low-income households, and students. The IFC will explore providing credit lines for women-owned SMEs (via intermediary lending) and enhanced support to female micro-entrepreneurs through partner financial institutions. To increase competition in the financial sector, IFC will aim at supporting the conversion of some second-tier credit-unions, microfinance NGOs and cooperatives into full-fledged banks, strengthening both their capital base and governance, while the Bank is likely to work towards strengthening financial regulation and supervision and improving government programs. The IFC will also support local capital markets development by continuing to issue medium and long term local currency bonds, establishing needed benchmarks for the private sector, and using bonds proceeds to expand access to long term local currency financing for the private sector while providing a viable channel for domestic savings to be directed to productive long term investments. 56. Budgetary constraints represent an opportunity for more public-private partnerships, potentially with IFC and MIGA support. The government is keen to explore how to re-launch its PPP program to address critical infrastructure and services gaps. However, the DR’s mixed experience with PPPs has led the Government to be wary of this approach, so that effective advisory services will be needed where opportunities arise, to strengthen the design of future PPPs and ensure their success. 57. The WBG will support a more inclusive development of the agribusiness sector. The program will aim to: (i) provide investment support for agricultural value-chains to facilitate collaboration between SMEs, smallholders and larger companies, thereby aiming to make agriculture more inclusive and a stronger source of rural poverty eradication; and, (ii) strengthen linkages between agriculture and the local tourism industry, and at making agriculture more resilient. This support will be achieved through a Bank lending operation, continuous dialogue and collaboration with key development partners and possible IFC investments and MIGA 23 guarantees. An assessment will also be conducted of how best to develop Climate Smart Agriculture in the DR to enable the country to better assess the geospatial impacts on agriculture of looming climate variability and increasing frequency and intensity of extreme events (rainfall, heat) and make investments in value-chains more resilient to climate and weather shocks. 58. The WBG will also support a more transparent and inclusive development of the mining sector. Support will focus primarily on developing a policy and strategy for the sustainable development of mining and providing guidance on international best practices, as well as setting up and implementing the EITI process in the DR. This focus on oil, gas and mining reform will allow the DR to develop its natural resource sector in a more strategic and sustainable manner. IFC will continue supporting the development of mining operations at the development and operation stages, with a focus on building responsible mining operations that maximize benefits to local communities and the country. Results Area 2: Improving access to efficient and reliable electrical distribution networks, ICT and other infrastructure CPS Outcomes: (1) improved efficiency and reliability of the electricity sector, measured, among others by a reduction in commercial losses; (2) improved connectivity through the deployment of a national broadband backbone between the main city of several provinces, measured, among others by an increase in the number of provinces interconnected through the national broadband network; and, (3) energy diversification. 59. The CPS will aim to address issues related to access to efficient and reliable electrical distribution networks, ICT and other infrastructure services, major constraints to private sector development and competitiveness. Reducing electricity sector commercial losses and providing a more reliable and continuous supply of electricity would have a large direct impact on enterprises, competitiveness, fiscal expenditures, and households. Improved connectivity would also enhance competitiveness through higher efficiency and innovation. In partnership with the European Investment Bank, the IDB and with potential IFC support on improving the generation mix via clean renewable sources, the Bank will explore opportunities for realigning fiscal incentives, reducing fossil fuel subsidies and supporting the achievement of an Electricity Pact in 2014, while bearing in mind the complexity of the political economy of the sector. The program will also focus on improving access to more efficient and reliable ICT services, given its importance for nationally integrated and inclusive growth, for the open data and civic innovation agendas and for overcoming the digital divide. 60. First, the WBG will support strengthening governance, enhancing quality of service delivery, and reducing losses in the electricity sector. This engagement will build on ongoing successful work aimed at rehabilitating distribution lines to improve electricity supply and at strengthening incentives for payment for services through community outreach and guaranteed 24-hour service where repayments are high, while intensifying the dialogue on the performance and governance of distribution companies, so as to ensure greater transparency and efficiency. The Bank will also provide support for hedging risks on fuel prices, for the Electricity Pact, and for strengthened management and oversight in the electricity sector. IFC will seek to mobilize financing for investments that help diversify the country’s generation matrix and introduce innovative off-grid generation models. IFC will also seek to support the development of new 24 liquid natural gas import and gasification infrastructure and promote greater energy efficiency via lending partnerships with local financial institutions. 61. Second, the WBG will focus on improving access to more efficient and reliable ICT services. This high priority area for engagement will be supported through a proposed Bank investment linked to the Caribbean Regional Connectivity Program (CARCIP).44 The proposed project seeks to increase access to regional broadband networks and advance the development of ICT-enabled services. CARCIP can support existing Government’s efforts in addressing the lack of supply of fixed broadband connectivity, particularly in remote and marginalized areas of the country, and contribute to providing universal and affordable access to all citizens. CARCIP will also support work on Open Innovation to build ICT skills, particularly among the poor and women, and foster a culture of entrepreneurship by involving citizens in identifying and solving their own problems through ICT solutions. MIGA will explore opportunities to support further projects that boost growth and jobs in the DR, including via its Small Investment Program. 62. Finally, the WBG will also support selected infrastructure efforts. This will include the rehabilitation of storm-damaged transmission lines and of large water resources infrastructure via the existing Emergency Recovery Loan. It may also be complemented by new knowledge services to support the conservation and management of water resources. MIGA will oversee its on-going toll-road guarantee to Autopistas del Nordeste. The IFC will contribute by mobilizing private financing to support firms that will provide infrastructure services and foster connectivity. Results Area 3: Supporting the Government in building resilience to external shocks CPS Outcomes: (1) improved DRM planning in the norms and procedures for public investment projects in light of climate change; and, (2) recovery from tropical storms Olga and Noel with increased resilience of infrastructure; these outcomes will be measured, among others, by the development of a national integrated information system for DRM and by the number of dams rehabilitated. 63. The WBG will enhance the DR’s capacity to manage the destructive effects of natural disasters by mainstreaming disaster risk management (DRM) in territorial planning and public finances. Recent developments reflect political commitment to strengthen the institutional framework for DRM (including the preparation of a new DRM law) and shift the focus from effective response to natural disasters towards more proactive planning and up-front risk mitigation and prevention. Given the devastating impacts of natural disasters on the poor and the difficulty they face in recovering from disasters even in the medium-long term, efforts in this area would have a direct impact on poverty reduction. in coordination with the UNDP, Spanish cooperation, and other partners, the Bank will provide knowledge and convening services related to DRM planning and risk financing and insurance; as well as funding under the Forest Carbon Partnership Facility and grant-funded capacity building, and supporting participation of the DR 44 International studies indicate that a 10 percent increase of broadband penetration triggers a 1.38-3.20 percent growth of GDP per capita. 25 in the Caribbean Catastrophic Risk Insurance Facility (CCRIF).45 The Bank will also complete the on-going Emergency Rehabilitation Loan. 64. The WBG will also support the government to hedge risks related to fuel prices. The 2008 oil price spike dramatically increased generation costs and the need for fiscal transfers to cover the tariff-cost gap. To address the challenge of fuel price volatility the Government would like to strengthen its internal capacity to develop a commodity risk management strategy for the energy sector, so that it can approach the market on its own terms to secure appropriate hedging instruments. Bank technical assistance will support these efforts and the IFC will complement them by possibly mobilizing financing to support a more diversified generation matrix via renewables. Results Area 4: Promoting equitable, efficient, transparent and sustainable management of public resources CPS Outcomes: (1) a more efficient, effective, transparent and sustainable management of public resources at the national and local level, measured by an improved alignment of actual public expenditures with the original approved budget; and, (2) enhanced civil society capacity in budget analysis and oversight, measured by an improvement in the Open Budget Index. 65. This CPS will support public finance management reforms aimed at setting up the institutional basis for better transparency, equity and efficiency in the allocation and use of public funds. The authorities are designing or implementing a number of policy reform initiatives, which demonstrates their commitment to greater transparency, openness and equity in public policies (e.g., Fiscal Pact, Education Pact, Electricity Pact, Reforma Laboral). Capitalizing on research conducted during the previous CPS46, this CPS proposes to continue building the knowledge base to inform government policy and institutional reforms necessary to strengthen public finance management, enhance transparency, and improve the sustainability and equity in the use of public resources, in partnership with local stakeholders and with donor partners such as the EU and IDB. Depending on Government’s appetite, the Bank may also provide support for selected measures that strengthen overall fiscal management and fiscal space; the budgetary process; the quality of public expenditures and of tax policy; the strength of controls and accountability in the execution of public funds; the robustness of financial management, procurement and audit systems; the quality and openness of government data; and, finally, mechanisms and capacity for civic oversight. If the conditions are appropriate, the Bank might consider an Equity DPL to “lock in" important reforms that could make a significant impact on equity outcomes. Reforms in this area can foster a culture of transparency and accountability, encourage better quality and targeting of public services and ensure strong overall macroeconomic management to sustain growth and promote shared prosperity. 45 In the event that a new DRM law, currently under consideration by Congress, is adopted and accompanied by significant improvements in the institutional DRM framework, a catastrophic deferred draw-down option (CAT- DDO) might be included among the disaster risk financing options to be presented to the DR. 46 See PEFA and PEMFAR reports 26 Results Area 5: Strengthening social services delivery CPS Outcomes: (1) improved quality of teaching through better teacher policies, measured by an increased number of teachers recruited under a new competitive system; (2) improved quality of learning through implementation of a robust student assessment system; (3) improved primary maternal health care for targeted women, measured by the number of pregnant women in selected regions with risk evaluation completed before week 15 of pregnancy; (4) improved vaccination rates for children according to quality standards in at least three regions of the country; (5) access to improved sanitation services for mostly poor people in the Puerto Plata area; (6) improved social protection coverage of, and support to, extremely poor households in high poverty provinces; and, (7) increased incomes and employment rates among participants in the expanded Temporary Employment Program 66. The CPS will support improvement in the management and delivery of basic social services (including education, health, water and sanitation, and social safety nets) with a view to reducing vulnerability and enhancing social inclusion. Improving the performance of the Dominican education system will require focusing on two core issues: teacher quality and the ability to diagnose problem areas and remedy them. Quality health services, especially at the primary level (mothers and children), are critical for achieving better health outcomes. Increasing access to improved sanitation services and strengthening the policy and institutional framework for the water and sanitation sector will lead to better quality and service, with direct positive impact on health and welfare. Improving the targeting and expanding the coverage of extremely poor households in the social protection programs (including youth) and the services offered to them will directly address extreme poverty but also help address inter-generational poverty by helping families invest in themselves, in their children and their assets. 67. In the education sector, the Bank will support efforts focused on teacher policies, evaluation systems and early childhood development through a new investment lending operation. The Bank’s efforts will aim to strengthen the management of the education system by: i) strengthening teachers training programs and career development policies; ii) developing a comprehensive student evaluation system; iii) strengthening quality assurance standards of Early Childhood Development (ECD) institutions; and iv) enhancing the ministry of education’s institutional capacity towards school management. The IFC will pursue its engagement with Universidad Organización y Método (O&M) and explore demand for further investments. The program will also include knowledge, convening and grant support as needed, in partnership with the IDB, EU, Spanish cooperation and UNICEF. 68. In the health sector, the Bank will support on-going and proposed health reform to further improve access and quality of health services, and develop a strategy to reach the informal sector. The Bank will expand the assistance currently provided to primary health care in three regions of the country via a results-based financing approach to additional regions. Moreover given that most births take place in hospitals, the Bank will pilot the results-based financing approach in hospitals, and enhance the coordination between primary health and hospital services to improve pregnancy risk management and the quality of care during deliveries. The Bank will also support enhancing health sector governance and spending efficiency, as well as to strengthen the capacity of the Ministry of Health to manage public health emergencies such as the recent outbreaks of cholera and Chikungunya. The elimination of cholera from Quisqueya requires cross border collaboration between Haiti and the DR in the 27 areas of surveillance, hygiene and prevention campaigns, health prevention and treatment, and water and sanitation improvements where needed, especially in rural areas and small towns across the Haitian border. 69. Implementing inclusive social protection strategies that address the multiple dimensions of extreme poverty and link poor households to economic opportunities will be essential to reduce extreme poverty and economic vulnerability in the DR. This approach begins with consolidating social safety nets and pursuing active labor market policies. It also includes improving the efficiency and effectiveness of the social protection system and particularly the flagship safety net Progresando con Solidaridad; pursuing efforts to protect the rights of poor and vulnerable Dominicans, including by documenting undocumented citizens; supporting a targeted, multi-sectoral approach that links CCT users to productive and service opportunities in such areas as entrepreneurship, skills enhancement and housing, thereby creating conditions for moderately poor households to exit the CCT; implementing a territorial strategy in selected provinces that combines various dimensions of support to targeted households in extreme poverty; as well as supporting flexible employment systems for poor unemployed persons, that can readily be expanded in times of economic crisis, and employment opportunities for poor idle youth. These activities have the potential to mitigate otherwise severe and long- lasting impacts of shocks on the poor and to build bridges to economic opportunities. They will be conducted in partnership with the IDB and other local and external partners, and build on the recently closed Youth Employment project47. The linkages to entrepreneurship may include coordination with IFC-supported microfinance institutions. 70. Strengthening water and sanitation is fundamental for a healthier population. Building on the on-going water project in touristic areas, the Bank will expand its support to the sector, which currently faces major challenges related to equal access, quality, sustainability, and clear policy direction. Moreover, the outbreak of cholera in Haiti has also spilled over to the DR—albeit with a much lower incidence—and solid water and sanitation programs will be essential to eliminate cholera and other water-borne diseases from the entire island. An assessment of the feasibility of policy reforms would be a key factor in deciding on the nature of further support. Water and sanitation should also be better integrated with water resources management. A well-targeted water supply and sanitation (WSS) improved access program combined with improved policy and institutional framework would have a significant impact on health, welfare and competitiveness. The Bank will work in close coordination with other local and international stakeholders (including Spain and France). FINANCIAL PORTFOLIO AND EXPOSURE MANAGEMENT 71. The overall financial envelope for the Bank’s engagement is expected to be similar to that for the last CPS period, although the balance will shift significantly towards investment lending. During FY09-13, the Bank approved US$600 million in new commitments, of which US$520 million were through Development Policy Loans (DPLs). These numbers compare to plans for US$547 million in total lending during FY09-13, including US$440 million 47 The youth employment program, combining technical and life skills training with apprenticeships in private firms to insert vulnerable youth into the labor force, was highlighted as a success in the 2013 World Development Report on Jobs. 28 via DPLs. This reflects the top priority given to supporting the Government in successfully averting an increase in poverty following the global crisis, via a DPL series designed to strengthen social protection. During the new CPS period, it is expected that around US$550 million in new operations will be presented to the Bank’s Board for approval. Actual delivery of the lending program will depend on DR's performance, IBRD lending capacity, demand from other borrowers, global economic developments and disbursement profiles that keep exposure within the country limits (Table 2). The Bank expects to rebuild the program most intensively in FY15 to respond to strong demand from the client. The program will focus on selected areas such as modernizing the public sector, improving social services and strengthening key infrastructure services for growth and job creation. TABLE 2: PROPOSED BANK FINANCING PROGRAM FOR FY15-18 OBJECTIVE 1 OBJECTIVE 2 FY15 FY15 Electricity Distribution Social Protection CARCIP Flexible Employment Systems Education Quality FY16-18 FY16-18 Agriculture project Health APL 3 Public Sector Modernization Equity DPL Access to Water 72. The WBG’s contribution to results in the DR in the early years of the new CPS will be primarily through the existing portfolio, and managing the implementation of the portfolio for results is a key priority. The Bank’s portfolio comprises five projects worth US$207.4 million as of August, 2014, with US$78m undisbursed (Table 3). The FY14 disbursement ratio as of June 2014 has risen to 27 percent, above the LCR average. The Bank is currently managing 12 trust funds for a total of US$3.7 million, of which US$2.2 million remain to be disbursed. Project effectiveness and implementation have been slowed down in the past by a lengthy approval process in Congress (on average 12 months), weak capacity, and binding budget ceilings. Historically, more than one-third of closed projects since 1980 and two out of five projects since FY10, have been rated unsatisfactory by IEG. However, quality is expected to improve as five project closures remain to be rated by IEG, that are all at least moderately satisfactory according to Bank staff assessment. A Country Portfolio Performance Review (CPPR) in March 2013 placed emphasis on improving the capacity of implementation units, through close implementation support as well as through fiduciary capacity building from the country office based team. The Bank has also had an active dialogue with the authorities to ensure adequate budgetary ceilings to enable disbursements. Going forward, the Ministry of Economy and the Bank have agreed to meet on a quarterly basis with all implementing units to monitor the portfolio and resolve common challenges quickly. TABLE 3: WORLD BANK PORTFOLIO FY10-14 Fiscal year 2010 2011 2012 2013 2014 No. projects 10 9 7 6 5 Net Commitments 316.2 308.9 274.4 249.4 207.4 No. problem projects 0 1 2 2 1 Percent Value in problem projects 37.2 52.4 17.3 19.0 23.8 Disbursement ratio 23.5 13.4 33.6 20.9 22.4 29 73. IFC’s committed portfolio currently stands at US$208 million, the second-largest IFC program in the Caribbean. In addition, mobilizations from other partners amounted to US$97 million (see Annexes 3 and 6). New commitments in FY13 reached a record high of US$164 million and include flagship transactions such as: (i) a US$100 million equity investment in InterEnergy Holdings, a power holding, together with IFC Asset Management Company; (ii) a US$30 million loan to Indomina in the Media industry; and (iii) a “Taino Bond”, a first US$10 million equivalent local currency bond issue, with proceeds disbursed immediately to two mid-size financial institutions providing mortgage loans to low-income households and loans to SMEs. IFC has increased its advisory presence in recent years, notably with regard to corporate governance and access to finance. The overall focus of the portfolio is on renewable energy, financial inclusion and infrastructure, and recent investments are expected to produce new results throughout the new CPS time-frame in terms of energy matrix diversification, job creation, and increased access to financing. In the timeframe of this CPS, IFC expects to mobilize financing for new investments for an average total annual amount of US$50m per year. 74. Support to the private sector is complemented by a MIGA guarantee approved in 2006 for US$107.6 million for a toll road to the Northeast of the DR, covering a US$14 million equity investment and US$162 million bond issue for MIGA’s client, Autopistas del Nordeste. MANAGING RISKS 75. The risks to the successful implementation of the CPS program are substantial. The CPS program faces four types of risks: political, capacity, exposure to exogenous shocks, and natural disasters risks. (i) Political economy factors could slow down implementation of reforms. With elections coming up in the spring of 2016, the risk that the new administration does not support some of the policy priorities promoted under the Bank Group program will need to be mitigated through dialogue and flexibility in the program. An important share of the proposed engagements addresses areas that are sometimes captured by vested interests, which may hinder the success of Bank operations (e.g., education, health, corporate governance, electricity sector). To mitigate this risk, the Bank will invest in knowledge services and intensive dialogue with relevant stakeholders, notably benchmarking, to support reforms and seek partnerships with champions in Government and a wide range of actors in the private sector, civil society and the donor community. The IFC will continue to exercise due diligence, emphasize corporate governance and apply best practices in environmental management and performance standards. Ultimately, all development solutions require local ownership and implementation, and the WBG will need to be very realistic about the change that can be achieved within the CPS period. (ii) Weak technical capacity, budgetary constraints and complex procedures for project restructuring can affect the implementation of Bank-supported projects. The Bank and the Government will work closely together to mitigate the limited technical capacity by: improving design and quality at entry, drawing on lessons learned, and increasing the share of results-based financing in the portfolio; intensive implementation support, including via missions, local fiduciary support via training, and local consultant support in the Country Office for Bank projects; frequent portfolio reviews with the client to resolve common issues, and restructuring as needed. In light of the importance of restructuring and of delays in the process, the Bank is engaging in a dialogue to ensure that the restructuring process can be as streamlined as possible 30 moving forward48. Budgetary constraints represent a challenge for Bank-supported financing to the extent that budgetary caps on investments constrain disbursements. This will be alleviated by aligning the program closely with core Government priorities, via support to strengthen the quality of public expenditures and an active dialogue on project financing. (iii) Structural domestic challenges and weaknesses on the external side pose a significant risk to the Bank’s ability to achieve results. With large electricity sector deficits, a narrow tax base, a growing public sector debt, and a relatively high fiscal deficit, the DR faces challenges to sustain growth. On the external side, persistent current account deficits and large external financing needs make the economy highly exposed to developments in international markets. In addition, a change in the political landscape in Venezuela could result in reduced access to PetroCaribe financing, which in turn could result in an increase in fuel import costs and a deterioration of the trade balance as well as possible repayment demands putting pressure on reserves. Finally, increasing depreciation pressures could at some point generate some market anxiety, especially if the DR’s Central Bank is unable to maintain reserve levels above three months of imports. If these risks remain unaddressed they could jeopardize the DR’s ability to reduce poverty and improve shared prosperity. Mitigation measures are embedded in the CPS program in the form of support to key reforms aimed at improving fiscal performance, equity outcomes associated with public spending, greater energy efficiency, and better debt management, as well as through support for more effective safety nets. (iv) Exposure to looming climate variability and climate-related natural disasters could also set the country back. The DR is vulnerable to low frequency and high impact natural events that have historically been costly to address and which could potentially threaten fiscal sustainability and progress towards lower poverty and greater shared prosperity. To mitigate this risk, the WBG will support enhanced DRM practices in the country, as well as apply strong DRM practices to the investments the WBG will support. In case of major disaster, the Bank would make available emergency lending within the overall envelope by reallocating resources. 48 Recently, interpretation of Government procedures suggested that project restructuring would potentially require approval in Congress, which would entail significant implementation delays. 31 ANNEX 1. RESULTS MATRIX Country Development CPS Outcomes Indicators WBG Program Goals (END) Results Area 1: Improving the investment climate and fostering private sector development Macroeconomic (1) an improved climate for doing (1) Improving the time for a company to register DFSAP on Access to Finance stability; business for microenterprises and Baseline: 18.5 days (Doing Business (2014); Target: 9 days (2018) and follow-up TA Competitiveness SMEs (2) Number of clients, including women entrepreneurs, benefitting from additional SME finance Reimbursable Advisory and innovation; (2) improved access to finance in IFC-financed institutions Services for Investment Sufficient and Baseline: 0; Target: Increased/improved financial services for at least 60,000 microfinance and Climate, Competition and dignified jobs; A SME clients, including women, by 2018 Logistics productive (3) Extension of term for fixed-rate mortgages available to for low and middle income families Proposed Agricultural Value structure that is Baseline: longest fixed rate term for low and middle income families: 5 years (2013); Target: Chains Project sectorally and 10-year fixed rate mortgages available to low and middle income families by 2018. IFC Investments / Advisory territorially MIGA Guarantees articulated. Trade Competitiveness Diagnostic CGF (On-going) Results Area 2: Improving access to efficient and reliable electricity networks, ICT and other infrastructure Reliable, efficient (1) improved efficiency and (1) Reduction of commercial losses in selected circuits. Baseline and target to be determined in Proposed Electricity Sector and reliability of the electricity sector new project Management Project environmentally (2) improved connectivity (2) Average Service Availability Index in selected circuits. Baseline and target to be determined Emergency Recovery Loan sustainable energy; through the deployment of a in new project (On-going) Competitiveness national broadband backbone (3) Rehabilitation of storm-damaged transmission lines. Baseline: 0 (2013); Target: 10 Proposed Caribbean Regional and innovation between the main city of several kilometers (2015) Connectivity Improvement provinces (4) Provinces interconnected through a national broadband backbone network. Baseline: 0 Project (3) energy diversification provinces (2014); Target: 15 provinces (2018) IFC Investments (5) Increased diversification of energy, notably renewables, through IFC investments. Baselines MIGA Guarantees and targets to be determined in new investments CGF Results Area 3: Supporting the Government in building resilience to external shocks Sustainable (1) improved DRM planning in (1) Development of a National Integrated Information System for DRM, and Emergency Recovery Loan management of the the norms and procedures for Baseline: 0 (2013); Target: System operational (2018) (On-going) environment; Risk public investment projects in light (2) Installation of a new telemetric network for managing water resource flows Knowledge services for management to of climate change Baseline: 0 (2013); Target: System operational (2016) DRM planning and minimize losses; (2) recovery from tropical storms (3) Number of dams rehabilitated and built to enhanced DRM specifications. catastrophic risk insurance Adaptation to Olga and Noel with increased Baseline: 0/4 or 0 percent (2014) Target: 4/4 or 100 percent (2017) FCPF Financing for REDD climate change resilience of infrastructure. Results Area 4: Promoting equitable, efficient, transparent and sustainable management of public resources 32 Country Development CPS Outcomes Indicators WBG Program Goals (END) Efficient, (1) a more efficient, effective, (1) Improved alignment of actual public expenditures with the original approved budget, as Proposed Public Sector transparent and transparent and sustainable measured by PEFA indicator ID-2 Modernization Project result oriented management of public resources Baseline: D (2012); Target: C (2018) DR Public Expenditures public at the national and local level (2) Share of participating Local Governments with budgets aligned with priorities established in Management Grant (EU- administration (2) enhanced civil society Municipal Development Plans funded) capacity in budget analysis and Baseline: 0 (2013); Target: 70 percent (2017) GPSA Grant (On-going) oversight (3) Improvement in the DR’s Open Budget Index Programmatic PEMFAR Baseline: 29 (2012); Target: 50 (2018) Municipal Development Project (On-going) Results Area 5: Strengthening social services delivery Quality education (1) improved quality of teaching (1) Increased percentage of new teachers recruited under a new competitive and selective Proposed Support to the for all; Health and through better teacher policies, system; National Education Pact integral social (2) improved quality of learning Baseline: none (2013); Target: to be determined under Education project (2018) Project security; Equal through implementation of a (2) Robust student assessment system including national and international assessments Ongoing technical rights and robust student assessment system. implemented cooperation on teacher opportunities; (3) improved primary maternal Baseline: none; Target: new student assessment implemented in the first cycle of basic education policies, ECD, and full-time Dignified housing health care for targeted women and school-level results disseminated (2018) schooling (and water) in (4) improved vaccination rates for (3) Share of pregnant women from target population in Regions VI-VIII of the country with risk Support to IDEC healthy children according to quality evaluation completed before the 15th week of pregnancy based on national protocols Health Sector Reform APL2 environments standards in at least three regions Baseline: 13 percent (2013); Target: 55 percent (2017) (On-going) of the country (4) Percentage of children under15 months with vaccination scheme completed in Regions VI- Proposed Health Sector (5) access to improved sanitation VIII according to national protocols Reform APL3 services for mostly poor people Baseline: 35 percent (2013); Target: 70 percent (2017) Water and Sanitation in in the Puerto Plata area (5) Access to improved sanitation services for mostly poor people in the Puerto Plata area -- Tourist Areas APL1 (On- (6) improved social protection Baseline: 0 (2013); Target: 128,000 (2016) going) coverage of, and support to, (6) Share of eligible extremely poor Dominican households in 14 priority, high poverty Social Protection extremely poor households in provinces identified and incorporated in the conditional cash transfer program PROSOLI, and Improvement Project high poverty provinces share of these households receiving support for improved housing. (ongoing) (7) increased incomes and Baseline: to be determined by Integrated Social Protection and Promotion Project (2013); Proposed Integrated Social employment rates among Target: 75 percent incorporated in PROSOLI (2018) Protection and Promotion participants in the expanded Baseline: 0 percent of eligible poor households have dirt floors replaced by reinforced cement Project Temporary Employment Program floors (2013); Target: 25 percent (2018). Proposed Flexible (7) Increase in incomes and employment rates for participants in the Temporary Employment Employment Services project Program (TEP) Baseline: zero difference with the control group (2014); Target: Incomes and employment of TEP participants are 30 percent higher than for the control group (2018) 33 ANNEX 2. DOMINICAN REPUBLIC AT A GLANCE 34 Dominican Republic 9.a.lance of Paymen t=i and Trade 2000 2012 (USS m.\\'Ols) Tct.1' mEfl:f\al'dse eJ;>Ol'l& (!'00) ;m 7. 717 Tct.1' mEfl:f\al'dse lmPQ'16 (Cll'J 9,479 15.106 N:t tr30e h g:xia:;, ¥1C1 t.er.1CK · 1,886 -S.196 ' Cl.Gel'!! ac::oi.rn Daau · 1,026 -<.037 ' a&a % 01 GOP 4~ -6.8 Wortters' remlttMces and ,,. ~on or ernp1¥ff (reoeip-s) 1,839 ~650 R~s. hekllJng golCI 818 ~ Centl'al Governm en t F'i n11ince l" OIGDP) .... 0 2012 ,,,,,,__,...._,,., , , ,. CCu'!lrf~J)elt:e'tt!~ f'Ol"ll (l!- 100) Cl.Gel'!! ~riS ('%or mnrac:urea a-xport&) ~9.4 19 1.3 .. 22 ! xter n al Debt and Rc!osource Fl ows (USS m.\\'Ols) Tct.1' OE-IX ~ a'ld d&CM.ne(I Tct.1' OE-IX $EN!te OE-IX: l'Eilel' (Hl?C. t.fJRI) •.652 529 16.851 1.758 !nvi.ronmt!nt Ag\CIJ!lr.il IM!CI(% .... T t(d Ud.11. W bl.. IU """"""""' Pr:nc:p..1' IEPJ~ lnteteslp.J~ l llJ .. 111 \IW.lul~ m 39 21 22 .. 53 33 US$ 11'1llom IOA T«al a:ot CUSlneCI 14 7 Private Sector Develo pmt!nt 2000 2012 """"""""' T«ala:ot~ 0 0 Timereqr.hU&lras (OJ.)'S} Cost IO oar. a cusrras {% OI' GNI per C'HfJ T«al ((SOUfOeoal'(I ~ por1l'd:IO ., 182 Time reqr.hCl rrart.et e.1)1l