ICRR 13672 Report Number : ICRR13672 IEG ICR Review Independent Evaluation Group 1. Project Data : Date Posted : 01/24/2012 Country : Burundi Is this Review for a Programmatic Series? Yes No How many operations were planned for the 2 series? How many were approved? 2 Series ID : S113235 First Project ID : P102508 Appraisal Actual Project Name : Bi-ersg II US$M ): Project Costs (US$M): L/C Number : CH422 Loan /Credit (US$M): Loan/ US$M ): 30.0 28.2 Sector Board : Economic Policy US$M ): Cofinancing (US$M): Cofinanciers : The Netherlands, Board Approval Date : 08/05/2008 Norway, Belgium Closing Date : 06/30/2009 06/30/2009 Sector (s): Central government administration (60%); General industry and trade sector (30%); Crops (10%) Theme (s): Regulation and competition policy (29% - P); Public expenditure; financial management and procurement (29% - P); Other financial and private sector development (14% - S); State enterprise/bank restructuring and privatization (14% - S); Legal institutions for a market economy (14% - S) Second Project ID :P113235 Appraisal Actual Project Name : Economic Reform US$M ): Project Costs (US$M): Support Grant III (dpl) L/C Number : Loan/ US$M ): Loan /Credit (US$M): 25.0 25.2 Sector Board : Economic Policy US$M ): Cofinancing (US$M): Board Approval Date : 10/29/2009 Cofinancers :Belgium (ERSG II) and Closing Date : 12/31/2010 12/31/2010 The Netherlands Norway (ERSG II & III).. Sector (s): General public administration sector (30%), Health (20%), General education sector (20%), General agriculture fishing and forestry sector (15%), Other social services (15%) Theme (s): Public expenditure, financial management and procurement (70% - P), Rural policies and institutions (12% - P), Legal institutions for a market economy (6% - S), Judicial and other dispute resolution mechanisms (6% - S), Tax policy and administration (6% - S) Evaluator : Panel Reviewer : ICR Review Group : Coordinator : Brian Ames Michael R. Lav Ismail Arslan IEGPS2 2. Project Objectives and Components: a. Objectives: ERSG II and III were a series of two grants designed to assist the Government of Burundi in implementing its poverty reduction strategy . They built on the previous Emerging Economic Recovery Credit (EERC), the Economic Rehabilitation Credit (ERC), and ERSG I, which was not part of the programmatic series. The overarching objectives of the two programmatic development policy loans (DPLs) were to support the Government to continue reforms in the: (1) public finance management system; (ii) business, legal, and institutional environment; and (iii) coffee sub-sector (Page 2 of Program Document dated June 30, 2008). ERSG III also included the domestic petroleum sub-sector in addition to the coffee sector (Page 8 of Program Document dated September 30, 2009). Both DPLs were also intended to help the Government in securing sustained financial resources through : (a) economic growth; (b) external financial assistance; and (c) debt relief. b. If this is a single DPL operation (not part of a series), were the project objectives/ key associated outcome targets revised during implementation? No c. Policy Areas: Both DPLs covered the same three policy areas: 1. The budget management process . The focus was on making the budget process more accountable and transparent through improved: (a) budget preparation and alignment with the country's PRSP, (b) budget execution, and (c) budget accounting and control. 2. The business, legal, and institutional environment . The focus was on the development of the formal sector and the privatization of public enterprises . 3. Coffee sector reform, with ERSG III also including domestic petroleum sector reform . The focus was on divesting key elements of the coffee export sector (i.e., washing stations) and establishing a quasi-automatic mechanism for adjusting local domestic petroleum prices to changes in the international market. There were 10 prior actions for ERSG II (all were completed): six in policy area 1, three in policy area 2, and one in policy area 3 . There were also 10 prior actions for ERSG III (all were completed): six in policy area 1, two in policy area 2, and two in policy area 3. Of the original 12 triggers for ERSG III foreseen at the time of ERSG II, 6 were dropped (these were related to budget preparation, payroll calculation, budgetary manual and chart of accounts, simplified small business tax, privatization law, and assessment of 6 state-owned enterprises) in order to avoid cross conditionality with other donor -supported program and to allow time for the development of a more comprehensive approach to reform. Four new prior actions were added (with regard to the 2008 budget executed in line with the PRSP priorities, pricing ordinance for domestic petroleum products, preparation of a MTEF for priority sectors, and preparation of quality commitment plans to avoid arrears accumulation ). Two prior actions (improved performance of the commercial courts and adoption of a time -bound plan for coffee sector divestiture) were strengthened and made more specific d. Comments on Project Cost, Financing, Borrower Contribution, and Dates: Both of the DPLs were single tranche operations. ERSG II was approved on August 5, 2008, fully disbursed upon effectiveness (October 3, 2008), and closed on schedule on June 30, 2009. ERSG III was approved on October 29, 2009 for $25.2 million, fully disbursed upon effectiveness (December 23, 2009), and closed on schedule on December 31, 2010. 3. Relevance of Objectives & Design: a. Relevance of Objectives: The overarching objectives of the programmatic series of two DPLs (ERSG II and III) were consistent with both the Government's Interim PRSP and the Bank’s CAS. They benefited from the lessons learned from ERSG I, whose objectives had been “slightly ambitious� in supporting the government in implementing its interim PRSP with regard to PEM, the agriculture export sector, and the private sector. A balance was struck between the need for essential reform and the need for simplicity given weak institutions. The objectives were also particularly relevant for a country going through transition from a post-conflict economy to one geared towards accelerating growth and human development . Relevance of Objectives Rating: High. b. Relevance of Design: The DPLs were designed to support the achievement of ERSG II and III’s objectives through the implementation of a set of key measures. The selection of key reforms in PFM (i.e., adoption of a new organic budget law, a budget preparation decree, poverty reduction-oriented functional classifications, revolving cash flow plans, submission of government accounts for audit, and re -establishment of an internal control and audit unit), in Private Sector Development (i.e., a new investment code, re-launch of public-private consultation framework, and analysis of capacity for public enterprises reform ), and Coffee Sector (i.e., publishing of coffee commercialization regulations ) in ERSG II was appropriate. This was also the case for ERSG III regarding key PFM (i.e., finalization of public expenditure tracking surveys, higher proportion of priority spending in budget, preparation of an MTEF for priority sectors, expansion of integrated computerized financial management system, preparation of quarterly commitment plans, and establishment of a public procurement regulatory authority ), Private Sector Development (approval of a new commercial code, improved performance of the commercial courts, ), Coffee Sector (i.e., cabinet approval of modalities for sale of coffee washing stations ), and Domestic Petroleum Sector (i.e., issuance of an ordinance for quasi-automatic monthly adjustments in domestic prices). The Results Framework provided a clear statement of objectives, but the indicators were more focused on "activities" and "outputs" than on final "outcomes". However, it provided appropriate emphasis on Burundi being a post-conflict country with limited institutional capacity, and the sequencing of the ERSGs to take the reform effort forward. The prior actions and triggers were appropriate and relevant to the key measures required for achieving the development policy objectives.There were no intermediate outcomes given that these were single year DPLs . Relevance of Design Rating: Substantial 4. Achievement of Objectives (Efficacy): Efficacy is determined by assessing the achievement of prior actions, PDO indicators, and structural change. The ICR reviewed progress for 12 PDO indicators identified in ERSG II and 15 final PDO indicators in ERSG III, including progress towards macro -economic stability. Policy area 1: Pubic Financial Management The DPLs included a wide range of indicators regarding the objective of strengthening public financial management, including budget preparation, execution, and accounting & internal control . Budget preparation: The targeted outcomes were broadly achieved. the 2009 and 2010 budgets were based on the new and improved Budget Law, which were submitted to parliament for approval three months prior to the end of the fiscal year. Moreover, the amount of expenditure allocated to pro-poor spending increased measurable from about 45% in 2007 to over 48% in the 2009 budget. Importantly, program budgeting is on track to be introduced in selective sectors by 2014. Budget execution: The targeted outcomes in this area were also broadly achieved . The decree establishing the cash management committee was adopted and regular meetings of the committee took place throughout the period of the two DPLs. The timetable between commitments and liquidation of commitments was reduced from 9 days to 4 days over the program period and the level of "exceptional" expenditures was reduced to minimal levels . Implementation reports for HIPC-financed and pro-poor expenditures were published. Moreover, Public Expenditure Tracking Survey (PETS) data are now published and action plans prepared for education, health and justice, although beneficiary surveys need to be more extensive . The average time for payment of invoices is estimated at 45 days (target was 40 days) at end 2009. Accounting and internal control : Achievement of the outcome indicators for strengthening the audit and control system was mixed. Although the internal inspection and control unit was re -established and some reports covering a portion of total state income and/or expenditure was achieved by the end of the program period, the target of 15 reports covering 30 percent of such revenue/expenditure was not met. The outcome of producing comprehensive government accounting reports in a timely and regular manner (SIGEFI) and providing such account to the audit court also in a timely manner was achieved with regard to the 2006 and 2007 government general and extra budgetary accounts. The adoption of a new Procurement Code, the creation of a new agency to regulate procurement, the provision of budget, and the recruitment of the main members of staff represented important progress, but significant capacity constraints nevertheless remain . Efficacy in achieving the objectives in policy area 1 is rated substantial . Policy area 2: Business, legal, and institutional environment The DPLs included four outcome indicators regarding improving the business legal and institutional environment for growth, including an updated legal framework for private sector development, a strengthened analytical base for public enterprise (PE) reform, reduction in the settlement of commercial litigation, and improved dialogue between the government and the private sector . There was no progress on the outcome indicator for the simplification of business registration and taxation, as the authorities decided to address this reform in the context of overall reform of the General Tax Code. Legal framework: A new investment code was approved by Parliament in 2008 and draft Commercial and Corporations Codes were adopted by the council of Ministers in August 2009 and submitted to Parliament for approval. Public enterprise reform : Financial audits of five PEs are underway, although they were to have been finalized by end 2009. Action plans that reflected the conclusion of the audits were also to have been implemented by that time. Commercial litigation: Computerized detailed data on commercial court performance is now available.There was also an improvement in the percentage of cases that were not settled by the 60-day deadline mandated by law, from 40% in 2007 to 10% at end-July 2009. Private sector dialogue: In the past, there was no effective communication system between the public and private sector. The Decree creating a consultation mechanism was adopted and signed in June 2008. The private sector is reorganizing how it will represent its views regarding future meetings . Efficacy in achieving the objectives in policy area 2 is rated substantial . Policy area 3: Coffee, tea, and domestic petroleum products sector The DPLs included outcome indicators for reform of the coffee and tea sectors (ERSG II and III) and the domestic petroleum products sector (ERSG III). Coffee sector reform: An action plan for State divestiture from the coffee sector was adopted, as well as measures aimed at liberalizing the coffee export market to local and international participants . Bidding documents were published on June 5, 2009, a conference for potential investors was held on June 25, 2009, and the call for bidding was closed in August 2009. 13 of the country’s 117 coffee washing stations were subsequently sold to an international company (WEBCOR). The government has commissioned a study to analyze the implementation of the first round bidding process and to reflect the outcome in the assessment of a second phase. ] Tea sector reform: A roadmap for the initiating the design of the reform program for the tea sector has been formulated, albeit with delay. Domestic petroleum product reform : As regards the reform of domestic petroleum sector, the authorities agreed in principle to the quasi -automatic domestic price adjustment, which was subsequently approved by the Cabinet and promulgated by the Parliament in July 2009. Efficacy in achieving the objectives in policy area 3 is rated substantial . On the macroeconomic front, with a gradual return to political stability, Burundi recovered from a decade of negative growth to a positive 4.5 percent in 2008. Economic growth remains volatile, however, due to its reliance on the agricultural sector (mainly coffee), which is susceptible to large swings in world market prices. Inflation increased from 8 percent in 2007 to 24 percent in 2008, due principally to the impact of spikes in world food and fuel prices and a weakening of the domestic currency arising from the exogenous shocks . Fiscal policies have been generally prudent, with improvements in expenditure management along with increases in domestic revenue and foreign assistance reducing the fiscal deficit (on a commitment basis including grants) to less than 1 percent of GDP. Burundi reached the Completion Point under the enhanced Heavily Indebted Poor Countries Initiative, which reduced its public and publicly guaranteed debt by more that 90 percent in net present value terms and scheduled debt service by US$30-40 million per year over the next 30 years. The lack of export diversification and reliance on imported oil and capital goods continues to plague the country, resulting in large current account deficits (including official transfers ), which declined from 15.7 percent of GDP (2007) to 14.2 percent (2008), largely due to higher coffee prices. 5. Efficiency (not applicable to DPLs): 6. Outcome: The satisfactory outcome rating reflects the "high" relevance of the programs’ objectives, the "substantial" relevance of the programs’ design, and the "substantial" achievement of all three program development objectives over the programmatic period . Although a major prerequisite for DPLs (namely, the formulation of a concrete and clear long term vision ) was not fully in place at the onset of ERSG II, this was corrected at the time of ERSG III, which focused on key issues and the removal of impediments. The "satisfactory" outcome rating for the programmatic series is justified, especially when taking into account Burundi's post -conflict situation, limited institutional capacity, and gradually expanding public awareness of the Government's economic program . a. Outcome Rating : Satisfactory 7. Rationale for Risk to Development Outcome Rating: The risk to development outcome rating under the programmatic series of DPLs is moderate and has improved relative to the significant rating at the time of ERSG I . This rating is justified in light of the continued satisfactory implementation of the initial three ERSG operations and the fact that the authorities are seeking a new ERSG IV with a view to consolidate many of the reforms that began in ERSG II and ERSG III. Also, most of the implementation risks have been mitigated by the TA and capacity building support that accompanied the operations . a. Risk to Development Outcome Rating : Moderate 8. Assessment of Bank Performance: a. Quality at entry: The quality at entry was satisfactory as the staff did draw extensively on the lessons learned from previous operations in designing the subsequent operations (ERSG II and ERSG III). Given the Burundi's post-conflict status and the significant institutional capacity constraints facing the country at that time, the staff’s effort to keep things simple and less complex, as well as to integrate key technical assistance and capacity building support, was appropriate . at -Entry Rating : Quality -at- Satisfactory b. Quality of supervision: The ICR underscores that the ISR for ERSG was not candid and was overly optimistic regarding progress in implementation and should have taken into greater account the lack of government capacity. The subsequent ISR, however, was more focused on this issue and staff also stepped up the number of supervision missions for ERSG III, with the most recent supervision mission coinciding with the preparation of the new programmatic series (ERSG IV & V). Quality of Supervision Rating : Satisfactory Overall Bank Performance Rating : Satisfactory 9. Assessment of Borrower Performance: a. Government Performance: The government had strong ownership of the program’s objectives since both ERSG II and ERSG III supported key pillars of their PRSP. Moreover, the government demonstrated its commitment to the programs at the highest level. Government Performance Rating : Satisfactory b. Implementing Agency Performance: There was an apparent lack of consensus amongst the implementing agencies and the lead sectoral ministries involved in ERSG II and ERSG III should have been more actively involved and responsible for program implementation. In part, this was due to the weak institutional capacity of the implementing agencies, which require extensive training and technical assistance . Implementing Agency Performance Rating : Moderately Satisfactory Overall Borrower Performance Rating : Moderately Satisfactory 10. M&E Design, Implementation, & Utilization: a. M&E Design: As regards M&E design, lessons were drawn from previous operations (ERSG I) which were taken into account by Staff (Quality at Entry) in the design of subsequent operations (ERSG II and ERSG III). The M&E framework had clearly stated objectives and outcomes, was time -bound, and streamlined in terms of the number of indicators relative to the excessive amount in ERSG I . b. M&E Implementation: Efforts were undertaken by Bank staff to increase the number of supervisory missions (Quality of Supervision) following the initial lack of taking into account shortcomings in government capacity . But, there is no information in the ICR regarding the government’s implementation of M&E, including with regard to what extent (if any) input, output, outcome, and impact evidence was collected and/or analyzed. c. M&E Utilization: There is no information in the ICR on the extent to which the M&E findings were communicated to stakeholders and to what extent this actually informed strategic redirection and resource allocation . M&E Quality Rating : Modest 11. Other Issues a. Safeguards: The ICR did not mention any safeguard issues . b. Fiduciary Compliance: The ICR did not mention any outstanding fiduciary issues . c. Unintended Impacts (positive or negative): The ICR did not mention any unintended impacts . There do not appear to be any apparent unintended impacts . d. Other: None 12. 12. Ratings : ICR IEG Review Reason for Disagreement /Comments Outcome : Satisfactory Satisfactory Risk to Development Moderate Moderate Outcome : Bank Performance : Satisfactory Satisfactory Borrower Performance : Moderately Moderately Satisfactory Satisfactory Quality of ICR : Satisfactory NOTES: NOTES - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006. - The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate. 13. Lessons: The ICR draws several important lessons from the experience of the ERSGs . Most noteworthy are: 1. The program did not focus on “outcomes�, but rather “activities� and “outputs�. Hence, future operations need to be “results-oriented�. 2. The program also did not focus sufficiently enough on monitoring and evaluation and, hence, there needs to be greater focus on M&E in subsequent operations 3. Although the previous operations had buy-in at the highest level, future operations should attempt to engage a wider and broader audience of stakeholders and beneficiaries . 4. Although the previous operations relied on the government’s PFM and procurement systems, greater efforts should be undertaken by staff to ensure that the systems of control and compliance are robust. 5. With the Bank’s increasing emphasis on Governance and Anti- corruption, greater attention is needed in future operations on political economy analysis; fraud and abuse of government funds; and voice and accountability. 14. Assessment Recommended? Yes No 15. Comments on Quality of ICR: The ICR made a good case for the evolution and sustainability of the authorities ’ reform effort through the series of ERSGs and the integration of lessons learned from the shortfalls in the design of initial operations into the design of subsequent operations. It also emphasized the strong level of buy-in at the highest political level, while being frank and candid about the lack of efforts for broader buy -in and the severe capacity constraints in the implementing agencies . a.Quality of ICR Rating : Satisfactory