PROGRAM INFORMATION DOCUMENT (PID) CONCEPT STAGE Report No.: AB7184 (The report # is automatically generated by IDU and should not be changed) Operation Name WBG - PRDP Support V Region MIDDLE EAST AND NORTH AFRICA Country West Bank and Gaza Sector Central government administration (64%);Sub-national government administration (12%);Energy efficiency in Heat and Power (12%);Other social services (12%) Operation ID P129742 Lending Instrument Development Policy Lending Borrower(s) PALESTINE LIBERATION ORGANIZATION Implementing Agency PALESTINIAN AUTHORITY/MINISTRY OF FINANCE Date PID Prepared November 27, 2012 Estimated Date of Appraisal February 7, 2013 Estimated Date of Board March 21, 2013 Approval Corporate Review Decision Following the concept note review, the decision was taken to proceed with the preparation of the operation. Key development issues and rationale for Bank involvement A sharp reduction in donor budget support in recent years has brought to prominence the Palestinian Authority’s efforts to strengthen its fiscal position and reduce reliance on donor aid for financing recurrent budget expenditures. In addition to measures aimed directly at enhancing public revenues and reducing inefficiencies in public expenditures, which are critical to fiscal sustainability, other measures aimed at laying the institutional foundations for improved governance and transparency in the public sector, which the PA is conducting, are equally important not only for fiscal sustainability in the long run, but also for enhancing the quality of services provided by the government and for economic growth and development. Given substantial constraints to the growth of the tradable sector of the economy related to the political situation in the Palestinian Territories (e.g. various restrictions on economic activity imposed by the Government of Israel and the political division between the West Bank and Gaza), further rapid reduction in donor aid inflows would hurt the outlook for economic growth. The Development Policy Grant V, as envisaged in the 2012-2014 ISN, is a key instrument aimed at supporting the PA's strategic priorities, but also providing essential financing for the Palestinian Authority's budget. The operation aims to assist the Palestinian Authority in implementing some of the core areas of its National Development Plan (NDP) 2011-2013 and efforts to address some of the recently emerged priorities in addressing the above-mentioned fiscal challenges. The financial significance of this operation is not only in that it provides US$ 40 million in Bank financing, but that it directly leverages the support of other donors through the PRDP Trust Fund in the amount close to US$ 200 million. Proposed Objective(s) The proposed operation aims to support the PA in strengthening its fiscal position and reducing reliance on donor assistance for recurrent expenditures. Specifically, DPG V will support the following aspects of the PA’s NDP: (a) strengthening the fiscal position by undertaking reforms to (i) increase government revenues, (ii) improve the efficiency of public expenditures, and (b) lay the institutional foundations for improved governance and transparency in the public sector. Preliminary Description The proposed DPG V is a standalone operation, but it was nevertheless designed with a medium term reform perspective and it builds upon the reform progress achieved by the previous four DPGs in several policy areas. The operation will support the following specific reforms the PA is currently undertaking:  Strengthening domestic revenue performance by supporting measures to increase tax compliance.  Improving the efficiency and sustainability of public expenditures in the areas of public wage bill management, social assistance and healthcare.  Laying institutional foundations for improved governance and transparency in the public sector by: (i) continuing efforts to build modern public procurement institutions and processes; (ii) strengthening the PA’s cash management capacity; (iii) improving the coverage and transparency of public revenue and expenditure reporting; (iv) modernizing the land registration system to reduce land registration costs and strengthen municipal finances. Poverty and Social Impacts and Environment Aspects Poverty and Social Impacts A more extensive Poverty and Social Impacts Assessment will be carried out as the preparation of DPG V progresses. A preliminary assessment shows that DPG V will have positive poverty and social impacts working through several different channels. Over the medium-term, the reforms supported by this operation are expected to translate into augmented fiscal space for essential poverty-reducing programs and improved prospects for employment opportunities in the private sector. Measures aimed at increasing government revenues combined with measures to reduce inefficiencies in public expenditures will increase the fiscal space for essential poverty-reducing expenditure programs. Improved fiscal management is also an important requirement for economic growth and job creation. The measures supported by this operation to strengthen the public procurement process should reduce the procurement costs and thereby increase the fiscal space for essential public services; these reforms should also enhance business opportunities for more domestic companies and consequently support growth and employment of the private sector. This would have a positive poverty and social impact. Other PFM reforms supported by this operation are expected to have similar positive effects Environment Aspects The DPG IV operation will not have significant effects on the country's environment, forests and other natural resources. The environmental and natural resource implications are driven to a large extent by the nature of an operation. In the proposed operation, none of the prior actions as listed in the policy matrix will have environmental impacts or risks. Additionally, the proposed DPG IV does not have any investment lending subcomponent involving physical investment. None of the Bank’s safeguard policies are triggered by the proposed operation. Tentative financing Source: ($m.) Borrower 0 Special Financing 40 Borrower/Recipient 0 IBRD 0 Others (specifiy) Total 40 Contact point World Bank Contact: Orhan Niksic Title: Senior Economist Tel: 5366+253 Fax: Email: oniksic@worldbank.org Location: Gaza, West Bank and Gaza (IBRD) Borrower Contact: Mr. Hussein Jaloudi, Ministry of Finance of the Palestinian Authority Ramallah, West Bank West Bank and Gaza Tel: (970-2) 240-0650 Fax: (970-2) 240-0595 mofirdg@palnet.com For more information contact: The InfoShop The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 458-4500 Fax: (202) 522-1500 Web: http://www.worldbank.org/infoshop