The World Bank Group Quarterly Publication - The World Bank Middle East Department - Lebanon THIRD/FOURTH QUARTER 2009 57792 FRESH WATER 80% TO IRRIGATION <3000m3/PERSON/YEAR RENEWABLE RESOURCES MIDEAST: LARGEST IMPORTER OF CEREALS <250MM/YEAR AVERAGE PRECIPITATION In this edition Combatting Water Scarcity in the Middle East Third / Fourth Quarter 2009 1 Editorial Team Contents In this edition Syria EDITORIAL 3 Lebanon Iraq Iran New MENA Leadership Un- Jordan veils Development Agenda 4 Water in the Mashreq: Man- EDITOR-IN-CHIEF aging Scarcity Challenges 8 Hedi Larbi Director-Middle East Department LEBANON Lebanese Economy Beats The To Order World Bank Publications: publications.worldbank.org/ecommerce For Information on World Bank Programs: www.worldbank.org Global Crisis 14 EDITORIAL BOARD (in alphabetical order): Demba Ba SYRIA Ziad Badr Asaeel Barghuthi Electricity Sector Challenged Janet Dooley by Fast Economic Growth 24 Zeina El Khalil Jean Michel Happi May Ibrahim Pilar Maisterra JORDAN Stefano Mocci Well-Developed Electricity Marian Mohamed Saleh Simon Stolp Sector Challenged by Rising Sophie Warlop Demand 30 Najat Yamouri Mona Ziade IRAQ Contacts In Beirut Priority to Providing Services Mona Ziade The World Bank to the People 34 Bouri House Abdallah Beyhum Street Beirut Central Distrct Phone: +961-1-987800 Email: mziade@worldbank.org In Washington Najat Yamouri The World Bank MSN H10-1002 1818 H Street NW, Washington DC 20433 USA Phone : 202 458 1340 Email: nyamouri@worldbank.org Third / Fourth Quarter 2009 2 The Middle East's Water Scarcity... Urgency to Act Now T he Middle East and North Africa is the most water scarce improving irrigation techniques and practices, reducing waste, region in the world, and per capita availability in the region is protecting water resources from pollution and re-using well- predicted to halve by 2050 as the population grows. But scarcity treated waste water. is only one of the water-related challenges facing MENA coun- tries: altered rainfall patterns due to climate change, shifting Such policies involve strategic shifts in water usage from low value, demand structures and rising industrial and urban pollution all intensive water-consuming crops, which bring poor economic re- complicate efforts to efficiently manage water resources. turn, to policies, which meet the increasing demand for the people, industry and services, but are less water consuming. Some govern- It is almost a feat that the Middle East, which is plagued with ments have proved very reluctant to handle the politics and po- conflicts, has so far managed to avoid major water wars, even tential social implications associated with such reallocation. It is though water is a life-and-death economic issue for the people understandable that the political economy of water is complex and of the region. But for many of these nations, which already are sensitive. But, given the political and economic importance of wa- treading the razor's edge of conflict, water is becoming increas- ter, there is an urgent need for a debate on water resources man- ingly a catalyst for confrontation ­ an issue of national security agement and policies that optimize water utilization. and foreign policy as well as domestic stability. For this debate to be successful, it should be well framed, Given water's growing ability to redefine interstate relations, evidence-based and highly participatory. Derived policies and the success of future efforts to address water sharing and dis- implementation processes and pace will need to be contextual, tribution will hinge upon political and strategic management depending on each country's situation. The anticipated dramatic at the national and regional levels of this diminishing natural paradigm shift to counter the looming water crisis in the region resource. Already considered a zone of conflict in international will benefit from the wealth of knowledge accumulated on stra- planning, the Middle East stands poised to deteriorate into re- tegic management of water resources. This is why it is necessary gional infighting over water allocation and accessibility if ap- to engage in this debate, devise new policies and initiate the propriate strategic and policy means are not urgently applied. new shift to offset the high cost of further delays. Most of the water that we use does not go to drinking, washing As one example of how desolate conditions are likely to be in a or flushing the lavatory. It is imbedded in foods which may even few decades, recent statistics show that worldwide the average appear perfectly dry - such as flour. We each drink about one water availability per person is close to 7,000 cubic meters per cubic meter of water a year and use between 50 and 100 for do- person per year, whereas in the MENA region, only around 1,200 mestic purposes. But it takes a further 1,000 cubic meters a year cubic meters per person per year is available. Moreover, with to meet each person's food needs. So, although it may help to the growing population and climate change, per capita avail- take a bath less often, this is but a drop in the ocean compared ability is expected to halve by 2050. with the use of water for irrigating farmlands, which consume about 85 percent of the region's water. On the regional front, water's growing role in the emerging hyd- ropolitics of the region has stressed the need for a new approach In water-short circumstances, according to basic economic to allocate and safeguard this diminishing resource. The inte- principles, water should be allocated to uses which bring the gration of water into regional strategic integration cooperation best economic and social return. In agriculture, water should be frameworks becoming visible among regional states could facili- allocated to crops which bring the highest economic and social tate water-sharing management, protection, and preservation of value, while using the most effective irrigation technologies. water resources. This interaction could eventually pave the way for the long-term security of Middle East water. In light of the A good place to start in optimizing water usage in the Middle formidable barriers that have prevented agreements to date, such East would be to bring the issue into the open and secure sup- an approach may represent the only method by which to turn plies of "virtual water" through optimal food supply on the back the tide of the new water politics of the Middle East. international market at the least cost for the countries of the region. A second priority is to manage the demand for water Hedi Larbi and re-allocate it to the most profitable uses through adequate Director pricing policies. The third priority is to use it more efficiently by Middle East Department Editorial / Third / Fourth Quarter 2009 3 New Vice President Unveils Her Agenda in MENA Shamshad Akhtar assumed her post as the Q: What else can be done to mitigate the impact of World Bank's Vice President for the Middle the global recession on MENA? East and North Africa on July 7, 2009. Dr. A: More needs to be done. First, the global financial crisis may Akhtar, a Pakistani national, brings with actually be an opportunity to identify the shortcoming of, and re- her a rich experience in social development, forms to, targeted safety net programs and other social programs in order to free up resources for the poor and the vulnerable. Also, economic policies and public finance - Highly as countries put in place these necessary stimulus packages, there welcome resources in a turbulent region that must be a judicious balance between short-term financial stability is grappling with reforms on all levels. In this and long-term growth. As such, investment spending must con- comprehensive interview, Dr. Akhtar explains tinue, and hard choices towards sustainable growth and jobs in the long-term must continue to be made. Of course, coordination her vision for development in the region and among MENA countries remains as important as ever, particularly the priorities of her tenure. in this period of global downturn, to ensure that the initiatives taken in individual countries are mutually reinforcing. Q: How has the global financial crisis impacted reforms in MENA? Q: You have placed a lot of emphasis on the Arab World Initiative. What is its value added and what is the Bank A: The crisis has underscored the urgency for all countries, in- planning to do differently under this initiative? cluding MENA, to focus and augment the economic and sec- tor reform to accelerate economic recovery, while maintaining A: This is indeed my highest regional priority, only insofar as re- macroeconomic stability. Reforms are also critical to mitigate gional economic integration represents a massive growth potential the social consequences of the global financial and economic AWI represents a process by which we for the region, and one that has been tapped in a limited way to crisis. Policy makers are faced and our partners identify ways where date. In other words, it is extreme- with difficult choices. While `collective action' on economic poli- ly important to the World Bank there is a need in most cases to because it is extremely important stimulate economies, this has cies, trade, infrastructure investments for future growth and jobs for the to be coordinated effectively in or financial intermediation, can bring region's youth. We will of course line with the available fiscal re- sources that are impacted by the to gains to all. At this time, we are directing continue ourwork bilaterally with each of client countries to slowdown in economic activity. the focus of AWI to promote regional support their growth strategies, Policy tradeoffs are complex, but economic integration both financially and technically. the need to revive economies is imperative and this requires accelerating the pace of economic But this AWI represents a process by which we and our partners reforms, while avoiding protectionist tendencies. It is encourag- identify ways where `collective action' on economic policies, ing to note that a number of MENA countries have indeed seized trade, infrastructure investments or financial intermediation, this opportunity and are launching a range of economic reforms. can bring gains to all. At this time, we are directing the focus of Diversified countries with strong trade and tourism linkages with AWI to promote regional economic integration. Europe and OECD (Organization for Economic Cooperation Devel- opment), such as Morocco, Tunisia and Egypt are good examples This is due to the relatively small size of several MENA countries, that are launching quite broad based reforms. and the need for integration to widen the market for potential investors and firms. Economic integration also reduces the Third / Fourth Quarter 2009 / Interview 4 Interview Biography Prior to becoming a Vice President of the Middle East and North Africa Region in the World Bank, Dr. Sham- shad Akhtar served as Governor of the State Bank of Paki- stan (2006-2009) - a Federal Ministerial level ranking. Dr. Akhtar, was the first woman and the 14th Governor of the State Bank since its inception in July, 1948. During this period, she was Pakistan's Governor at the International Monetary Fund. Dr. Akhtar began her career in the Asian Development Bank (ADB) in 1990 as a Senior and Principal Financial Sector Spe- cialist. She became a Manager in 1998, and from 1998-2002 she was Director of ADB's (ADB) Governance, Finance and Trade Division. In 2004, Dr. Akhtar became the Director Gen- eral of the Southeast Asia Department of the ADB. In 2006 and 2007 she was nominated Asia's Best Central Bank Gov- ernor by Emerging Markets and the Banker's Trust. Dr. Akhtar worked as an Economist at the World Bank's Resident Mission in Islamabad, Pakistan from 1980-1990. She also worked briefly with the Planning Offices of both the Federal and Sindh Governments. Dr. Akhtar has con- tributed to the development of diversification of financial markets including the analysis of monetary policy and state Dr. Shamshad Akhtar of banking industry (at the World Bank) and restructuring of the Securities & Exchange Commission, Insurance Com- financial and time costs of trade between the countries. Within mission and worked closely with the private sector including this context, we are looking at three pillars to govern our work: the stock exchanges of Pakistan. She has been advising the central banks on reforms of financial markets and she has · Regional projects. We will work with our partners to been dealing with the banking sector's legal, regulatory and identify projects that can be handled on a regional scale, institutional reforms, while advising on diversification of the including infrastructure, trade facilitation, financial sector industry to exploit long term funding through development and support to Small and Medium Enterprises (SMEs), and of bond market. environmental issues. We hope to have at least one regional project identified and advanced within the next year or so, Dr. Akhtar graduated from the University of Punjab with a and a pipeline of other projects soon afterwards. B.A. Economics degree in 1974. She has a M.Sc. in Econom- · Harmonization and standardization of approaches: The ics from the Quaid-e-Azam University, Islamabad; as well as M.A. in Development Economics from the University of adoption of standard regulations, procedures and standards Sussex (1977). She holds a Ph.D. in Economics from Britain's greatly reduce the costs of trade among MENA countries Paisley College (e.g., customs, freight forwarding, transit policies, etc), and facilitate the movement of goods, finances and people. Q: The AWI initiative has been discussed for two The Bank Group will support regional approaches to pub- years, is there any tangible progress? lic goods (such as environmental management); harmo- nization of standards and regulations. A: Actually, there has been significant progress. · Knowledge and Capacity Building: At least one region- wide knowledge product will be prepared every year over First, the MENA region has been involved in a process of econom- the next 3 years, possibly a regional training hub to sup- ic integration for some time now. The GCC is now a full-fledged port the other pillars in this initiative. Common Market. The Maghreb Countries have quite an elabo- Interview / Third / Fourth Quarter 2009 5 New Vice President Unveils Her Agenda in MENA rate trade network. Significant initial investments in trade and We believe that regional economic back economic growth in the Arab World is limited economic transport infrastructure in the integration will help unlock the potential integration­both with the rest Mashreq have been made. Now, of the Arab World to create opportunities of the world and within the it's time to pull this all together. region itself. Arab countries for its growing and young population have a diversity of economic Second, in terms of World Bank and to become a key player in the global conditions and resources; and activities relating to the Arab economic and financial architecture the experiences of Europe, and World Initiative, we have been more recently Asia, suggest this in consultations with senior policy makers across MENA and diversity is an asset that can boost economic growth and help have generated a high sense of enthusiasm for collective eco- create opportunities for the citizens of the Arab World. nomic action; and since last year, the AWI has been an effec- tive vehicle supporting: Q: Will the Bank increase its assistance to MENA countries in FY10 and beyond? · Investments in ports, airports, and trade logistics in Egypt, Jordan and Tunisia; A: Indeed lending is expected to rise in FY10 as is the case in · Assessments of cross-border facilitation and infra- other regions. In fact we are expecting IBRD and IDA lending structure across the region (Iraq, Jordan, Lebanon and requests from MENA countries to reach US$6 billion in FY10 West Bank and Gaza); -- three times the level of the previous year. We are seeing in- · Assessments of the benefits of energy trade; creased demand for development policy loans to support re- · Student loan schemes in West Bank and Gaza and to form efforts and respond to fiscal deficits that the global crisis schools for females in Jordan to promote labor market has triggered. access for young female graduates; · Support for the launching of the Arab Water Academy During FY09, IBRD lending in MNA rose to US$1.9 billion. IFC as a platform of knowledge exchange and enhancement of and MIGA were also active with IFC putting on its books $1.2 Arab leadership in sustainable resource management; and billion of new business. In addition, we provided technical as- · Support for the launching of the Regional Academy sistance and policy advice to many countries. for Learning and Leadership in Education in Jordan. Q: What do you see as the key priorities for the World Q: Why is Regional Economic Integration important, Bank in the MENA region over the next 2- 3 years? and what are its prospects? A: The top priority is to help our clients recover from the im- A: We believe that regional economic integration will help un- pact of the financial crisis and resume economic growth. The lock the potential of the Arab World to create opportunities for emphasis will remain on supporting growth that is both inclu- its growing and young population and to become a key player in sive and sustainable, which means placing job creation and the the global economic and financial architecture. related private sector development, youth and gender agendas at the center. Another key priority is to support our countries Despite good progress in the past two decades, the Arab World's in promoting regional economic integration; that is the Arab economic growth remains slow compared to dynamic regions World Initiative. such as East Asia and less than the levels required for creating sufficient jobs for an increasing labor force. The Arab World Q: The region you cover is fraught with conflict. How labor force growth averages 3.4 percent a year due to a large do you see this instability impacting the Middle East's number of young people and an increase (from low levels) prospects for growth? of female participation; and it is estimated that to provide employment for this burgeoning population of young adults, A: The short answer is that the conflict-growth cycle is com- the region must create 5 million jobs a year over the next 20 plex. On the one hand, conflict seriously cripples the prospects years. One important factor that has played a role in holding for prosperity and growth. On the other hand, sustainable and Third / Fourth Quarter 2009 / Interview 6 Interview In Iraq, we have provided about US$1 billion from our own inclusive growth is a determinant of whether a country will resources and other donor resources that we manage (IRFFI) emerge from and remain out of conflict. Ultimately, we are a to support reconstruction and development there. The Bank's development institution, and have an over-riding goal of alle- overarching objective is to help the Iraqis use their own resourc- viating poverty, but one cannot fully address the needs of the es more effectively to support private sector-led growth and poor if recurrent conflicts prevent the delivery of development assistance and capacity building efforts. deliver basic services. That is why our portfolio of investments targets infrastructure, education, On the Palestinian-Israeli Our work in conflict-affected countries health, transport and electricity. conflict. I have just returned is based on one premise, while inclusive All of these projects are imple- from the Ad Hoc Liaison Meet- mented by Iraqi institutions, ing on the West Bank and Gaza economic opportunities do not guarantee with which we work closely and on the sidelines of the UN Gen- peace and stability, the inverse is true: provide technical assistance to eral Assembly. The Palestinian on a wide range of issues. Authority and the State of Israel poverty fuels conflict were there and the discussions focused on the current security Our work in conflict-affected countries is based on one premise, and development challenges in the Palestinian Territories. The while inclusive economic opportunities do not guarantee peace emerging consensus is that peace and stability is not a zero sum and stability, the inverse is true: poverty fuels conflict. game. All parties benefit from it, including the international com- munity, and must therefore invest in it. Interview/ Third / Fourth Quarter 2009 7 Water in the Mashreq: Managing Scarcity Challenges and Priorities for Consistent Policy Action - by Claire A. Kfouri1 I n 2008, the citizens of Lebanon spent over US$308 million The competing demands for water and the implementation (1.3% of GDP ) on private tankers and water bottles. Lagging of new, forward-facing initiatives for strategic action, both sanitation in Iran incurred 2.2% of GDP2 in costs of environ- described in further detail below, are an opportunity for the mental degradation. Syria's dependency on transboundary wa- Mashreq region to continue to lead in mitigating and adapting ter sources remained highest of the Mashreq region at 80%. to the consequences of living in the most arid and water scarce Jordan, grappling with severe water scarcity, continued to con- region of the world. (See figures 1 & 2) sider the mega Red Sea ­ Dead Sea Project with its riparian Figure 2. Projected Percent Decreases in Runoff, IPCC 20007 neighbors and Iraq still has to rebuild water supply, sanitation and irrigation infrastructure and institutions. Several millennia of experience, a rich history of innovation in managing scarce water resources and heavy investments in in- frastructure have placed the Mashreq3 region in the vanguard of some of the most advanced water management techniques. These include constructing dams under conditions of high seismic risk in Iran, reusing treated wastewater in Jordan and managing complex irrigation and drainage networks in Iraq and Syria as only some examples. Today however, Mashreq nations face the challenge of man- aging water scarcity in an environment of fast and perpetual change - changing political economies, increasing urban popu- Competing Demands For Water: lations and now science confirms, a rapidly changing climate, Water for Food with serious impacts on available water resources. Moreover, With precipitation averaging less than 250 mm per year, the with the regional population expected to grow from around 193 subsequent natural limitations to rainfed agriculture have ren- million today to around 320 million in 2025, per capita water dered Arab nations (including those of the Mashreq) the largest availability is expected to halve by 20504. worldwide net importers of cereals (58.7 million metric tons in 20075). Furthermore, over 50% of all food calories consumed in Figure 1. Annual renewable water resources per capita the Arab world are also imported. Australia & New Zealand Heavy dependence on food imports and international commod- Latin America & Caribbean North America ity markets has naturally raised concerns about food security, Europe & Central Asia measured by price and availability of supply. Five exporters (Ar- Sub-Saharan Africa East Asia & Pacific (incl. Japan & Koreas) gentina, Australia, Canada, the EU, and the United States) supply Western Europe 73% of the world's traded cereals6 making access to imported South Asia cereal heavily dependent on events in these countries and on Middle East & North Africa Arab countries' relationships with them and their allies. 0% 10% 20% 30% 40% 1000 m^3/year The need to mitigate food security risks, support rural commu- nities and manage urban migration has consequently shaped Mashreq countries' water policies to heavily support the irri- gated agriculture sector. Iran alone for example, has the world's 1 Claire Kfouri is a Water and Sanitation Specialist in the Middle East fifth largest expanse of irrigated land, and has water stored in and North Africa Region of the World Bank in Washington, DC. 2Public Expenditure Review of Lebanon Water Sector, World Bank, 2009 reservoirs to irrigate significantly more7 . 3In Word Bank operations, the Mashreq Region refers to Lebanon, 5 Improving Food Security in Arab Countries, World Bank, 2009 6 FAO, 2008 Jordan, Syria, Iraq and Iran 4Making the Most of Scarcity, World Bank, 2007 7 Making the Most of Scarcity, World Bank, 2007 Third / Fourth Quarter 2009 / The Middle East 8 The Middle East Irrigated agriculture today consumes over 83% of the region's come exhausted or surface water too unreliable. Alternatively, water resources but remains the sector with the lowest eco- the transition can be managed, and mitigated to some extent by nomic returns to water use and only modest contributions to policies to increase water productivity, increase investments in GDP. In Jordan for example, the economic returns to water use modernized irrigation systems, encourage a shift to high value- in industrial and urban domestic use are respectively 60 times added, and less water-intensive crops , invest in the use of non- and 6 times higher than irrigated agriculture8. conventional water resources in addition to an overall enhance- ment of knowledge on available resources for more realistic and Figure 3: Food subsidies as a share of GDP (World Bank 2008) sustainable hydrological planning. Syria 2.1 Jordan 1.8 Water For People Egypt 1.3 In response to the temporal and spatial variation in regional Morocco 0.7 Yemen 0.5 precipitation and dependence on transboundary waters, most Saudi Arabia 0.2 Mashreq countries have developed major networks of wa- Kuwait 0.1 ter storage infrastructure, which helps minimize supply risks, Lebanon 0.04 Algeria 0.03 smooth inter-seasonal supply and reduce flood risks. 0.0 0.5 1.0 1.5 2.0 Figure 4: Proportion of Regional Freshwater Resources Stored Percentage of GDP in Reservoirs (World Bank, 2007) 100% Furthermore, irrigation infrastructure in many Mashreq coun- 90% tries is plagued by high inefficiencies with large percentages of 80% input water lost to evaporation (up to 50%) and leakage from 70% 60% the supply networks and/or field plots. 50% 40% 30% 20% 10% 0% n ia c e ia a Z ca ca ge ea As cifi urop l As ric s/N eri fri era bb th Pa Af Au Ca ri ou ia & rn E nt ra r an Am rth A l Av & S As ste Ce ha rth o ob a rica st We pe & Sa No t & N Gl Ea b- as me ro Su E A Eu le tin dd La Mi Water supply and sanitation infrastructure is also relatively www.istockphoto.com widespread in the region. According to official data, 87% of the region's population now has access to improved water sourc- es and three-quarters have access to improved sanitation9. It Ancient Waterwheels and aqueducts used for irrigation in Hama, Syria is also important to note that although rates of coverage are relatively high, continuity of water supply is low and can reach Despite the sector's technical and institutional weaknesses and as little as 3 hours per day in Beirut and Amman in summer high demand for water reallocation from municipal and indus- months for example. trial users, agriculture nonetheless remains a large employer in rural areas with a strong social dimension that makes reforms Sanitation investments have typically lagged about a decade behind both in agriculture and water supply and sanitation slow, politi- water supply. Furthermore, as in most parts of the world, service in cally uncertain and even risky. rural communities is lower than in urban areas, with rural connec- tion rates to water and sanitation at 77% and 70% respectively. Growing populations and impending climate change will in- evitably reduce the amount of water available to agriculture. Over the past few decades, several countries in the region have Farmers will either be forced to adapt when their aquifers be- focused on improving not only coverage but also the quality 8 Shiffler, 1998 9 World Development Indicators, 2005 The Middle East / Third / Fourth Quarter 2009 9 Water in the Mashreq of water supply and sanitation services. While the majority of utilities in the region suffer from problems such as high rates of non-revenue water (averaging 42%) unclear lines of respon- sibility for operations, low tariffs, difficulties retaining qualified personnel, and political interference in staffing policies and other aspects of operations, some countries have tested various institutional models such as the management contract for the City of Tripoli in the North Lebanon Water Authority and the successful Build-Operate-Transfer (BOT) contract in force for the Asamra wastewater treatment in Jordan. Courtesy of CDR Most regional utilities however operate with weak incentives for improving organizational performance and therefore deliver rela- tively poor quality services10. Most are dependent on direct or indi- rect government support to finance their investments and opera- Yammouneh lake, Bekaa Valley, Lebanon tions and maintenance. This inability to generate cash flow from the water service business largely results from political reluctance Water for All to raise water tariffs which in turn does not tend to empower water Of all of the roles that water in the Mashreq region plays, per- utilities to deliver high quality, cost-effective services. haps the most notorious is its role as catalyst of tension over riparian rights. Water for the Environment Insufficient sanitation infrastructure to collect and treat waste- Table 1. Riparian Agreements in Mashreq (Hadadin, 2008) water in many countries of the region has led to the contami- Water conflict Issue Countries Outcome nation of surface and groundwater, with negative impacts on involved the environment and public health. The cost of environmental River Tigris Irrigation in Syria, Iraq, N/A degradation in Lebanon in 2000 for example was calculated to Syria Turkey be in the range of 2.8-4.0% of GDP, with a mean estimate of Shatt al Arab Boundaries Iran, Iraq N/A 3.4%. This is substantial and on the order of 1.5 times higher River Euphrates Irrigation, Syria, Iraq Share Waters than in high income countries11. urban and 42:58 industrial use River Orontes Irrigation Syria, Lebanon Lebanon (80mcm), In general, environmental degradation in the Mashreq can be and Turkey Syria (430 mcm). principally attributed to: (i) lack of safe water and sanitation facil- irrigation in Turkey ities and inadequate hygiene; (ii) substantial negative impacts on River Jordan Irrigation, Jordan, Syria Syria (flow from health from air pollution; (iii) productivity losses associated with urban and springs above 250 soil degradation; and (iv) significant coastal zone degradation. industrial use meters) Jordan (Maqarin dam Figure 5. Cost of Environmental Degradation flows with 70% of power generated 3 allocated to Syria 2.5 Share of GDP 2 With the exception of Lebanon and Iran, most countries of 1.5 1 the Mashreq, depend in large part on surface and ground wa- 0.5 ter sources that originate in neighboring countries. Pertinent 0 examples, tabulated in Table 1 below include Syria and Iraq's a t n n on o ria eri Eg yp Ira rda an rocc Sy Alg Jo Le b Mo delicate relationship with Turkey over the Tigris and Euphrates 10 Making the Most of Scarcity, World Bank, 2007 Rivers and the sharing of the Disi Aquifer between Jordan and 11 Cost of Environmental Degradation, the Case of Lebanon and Tuni- the Kingdom of Saudi Arabia. sia, the World Bank, 2004 Third / Fourth Quarter 2009 / The Middle East 10 The Middle East operate and maintain water treatment and wastewater facilities. To do so, it is essential to ensure that water utilities operate in an environment that allows them: (i) to recover operation and maintenance costs by collecting adequate tariffs (ii) recruit and retain adequate numbers of technically qualified staff14 (iii) reduce technical and financial losses by installing meters, making collections and repairing leaks and (iv) outsource to the private sec- tor where required using tools such as output based aid (OBA15 ­ See Box 1) to incentivize improvements in ur- www.istockphoto.com ban and rural access to services. Water utilities and output based aid (OBA) Kaboudwal Waterfall, Golestan Province, Northern Iran. OBA is a successful method to change the way external financ- ing is provided to service providers in water sector. OBA consists Initiatives For Action of providing subsidies based on outputs effectively delivered by a The following recommendations further develop specific and service provider rather than upfront input subsidies. The advan- tages of such a methodology are stronger incentives given to the immediate actions that Mashreq countries can take to expedite provider to actually deliver the service. It also allows the mobilizing the process of sustainably adapting to water stress and mitigat- of private sector financing up-front, which can be very useful when ing extreme water scarcity in the future, given the competing there are constraints on public financing. demands for water described above: · Optimize Existing Water Resources OBA methods can be applied in various ways, including to provide As previously mentioned, unaccounted for water12 in ur- subsidies for new connections (coverage extension) or to provide consumption-based subsidies to cover the gap between cost recov- ban water supply across the Mashreq region averages at ering and social tariffs. However, output based subsidies for new 40%. This means that for every 1,000 m3 of water treated water connections or sanitation facilities are the most commonly and distributed into the water supply network for con- used; they have been used in Paraguay and Cambodia and are cur- sumption for example, 400 m3 either (i) leak out of the rently being tested in Morocco. network13 and/or (ii) are not billed to consumers. Simi- Irrigation Demand Management larly, water losses in irrigation are estimated to reach as In parallel, to manage demand in irrigation, Mashreq much as 50% due to inefficiency and evaporation. countries must engage in implementing the following priority actions: Managing the demand for water and the way in which it · Implement water pricing policies that reflect the scar- is used, both in urban services and agriculture, is thus the city of irrigation water; first step to rationalize and control use, reduce waste and · Establish water markets to allocate water efficiently increase efficiency and equity in view of limited supplies. · Encourage water-saving technologies including drip This is achieved through a combination of technical, eco- and sprinkler irrigation systems nomic, legislative and institutional tools: · Promote the shift to high-value and less water-inten- sive crops Urban Demand Management · Encourage the establishment of water user associations. First, Mashreq countries must aim to increase the finan- cial and technical capacity of water utilities to efficiently In addition, from a legislative and institutional perspective, 12 Unaccounted for water is defined as the percentage of total water Mashreq countries would benefit from further exploring produced which is lost to the network in leakages or which is not billed the various roles and functions of water regulation frame- to end users. 13 It is important to note that the high technical losses of 400 m3 are 14 International standard to be 3 staff per 1000 connections equivalent to the water consumed daily by 3,330 people (Assuming 15 Taking account of the poor in water regulation, World Bank 2006 120L/capita/day consumption) The Middle East / Third / Fourth Quarter 2009 11 Water in the Mashreq works, which to date are limited in the region16. Box 2: Calculations of Water and Nutrient Benefits of Re- · Invest in New Water Resources use in Agriculture (WHO 2006 and Pescod 1992). Reuse of Treated Wastewater and Drainage Water As an example, a city with a population of 500,000 and water con- sumption of 200 l/day per person would produce approximately Despite the perceived potential advantages for a region 85,000 m3/day of wastewater, assuming 85% inflow to the public ranked as the most water-scarce in the world, the spread sewerage system. If treated wastewater effluent is used in carefully of treated wastewater reuse across Mashreq countries controlled irrigation at an application rate of 5,000 m3/ha per year, is surprisingly uneven and slow. This is namely due to an area of some 6,000 ha could be irrigated. (i) Insufficiency of economic analysis on the costs and benefits of reuse (ii) Relatively high cost of wastewa- In addition to the economic benefit of the water, the fertilizer value of the effluent is of importance. With typical concentrations of nu- ter treatment and conveyance (iii) Pricing of irrigation trients in treated wastewater effluent from conventional sewage water that does not adequately reflect its scarcity value treatment processes as follows: (iv) Technical and social issues affecting the demand for reclaimed water and (v) Difficulty in creating financial Nitrogen: 50 mg/L incentives for safe and efficient water reuse17. Phosphorus: 10 mg/L Potassium: 150 kg/ha per year The reuse of treated wastewater and agricultural drain- And assuming an application rate of 5,000 m3/ha per year, the fer- age water are nonetheless critical components of a sus- tilizer contribution of the effluent would be: tainable water balance in the Mashreq region. Reuse can limit or eliminate effluent discharges while generating Nitrogen: 250 kg/ha per year an alternate resource rich in nutrients, thereby indirectly Phosphorus: 50 kg/ha per year Potassium: 150 kg/ha per year allowing the preservation of fresh water resources for higher quality uses such as potable water supply, and Thus, all of the nitrogen, phosphorus and potassium normally required postponing potentially more costly water supply ap- for agricultural crop production would be supplied by the effluent. proaches (storage, transfer, or desalination schemes). Artificial Groundwater Recharge Although not a source of "'new" water per se, artificial groundwater recharge or aquifer storage and recovery (ASR) provides a cost-efficient and technically proven means by which water can be stored underground for retrieval and use in subsequent dry periods. Artificial groundwater recharge also provides significant cost-sav- ings compared to surface water storage and allows for reduced reliance on vulnerable and costly surface water reservoirs. This technique has been very successfully ap- plied in the United Arab Emirates and can be considered Courtesy of CDR as an additional source of supplemental water. · Inform Decisions with Sound Data Yammouneh irrigation project, Bekaa Valley, Lebanon Providing reliable information on the many issues re- lated to water management remains a challenge in the 16 Regulation consists of ensuring that water service providers comply Mashreq region namely due to the costs of data col- with existing rules with respect to tariffs or quality standards and lection and analysis and the absence of thorough data adapting those rules to cope with unforeseen events. The objective of management systems. To this end, it becomes necessary regulation is that those services be provided in an efficient, fair, and for Mashreq countries to engage in solid data collection sustainable manner, while bearing in mind social priorities set out by the policy makers (both at national and local government levels). and management practices to ensure that water man- 17 Kfouri et al, Water Reuse in the MENA Region, 2008. Third / Fourth Quarter 2009 / The Middle East 12 The Middle East agement decisions, within any given sector, are based on The Arab countries have thus established an Arab Water true depictions of actual water situations and scientifi- Academy (www.awacademy.ae) in Abu Dhabi in 2008, so cally sound predictions for the future. that such learning events are organized and a new genre of "water managers" and water stewards are created In addition to notable efforts by regional institutions18 from different disciplines and representing all sections and academic centers to collect and document relevant of society. Courses are currently being offered on wa- water data, it is important to note the ongoing collabo- ter diplomacy, water governance, wastewater reuse and ration between countries of the Mashreq, NASA and the water utility management in the current year. Having World Bank to develop an Arab-region specific water man- water managers from the Mashreq countries participate agement software. When completed in Fall 2010, this soft- in these courses could build a common appreciation of ware will use NASA satellite data, surface observations and the impending risks. publically-available meteorological analyses to: · Improve water managers' ability to monitor changes in water availability, including surface and groundwater stor- age, river runoff, and related land use changes (vegetation, cropped areas) retrospectively and in near real-time; · Provide a tool for predicting the regional hydrological impacts of climate change scenarios; and · Provide a platform for cooperation and data sharing among nations. Specific applications would include co- ordinated management of transboundary water resources, estimating the recharge rates of oversubscribed shared Qosai Abdelfattah aquifers, and optimizing the response to drought and floods on the regional scale. The results are unique in that they use primarily satellite- Outdated irrigation techniques in Wadi Kharz, Muthanna Province, Iraq derived datasets in order to generate water balance esti- mates, do not depend on ground based data and thus are Conclusion not similarly limited by human and technical resources, Mashreq countries have managed their water with efficiency geographic constraints and political boundaries. and equity in the past, and whilst the scales and dynamics of today's challenges are large and fast, there are many examples · Strengthen the Capacity of Water Managers of success that give hope for the future. Bridging those gaps Successful water management requires the integration and moving beyond "business as usual" to an understanding of of a diverse range of stakeholders from farmers, slum water through multiple lenses will help countries of the region dwellers, other civil society, media, and political leaders manage scarcity, better adapt to climate change and ensure wa- to civil servants, planners, economists, and engineers. Key ter security for their people. It is time for policy decisions and stakeholders need to debate and discuss the practice gap, actions on the ground. and reach a common appreciation of what is required for long-term sustainability in water outcomes. This consen- sus requires appreciating the human, financial, environ- mental, and technological aspects of water management through the systematic engagement of stakeholders in learning about water management. 18 Including International Center for Agricultural Research in the Dry Areas (ICARDA) in Aleppo, Syria, The Arab Center for the Studies of Arid Zones and Dry Lands (ACSAD) in Damascus, Syria, the American University of Beirut in Lebanon among many others. The Middle East / Third / Fourth Quarter 2009 13 Lebanon Lebanese Economy Beats Global Crisis With Strong Performance - by Sebnem Akkaya1 L ebanon's financial sector prospered in 2009 despite cent for 2009, up from the 3 percent projected earlier in the the global financial turmoil. Deposits and reserves have ris- year. Unlike 2008, growth in 2009 is not based on a real estate en sharply. The money supply increased by US$6.0 billion (19 bubble: indeed real estate registration fees declined by 3.4 per- percent of GDP) over the first half of 2009 (H1-090) of which cent in H1-09, after registering 70.3 percent growth in H1-08. US$4.2 billion were registered in the second quarter (Q2-09) of the year. Gross reserves of the Central Bank - Banque du Li- Figure 1. BdL Coincident indicator ban (BDL) - continued to accumulate both due to large foreign 240 inflows and a shift by depositors from dollars into the local 233 currency because of a high interest rate gap. The dollarization 225 rate declined to 67 percent of deposits by June-2009 from 218 210 70 percent at end-2008 (and 77 percent at end-2007). Gross 203 reserves reached US$20.6 billion in H1-09 (up from US$17.1 195 billion at end-2008). Lending to the private sector remained 188 180 strong during H1-09. 173 165 The global economic slowdown has had a mild impact on the economy. BdL has revised real GDP growth projections for 2009 to 6 percent--up from 3 percent projected earlier by the Source: Central Bank of Lebanon (BdL). Ministry of Finance. This improvement reflects the continuing strength of foreign capital flows and domestic private invest- Inflation decelerated in the first half of 2009, following the drop ment. Macroeconomic variables such as inflation and the cur- in international prices. Inflation as measured by the Consumer rent account deficit (CAD) are also improving, mostly because Price Index (CPI) increased by 2.9 percent in H1-09 (year-on- of lower oil and food prices and a decrease in imports as- year). The deceleration of prices was particularly prominent in sociated with relatively slower growth in 2009 (6 percent) April-May when taken together the CPI increased by only 1.9 compared to 2008 (8.5 percent). percent on average. Since then, inflation has picked-up, reaching However, Lebanon remains vulnerable to external shocks and 3.3 percent in June, as the tourism sector entered into a boom has limited fiscal space. The CAD hit a record high 20 per- season. The slowdown of the CPI in 2009 mainly reflects the cent of GDP in 2008 and is expected to remain high above 10 decline of international oil and food prices. Imported inflation percent of GDP in 2009. The fiscal deficit is also expected to in Lebanon has a strong impact on CPI since imports of goods remain high, continuing to feed a very high public debt (160 amount to 40 percent of domestic absorption. Estimations show percent of GDP in 2008) and interest payments on public debt the prices of imported goods have declined by 18.4 percent in absorbing 50 percent of government revenues. H1-09 compared to H1-08. It should be noted that the CPI in- dex does not directly reflect trends in real estate prices, which Real Sector Developments remained stable in 2009 due to continuous capital inflows and Strong regional demand for Lebanon's services and large inflows persistent demand in the sector. of capital contributed to strong economic performance in the first half of the year (H1-09). The Coincident Indicator of BdL, Fiscal Developments which is a proxy for overall economic activity, increased by 13.8 The fiscal balance deteriorated slightly in the first half of 2009. percent in H1-09 compared to an 8.8 percent increase in H1-08 The fiscal deficit (including grants) increased to US$1.56 bil- (see Figure 1). Services exports remained dynamic and passenger lion in H1-09, up from US$1.32 billion in H1-08 (See Figure 2); arrivals at Beirut International Airport increased by 32.6 percent similarly, the primary surplus was lower at US$389 million in in H1-09. Investments in the real estate sector remained strong, H1-09, compared to a US$429 million surplus in H1-08. This with cement deliveries rising by 19.8 percent during this period. outcome reflects the offsetting effects of an increase in expen- In sum, economic activity is expected to remain robust in 2009 ditures by 21.92 percent (compared to 13.3 percent in 2008) and and BdL's latest projections put expected GDP growth at 6.0 per- in revenues by 23.4 percent (compared to 15.6 percent in 2008). 1 Lead Economist, Middle East and North Africa. 2 Inclusive of spending from foreign loans on investment projects. Third / Fourth Quarter 2009 / Lebanon 14 Lebanon Among the drivers of rising expenditures are: (i) the transfers External Accounts to the electricity authority, Electricité du Liban (EdL), which in- The decline in international prices of commodities had a positive creased by 27.2 percent (y-o-y)--although international oil pric- impact on Lebanon's foreign accounts. The trade-in-goods es declined, transfers to EdL have started reflecting this trend deficit increased by only 8.8 percent in H1-09 compared to only in April 2009, as the government is paying oil contracts a 34 percent a year earlier. This improvement reflects a decel- with a six months delay; and (ii) the rising primary expenditures eration in imports which increased by 7.0 percent in H1-09 (excluding transfers to EdL), which increased by 28.3 percent. (y-o-y) down from 34 percent increase in H1-08, while This increase largely reflects the higher salaries and wages (ret- exports increased by 1.5 percent (33 percent in H1-08). Exports roactive from May 1, 2008) along with some non-wage benefits of services continued to improve in 2009 with tourism arrivals in the public sector which was introduced in response to sharp to Lebanon increasing by a substantial 32.6 percent in H1-09 increase in inflation in 20083. On the revenue side, the most (y-o-y). Net foreign inflows of services, transfers, income and dynamic component was customs and excises which doubled in capital reached US$8.2 billion in H1-09 compared to US$5.7 H1-09 (y-o-y).With the removal of the cap on gasoline prices, billion in H1-08. Similarly, change in net foreign assets reached collected petroleum tax increased to more than US$300 million US$2.1 billion, up from US$83 million a year earlier. in H1-09 compared to only US$3.3 million in H1-08. Large foreign inflows led to a significant increase in the reserves Debt has increased slightly. Public debt increased by US$289 of BdL. Gross foreign currency reserves augmented to US$20.6 million in H1-09 reaching US$47.29 billion up from US$47 bil- billion at end-June 2009 from US$17.1 billion at end-2008 lion at end-2008 (or around 160 percent of the estimated GDP (and US$12.6 billion in June 2008). The coverage of goods for 2008). This reflects the Government's decision to close part imports by gross reserves increased to a record 15.8 months in of the financing requirement by using public sector deposits H1-09 from 10.4 months in H1-08. The dynamic of reserves which declined by US$1.2 billion during this period. The com- reflect both higher capital inflows and shift by depositors position of debt remained stable between end-2008 and June out of dollars into the local currency because of interest rates 2009, with the share of debt denominated in LBP at 55 percent advantage. Preliminary figures show that this dynamic continued of total against 45 percent for debt in foreign currencies. The during the summer with further increase by US$1.48 billion in average interest rate on foreign currency debt increased to 7.36 gross reserves between end-June and mid-August 2009. percent in June 2009, up from 7.21 percent at end-2008. This rise in average interest rate on foreign currency debt is due to The Financial Sector the exchange before maturity of US$1.9 billion worth of debt The sector continued to expand despite the international finan- against new issuances of Eurobonds at higher interest rates4 cial crisis and domestic political tensions over the formation of in early 2009. Disbursements of Paris III pledges were slower a new Government. Lebanese banks have enlarged their assets than expected. To date, about 72 percent of the total US$7.5 base in 20097. BdL had tightly monitored the foreign invest- billion pledged has been allocated (US$5.6 billion)5 and actual ments of commercial banks in the past few years to ensure disbursements have amounted to US$3.2 billion6. that they were not involved in high risk investments (see Box 3 Salaries were increased by LBP200,000 (US$133) per month for all 1). Broad money supply (M3)8 increased by 18.8 percent (equiv- public servants, and the daily transportation allowance was increased alent to US$6.0 billion) as of end-June 2009 over end-2008. by LBP2,000 (US$1.3) per day. Salaries of retirees were increased by The most dynamic component of money supply was resident LBP150,000 (US$100) per month. The total cost of these measures to deposits, with those in domestic currency increasing by 17.6 the budget is estimated by the Government at 1 percent of GDP for 2008 and 1.6 for 2009. The Government paid the increase in the last percent and those in foreign currency increasing by 3.9 percent quarter of 2008 together with two retroactive payments. Retroactive payments continued in Q1-09, thus amplifying the increase in wage bill. Indeed, while the overall increase in wage bill was 19.9 percent in H1-09 (y-o-y), this increase was as high as 29.5 percent in Q1-09. 5 Out of the allocated amount, about US$2.1 billion are budget support, 4 The exchange was done in three issuances: two in US$ and one in US$1.2 billion project lending, US$1.4 billion private sector support, and Euro. One issuance in US$ is maturing in 2012 and has a yield of 7.5 US$0.3 billion TA/in kind assistance. percent. The other issuance in US$ is maturing in 2017 and has a yield 6 Out of the disbursed amount, US$1.5 billion are loans and grants to the of 9 percent. The issuance in Euro is also maturing in 2017 with a yield public sector; US$100 million is project lending, US$0.3 billion are in kind of 7.75 percent. contributions and US$0.8 billion are loans to the private sector. Lebanon / Third / Fourth Quarter 2009 15 Lebanese Economy Beats The Global Crisis With Strong Performance over December 2008. The financial sector continued to play its Pre-emptive steps taken by the BdL to strengthen regula- role as the major channel for financing the private and the tory framework public sectors. Lending to the private sector increased by 6.5 Starting June 2008, the BdL set tighter regulations on asset choices percent (equivalent to US$1.4 billion). Credit from commer- by banks and on risk assessment and monitoring. An example is the cial banks to the Government slightly declined by 0.5 percent Intermediary Circular number 176 (July 8, 2008) that requires banks (equivalent to US$136 million). The dynamic of lending to the to secure "the approval of the Central Bank of Lebanon prior to any direct or indirect investment or contribution in any foreign finan- private sector reflects the sharp increase in Banks' resources cial institution". The same circular extends the control of BdL over as well as improved incentives from BdL to promote lending "the investments and contributions done by companies and funds in local currency. in which the Lebanese Banks own parts and shares of capital". An example of stronger regulations for the domestic market is the In- The rise in the spread between interest rates on domestic cur- termediary Circular number 177 (07-21-08) which restricts lending rency and foreign currencies led to a sharp decline in dollar- to the construction sector to "60 percent of the value of the project, except for primary residences". ization rate. The average interest rate on US dollar deposits declined by 151 basis points (bpt) from 4.69 percent to 3.18 BdL issued four basic Circulars aiming at: (i) compelling each Bank percent between end-2007 and June 2009. This is partly due to to establish an Internal Audit Committee; (ii) instructing banks to the decline in international interest rates (the 3 months Libor review their capital adequacy in line with Basel-II norms; (iii) regu- declined by 446 bpt over the same period). The average interest lating credit risk mitigation techniques; and (iv) regulating external audit toward a greater rotation of external auditors. In addition, the rate on Lebanese Pound (LBP) denominated deposits declined BdL also issued intermediary Circulars asking banks to: (i)release to by 44 bpt, from 7.40 percent to 6.96 percent during this pe- the BdL at higher frequency their operations statements, including riod, which reflects the comfortable availability of liquidity in on documentary credits operations; (ii) report in more details on domestic currency. Lending rates to the private sector partially their loans portfolio to the Central Office of Credit Risk at BdL; and reflected the decline in deposit rates: lending rate to the private (iii) increase the reserves for unspecified banking risks. In parallel to sector in foreign currencies declined by 78 bpt while lending strengthen risk control, the BdL has also taken measures to increase Bank's financing to resident private sector in domestic currency. rates to the private sector in LBP declined by 34 bpt. In the case of loans in LBP, the BdL has taken a series of measures to boost lending to the private sector. These measures extended the sub- Government supported housing schemes). Reflecting these de- sidy on interest rates9 and exemptions on compulsory reserves velopments, the dollarization of deposits has declined to 67 per- to all kinds of loans denominated in LBP, excluding consumers cent by June-2009 from 70 percent at end-2008 and 77 percent loans and real estate lending (except those financed through at end-2007. 7 Many Lebanese expatriates and Arab nationals sought safe haven in Lebanese banks after the outbreak of the global financial crisis. One reason behind this confidence in the system is the resilience of Lebanese banks. Indeed, the Lebanese banking system survived highly challenging period over the past few years, including the assassination of former PM Hariri, the war of summer 2006 with Israel, and years of insecurity and political instability. Part of the resilience is explained by the support from international community and some regional actors ­ e.g. Saudi Arabia deposited US$1.5 billion at the BdL during the summer 2006 war. The consolidated balance sheet of Lebanese banks was equivalent to 321 percent of GDP at end-2008. 8 M3 equals money in circulation in Lebanese pounds plus deposits in Lebanese pounds plus deposits in foreign currencies. M3 was equivalent to 254 percent of GDP at end-2008. 9 Since 2000, the BdL and the Government initiated schemes to promote lending to private sector investment operations. These initiatives include subsidizing interest payments of the borrowers and granting exemp- tions on compulsory reserves of creditors. Initially focusing on projects in agriculture and industry, these schemes were gradually developed to include other sectors. Third / Fourth Quarter 2009 / Lebanon 16 Lebanon Moving the Water Agenda Forward - by Mohammed Benouahi1 L ebanon has been struggling to reform its Water Supply and ter, wastewater and irrigation to four consolidated Regional Sanitation (WSS) sector, but the progress on that front is strik- Water Authorities (RWAs) and a pre-existing river basin agency ingly below expectations and the level of economic develop- - Litani River Authority. ment in the country. The policy actions needed to improve per- formance and meet the development needs of the sector are Law 221 has laid the foundation for clear accountability addressed in a recently completed World Bank Public Expendi- and efficiency improvements in WSS service delivery. First, ture Review (PER) for the Lebanon WSS sector. Its findings are the law mandates separation between policy-making and ser- elaborated in this article. vice provision, establishing a clear line of accountability between policy-makers and RWAs. Second, the law has set in motion the The state of the water supply and sanitation (WSS) sec- establishment of financially and administrative autonomous tor in Lebanon is not in line with the country's level of RWAs. Third, if effectively implemented, the regional consolida- economic development, which is well above comparable tion of service provision can lead to efficiency gains (economies countries in the Middle East and North Africa, excluding the of scale) in service provision, to be passed on to end users. Gulf. Lebanon per capita GNI amounted to US$5,800 in 2007, significantly above Morocco's and Tunisia's levels, respectively However, the reform agenda reached an impasse soon after US$2,290 and US$3,210. The outcomes in the WSS sector are, the enactment of the law. The transfer of functions to the four however, not commensurate to the level of economic develop- RWAs has been subject to severe implementation delays. The ment in the country. Despite connection rates within the re- RWAs have yet to build the capacity to take over the functions gional average, continuity of supply is low and sensitive to sea- bestowed upon them by Law 221, and have very limited enforce- sonal fluctuations in rainfall. The situation is particularly severe ment powers (e.g. over bill collection). The Ministry of Electric- in the Beirut Mount Lebanon region, where the summertime ity and Water (MoEW) still manages some service contracts for water supply averages barely three hours per day. Comparable the operation and maintenance (O&M) of pumping stations on MENA countries such as Tunisia and Morocco have achieved behalf of the RWAs. Investment planning and execution func- 24/7 water supply continuity in their main cities. tions are highly centralized ­ the Council of Development of Reconstruction (CDR) is the leading sector investment agency It is time for Lebanon to push forward the reform agenda in charge of planning and executing donor-funded water and to achieve service standards comparable to other MENA wastewater investments. Wastewater collection ­ legally under countries. Moving the agenda forward will necessarily require the jurisdiction of the RWAs ­ is carried out largely by the mu- multiple policy levers, given the complex political reality of the nicipalities and un-regulated small-scale private operators. The country and the multitude of issues affecting the WSS sector. discrepancy between legal and de facto responsibilities has cre- The severe data limitations (with respect to both sector perfor- ated institutional uncertainty, and weakened the accountability mance and public expenditure trends) add to the challenge. The line between policy-makers and service providers. recently completed WSS PER study sheds light on the key issues faced by the water sector (and to a lesser extent wastewater and Several accountability weaknesses emerge from the insti- irrigation) in Lebanon. The study also identifies the core policy tutional analysis of the WSS sector. First, the severe delays areas where reforms are needed to meet the development ob- in the implementation of Law 221 have led to institutional un- jectives of the sector. certainty over sector responsibilities. Second, accountability is weakened by inadequate inter-agency coordination, in particu- The Institutional Framework lar between the line ministry and the CDR. Third, MoEW's regu- Law 221/2000 of May 2000 initiated the reform of the latory and oversight powers over the WSS sector are de facto WSS sector. Prior to the enactment of Law 221, WSS service very limited. Finally, and more importantly, RWAs cannot be held provision was fragmented into 22 Water Boards and 209 Local accountable for service provision as they are not empowered to Committees, with significant scope for efficiency improvements. function as autonomous entities. Law 221 delegated responsibility for the delivery of potable wa- The Supply Side The RWAs suffer from inadequate technical, financial and 1 Mohammed Benouahi is Lead Water & Sanitation Specialist - the commercial performance. Despite its relative good endowment of water resources, Lebanon faces severe water shortages during World Bank-MENA region Lebanon / Third / Fourth Quarter 2009 17 Moving the Water Agenda Forward the dry season (July-October). Unless actions are taken to reform Water storage capacity is inadequate to meet water demand. the sector, Lebanon is poised to face chronic water shortages year Water storage capacity is far below the level of other MENA coun- round by 2020. The weak performance of the RWAs is one of the tries: dam capacity accounts for only 5 percent of total renewable drivers of the demand-supply imbalance, together with the lack water resources in Lebanon, against 56 percent in Morocco and of storage capacity and the growing demand. almost 300 percent in Egypt. The lack of adequate storage capac- ity is a severe constraint for irrigation, which accounts for more Public network coverage is relatively high, but continuity than 60 percent of total water consumption. of supply is low, and water losses above the optimal level. About 78 percent of the Lebanese population is connected to ... and the Demand Side the public water network. Continuity of supply is however low, Availability, rather than affordability, is the main constraint ranging from 3 to 22 hours of daily water supply during the for consumer welfare in the water sector. The rationing of dry season. Tripoli is the only urban area which benefit from public water supply for domestic consumption has led to sig- 24 hours of daily water supply as a result of the efficiency im- nificant growth of private sources of water supply. Private water provements delivered by 5-year management contract with a supply accounts for 65 percent of total water expenditure of private operator. Water losses are above optimal level, and con- connected households, and 75 percent if un-connected house- servatively estimated at 40 percent country wide. holds are included. The most prominent sources of private water supply are large water bottles (35 percent of total household The RWAs are not yet performing as financially autono- water expenditure), followed by delivery trucks (21 percent) and mous entities, despite the progress made since their establish- small water bottles (16 percent). ment. Currently RWAs are able to cover their salary costs and part of their power charges. The MoEW is however indirectly Consumers have no power to choose their preferred level subsidizing O&M costs by managing some service contracts for of water consumption or control their water bill. In the ab- pumping stations under the jurisdiction of the RWAs. Only the sence of metering, consumers do not have the option to adjust Beirut Mount Lebanon Water Authority fully covers its O&M their water consumption in line with their optimal demand. The costs from collected revenues. Collection efficiency in the water lack of consumer power is a major deterrent to improvements sector is on average 70 percent, with significant variation across in sector performance and also raises welfare concerns. The in- the RWAs, from 11 to 80 percent. ability to control consumption and the lack of payment options is particularly detrimental to low-income households. Water tariffs are de-linked from both consumer demand and the economic cost of service provision. Water tariffs are Public Expenditure Trends based on a fixed annual fee for a contractual volume of water Public investment in the WSS sector has been inadequate to of 1 m3/day. Domestic consumption is not metered, and the ac- meet sector development needs. In spite of the recent decline tual amount of water delivered to users is below the contracted in the debt-to-GDP ratio, public expenditure in infrastructure, in- amount. The current system creates a "double jeopardy" where cluding WSS, is constrained by fiscal pressure. Public annual water the tariff system does not provide incentives for demand man- and wastewater investments amount on average to 0.4 percent agement, nor does it provide commercial incentives for RWAs to of GDP (2008 prices). Annual capital expenditure is below invest- reduce water losses and increase water production. ment requirements, which are estimated at about 0.8 percent of GDP for the average MENA Middle Income Country based on a The development of the wastewater sector is still at an top-down approach (expected WSS demand of for a given level embryonic stage. Despite efforts in the recent years to increase of economic growth). Small scale private providers have played a the amount of wastewater treatment facilities, there are still major role in filling the "public expenditure gap" in the sector. few Waste Water Treatment (WWT) plants in operation. Several larger plants have been developed by the CDR, but are not yet CDR accounts for the bulk of investment in the WSS sector. operational because of limited capacity and unfinished water Since 1994, CDR has executed the largest share of investment supply network. Most of the collected raw wastewater is dis- in the water sector (46 percent) followed by the Council of the charged untreated and no effective measures have been taken South and the Central Fund for the Displaced. In the waste- to mitigate the environmental costs of delayed action. No tariffs water sector, the entire capital expenditure program has been are currently levied for wastewater. delivered by CDR. However, CDR is highly dependent on donor Third / Fourth Quarter 2009 / Lebanon 18 Lebanon funding for the financing of its investment, and cannot fully resources to close the investment gaps in the WSS sector. Im- control its expenditure patterns. In addition, the lack of a com- proving efficiency calls for a broad range of actions to support prehensive capital expenditure plan negatively affects the abil- (A) investment prioritization, (B) implementation of Law 221, (C) ity to prioritize projects based on the sector needs. utility management and (D) information management. The sector's investment absorptive capacity is low. Absorp- (A) Increasing continuity of water supply to achieve 24/7 tive capacity is an important measure of the efficiency of capital provision country-wide is the priority for the water sector. execution. Only 55 percent of planned capital expenditure has Projects under preparation that aim at increasing water supply been executed over the period 1992-2006 in the water sector. continuity should be prioritized. In the short-term a "targeted The percentage of executed investments is even lower in the investment plan" could be envisaged, focusing on the reduc- wastewater sector (20 percent). The low absorptive capacity is tion of water losses through the rehabilitation of water sup- largely due to delays in securing donor funding and project ap- ply networks and installation of meters, and the expansion of proval, which has led to a backlog of projects in the pipeline. treatment and storage facilities to cope with the needs for a 24 hours service. The disconnect between capital and maintenance expen- diture. The RWAs are responsible for maintaining the capital (B) Ensuring the effective implementation and update of investments executed by the CDR. In practice, they are ill- Law 221 is the entry point for improving sector perfor- equipped to perform this function, as they are only marginally mance. The unfinished reform agenda is at the core of poor involved in the execution of the public investments. They have sector performance. In the short-term, the priority is to start also limited leeway to mobilize additional resources for main- empowering the RWAs to operate as autonomous entities in tenance through user fees. Given the low capacity of the RWAs, critical areas, such as the hiring of staff and procurement, and the MoEW continues to be involved. complete the transfer of O&M functions for water supply to the RWAs. In parallel, coordination between the MoEW and the The Costs of Inaction CDR needs to be enhanced to optimize the sequencing of in- The total costs of inaction in the water supply sector are vestment. In the medium term, as the autonomy of the RWAs estimated at about 1.8 percent of GDP. Households bear is reinforced, more effective participation of the RWAs in the the largest share of the costs: the private opportunity costs of planning and execution of water supply investments is essential inadequate public water supply amount to 1.3 percent of GDP, to improve coordination. Increased RWAs' autonomy will also equivalent to the domestic expenditure for private water sup- call for strengthening MoEW's role as a sector regulator. In the ply. The hidden costs for the Government (i.e. the implicit fi- long-term, there is the need to rationalize investment responsi- nancial burden associated with water supply sector inefficiency) bilities by gradually transferring the execution of capital works are conservatively estimated at 0.5 percent of GDP. The cost to the RWAs under the oversight of the line ministry. of inaction is even higher if one adds the cost of health and environmental degradation caused by untreated wastewater (C) Institutional reforms need to be complemented by discharges. Doing this increases the cost of inaction from 1.8 to utility management improvements. Unless clients are em- 2.8 percent of the GDP. powered to hold RWAs accountable, institutional reforms are un-likely to deliver the expected improvements in service pro- Hidden costs in the water sector (0.5 percent of GDP) are vision. Reinforcing client power requires utility management above the annual level of investment in the WSS sector reforms, first and foremost a country-wide metering program (estimated at 0.4 percent of the GDP, maintenance included). and consumption-based tariffs. In parallel, RWAs should be The main source of hidden costs is collection efficiency (45 per- empowered to enforce bill collection. While in the short-term cent), followed by water losses (40 percent). Cost-recovery tar- there may be limited scope for traditional forms of private sec- iffs account for the remaining 15 percent of hidden costs. tor participation in the water sector, partnerships with small- scale domestic private operators can be instrumental to deliver The Reform Agenda efficiency gains Improving efficiency is a priority to meet sector objec- tives within a framework of fiscal responsibility. Efficiency improvements, by reducing hidden costs, can generate sufficient Lebanon / Third / Fourth Quarter 2009 19 Moving the Water Agenda Forward (D) Improving the availability of accurate and consistent information is crucial for effective decision-making. Going forward, good policy formulation and implementation will be challenging without reliable sector statistics and information. The collection and management of data is to be strengthened at both the RWA level, through capacity building programs and the use of improved information systems, and at the central level, as part of MoEW's regulatory functions. A dedicated unit could be created within the MoEW with the objective to collect, update and maintain public expenditure data in the water sector. Courtesy of CDR Afqa spring in uper Jbeil, Lebanon Third / Fourth Quarter 2009 / Lebanon 20 A Milestone for Lebanon: Successful Piloting of the National Poverty Targeting Program The proxy-means testing (PMT) targeting mechanism, applied to "Our goal is to serve the poorest and most vulnerable, with- social programs such as cash assistance, energy subsidies, health out any other consideration" was the concluding statement of subsidies, or education support, has proven to be very effective in the presentation delivered by the team at the MOSA during the reducing poverty in many countries around the world. This mech- event. The team presented the main results of the pilot phase anism defines a metric that ranks households by their welfare to a wide audience that included a number of ministers, namely based on a number of defined characteristics, for the ultimate the Minister of Social Affairs, the Minister of Finance, the Min- purpose of efficiently and trans- parently identifying the target Lebanon is truly in need of strengthening ister of Health and the Minister of Education and Higher Educa- beneficiaries of different kinds of its ability to identify and reach the poor tion, as well as staff of the dif- social assistance programs. and vulnerable in order to increase the ferent ministers and agencies. The diverse attendance reflected On May 22, 2009, Lebanon impact of social assistance ­ something the significance of the target- crossed a milestone along the which remains weak, and which this ing mechanism as a tool for the road towards owning a target- program promises to deliver Lebanese Government as whole, ing mechanism that can be used and not only a particular sector as a tool by the Government to deliver social transfers and ser- or ministry. The Canadian and Italian Ambassadors and the World vices that improve the living standards of Lebanese households, Bank Country Director represented their respective development in particular the poor and vulnerable. At a heavily attended press agencies which are involved in the financing of this initiative. conference, the Ministry of Social Affairs (MOSA) announced the results of the pilot phase of the Lebanon National Poverty Target- The NPTP Pilot Phase was launched in December 2008, when ing Program (NPTP), a program which is supported by the World residents of three areas ­ Ein El Remmaneh, Chiyah, and Tarik Bank, the Italian Cooperation, and the Canadian CIDA. During El-Jdideh ­ were invited to come to their local Social Develop- the press conference, the success of the pilot phase and the ef- ment Center (SDC) to fill out applications if they were "in need". forts of the team at the MOSA were highly commended. It was Two months later, a total of 6,394 households had applied to acknowledged that Lebanon is truly in need of strengthening its the program. In addition to qualifying for the symbolic 50,000 L.L which would be distributed to each eligible household, the registrants understood that participating in the program is an opportunity that will enable them to claim and justly receive their rights and privileges from the Government. The staff of the SDCs shared anecdotes of days when the modest capacity of the centers suffered from excess numbers of applicants, to the extent that, at one point, the local police had to interfere to control the crowds. The pilot phase was supported by a vis- ible media campaign which included the circulation of posters, brochures and flyers at strategic locations within the areas, as well as banners on leading roads. After extending the deadline due to popular demand, applica- Old man applying for aid with the help of a social worker tions were closed and 100 trained social inspectors were sent out to conduct household visits. Once all the data was collected, it ability to identify and reach the poor and vulnerable in order was entered into a software application developed particularly to increase the impact of social assistance ­ something which for this program. Then, using the data collected on each house- remains weak, and which this program promises to deliver. It is hold's characteristics, the proxy-means testing formula that was expected that the NPTP, by enabling the targeting of social safety developed by World Bank experts based on statistical analysis of net interventions, will significantly improve their efficiency, ef- the 2004 Lebanese household survey, was used to electronically fectiveness and poverty impact. Lebanon / Third / Fourth Quarter 2009 21 A Milestone for Lebanon rank households according to their level of welfare. Consequently, to the most disadvantaged households, the establishment of each household was assigned a score. The cut-off score was set the NPTP will help build a relationship of trust between the so that the 3,000 lowest scoring households were chosen to be government and the citizens by strengthening the role of gov- eligible for the token 50,000 L.L, ernment and its institutions. in line with the budget that was It is anticipated that by the end of Today, this program has been allocated by the government to 2010, Lebanon will own a credible, successfully piloted and formal- the pilot phase. ly adopted through the passing accurate and reliable, fully automated of the NPTP Policy Statement. Lessons learned from the pilot and live database of about 150,000 `Equality'; `justice'; `supporting continue to be uncovered as Lebanese households the neediest': and `promoting preparations for the national transparency and objectivity', roll-out of the NPTP are in progress. Applications are planned to are the four fundamental principles of the Lebanon National open nation-wide mid 2010. It is anticipated that by the end of Poverty Targeting Program. 2010, Lebanon will own a credible, accurate and reliable, fully au- tomated and live database of about 150,000 Lebanese households that includes the poorest and most vulnerable, enabling an objec- tive assessment of each household's welfare. A total investment of US$9.3 million has been committed to the national roll-out of the NPTP. US$1.25 million will be financed by the World Bank, US$2.6 million by other development partners including the Ital- ian Ministry of Foreign Affairs and the Canadian International Development Agency and another US$5.5 million will be financed by the government. The Government has underscored its commitment to the pro- gram back in June, when it formally established the NPTP in a decree. The statement announced the Government's adoption of the program as a means to help the poor and vulnerable Lebanese households, while keeping in consideration the need to limit both possible distortions in the beneficiaries' incentives to work and their absolute dependence on Government aid. The Policy State- ment also laid out the NPTP institutional arrangements, where the MOSA will continue to assume the responsibility of all data collection processes at the ground level, and a NPTP Central Man- agement Unit (CMU) at the Prime Ministry will house the national database. Management and quality control of the data, monitor- ing of the database and ranking of households according to their welfare, will fall under the responsibilities of the CMU. Defining the cut-off scores, which determine the beneficiaries of the dif- ferent social safety net programs, will be based on decisions made by the Council of Ministers, which is ultimately in charge of deter- mining the overall social strategy for Lebanon. The National Poverty Targeting Program was conceived in the aftermath of the July 2006 war on Lebanon, a time when Lebanon found itself facing severe economic and social difficulties. In addition to making it possible to target government assistance Third / Fourth Quarter 2009 / Lebanon 22 Lebanon News and Events Khede Kasra: Women Empowerment Cam- paign Wins Cannes Gold Lion Award Leo Burnett has won the Cannes 2009 Gold Lion Award for the Khede Kasra advertising campaign of the Women Empower- ment Program implemented by Hariri Foundation for Sustain- able Human Development. The Program, part of the World Bank-funded Community Devel- opment Project, was executed by the Council for Development and Reconstruction. It sought to address the injustice vis-a-vis women in Lebanese Law, raise awareness about women's rights and responsibilities and enforce the role of the media in com- bating the existing social stereotypes. The program focused on Minister of Education and Higher Education Bahia Hariri launches Khede Kasra campaign on October 20, 2008 Law and Media as the two primary entry points for changing social attitudes and promoting gender equality. The program produced three major reports: i) An Analytical Re- It became the talk of the town and many adopted the "Khede view of Studies on Women and Law and Women and Media; ii) Kasra" phrase in their everyday conversations. The campaign Towards the Empowerment of Women in the Media: To Achieve sparked debates and roundtables about female regulations in Equal Opportunities between Men and Women Citizens, and iii) the Lebanese judicial system. Six Steps Towards Empowerment: An Analysis of Certain As- pects of the Discrimination against Women in Lebanese Law. To reach the whole country geographically and all women de- mographically, a moving interactive billboard as well as posters The Hariri Foundation for Sustainable Human Development were set up, whilst stickers were distributed, in rural and upscale launched the Khede Kasra campaign on October 20, 2008, at the areas on the streets of Lebanon throughout November 2008, to end of a joint conference with the World Bank titled "Gender in engage the public and physically get them involved. The cam- Economy and Decision-Making," which discussed obstacles to the paign also hit the digital circuit, through emails, YouTube and effective participation of women in decision-making processes Facebook, reaching the Lebanese internet population, which and reviewed regional as well as international best practices. found the forum an outlet for their opinions. On the occasion of International Women's Day (March 8, 2009), TV personalities The Khede Kasra campaign was designed to address gender in- were contacted to wear the "kasra" on air and endorse the cam- equality in the Lebanese society as well as empowering women. paign during that week. The essence was to tackle the Arabic language in its default male- dominant form of speech. Spoken and written words in the me- dia, which would otherwise be addressed to men by default, were altered with a "kasra" accent, making them addressed to women. With a call for action line that encouraged women to "make your mark," the target audience that included every Lebanese woman from every possible demographic, was inspired by such a simple idea. The meaning behind literally changing the word empowered them to take their fate in their own hands. The campaign witnessed increased buzz and the heightened interest of reporters. It enjoyed a substantial share of news- paper and magazine coverage with articles appearing in major To view the Khede Kasra advertisement, visit: http://www.youtube.com/watch?v=CpXzKZhfka8 regional publications. Bloggers online adopted the campaign. Lebanon / Third / Fourth Quarter 2009 23 Syria Electricity Sector Challenged by Fast Economic Growth - by Husam Beides1 E lectricity outages in Syria during this hot summer served Government Strategy as a wakeup call for the Government, which needs to face the At the request of the Government of Syria, a World Bank energy increasing demand. The Government has been developing a team has worked with Syria's Ministry of Electricity to develop strategy for improving the overall performance of the electricity a comprehensive Electricity Sector Strategy Note addressing sector, but the summer experience and fast economic growth these challenges. An assessment of the sector's needs showed have underscored the urgency of endorsing and implement- that about US$ 11 billion of investments in new generating ca- ing the Government's strategy. Moreover, the two daily rolling pacity (7,000 MW) and expansion of the transmission and dis- electricity cuts, each lasting two hours in the Damascus region tribution networks will be required through 2020. The Strategy and probably longer elsewhere, provided clear evidence that also recommends options and measures to: the aging electricity system and its operational issues threaten · increase the efficiency of the electric power sector to undermine the competiveness of Syrian enterprises and the by reducing the large technical and commercial losses sustainability of economic growth in the country. in the network; · increase security of supply further in an environmen- Increasing Demand, Rising Challenges tally sustainable manner by developing vigorous energy After years of relative stability the Syrian power sector is now efficiency and renewable energy programs; facing a number of major challenges. Firstly, electricity demand · encourage regional energy integration through a series has been growing since 2002 at a high rate of about 7% and of targeted investments in electric power and natural gas; is expected to continue to grow at an annual rate of 5% or · attract private sector investment into generation ca- more through 2020. Secondly, because of this growth in de- pacity expansion; mand and lack of investment in new capacity and maintenance, · make the electricity sector financially viable, including a demand-supply gap has developed and is widening, which through tariff adjustments associated with improvement leads to frequent load shedding. Thirdly, high technical and in social protection programs to vulnerable electricity non-technical losses equal to about 27% of total demand add consumers; and to the shortages and have caused the distribution companies · introduce electricity sector reforms and associated to lose about US$275 million in revenues during 2007 alone. institutional changes to facilitate implementation of Fourthly, the financial performance of the electricity sector is these measures. poor and deteriorating due to these losses and the low level of electricity tariffs, especially in the residential sector. The preparation of the Strategy included roundtable discussions among the staff of the Ministry of Electricity and other stake- Low Tariffs, Inadequate Gas Supplies holders to evaluate the various policy options. The Strategy will Today in Syria, electricity tariffs are set much below the cost be further discussed at the Government level to assess and re- recovery level and are amongst the lowest in the MNA region. fine the measures recommended prior to its final adoption by Tariffs are comparable to those in oil and gas exporting countries the authorities. such as Algeria, Abu Dhabi (UAE), and Qatar, but significantly lower than the tariffs in regional non-oil rich countries such as The strategic approach adopted by Syria is commendable. It will Jordan, Tunisia and Morocco. Finally, the lack of reliability of the enable the Government to develop a comprehensive action plan, domestic gas supply to the power sector also has constrained whose implementation will address the electricity needs in a the availability and production levels of existing generation cost-effective manner and support the fast growing economy. plants. This is also posing risk to eventual development of new Introducing the private sector to generation and production will least cost gas-fired power plants, and would require Syria to alleviate the burden on public finance and further enhance the seek long-term gas import contracts from the regional market sector's performance. to supplement its domestic gas supply. 1Senior Energy Specialist-The World Bank, MENA Third / Fourth Quarter 2009 / Syria 24 Education Reform In Syria: Supporting The Transition To A Social Market Economy - By Haneen Sayed1 A s part of its transition to a social market economy, Syr- Quality of education in Syria is low compared to the region ia committed in the 10th Five Year Plan (FYP) 2006-2010 and LMIC. International evidence has shown that expansion to reform the education system to align it better with the alone is not sufficient and the impact of human capital on emerging social and economic realities. The objective of the growth will depend on the quality of the education and training FYP is to facilitate the transition from a socialist to a market system and the resulting quality of human capital. Analysis of economy. The FYP focuses on enhancing social development Syria's performance in the 2007 TIMSS exam showed significant including strategies to reduce poverty and decrease unemploy- improvements from the 2003 TIMSS results, though Syria still ment through reforms in the education, health and social pro- performed below the international average in math and science tection sectors and a greater role for the private sector. (as in other MENA countries). In math, its performance was be- low the trend line in comparison to its GDP per capita (2003). Over the past three decades, the education system in Syria Other indicators of low quality of education are the high drop- achieved major successes in expanding access, combating out and repetition rates throughout the system, and the large illiteracy and in producing a workforce for the public sec- number of under-qualified and under-trained teachers (more tor. At a rate of 95 percent, Syria's primary net enrollment rate than 60% of teachers in Syria are qualified at the 2-year di- (NER) is higher than the average for the Middle East and North ploma level only, and a substantial number of those who have a Africa Region (MENA) and for low middle income countries 4-year degree have not had any training in teaching). (LMIC). The literacy rate is estimated at 83 percent (2007) which is also higher than the average for MENA and LMIC. The gender Low internal efficiency is a major challenge facing the gap in enrollment is small. education system in Syria. In addition to the high repetition and dropout rates, the student-teacher ratio in Syria is among Despite the large investments in expanding education cov- the lowest in the world and in the region signaling another erage, access to schooling remains low at the pre- and source of internal inefficiency. The fairly low student- teacher post-primary levels in comparison to countries in the region ratio (STR) in general education is due to the relatively high re- and other lower-middle income countries. While the enrollment cruitment of teachers in comparison to the growth of students. rate at the pre-primary level is The number of teachers grew generally low in MENA with an Over the past three decades, the education at an annual rate of 7 percent average of 16 percent, in Syria system in Syria achieved major successes between 2000 and 2006, almost it is even lower with only 13 twice the growth rate for stu- percent of children enrolled. At in expanding access, combating illiteracy dents which resulted in a de- the secondary education level, and in producing a workforce for the cline in the STR to 19:1 in basic Syria experienced a substantial public sector education and 9:1 in secondary decline in the enrollment rates education. While data is not between 1985 and 2000, the only country besides Iraq. The gross available to make a direct comparison with basic and secondary enrollment ratio at the secondary level declined from 58 percent education, latest available data on the average STR in primary in 1985 to 41 percent in 2000. During the past five years, sec- education shows East Asia and the Pacific at 31:1, and Latin ondary school enrollments recovered with the gross rate reaching America and the Caribbean 25:1. A low STR could potentially 68 percent, however, Syria is still below the regional average (74 result in more motivated classes with better educational out- percent) and the average for similar lower income countries (76 put, however, salaries and incentives to teacher are low in Syria percent GER)2. At the tertiary level, fewer than half of those ob- which discourage high performance and result in low teacher taining a secondary school degree enter public universities. Lat- productivity. Teacher salaries fall in the lower part of the public est data from the MOE shows the GER in tertiary education at sector pay scale and an average teacher received about 80 per- 17 percent in 2005. cent of the salary in a comparable government job. Although salaries in the public sector have increased substantially over the past five years it did not close the gap between the salaries of teachers and those of other public sector jobs that require comparable skills and academic achievement. 1 Human Development Coordinator for Lebanon, Syria and Jordan. 2 World Bank World Development Indicators, 2007 Syria / Third / Fourth Quarter 2009 25 Education Reform in Syria External efficiency of education is also low with weak building a base for a pool of skilled workforce that can meet the linkages between education and the labor market. The labor demands of a globalizing economy. Targeting these populations market is characterized by large demographic pressures, slow would provide them with an equal chance to benefit from the labor demand and deeply embedded rigidities having a nega- emerging opportunities in the economy on the one hand and on tive impact on youth employment. The unemployment rate in- the other hand would provide them with the necessary human creased from 4.3 percent in 1981 to reach 11.6 percent in 2003 capital to cope with the costs of transition. [UPDATE], mostly among youth ages 15-24. Unemployment is higher among educated than uneducated workers, mostly Also in the short term, the GoS needs to explore financing among those with primary education (47.3 percent)3. The edu- alternatives to sustain education reform and to improve cation system in Syria is suspected of contributing to the cur- efficiency of expenditure. Improving the efficiency of expen- rent situation by failing to provide students with the skills and diture would generate substantial savings that can be re-invest- competencies demanded in the labor market4. Wages in Syria ed in further expansions in access and improvements in qual- are low and do not change much with educational attainment. ity. There are substantial savings that can be generated from This has implications for the returns to education and the level increasing the Student Teacher Ratio (STR) in both basic and of educational attainment in the country. A recent study esti- secondary education by controlling teacher recruitment which mated private rates of return to the different levels of schooling would lead to potential savings of approximately one third of in Syria and found them to be low by international standards5. the wage bill by 2015. The freed-up resources could become a major source for financing the quality investments needed Elements of a Modernization Strategy for the Education Sector for education system. Channeling resources towards quality im- In the long run, the challenge of the education system is provements would contribute to reductions in repetition which to produce a highly qualified workforce that embodies the in turn leads to efficiency gains. skills and competencies that are necessary in supporting Syria in its transition to a market economy. There is an ur- There is a role for the private sector in meeting the high gent need to improve the quality and relevance of education demand for schooling. Syria has made positive steps in this to enhance the productivity of the workforce. This will en- direction by passing the private school law allowing for private tail primarily teacher training sector investments in education and development but within In the long run, the challenge of the but this remains an untapped re- a comprehensive approach to reforming education inputs. It education system is to produce a high- source. Theto furtherput in place incentives GoS can encourage also involves greater provision ly qualified workforce that embodies private sector involvement to of good quality early childhood the skills and competencies that are expand access while monitor- care and education which pro- ing closely the quality of private vides a foundation for learning. necessary in supporting Syria in its provision of education. Thirdly, it involves reforming transition to a market economy the vocational education and Effective teacher training and training system in Syria, linking it better with the labor market development can improve quality and internal efficiency. and introducing greater flexibility in order to meet the chang- The GoS embarked on a Teacher Development Program that in- ing needs of the economy. cludes establishing teacher certification, upgrade of pre-service and in-service training and providing learning opportunities In the short and medium term, the education system needs through distance learning, virtual and open education channels. to meet population pressures. Expansion in school infrastruc- While these are positive steps, experience has shown that par- ture needs to be carefully planned to ensure equity in access. tial administrative measures as the upgrading program are not The GoS's priority in expanding access to education should fo- enough to improve the quality of teaching. A comprehensive cus on targeting underserved and vulnerable populations and in teacher policy should include reform in teacher initial educa- 3 Preliminary results of Syria 2003/4 Unemployment Mapping Survey, 2008. tion, design, and implementation of professional standards, re- 4 form of in-service training and opening accredited non-public Huitfelt and Kabbani 2006 5 Ibid. Third / Fourth Quarter 2009 / Syria 26 Syria providers, as well as well-designed and implemented system of teacher incentives, which will affect student results. Expansion of early childhood care and education (ECCE) can contribute to better quality of education and can reinforce social integration for the young generation in Syria. The FYP includes the basic elements of an ECCE strategy and policy de- velopment, however, a National Action Plan on ECCE needs to be developed within a comprehensive approach that combines edu- cation with care and health services and through greater partner- ships with the private sector and local communities. Reform of the vocational technical education and training (VTET) system would contribute to improvements in the ex- ternal efficiency of the education system. If Syria is to com- pete in global markets, the economy needs to deliver higher value added and better quality products and services. This requires higher skill levels and a better qualified workforce. Moreover, in- creased competition and the introduction of ICT have prompted many firms to undertake fundamental changes in their internal organization and work practices which require greater respon- sibility and skills from the workforce, including problem-solving and communications skills as well as multi-tasking. Despite re- cent innovations that the GoS introduced, the VTET system will need major reform to adapt to a new market economy that is increasingly led by the private sector. Reforms should include: (i) deepening employer involvement in the design and delivery of training; (ii) providing more flexibility in the training system to meet changing demand in the labor market and to allow for life- long learning; (iii) innovations in training content and methods allowing for practical enterprise-based training; (iv) modernizing monitoring and evaluation systems; (v) reforming management structures for better coordination and greater accountability; and (vi) explore public-private partnerships in financing. Monitoring and evaluation of student learning is critical in assessing the impact of the education system and for setting evidence-based policy. It would be necessary for the GoS to develop its capacity to conduct policy-oriented research based on evaluations and assessments including international assessments such as TIMSS and PISA. Syria should continue to participate in TIMSS to be able to benchmark its progress with other countries in the region and the world. Syria / Third / Fourth Quarter 2009 27 Syria Partnership Program World Bank Analytic and Advisory Assis- Trade Policy Review ­ Review of Syria's current trade policies tance in Syria in addition to the impact of previous reforms and remaining issues. This program supports the GoS in designing an action The Bank has a productive technical engagement program in plan for trade reform and capacity building of the Ministry of Syria which has been built in cooperation with the Government Economy and Trade and relevant Government agencies. of Syria and technical counterparts in the central institutions. With this in-depth engagement the Bank has helped build ro- Country Procurement Assessment Report (CPAR) ­ Assessing bust knowledge in important sectors and cross cutting themes: procurement and contract management practices following the implementation of the new procurement law; and identifying ar- Human Development and Social Protection Support eas requiring further improvements in order to maximize the in- Enhancing Policy Making and Implementation Capacity in tended benefits of previously undertaken procurement reforms. Social Protection ­ The Bank is working to enhance the capacity of the Ministry of Social Affairs and Labor to analyze and improve Doing Business (DB) Indicators ­ This program aims to build implementation of social protection policies and programs. Ca- the government's capacity in understanding the methodology pacity development activities are supported in two areas of social underpinning the DB indicators, and identify potential reforms protection: (i) social safety nets; and (ii) pension reform. to improve the business environment. Following a Doing Busi- ness workshop, organized by the Bank in March 2009, a draft Education Sector Strategy ­ A follow-up to the recently com- reform action plan focusing on business environment reforms pleted strategy is being conducted through capacity building for has been prepared by technical working groups under the lead- evidence-based policy making in education, as well as assessment ership of the Ministry of Economy and Trade. This action plan of expansion options for higher education that are affordable, of has been adopted by the authorities and implementation is be- high quality and meet the demands of the labor market. ing started with Bank assistance. Integrated Policy Framework for Growth and Job Creation Investment Climate Assessment (ICA) Update ­ An update (MILES) ­ Assisting the Government to develop an integrated of the Bank's 2005 ICA is providing up-to-date information and policy framework for continued reform focusing on alleviating advice to the Government on priorities to improve investment the binding constraints to growth. Linkages between macroeco- climate and further promote private sector development. nomic conditions, investment climate, labor market regulations and institutions, education and skills development and social To enhance its capacity for economic survey processes and protection are assessed. analysis, the Syrian Central Bureau for Statistics has requested a grant from the Bank's Trust Fund for Statistical Capacity Economic Growth and Transition Building, which will provide technical assistance on economic Capacity Building Activities on Public/Private Partnerships surveys. Three main areas of support have been identified: the ­ Improving the capacity of the Public/Private Partnership design of questionnaires, support to the conduct of the surveys Unit to be established in the Prime Minister's Office to carry and capacity building on data processing and analysis. out PPP transactions. Public Financial Management (PFM) Reform ­ Support to Country Economic Memorandum ­ This study reviews the the Ministry of Finance in orderto improve fiscal control by link- economic reform process in Syria to-date and examining the ing policy and budget management; support budget integration main opportunities for, and constraints to, broad-based eco- to increase the focus on service delivery/quality, and strengthen nomic growth. It also addresses the consequences of shocks fiscal/budget control and reporting to improve performance such as the steep increase in food and oil prices and the deple- and transparency. These PFM reforms are integral part of the tion of oil reserves in Syria. Action Plan endorsed at the recent Governance Symposium and the Minister of Finance has requested Bank assistance in their Public Expenditure Policy Notes ­ Production of a series of policy implementation. notes that could be consolidated as a Public Expenditure Review. Third / Fourth Quarter 2009 / Syria 28 Syria Environment Improvement for Sustainable Development Electricity Sector Strategy Study ­ aims to identify options to improve the financial and technical performance of the electric- ity sector, particularly on ways to reduce the electricity demand and supply gap. It will also provide options for sectoral reforms and institutional changes needed to improve the efficiency and quality of service delivery and to enable private participation in electricity sector investments. Technical Assistance in the Transport Sector ­ through workshops and working papers focused on determining the role and importance of the Transport sector in the Syrian economy, providing a framework for assessing the sector investment priorities, improving the efficiency and effectiveness of urban transport, and supporting the preparation of a national trans- port action plan. Agriculture and Irrigation Sector Strategy ­ Informing Gov- ernment on issues and options for reforms in the area of agri- culture and irrigation and providing technical assistance with specific irrigation-related projects to support the Government in the implementation of a National Agricultural Support Fund, reviewing and rationalizing the agricultural subsidy schemes, and in the development of a national Agriculture and Irrigation sector strategy. Trust Fund Support The Bank is in the process of mobilizing a small Japan Social Development Fund (JSDF) grant to improve the employabil- ity of marginalized youth, defined as youth aged 17-20 years with less than a 9th grade education who have been out of work for more than 2 years. The grant will rely on strong private sector participation, building partnerships across providers and developing the organization capacities of local institutions and NGOs to provide targeted technical training and work skills in two pilot governorates. An Avian Influenza Preparedness Grant (AHI Facility) will as- sist the Government of Syria in minimizing the risk of outbreaks of the Highly Pathogenic Avian Influenza (HPAI) in domestic poultry and will strengthen Syria's preparedness and control capacity for potential outbreaks in humans. Syria / Third / Fourth Quarter 2009 29 Jordan Well-Developed Electricity Sector Challenged by Rising Demand - by Vladislav Vucetic1 I n many ways, the structure of the power sector in Jordan and consumption, followed by the industrial sector at 27 percent, the reform process it has undergone present a good model in the re- commercial at 17 percent and water pumping at 15 percent. gion: a clear institutional set up with an increasing private sector role in generation, underpinned by a modern regulatory framework2. A well-developed power sector Practically all households are connected to electricity network. Institutional reform Total installed generation capacity is about 2,500 megawatts The Government has made significant progress in institutional (MW) in six larger power stations. Peak demand in 2008 was reform in the power sector by restructuring the sector, estab- 2,230 MW and total electricity generation and net imports were lishing an autonomous regulatory commission, and moving about 14 billion kilowatt-hours (kWh). towards privatization and public-private partnerships. A new energy law, under discussion in Parliament, stipulates certain Poor energy resources degree of liberalization in the petroleum sector and establish- Jordan is not well endowed with traditional sources of energy, ment of an autonomous energy regulatory commission, which such as conventional fossil fuels or hydropower, and imports will include all energy sectors and subsume the existing electric- more than 95 percent of its primary energy needs -- mostly crude ity regulatory commission. The new law also envisages creation oil, oil products, natural gas, and some electricity. Energy imports of a renewable energy and energy efficiency agency. In the pow- valued at about US$3.7 billion constituted about 19 percent of er sector, the main challenge is to further reduce the role and total imports of goods and services (US$19.1 billion) in 2008. financial exposure of the Government which directly (through explicit guarantees to investors) and indirectly (through own- Structure, Ownership, Commercial Performance ership of NEPCO and fuel procurement) underwrites financial The current power sector structure consists of three generation performance of the sector. Making generation more competitive companies, two of which are majority privately owned (CEGCO and liberalization of end-user market with direct bilateral con- and Amman East) while the third is state-owned (Samra) ; three tracting between generation and distribution companies (and distribution companies ­ EDCO, IDECO, and JEPCO) -- all three end-users where feasible), are some of the ways to transfer privately owned; and a state-owned transmission and dispatch commercial risks away from the Government and ­ if properly company (National Electric Power Company ­ NEPCO), which done ­ to improve supply and end-use energy efficiency. Priva- also operates the wholesale electricity market. tization has reintroduced a degree of dominance in the power sector structure as the largest generation company (CEGCO) Single buyer model and two out of three distribution companies (EDCO and IDECO) The wholesale electric power trading arrangements are based were sold to the same investor. Further structural and regula- on a single buyer model, under which NEPCO buys electricity tory interventions will need to take into account this feature. from generation companies and exporting countries (Egypt and Syria) and, in turn, sells it to distribution companies and di- Consumption and rising demand rectly to some large industrial consumers3. Electricity purchase Electricity demand in Jordan has been growing fast in step with prices between NEPCO and generation companies are based the economy, which performed strongly over the 2004-2007, on long-term agreements whose terms, in the case of private when GDP growth averaged over 7 percent. independent power producers (IPPs), are set through competi- tive bidding. Prices of electricity sold by NEPCO to distribution End-users consumption reached 11,500 million kilowatts-hour companies and industrial consumers are set by the Electricity in 2008, growing on average 9 percent per annum since 2002. Regulatory Commission (ERC), an autonomous agency, which Electricity consumption of the commercial sector had the fast- also sets retail electricity tariffs between distribution companies est growth (12 percent per annum on average between 2002 and end consumers. NEPCO is also responsible for buying fuel and 2007), followed by household (10 percent) and water pump- for the power plants operated by generation companies. ing (9 percent). The household sector takes the largest share of electricity consumption, accounting for 38 percent of the final 1Lead Energy Specialist, the World Bank, MENA Region 3 Electricity imports from Egypt and Syria are small, especially from 2 A fourth power generation company ­ Qatrana - has been established Syria, and electricity exports are even smaller, limited to occasional recently, but has no operating assets as construction of its 373-MW power partial compensation of imports. plant is to be completed in 2011. Third / Fourth Quarter 2009 / Jordan 30 Jordan but not stop energy and electricity demand growth. Thus, Jordan needs to continue adding new power generation capacity as a matter of priority to increase generation reserve margin and al- leviate the threat of electricity shortages. World Bank Engagement The World Bank has long supported development of Jordan's power sector through physical investments and policy assis- tance. The World Bank coordinates closely in its activities with the Government of Jordan, the private sector, development partners, and with other organizations in the World Bank Group (IFC, MIGA). Recent activities include: 370 mega-watt combined-cycle Amman East Power Station ­ the first · The first partial risk guarantee (PRG) for the Amman private power station in Jordan East Power Plant Project, which was successfully com- End-user tariff s are generally cost-reflective. The sector receives pleted and put in operation in July 2009, demonstrating no direct subsidies, although the Government guarantees NEPCO's the viability of the new sector structure and the value of purchases and payment obligations under long-term power pur- the Bank's involvement. chase agreements with IPPs. Retail tariffs do contain cross-subsi- · A Japan Policy and Human Resources Development dies between consumer categories, with subsidies generally flowing Fund (PHRD) grant, administered by the Bank, supported to the residential sector and to lower-consuming households. resource assessment in renewable energy, including the design of a legal and regulatory framework which resulted Key sector issues in the draft Renewable Energy Promotion Law and Jordan Because of relatively poor endowment with primary energy re- Renewable Energy and Energy Efficiency Fund design. sources, Jordan has sought to diversify its fuel mix and energy im- · The Bank is the implementing agency of a US$6 mil- ports. This became especially important as the import of oil from lion Global Environment Facility (GEF) grant to support Iraq stopped in early 2000s and international price of oil started the promotion of wind power in Jordan; work is now un- rising. In 2004, as the Arab Gas Pipeline crossed from Egypt into derway for the selection of a private project developer for Jordan, the Government of Jordan signed a long-term gas import the development of a wind farm at Al-Fujeij. contract with Egypt and natural gas became the principal fuel for · The Bank is also the implementing agency of another electricity generation, replacing oil. In 2008 Jordan imported 2.7 US$1 million GEF grant to support energy efficiency pro- billion cubic meters of gas from Egypt, all of which was used for gram in Jordan. electricity generation. Gas imports have helped to mitigate the · The Bank is now expanding the support for regional impact of the high and volatile oil fuel prices in recent years. energy integration and is preparing a proposal for the Clean Technnology Fund (CTF) for development of re- Domestic alternatives newable energy at regional scale, with an emphasis on The Government is making efforts to develop domestic alterna- concentrated solar power. The proposal is expected to in- tives to electricity generation based on imported fuels, such as clude development of solar power plants in Jordan (and wind and solar power and oil shale, as well as nuclear energy. in other MENA countries) and strengthening of Jordan's Jordan's policy is to increase the share of renewable in energy high-voltage transmission network, which is an impor- supply from 1 percent in 2007 to 7 percent by 2015. tant transit link within Mashreq region. · The Bank is providing technical assistance focused on Power generation reserve margin implementation of Jordan's energy strategy, especially With increasing demand, generation reserve margin in Jordan has in relation to the medium-term investment priorities in fallen under ten percent, below the level needed for secure supply. electricity generation and energy efficiency. Jordan should take more aggressive measures to improve energy · A study on the impact of the global financial crisis on efficiency, which ­ given Jordan's relatively high consumption per investment environment in the sector is being undertak- unit of GDP -- is the most economic way of balancing demand en, funded by the Energy Sector Management Assistance and supply. Such measure will take time, however, and will reduce Program (ESMAP). Jordan / Third / Fourth Quarter 2009 31 Jordan News and Events Teacher Education at a Crossroad: Strength- the Ministries of Education in Jordan and Lebanon and the Di- ening Teacher Preparation rector of the Middle East and North Africa Human Development Department at the World Bank. The panelists presented the Good teachers help create good students. The evidence shows policymaker perspectives on the way forward and discussed the that good teachers are the most important school- related fac- policy implications in the region and the available options. tor influencing student achievement. Based on the findings of the Middle East and North Africa edu- "We are ready to work with our neighbors and partners to find cation flagship report, which was launched in 2008, the Jorda- solutions. So let's join together and invest in our teachers, so nian Government requested World Bank assistance in ensuring our children believe they can be anything they want." This is a coherent overall policy framework for teacher professional how Queen Rania of Jordan summed up a two-day regional development in Jordan, and in providing international expertise conference sponsored by the World Bank on the occasion of the in the area of teacher professional development. launch of Queen Rania Teacher Academy (QRTA). The academy was established in 2008 to develop a regional cen- ter of excellence through a partnership with Columbia Universi- ty's Teachers College. The QRTA will focus on high-end, selective and quality teacher training and education programs for public school teachers in Jordan and the region. A close partnership between Teachers College at Columbia Uni- versity and the World Bank paved the way for QRTA to organize the "Teacher Education at a Crossroad" conference in June. The conference held in Amman under the patronage of the Queen Rania brought together more than 130 participants. Both regional and international policymakers, practitioners, research- ers and experts in the field of education convened in order to address critical issues facing the region's teaching force. Regional academicians and experts from Teachers College at Columbia University, Chile and Singapore shared their best practices and methodologies for improving professional devel- opment. They presented the strategies for assessing learning and teaching, strengthening school and school leaders' capaci- ties to ensure success for all students and identifying important directions for educational policy. Throughout the conference, the panelists discussed national teacher standards and certification requirements to improve teaching quality, strengthen university-based teacher prepara- tion and professional development. They stressed the impor- tance of incentives in building quality teachers. The two-day seminar culminated in a ministerial roundtable, which assembled in addition to the Minister of Education and Higher Education in West Bank and Gaza, representatives from Third / Fourth Quarter 2009 / Jordan 32 Jordan Partnership Program The World Bank Group's support to Jordan is defined in the 2006- attraction poles. The main focus of the proposed project reflects 2010 Country Assistance Strategy. The strategy is aligned with the the current international experience in boosting local economies Government priorities, as expressed in particular in the 10-year Na- and improving the local quality of life through creating investment tional Agenda, of poverty alleviation and the creation of higher pro- opportunities in what is defined as cultural and tourism industries. ductivity jobs. The Bank's assistance revolves around four clusters: · Strengthening the investment environment and build- Amman East Power Guarantee (US$45 million) - The proj- ing human resources for value-added, skill-intensive and ect's main objective is to meet Jordan's electricity needs in an knowledge-based economy; economically and environmentally sustainable manner to con- · Supporting local development through increased ac- tribute to economic growth and well-being of the population cess to services and economic opportunities; of Jordan. The purpose of the IBRD Guarantee is to enhance · Reforming social assistance and expanding inclusion; and competition and therefore help reduce the Project's financing · Restructuring public expenditures and supporting costs. The Project components consist of a 370-MW gas-fired public sector reform. combined-cycle power station to be developed, owned, and op- The strategy deploys several instruments to achieve its objec- erated by a private-sector project company. tives: lending, analytical and advisory activities, equity and loan financing to the private sector, and training for institutional Social Protection Enhancement Project (US$4 million) - capacity. The new CAS covering fiscal years 2006 to 2010 was The project aims to improve the management and operations of discussed by the Bank's Board of Directors on May 4th 2006. the cash social assistance programs and to improve the access The Jordan Portfolio consists of eight active projects, totaling to and quality of social care services. US$288.5 million, that are primarily focused on education, so- cial protection, transport and urban development. The portfolio Employer-Driven Skills Development Project (US$7.5 million) also consists of a number of grants from the Global Environment - The project aims to enhance the internal and external efficiency Facility (GEF) that fund activities as follows: "Conservation of of the E-TVET sector by making it more flexible and demand driven Herbal/Medicinal Plants" (US$5 million), "Integrated Ecosystems through the development of employer community participation in in the Rift Valley" (US$6.15 million), "Promotion of a Wind Power (i) sector policy formulation, (ii) institutional development and re- Market" (US$6 million), an "Energy Efficiency Investment Support form, and (iii) skill development program design and delivery. Framework" (US$1 million), and one grant from the Institutional Development Fund (IDF) on "Measuring the Impact of National Amman Solid Waste Project (US$25 million) - The solid Policies and Strategies on Gender" (US$254,000) waste project objective is to enhance the quality, environmen- tal and financial performances of municipal solid waste man- Amman Development Corridor (US$71 million) - The project agement (MSWM) in the Greater Amman Municipality. System- aims at: (a) assisting Jordan's growth strategy by providing need- atically address municipal solid waste management issues and ed infrastructure to support Amman's role as a regional center initiate steps towards integrated and efficient MSWM while for trade and services; and (b) helping ensure that Jordan's road mitigating negative environmental effects at both the local and assets are managed in a cost effective and sustainable manner. global level. The project could be a model for other municipali- ties in Jordan to enhance their MSWM systems. Regional and Local Development (US$20 million) - The objective of this project is to: (a) strengthen the intergovern- The Education Reform for the Knowledge Economy II (ERfKE mental finance system, (b) upgrade local financial management, II) Project (US$60 million) ­ This project is the follow up to ERfKE technical and administrative capacities at the local level, and (c) I which aimed at improving: (a) access to, and equity in, education increase the coverage and quality of municipal service provi- through supporting pre-school education for disadvantaged chil- sion, with particular emphasis on under-served areas. dren and expansion of the school construction to meet population growth; and (b) quality of education through the use of technology Cultural Heritage, Tourism, and Urban Development (US$56 and professional development. ERFkE II will deepen the impact of the million) - The project builds on the experience and achievements reforms and widen the scope of the the Government's Education Re- of the Second Tourism Development Project and supports the Na- form Program initiated in 2003. The objective of ERfKE II is to have tional Tourism Strategy recommendations to develop regionally students enrolled in all streams of pre-tertiary education in Jordan balanced cultural tourism through regeneration of historic urban acquire skills necessary for participation in the knowledge economy. neighborhoods and creation of cohesive and culturally rich urban Jordan / Third / Fourth Quarter 2009 33 Iraq Priority to Providing Services to the People - by Susan R. Razzaz* O n November 2, the Iraqi Poverty Reduction Strategy High project, which included a US$5.5 million grant executed by the Committee submitted a detailed plan for poverty reduction to the Ministry of Planning and Development Cooperation (MOPDC) and Council of Ministers. a US$3.6 million capacity building grant executed by the Bank. The capacity building grant was used to train the Iraqi team in Although Iraq is abundant in natural resources, such as petro- specialized techniques for data collection, poverty analysis and leum, fertile land and water, 23% of the population falls below the process of strategy development. the official poverty line. Years of wars, sanctions and misman- agement have resulted in inadequate investment in the popula- The diagnosis of poverty developed under the second part of the tion and the destruction of infrastructure. project (and articulated in a joint World Bank ­ Government of Iraq report) identified several important features of Iraqi living Today, Iraqis are trying to reconstruct their physical and human standards and poverty: capital, but conflict and declining revenues due to declining oil · There are large geographic disparities: poverty rates prices makes that difficult. Spending on public services such as are much higher in rural areas (39%) than in urban areas education, health, and agriculture remain well below that of other (16%) and the poorest of the poor live in rural areas. countries in the region. In this context, the newly developed Pov- · Enrollment rates are low, especially among poor, rural erty Reduction Strategy is crucial to ensure spending priorities girls. (Even at the primary school level, enrolment rates and policy decisions meet the needs of the population. among poor rural girls are only 60%, falling to 4% by sec- ondary school.) The Poverty Reduction Strategy was developed by a diverse team · As with education, the health status of Iraqis has including high level representation from Parliament, the Prime dropped in the past decades. Maternal and infant mor- Minister's Office, the Ministry of Finance, the Ministry of Plan- tality rates are now among the worst in the region. Low ning and Development Cooperation, the Ministries of Education, health status is due to declining access to water and sani- Health, Justice, Trade, and Labor and Social Affairs, the Kurdistan tation as well as the low quality of public health care. Regional Government and Iraqi academia. The High Committee's · A universal food ration system prevents poverty from work is particularly noteworthy in their ability to work across sec- reaching even higher rates, but it absorbs a huge share of toral, institutional and political boundaries. government resources, is vulnerable to corruption, distorts food prices and is highly inefficient as a safety net. The Poverty Reduction Strategy is the culmination of several · Two thirds of the poor work in the informal sector ­ years of work by the High Committee, which was engaged in a most in non-wage agriculture or as employees in small three part process. The first stage of the work was the implemen- unregulated enterprises. As a result of distorted food tation of the Iraq Household Socio-Economic Survey ­ the first prices and lack of investment, agricultural productivity has nationwide income and expenditure survey in Iraq since 1988. fallen dramatically over the past decades. The second part of the process was the development of a poverty · Many of the poor own their own homes, but the quality line (endorsed by the Cabinet in April) and the diagnosis of the of the environment in which they live is bad. Few have causes and consequences of poverty (based on the survey data). the electricity they need. And they lack access to paved The third part of the process ­ the Poverty Reduction Strategy roads which would facilitate access to markets, schools itself ­has been based on the diagnosis of poverty. In June of and health care. (71% of the poor live on dirt roads.) this year, the High Committee presented the draft strategy to a workshop of 120 participants from Iraqi private sector, Iraqi Civil The Poverty Reduction Strategy responds to these needs by pri- Society Organizations, Iraqi government colleagues and donor or- oritizing six areas for government action. These include: higher ganizations. The final version of the Poverty Reduction Strategy income from work; improved health status, improved educational incorporates the feedback received during the June workshop, as status, better housing environment; an effective social protection well as coordinating its implementation with the ongoing work system and reduced gender disparities. The strategy provides de- on the National Five Year Development Plan. tails of the activities needed to achieve these six priorities as well as a plan for monitoring the strategy's implementation. The International Reconstruction Fund Facility for Iraq (IRFFI) pro- vided support to this work through the World Bank administered The Poverty Reduction Strategy is expected to guide the priori- Iraq Trust Fund. The principle vehicle for this support has been ties of government budget and donor activities. The submission the Household Survey and Policies for Poverty Reduction (HSPR) of the PRS to the Council of Ministers this month represents an important development milestone for the people of Iraq. * Senior Economist, MENA region Third / Fourth Quarter 2009 / Iraq 34 Iraq Pension Reform: Improving Old-Age Income Security in Iraq - by Ghassan N. Alkhoja* I raq passed a pension reform law back in January 2006, but it implementation was suspended as it was widely deemed to be fiscally unsustainable. The Law was subsequently amended and ratified in December 2007. The new draft, commonly referred to as the Unified Pension Law, incorporated new measures to safeguard its financial sustainability and altered the design of public sector pensions in line with good international practices. The Unified Pension Law also mandated the unification of the currently distinct public and private sector pension schemes. Courtesy, National Board of Pension The World Bank is supporting the Government in responding to the implementation challenges of the Unified Pension Law, through provision of long-term technical assistance to help the Iraqi Government build stronger and more sustainable institu- tional structures. The technical assistance complements exist- ing support to the Government of Iraq, notably an Emergency Old man applies for pension at center in Baghdad. Social Protection Project, financed by the Iraq Trust Fund (ITF), and a proposed new project to provide technical assistance for Middle East and North Africa (MENA) region. The coverage level Social Safety Net Implementation. of the national pension systems in MENA is below that of the one in Iraq only in two countries: Yemen and the West Bank and The Unified Pension Law created the National Board of Pen- Gaza. The coverage rate reflects upon the capability of the pen- sions (NBP) and the State Pension Fund (SPF), to replace the old sion system to prevent old-age poverty. A low coverage rate does State Pension System. In addition, the Law requires the merger not only reflect limited overall access to the pension system, but it of the public and private sector pension schemes by January also signals that only the already advantaged social groups have 1, 2010, with the intent to alleviate the existing labor market access to this social protection instrument. The primary benefi- segmentation. The NBP will then become the unifying body of ciary group of the pension system is public sector employees who the mandatory pension schemes, to include the SPF, as well as already possess a solid and secure source of income compared to the Social Security System (SSS ­ the private pension scheme) the uncovered masses in the informal sector. Both the goals of currently residing at the Ministry of Labor and Social Affairs. The poverty alleviation and accelerating private sector led economic envisioned merger of the public and private schemes is desirable growth would point into the direction of extending social insur- in as much as it alleviates the segmentation of the labor market ance coverage on the medium- to long-term. along the public/private divide, but the feasibility of the imple- mentation within the legislated deadline poses a substantial Short-Term Objectives implementation challenge. It is also highly likely that additional The short-term activities of the proposed technical assistance regulatory and legislative actions are needed since the ultimate program will focus on the implementation of this legislation intent behind such harmonization from a policy perspective is and on the associated capacity building. The uncertainty caused to discontinue the segmentation of the labor force across the by incomplete implementation may undermine public belief in boundary of the public and private employment sectors, i.e. al- the pension system; thus, developing a pension administra- lowing greater degree of labor mobility along a development tion system, which can reliably determine the pension benefits path where the private formal employment sector is expected to of new pensioners, is a first order priority. The data recording play a more dominant role in employment creation. needs of the new pension benefit formula also must be accom- modated immediately. This is a demanding task as the new leg- Even if all the implementation issues of the new Pension Law islation makes the pension benefit conditional on an average are resolved, the mandatory pension system in Iraq will cover wage measure that gradually extends the number of years in only roughly one fourth of the labor force representing a low the wage history considered in the average wage measure. In level from a social protection point of view, and is 10 percent- addition, the reserves of the SPF is expected to accumulate dur- age points below the already low average coverage rate in the ing the early maturation of the scheme should be protected by * Senior Operations Officer, the World Bank, MENA region prudent investment management policies and investment man- Iraq / Third / Fourth Quarter 2009 35 agement practices. As the implementation process is primarily sion Policy Analysis Capacity for the SPF; (iii) Improve the Physical constrained by the existing institutional capacities, the imple- Infrastructure of the NBP; (iv) Unify Mandatory Pension Provisions mentation support will specifically focus on identifying and un- in Iraq; and (v) Develop Long-Term National Old-Age Income Pro- locking the dormant capacities within the NBP, and in building tection Strategy for Iraq. While the World Bank will provide key the needed institutional capacity to sustain operations. technical assistance inputs, the GOI is committing to provide fi- nancial support to key infrastructure investment areas, including Medium- and Long-Term Objectives information technology systems and physical improvements to The medium-term objectives of the proposed program will focus pension facilities. In addition, the technical assistance is designed on unifying the rules of the private and public sector pension specifically to build the institutional capacity of the NBP through schemes, and then implementing the associated administrative extensive training to ensure sustainability during and after the merger. The Unified Pension Law requires that the assets, liabili- technical assistance is closed. The main features of the implemen- ties and administrative resources of the Social Security System tation arrangements are as follows: are transferred to the National Board of Pensions by 2010. The · Focus will be on specific implementation support tied to merger is complicated by the fact that the Social Security Sys- the provisions of the Unified Pension Law, as well as provi- tem (SSS) is not only a pension scheme, but other social insur- sion of "on-demand" advisory services and support; ance components (e.g. health insurance) are offered as a part of · Institutional building will be a main focus, through the SSS package. These components are not offered to public support for the development of NBP and SPF guidelines, sector workers under the coverage of the State Pension Fund. regulations, and human resource development activities, In essence, the medium-term objectives of the technical as- but also more importantly on its ability to utilize its own sistance program will focus on assisting the GOI to develop a financial resources for capital investments; policy framework for the unification of the public and private · The World Bank team will focus on technical assistance sector social insurance packages, complete the associated leg- areas, but will also provide technical assistance support to islative process, and then assist in the administrative merger of elaborate options for the capital investment requirements the currently distinct entities. allowing the NBP/GOI to utilize its own financial resources for these items; The longer-term objectives of the proposed technical assistance · Full-time national staff will be recruited in Baghdad program will help the GOI to develop a long-term old-age income who will provide "on-the-ground" support for the work; security strategy for Iraq with a focus on the expansion of social · Periodic (at least three times per year) reviews will be insurance coverage. The Unified Pension Law focuses on the ex- undertaken by the World Bank team responsible for imple- isting formal sector pension schemes, but offers no coverage to mentation; approximately three fourths of the labor force. The incremental improvements in the pension system should be integrated in the With the NBP, the Pension Reform Management Office (PRMO) context of a long-term national old-age income protection strat- was established to support the implementation. The role of the egy. This strategy should consider techniques that would improve PRMO is to coordinate pension reform implementation (includ- the coverage rate of the mandatory pension (social insurance) ing donor relations), and will act as counterpart to the World system. Such techniques should consider those social groups who Bank in implementation of the technical assistance project. The face the consequences of exclusion imposed by the regulatory PRMO is headed by the Director General of the NBP, and is cur- boundaries of the formal employment sector, but it also should rently staffed with five motivated and capable individuals. The create incentives that could attract those who currently stay out- PRMO had initially received baseline training in project manage- side of the pension system voluntarily. ment and organizational skills as part of USAID's contribution to the NBP. The implementation period for the technical assistance Implementation Considerations is expected to be three years. Implementation will be phased The technical assistance will be organized along five main compo- to allow for focus on immediate implementation requirements nents, and prioritized to ensure immediate support to the short- arising from the new Pension Law, while ensuring strategic fo- term implementation requirements of the new Pension Law and cus on supporting the development of the long-term national building the institutional capacity of the NBP: (i) Develop Capacity old-age income protection strategies for Iraq. to Implement the new Pension Law; (ii) Develop Actuarial and Pen- Third / Fourth Quarter 2009 / Iraq 36 Iraq Partnership Program The Joint World Bank-IFC Interim Strategy Note for 2009­11 Contracts to Iraqi printers amounted to US$14 million; and an benefited from a stocktaking of the Bank Group's engagement estimated US$7.5 million was spent on local labor costs. with Iraq to date as well as extensive consultations with Gov- ernment of Iraq, the donor community, and other stakeholders, Community Infrastructure Rehabilitation Project (US$20 including representatives from private sector and civil society million) - Aimed to rehabilitate rural infrastructure by financ- organizations. Activities under this ISN fall under one or more ing labor-intensive, small-scale civil works programs, and create of three thematic areas of engagement: local employment. · Continuing to support ongoing reconstruction and socio-economic recovery; Active Projects · Improving governance and the management of public School Construction & Rehabilitation Project (US$60 mil- resources, including human, natural and financial; and lion) - Aims to alleviate hazards and overcrowding in schools · Supporting policies and institutions that promote through major rehabilitation of 133 existing schools and con- broad-based, private-sector-led growth. struction of 52 new schools, benefiting over 50,000 families with school age children (about 95,000 students). The International Reconstruction Fund Facility for Iraq (IRFFI) The International Reconstruction Fund Facility for Iraq aims to Second Capacity Building Project (US$7 million) - Builds on help donors channel resources and coordinate support for re- the First Capacity Building Project to help authorities introduce construction and development in Iraq through two trust funds: medium-term policies, focusing on economic and public sector The World Bank Iraq Trust Fund (ITF) and the UNDF Iraq Trust management, and social safety nets. Fund. The ITF finances reconstruction and capacity building projects, within the framework of Iraq's National Development Health Rehabilitation Project (US$25 million) - Aims to help re- Strategy and International Compact with Iraq. The donors to the habilitate emergency services in 9 hospitals and provide 12 hospitals ITF agreed to extend the termination date of the ITF to Decem- with basic medical and laboratory equipment and essential drugs. ber 31, 2013, effective on May 26, 2009. First Private Sector Development Project (US$65 million) Portfolio - Aims to help strengthen the private/financial sectors by: (i) in- The Iraq portfolio includes three closed projects in capacity stalling a national high capacity telecommunications network; building, textbook provision, and community infrastructure de- (ii) linking the Central Bank to commercial banks to improve velopment, and 20 active projects. 15 of these are financed by the payment system; and (iii) addressing selected priorities in the ITF and 5 are financed by the International Development institution building. Association (IDA) and are concentrated in sectors such as water, road rehabilitation, health, energy, education, financial manage- Baghdad Water Supply and Sanitation Project (US$65 million) ment, and social protection. - Aims to help restore basic water supply and sanitation services for Baghdad through rehabilitating existing networks and facili- Iraq Trust Fund (ITF) ties, and to provide institutional support. Closed Projects Water Supply, Sanitation and Urban Development Project First Capacity Building Project (US$3.6 million) - The project (US$110 million) - Aims to upgrade and rehabilitate water sup- focused on the immediate need for Iraqi ministries to upgrade project ply and sanitation in 9 cities, and conduct urban reconstruction planning and management skills. More than 580 officials from vari- in the poorest areas of 3 cities, benefiting over 2 million people. ous ministries and local institutions benefitted from the project. The project also provides training and technical support. Textbook Provision Project (US$40 million) - The project Community Infrastructure Rehabilitation Project (Addi- was designed to maximize local content and employment by tional Financing) (US$26 million) - Aims to undertake labor- contracting local printers to the maximum extent possible, tak- intensive civil works to restore rural water infrastructure, cre- ing into consideration the quantity of paper available in Iraq. ate local employment, enhance community participation, and increase institutional capacity Iraq / Third / Fourth Quarter 2009 37 Partnership Program Emergency Disabilities Project (US$16.8 million) - Aims to International Development Association (IDA) improve rehabilitation and prosthetic services to the disabled to reduce the burden of physical disability by upgrading the infra- Third Emergency Education Project (US$100 million) - Aims structure of selected rehabilitation or prosthetic centers and the to assist the Ministry of Education to reduce school overcrowd- skills of the staff to provide services. ing and strengthen its capacity to improve quality of teaching and curricula. Social Protection Project (US$8 million) - Aims to strength- en the capacity of the Iraqi agencies to develop, manage and Emergency Road Rehabilitation Project (US$135 million) - monitor pension and social safety net reform programs. Finances the rehabilitation of highways and village access roads in Central, Southern and KRG Governorates of Iraq. 3 floating Household Survey & Policies Project (US$5.5 million grant bridges will also be replaced with permanent structures. / US$3.6 million TA) - Finances a comprehensive household income and expenditure survey and data analysis to enable the Dokan and Derbandikhan Emergency Hydropower Project authorities to establish a poverty line, target social assistance to (US$40 million) - Aims to upgrade electricity supply primarily the neediest, and make informed policy decisions. in the Kurdistan region, but also nationally through its connec- tion to the national grid. About 490,000 households will benefit Marshlands School Construction Project (US$6 million) directly, as well as a number of industries. - Provides additional financing for the Emergency Schools Construction and Rehabilitation Project to finance new school Emergency Electricity Project (US$124 million, with the construction of 33 small schools in the Southern Marshlands companion ITF grant of US$6 million) - Aims to restore the area of Iraq, benefiting 6,000 to 8,000 children. base load generating capacity of the Hartha power plant and build capacity at the Ministry of Electricity. Environmental Management Project (US$5 million) - Aims to strengthen key functions of the Ministry of Environment to Emergency Water Supply Project (US$109.5 million) - Aims enable it to undertake policy analysis, formulate laws and regu- to improve the quantity and quality of water in 4 high prior- lations, monitor environmental quality, promote environmental ity governorates through the rehabilitation and upgrade of the awareness, and conduct technical studies. water supply and distribution infrastructure, and engage the government to develop a sustainable water sector policy. Electricity Reconstruction Project (US$6 million) - Aims to upgrade technical skills in operations and maintenance of pow- er utilities at the Ministry of Electricity (MOEl), in conjunction with the US$124 million IDA credit that aims to restore the base load generation capacity of the Hartha power station. Regional Emergency Health Response (US$8.7 million) - Aims to assist the Kurdistan Regional Government to establish rapid, co- ordinated and effective response services to health emergencies. Banking Sector Reform Project: (US$10 million) - Aims to support Iraq's implementation of its Banking Reform Strategy and Action Plan, focusing on the institutional, operational and financial restructuring of the 2 state-owned commercial banks, and strengthening of the regulatory and supervisory functions of the Central Bank of Iraq. Third / Fourth Quarter 2009 / Iraq 38