PROGRAM INFORMATION DOCUMENT (PID) CONCEPT STAGE Report No.: AB7235 (The report # is automatically generated by IDU and should not be changed) Operation Name LR-PRSCI Region AFRICA Country Liberia Sector Central government administration (80%);Other Mining and Extractive Industries (10%);General industry and trade sector (10%) Operation ID P127317 Lending Instrument Development Policy Lending Borrower(s) REPUBLIC OF LIBERIA Minister of Finance Liberia Implementing Agency Date PID Prepared March 7, 2013 Estimated Date of Appraisal April 5, 2013 Estimated Date of Board May 23, 2013 Approval Corporate Review Decision Following the corporate review, the decision was taken to proceed with the preparation of the operation. Other Decision {Optional} Key development issues and rationale for Bank involvement 1. Fifteen years of brutal civil conflict destroyed key institutions, infrastructure and the economy of Liberia. The conflict was largely precipitated by the prolonged exclusion and marginalization of a large part of the Liberia population from political power and the economic wealth from the country’s natural resources. Poor economic governance and weak public financial management in particular allowed public resources to be utilized for the benefit of a small group of political elite which heightened inequality and social instability. The social discontent erupted into a brutal civil war in 1989. However, the 2003 Accra Comprehensive Peace Accords and deployment of UN peacekeepers have provided much-needed space to lay a solid foundation for recovery, including establishing a strong governance framework, rebuilding infrastructure and delivering essential social services. 2. The November 2011 national elections, the second since the end of the conflict has given a second term to the incumbent president, Ellen Johnson Sirleaf . These elections although boycotted by the opposition Congress for Democratic Change (CDC), were generally considered free, fair and transparent. The Presidents Unity Party (UP) controls 22 of the 73 seats in the House and 11 of the 30 seats in the Senate. The lack of an absolute majority for any one political party in either the House or the Senate poses challenges in the passage of legislations. 3. The Liberian economy picked up in 2011 and 2012 following the shocks from the global crisis in 2008/09, largely as a result of renewed demand for Liberia’s exports and 1 increased foreign direct investment. Output is estimated to grow by 8.8 percent in 2012 up from 6.4 percent in 2011 and 6.1 percent in 2010 bolstered by strong exports, increased foreign direct investment related to concessions, and expansion of construction activities. The agriculture and services sectors were the leading growth sectors up to 2010 but with the resumption of iron ore mining in 2011 the mining sector’s contribution to GDP has almost tripled (from 4.5 percent in 2011 to 12 percent in 2012). Growth in the manufacturing sector is constrained by limited availability and high cost of electricity. 4. Liberia has made notable progress in the reduction of poverty. In 2007, nearly two- thirds of Liberia’s population was living below the poverty line, and almost half were living in extreme poverty. Based on the 2007 CWIQ, 64 percent of the population, or 1.7 million individuals, were poor. Poverty was 68 percent in rural areas compared to 55 percent in urban areas. Based on data from the 2010 CWIQ, the incidence of poverty at the national level is estimated to have fallen to 56 percent. The overall drop in poverty has been largely a result of economic growth, averaging nearly 7 percent over the period; a sharp fall-off in inflation, particularly since 2008; and steps taken by the Government to: (a) target the agriculture sector under its Poverty Reduction Strategy (PRS)1; and (b) provide income support to the poor and vulnerable through the Liberia Agency for Community Empowerment (LACE). 5. Liberia is making notable progress in its transition from post conflict recovery to laying a foundation for long-term development. Indeed, following some successes in the implementation of its first Poverty Reduction Strategy, the Government has moved to establish a very ambitious goal of achieving middle income country status by 2030 and has formulated a long-term plan and a second poverty reduction strategy—Agenda for Transformation (AfT) to guide its path to this goal. The AfT also provides a broad and detailed reference framework for the reforms that the Government is proposing to undertake over the medium-term. Proposed Objective(s) 6. The development objectives of the proposed operation are to sustain and deepen government-owned efforts to reform governance and civil service, and to support the broadening of reforms to include economic transformation and human development in the context of the implementation of the Government’s second Poverty Reduction Strategy—Agenda for Transformation. More specifically, these reforms are focused on: (i) strengthening governance with particular emphasis on transparency and accountability to reduce corruption; budget execution and oversight; (ii) creating the environment for economic transformation through addressing infrastructure constraints; land tenure issues; the regulatory framework for business as well as agricultural credit; and (iii) improving human development particularly through improved access and quality of education. Preliminary Description 7. The proposed operation supports reforms that are fully aligned with the three overarching themes of the Bank’s Country Partnership Strategy: (i) Reducing constraints to rapid, broad- based and sustained economic growth to create employment; (ii) Increasing access and quality of 1 Almost one third of the deliverables under Economic Revitalization pillar of the PRS were targeted to the agricultural sector. Important support to the sector included the provision of technical and material inputs to farmers to stimulate increased production. 2 basic social services and reducing vulnerability; and (iii) Improving public sector and natural resources governance. These themes are fully consistent with the Government’s second poverty reduction strategy—the Agenda for Transformation. 8. The Agenda for Transformation focuses on the twin objectives of achieving sustained growth and ensuring inclusiveness. These objectives recognize that fragility and conflict remain the primary risks to Liberia’s long term development. Under the first poverty reduction strategy, the Government made notable progress in achieving some governance reforms. However, achievement of the twin objectives will require, first, a deepening of the governance reforms initiated under the first PRS focusing particularly on transparency and tackling corruption as well as on enhanced governance of the natural resource sector. Reforms are also needed to not only improve the customs and fiduciary systems but to also ensure that the civil service has the capacity to manage such systems. Second, to spur and maintain broad-based growth, reforms are needed to address the critical constraints to growth, including the substantial infrastructure deficit (energy and roads); the weak regulatory framework for the private sector; constraint to the agriculture sector including weak land tenure and lack of access to credit and the shortage of skills for emerging sectors. Third, to assure the objective of inclusive growth there needs to be emphasis on improving access and the quality of education and training to ensure that a wide cross-section of Liberians have the education and skills to take advantage of the job opportunities created through broad-based growth. To support the Government in achieving these essential reforms, the operation focuses on two primary areas: (i) governance and civil service reforms; (ii) reforms for economic transformation. The prior actions related to the primary areas of reform are set out in the table below: Prior Actions Component 1: Governance and Civil Service 1. Prepared and submitted draft Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) law to the Legislature 2. Rolled-out the Custom administration system (ASYCUDA) to two additional ports of Bo-Waterside and Ganta. 3. Migrated payroll processing from the Legacy system to the Integrated Financial Management Information System (IFMIS) solution. 4. Submitted IPSAS-based financial statements of the Government of Liberia for FY 2010/2011) and for FY 2011/2012) to the General Auditing Commission (GAC) Component 2: Economic Transformation 1. Adopted a Policy Framework for Land Tenure Reform which clarifies land rights related to public land, government land, customary land and private land. Poverty and Social Impacts and Environment Aspects Poverty and Social Impacts 9. The proposed operation is expected to have positive direct and indirect effects on poverty reduction. First, the resources under the operation will increase fiscal space to allow the government to devote additional public resources towards its AfT priorities. The government is committed to aligning the Medium Term Expenditure Framework (MTEF) to the AfT 3 priorities and this is already reflected in the FY2012/13 budget. The additional concessional financing provided through this operation will provide support for the Government to advance its poverty reduction objectives. Second, the policy and institutional reforms supported by the proposed operation are intended to enhance economic governance as well as support economic transformation thereby fostering the efficient and transparent use of public resources as well as promoting inclusive growth that will reduce poverty. 10. The links between poor economic governance, economic inequities and conflict in Liberia are well documented. In the past, public resources were utilized to benefit a small group of political elite, which heightened inequality and social instability. Reforms focused on improving economic governance including: anti-corruption and transparency reforms, reforms in natural resources governance as well as reforms covering public financial management, procurement and budget oversight through internal and external audits are intended to strengthen budget planning and execution across all ministries and agencies to ensure that the AfT priorities are achieved. In addition, strengthening the civil service is expected to result in the more efficient delivery of public service particularly to the poor who do not have the resources to self- provide. 11. The reforms supporting economic transformation are intended to expand and diversify the base of the economy providing more employment and thereby reduce poverty. Reforms, including for infrastructure, as well as reforms covering the agricultural sector are expected to transform the Liberian economy from one with a narrow base, exporting only primary products to a more diversified economy fueled by lower cost energy and with road, port and telecommunication infrastructure to improve competitiveness. In addition, improvements in road and electricity infrastructure are expected to facilitate improved access to key social services including health and education for the poor. 12. Besides being a drag on investment, land issues are leading causes of intense conflict among Liberians. The reforms focused on the legal framework for land are therefore expected to have positive poverty and social impact. The rural poor of Liberia depend almost entirely upon land and other natural resources for their livelihoods, including their food, fuel, shelter, water and medicines. Unequal access to and ownership of land and other resources have contributed significantly to economic and political inequities throughout Liberia’s history, and have exacerbated tensions and conflict. Access to land rights in the urban areas is also important for the development of the small and medium enterprise sector. 13. The strong association between human capital, particularly education and poverty has been established in Liberia. In 2007, the national poverty headcount for households whose heads had no education was 72.6 percent, compared with 54.2 percent for household heads that had completed secondary education. Reforms which ultimately results in the improved delivery of education services which lead to an enhancement of human capital are therefore expected to have a positive effect on decreasing poverty. 4 Environment Aspects 14. The reforms proposed under this operation are focused on economic governance, economic transformation and human capital development. While the proposed reforms are not expected to have any direct environmental effects, reforms related to natural resource governance, infrastructure, land tenure and agriculture could produce environmental effects which may have to be considered, monitored and mitigated where necessary. 15. The technical capacity of the EPA needs to be further strengthened to enable it to effectively pursue its mandate. The EPA now has a yearly Action Plan to realize its 5 year Institutional Strategic Plan which identifies the needs and priorities of the organization. However, lack of funding is preventing the implementation of the plan. However, cross-sector coordination has improved: the EPA's Inter-sectoral Coordination department leads a coordination group with focal point representatives from Ministries and selected agencies. Environmental Impact Assessment (EIA) is a legal requirement and monitoring and enforcement is the responsibility of EPA. However, the capacity of EPA to enforce EIA remains very low. Tentative financing Source: ($m.) BORROWER/RECIPIENT 0 International Development Association (IDA) 10 Borrower/Recipient IBRD Others (specifiy) Total 10 Contact point World Bank Contact: Errol George Graham Title: Senior Economist Tel: (202) 458-4671 Email: EGraham@worldbank.org Borrower Contact: Title: Tel: Email: For more information contact: The InfoShop The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 458-4500 Fax: (202) 522-1500 Web: http://www.worldbank.org/infoshop 5 6