Document of The World Bank FOR OFFICIAL USE ONLY Report No: PAD2064 INTERNATIONAL DEVELOPMENT ASSOCIATION PROJECT APPRAISAL DOCUMENT ON A PROPOSED CREDIT IN THE AMOUNT OF SDR 29.60 MILLION (US$40 MILLION EQUIVALENT) TO THE REPUBLIC OF CONGO FOR AN INTEGRATED PUBLIC SECTOR REFORM PROJECT April 13, 2017 Governance Global Practice Africa Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS (Exchange Rate Effective February 28, 2017) Currency Unit = CFA Franc (CFAF) CFAF 604.346460 = US$1 SDR 0.73861244 = US$1 FISCAL YEAR January 1 - December 31 ABBREVIATIONS AND ACRONYMS AFD Agence Française de Développement (French Development Agency) AFRITAC Regional Technical Assistance Center in Southern Africa ARMP Autorité de Regulation des Marchés Publics (Public Procurement Regulatory Authority) ASYCUDA Automated Systems for Customs Data CCDB Cour de Comptes et Discipline Budgétaire (Supreme Audit Authority) CEMAC Central African Economic and Monetary Community CFAA Country Financial Accountability Assessment CFAF Central African Franc CGMP Cellule de Gestion des Marchés Publics (Public Procurement Management Unit) CPIA Country Policy and Institutional Assessment CPS Country Partnership Strategy CSO Civil Society Organization DGCMP Direction Générale du Contrôle des Marchés Publics (Public Procurement General Controlling Directorate) DGD Direction Générale des Douanes (Directorate General for Customs) DGGT Délégation Générale aux Grands Travaux (General Directorate of Public Works) DGID Direction Générale des Impôts et des Domaines (Directorate General for Taxes) EITI Extractive Industries Transparency Initiative ER-P Emissions Reduction Program EU European Union FM Financial Management FMA Financial Management Assessment GDP Gross Domestic Product GRS Grievance Redress Service Ha Hectare HR Human Resources IBRD International Bank for Reconstruction and Development ICOR Incremental Capital-Output Ratio IFR Interim Financial Report IGF General Inspection of Finance i IMF International Monetary Fund INTOSAI International Organization of Supreme Audit Institutions IPF Investment Project Financing ISSAI International Standards of Supreme Audit Institutions IT Information Technology LULUCF Land Use, Land Use Change and Forestry M&E Monitoring and Evaluation MAI Ministry, Agency, or Institution MEFDDE Ministère de l’Economie Forestière, du Développement Durable et de l’Environnement (Ministry of Forest Economy, Sustainable Development, and Environment) MFBPP Ministère des Finances, du Budget et du Portefeuille Public (Ministry of Economy, Finance, Budget, and Public Portfolio) MFPRE Ministère de la Fonction Publique et de la Réforme de l’Etat (Ministry of Civil Service and State Reform) MOOC Massive Open Online Courses MPSIR Ministère du Plan, de la Statistique et de l’Intégration Régionale (Ministry of Planning, Statistics and Regional Integration) MTEF Medium-Term Expenditure Framework MTR Mid-Term Review NDP National Development Plan NPV Net Present Value PCU Project Coordination Unit PDO Project Development Objective PEFA Public Expenditure and Financial Accountability PEMFAR Public Expenditure Management and Financial Accountability Review PER Public Expenditure Review PFM Public Financial Management PIM Public Investment Management PLR Performance and Learning Review PMO Prime Minister’s Office PPA Project Preparation Advance PPP Public Private Partnership PPSD Project Procurement Strategy for Development PRSP Poverty Reduction Strategy Paper PSTAT Unité d’Exécution du Projet de Renforcement des Capacités en Statistique (Statistics Capacity Building Project Implementation Unit) REDD+ Reducing Emissions from Deforestation and Forest Degradation RoC Republic of Congo SIGASPE Le Système Intégré de Gestion Administrative et Salariale du Personnel de l'Etat (Civil Service Registry System) SNPC Société Nationale des Pétroles du Congo (National Petroleum Company) ii SOE State-Owned Enterprise SORT Systematic Operational Risk-Rating Tool SNDE Société Nationale de Distribution d’Eau (National Utility for Water Distribution) STEP Systematic Tracking of Exchanges in Procurement TADAT Tax Administration Diagnostic Assessment Tool TGRP Transparency and Governance Report Project ToR Terms of Reference TTL Task Team Leader UN United Nations UNDP United Nations Development Programme VAT Value Added Tax Regional Vice President: Makhtar Diop Country Director: Ahmadou Moustapha Ndiaye Senior Global Practice Director: Deborah L. Wetzel Practice Manager: Hisham Ahmed Waly Task Team Leader: Jean Mabi Mulumba iii REPUBLIC OF CONGO INTEGRATED PUBLIC SECTOR REFORM PROJECT TABLE OF CONTENTS I. STRATEGIC CONTEXT ....................................................................................................... 1 A. Country Context ................................................................................................................. 1 B. Sectoral and Institutional Context ..................................................................................... 2 C. Higher Level Objectives to which the Project Contributes ............................................. 11 II. PROJECT DEVELOPMENT OBJECTIVES ............................................................................ 11 A. PDO ................................................................................................................................... 11 B. Project Beneficiaries ......................................................................................................... 11 C. PDO-Level Results Indicators ........................................................................................... 12 III. PROJECT DESCRIPTION .................................................................................................. 12 A. Project Components ......................................................................................................... 12 B. Project Cost and Financing ............................................................................................... 16 C. Lessons Learned and Reflected in the Project Design ..................................................... 16 IV. IMPLEMENTATION ........................................................................................................ 17 A. Institutional and Implementation Arrangements ........................................................... 17 B. Results Monitoring and Evaluation.................................................................................. 17 C. Sustainability .................................................................................................................... 18 D. Role of Partners ................................................................................................................ 18 V. KEY RISKS ..................................................................................................................... 18 A. Overall Risk Rating and Explanation of Key Risks ........................................................... 18 VI. APPRAISAL SUMMARY .................................................................................................. 20 A. Economic and Financial (if applicable) Analysis .............................................................. 20 B. Technical ........................................................................................................................... 21 C. Financial Management ..................................................................................................... 21 D. Procurement ..................................................................................................................... 22 E. Social (including Safeguards) ............................................................................................ 22 F. Environment (including Safeguards) ................................................................................ 23 G. World Bank Grievance Redress ....................................................................................... 23 VII. RESULTS FRAMEWORK AND MONITORING .................................................................... 24 ANNEX 1: DETAILED PROJECT DESCRIPTION ......................................................................... 31 iv ANNEX 2: IMPLEMENTATION ARRANGEMENTS .................................................................... 40 ANNEX 3: IMPLEMENTATION SUPPORT PLAN ....................................................................... 53 ANNEX 4: ECONOMIC AND FINANCIAL ANALYSIS .................................................................. 56 ANNEX 5: REPUBLIC OF CONGO 2013 PEFA SCORES .............................................................. 60 ANNEX 6: THEORY OF CHANGE/PROJECT LOGIC MODEL/RESULTS CHAIN.............................. 63 ANNEX 7: LESSONS LEARNED AND REFLECTED IN THE PROJECT DESIGN ................................ 69 v Cl C ck ck here Click here he e to to enter ent n er er text. ex te xt. BASIC INFORMATION Is this a regionally tagged project? Country(ies) Lending Instrument No Investment Project Financing [ ] Situations of Urgent Need of Assistance or Capacity Constraints [ ] Financial Intermediaries [ ] Series of Projects Approval Date Closing Date Environmental Assessment Category 04-May-2017 31-May-2022 C - Not Required Bank/IFC Collaboration No Proposed Development Objective(s) The Project Development Objective (PDO) is to improve public resources management and accountability in the Republic of Congo. Components Component Name Cost (US$, millions) Strengthening Revenue Mobilization and Public Expenditure Management 19.60 Modernization of the Public Administration 10.50 Improving Transparency and Accountability 4.20 Project Implementation Support 5.70 Organizations Borrower : Republic of Congo Implementing Agency : Ministry of Planning, Statistics and Regional Integration vi The World Bank Integrated Public Sector Reform Project (P160801) [ ] [ ] IBRD [ ✔ ] IDA Credit [ ] IDA Grant [ ] Trust [ ] Counterpart Funds Parallel Funding [ ] Crisis Response [ ] Crisis Response Financing Window Window [ ] Regional Projects [ ] Regional Projects Window Window Total Project Cost: Total Financing: Financing Gap: 40.00 40.00 0.00 Of Which Bank Financing (IBRD/IDA): 40.00 Financing (in US$, millions) Financing Source Amount IDA-60230 40.00 Total 40.00 Expected Disbursements (in US$, millions) Fiscal Year 2017 2018 2019 2020 2021 2022 Annual 1.50 6.50 9.00 10.00 9.00 4.00 Cumulative 1.50 8.00 17.00 27.00 36.00 40.00 INSTITUTIONAL DATA Practice Area (Lead) Governance vii The World Bank Integrated Public Sector Reform Project (P160801) Contributing Practice Areas Climate Change and Disaster Screening This operation has been screened for short and long-term climate change and disaster risks Gender Tag Does the project plan to undertake any of the following? a. Analysis to identify Project-relevant gaps between males and females, especially in light of country gaps identified through SCD and CPF Yes b. Specific action(s) to address the gender gaps identified in (a) and/or to improve women or men's empowerment Yes c. Include Indicators in results framework to monitor outcomes from actions identified in (b) Yes SYSTEMATIC OPERATIONS RISK-RATING TOOL (SORT) Risk Category Rating 1. Political and Governance z High 2. Macroeconomic z High 3. Sector Strategies and Policies z Substantial 4. Technical Design of Project or Program z Substantial 5. Institutional Capacity for Implementation and Sustainability z High 6. Fiduciary z High 7. Environment and Social z Low 8. Stakeholders z High 9. Other 10. Overall z High viii The World Bank Integrated Public Sector Reform Project (P160801) COMPLIANCE Policy Does the project depart from the CPF in content or in other significant respects? [ ] Yes [✔] No Does the project require any waivers of Bank policies? [ ] Yes [✔] No Safeguard Policies Triggered by the Project Yes No Environmental Assessment OP/BP 4.01 ✔ Natural Habitats OP/BP 4.04 ✔ Forests OP/BP 4.36 ✔ Pest Management OP 4.09 ✔ Physical Cultural Resources OP/BP 4.11 ✔ Indigenous Peoples OP/BP 4.10 ✔ Involuntary Resettlement OP/BP 4.12 ✔ Safety of Dams OP/BP 4.37 ✔ Projects on International Waterways OP/BP 7.50 ✔ Projects in Disputed Areas OP/BP 7.60 ✔ Legal Covenants Sections and Description Schedule 2, Section II, B, 4 (a): The Recipient shall not later than three (3) months after the Effective Date, develop and install a computerized information system to record the transactions of the Project and prepare quarterly interim unaudited financial reports. Sections and Description Schedule 2, Section II, B, 4 (b): The Recipient shall not later than three (3) months after the Effective Date, prepare and adopt the Administrative, Financial, Accounting and Procurement Procedures Manual, in form and substance acceptable to the Association. Sections and Description ix The World Bank Integrated Public Sector Reform Project (P160801) Schedule 2, Section V, A (b): The Recipient shall prepare, under terms of reference satisfactory to the Association, and furnish to the Association, on or about on or about May 31, 2019, a report integrating the results of the monitoring and evaluation activities performed pursuant to paragraph (a) of the Section V of the Financing Agreement, on the progress achieved in the carrying out of the Project during theperiod preceding the date of said report and setting out the measures recommended to ensure the efficient carrying out of the Project and the achievement of the objective thereof during the period following such date. Sections and Description Schedule 2, Section V, A (c): The Recipient shall review with the Association, by August 31, 2019, or such later date as the Association shall request, the report referred to in paragraph (b) of the Section V of the Financing Agreement, and, thereafter, take all measures required to ensure the efficient completion of the Project and the achievement of the objective thereof, based on the conclusions and recommendations of the said report, and the Association’s views on the matter. Sections and Description Schedule 2, Section V, B, 1: The Recipient shall, not later than November 30 in each Fiscal Year, prepare and furnish to the Association, a proposed annual work program and budget (“Annual Work Program and Budget”) for the next following Fiscal Year, giving details of: (a) a time table of programs and activities scheduled for implementation in the course of that next following Fiscal Year; and (b) the estimated cost of each such program or activity, along with the budget line item and source of funding corresponding to each program or activity. Conditions Type Description Effectiveness Article IV, 4.01 (a): The Technical Steering Committee has been duly established in accordance with the provisions of Section I.A.1 (a) of Schedule 2 to the Financing Agreement. Type Description Effectiveness Article IV, 4.01 (b): The Project Implementation Manual has been prepared and adopted, in form and substance acceptable to the Association. Type Description Effectiveness Article IV, 4.01 (c): The Recipient has recruited, in accordance with Section III of Schedule 2 to the Financing Agreement, the key personnel referred to in Section I.A.3 (a) of Schedule 2 to the Financing Agreement, namely, the Project coordinator, administrative and financial officer, procurement specialist, monitoring and evaluation specialist, internal auditor and accountant. x The World Bank Integrated Public Sector Reform Project (P160801) Type Description Effectiveness Article IV, 4.01 (d): The Recipient has prepared draft terms of reference, acceptable to the Association, for the recruitment of an external auditor. PROJECT TEAM Bank Staff Name Role Specialization Unit Team Leader(ADM Jean Mabi Mulumba Senior Public Sector Specialist GGO27 Responsible) Procurement Specialist(ADM Sidy Diop Senior Procurement Specialist GGO07 Responsible) Financial Management Financial Management Francis Tasha Venayen GGO25 Specialist Specialist Aleksandar Kocevski Team Member Operations Officer GGO25 Senior Financial Management Bella Diallo Team Member GGO25 Specialist Emmanuel Pinto Moreira Team Member Practice Leader AFCC2 Etaki Wa Dzon Team Member Economist GMF01 Evariste Niyonkuru Team Member Consultant GGO25 Heriniaina Mikaela Team Member Public Sector Specialist GGO13 Andrianasy Issa Thiam Team Member Finance Officer WFALA Josiane Maloueki Louzolo Team Member Program Assistant AFMCG Julian Lee Team Member Environmental Specialist GEN07 Laurent Debroux Team Member Practice Leader AFCC2 Luc Laviolette Team Member Practice Leader AFCC2 Senior Social Development Lucienne M. M'Baipor Safeguards Specialist GSU01 Specialist Renganaden Counsel Consultant LEGAM Soopramanien Serdar Yilmaz Team Member Lead Public Sector Specialist GGO27 Yoko Kagawa Team Member Senior Public Sector Specialist GGO13 xi The World Bank Integrated Public Sector Reform Project (P160801) Extended Team Name Title Organization Location xii The World Bank Integrated Public Sector Reform Project (P160801) REPUBLIC OF CONGO INTEGRATED PUBLIC SECTOR REFORM PROJECT I. STRATEGIC CONTEXT A. Country Context 1. The Republic of Congo (RoC) is a lower-middle-income, oil-dependent country in Central Africa with a per capita gross national income of US$2,540 (as of 2015). From 2011 to 2015, the RoC’s annual growth rate averaged 3.9 percent, which was lower than the 8.5 percent target set by the 2012–2016 National Development Plan (NDP) 1 to achieve the country’s ambitions of becoming an upper-middle- income country by 2025. This was largely due to the poor performance of the oil sector. The RoC’s revenue mobilization has declined mainly due to the fall in oil production, which is a direct result of the drop in global oil prices. During the last four years, oil production declined by an average annual rate of 6.2 percent, essentially due to interruptions of oil production in some offshore wells. The oil sector accounts for more than 37 percent of gross domestic product (GDP), 32.6 percent of government revenues, and 69.2 percent of total exports.2 Accordingly, the country’s economic performance is largely determined by oscillations in global prices and domestic production and recent developments translate into a high level of uncertainty with regard to public revenues. 2. The RoC has a relatively small population of 4.1 million, about 65 percent of whom live in the urban corridor between Brazzaville and Pointe-Noire. The country is highly urbanized with a high proportion of the population living in the two main urban centers, Brazzaville and Pointe-Noire. Both urban and rural areas are endowed with natural resources, including extensive forests, arable land, and minerals, as well as a deep-sea port in Pointe-Noire, all of which offer considerable opportunities for economic growth and development beyond the oil and gas sectors. 3. The high levels of poverty, unemployment, and inequality are significant threats to the country's economic development aspirations. These challenges are outlined in the latest Poverty Reduction, Growth, and Employment Strategy Paper for 2012–2016, which has as its main objective to stimulate inclusive economic growth and steer the economy away from its dependence on oil.3 The RoC faces persistent challenges even during this period of relative sociopolitical stability. It ranks among the medium human development category of countries on the Human Development Index of the United Nations Development Programme (UNDP).4 However, the country suffers from weak public institutions 1 The 2012–2016 NDP describes the development vision of the country over 2012–2016. It federates all of the macroeconomic policies to achieve the Government’s economic growth, employment, poverty reduction, and equitable development objectives. 2The RoC began oil production in 1957 from Pointe-Indienne. Production remained minimal through the 1960s and 1970s, with a peak output of about 2,500 barrels per day. During the 1980s and 1990s, as offshore technology improved and global prices rose, production increased dramatically, from 65,000 barrels per day in 1980 to 292,000 barrels per day in 2000. As it did, the RoC joined the ranks of Africa’s leading oil producers, only behind Nigeria, Angola, and Gabon. Production peaked in 2010, reaching 312,000 barrels per day. It has since declined, falling to 230,000 barrels per day in 2016, where it will likely remain in the short to medium term. Although the RoC holds nearly 2 billion barrels of proven reserves, at current extraction rates and oil prices, oil revenue is expected to continue dropping in near future. 3Other objectives of the strategy paper include improving governance, developing basic infrastructure, promoting social inclusion and equity, and reducing poverty from 46.5 percent in 2011 to 35 percent by 2015. 4 In 2015, the RoC was ranked 136 out of 188 countries with an average Human Development Index score of 0.591. 1 The World Bank Integrated Public Sector Reform Project (P160801) and limited implementation capacity in the public sector. As such, it has not fully capitalized on the opportunities offered by its significant natural wealth. The country’s key social indicators and service delivery outcomes are inferior to countries with similar resource endowment, indicating a failure to translate this great potential into benefits and opportunities for the citizens. Moreover, with an estimated population growth rate of 3.2 percent per year, 5 the demographic transition is not yet in sight. The cohorts of youth entering the labor market are large and are expected to increase in the coming years, with limited prospects for employment. B. Sectoral and Institutional Context 4. The RoC ranks among the worst performers of resource-rich countries in the Country Policy and Institutional Assessment (CPIA) ratings on the public sector governance cluster. The country’s average score on the public sector management and institutions cluster during 2005–2014 is 2.6, which is below the average for resource-rich Sub-Saharan African countries. Furthermore, the country lags behind in CPIA indicators on (a) property rights and rule-based governance; (b) quality of budgetary and financial management (FM); (c) efficiency of revenue mobilization; (d) quality of public administration; and (e) transparency, accountability, and corruption in the public sector. 5. The RoC has embarked on public administration and financial management reforms in the difficult environment of falling oil prices. Following the elections in 2016, the President articulated a vision called “The road to development” (La marche vers le développement), which presents the development goals for the next five years. The Prime Minister’s Office (PMO) has laid out the blueprints of a strategy to reform the public administration and public resource management systems to achieve the President’s vision statement objectives.6 In addition, the Central African Economic and Monetary Community (CEMAC), of which the RoC is a member, has adopted a series of recommendations to fight the financial crisis facing the zone. 7 In response to these recommendations, the Government has drafted a broader reform program that could potentially be supported by the Bretton Woods institutions. In the meantime, the Government has started the implementation of certain reform activities, including a civil service census to control the growing public service workforce and payroll, as well as the transcription of the six CEMAC public financial management (PFM) directives into the national legislations. 8 To date, legal texts pertaining to accounting regulations, the chart of accounts, and the central government and the table of financial operations of the state have been sent to the CEMAC Secretariat for review. In addition, the Transparency and Accountability Code on PFM was published in November 2016, to promote transparency in public resources management by engaging with the civil society organizations (CSOs). 6. In 2012, the Government adopted a PFM Organic Law, which establishes a harmonized framework of public finances, focused on strengthening of the budgetary discipline and several innovations: 5 The latest population census was completed in 2007; however, the data are difficult to access. The data from household surveys, the most recent of which was undertaken in 2011, are used to calculate population growth estimates. 6 The reforms started with the appointment of a Prime Minister in April 2016. The PMO is tasked with implementation and monitoring of the vision. 7 The recommendations apply to CEMAC zone countries that are to be monitored by the President of the RoC. 8 The impact of CEMAC on its member states is essentially in respect of PFM. CEMAC has provided a harmonized framework for PFM for its member countries and the RoC has committed undertaking the relevant PFM reform measures, notably to (a) control excessive deficit; (b) improve budget execution; (c) improve accountability of ministries for results; (d) establish a single treasury account; and (e) improve the transparency of public finances. 2 The World Bank Integrated Public Sector Reform Project (P160801) x Granting exclusive powers to financial laws over taxation policy including determining the rules relating to the assessment, rate, and collection of taxes of any kind; x Strengthening efficiency of public spending through the integration of international best practices; x Adoption of the budget in a program mode by allowing the state to move from a culture of means to a culture of results; x Introduction of multi-annularity to ensure greater transparency of fiscal policy; x Respect of a number of principles and obligations, both for the management of public funds and public administration; and x Rationalization and strengthening of the control system. 9 7. Even though there is progress in reforming PFM systems in the country, the broader public sector modernization efforts are lagging behind. There is a need for developing and implementing a complementary public sector reform program to achieve efficiency and efficacy in public resource management. The following paragraphs summarize the current situation of PFM systems as discussed in the recent Public Expenditure Management and Financial Accountability Review (PEMFAR)10 report at length, as well as implementation gaps in public resource management and public sector reforms that require urgent attention. Public Financial Management 8. The recent economic update outlines PFM challenges as follows11: (a) a lack of sufficient fiscal space due to low oil prices; (b) the taxation system being complex, with a high effective tax rate and limited capacity of Congolese revenue administration in generating substantial non-oil revenues; (c) the noncompliance with budgetary rules and procedures; (d) substantial delays observed in the country procurement system; and (e) the stalled reforms in PFM coupled with poor computerization leading to budget credibility issues. Revenue Mobilization 9. The RoC’s total revenues were historically high compared to the regional average and were well above the convergence criteria of CEMAC.12 This is mainly attributed to the high share of oil revenues as a percentage of total revenues (see Table 1). Oil revenues accounted for 37 percent of total revenues in 2015, compared to 69 percent in 2014 and 79 percent in 2011. As such, the falling oil prices in recent years have significantly affected the composition of overall revenue mobilization. At the end of 2016, oil revenues were estimated at about 8.8 percent of GDP, as compared to 17.9 percent of non-oil revenues 9 The CEMAC PFM directives reduce the control system by leaving only a priori control (that of the Financial Controller), but reinforcing the ex post controls, in particular parliamentary and judicial control, as well as instituting citizen control. 10 World Bank. 2015. Republic of Congo – PEMFAR – Implementing Public Financial Management Reforms to Stimulate Growth and Achieve Shared Prosperity. 11 World Bank. 2016. Republic of Congo – 3rd Edition of the Economic Update. 12 The convergence criteria of CEMAC are as follows: (a) the basic budgetary balance in relation to GDP must be positive or zero; (b) the annual inflation rate must be less than 3 percent; (c) the public debt ratio (domestic and external) must be less than or equal to 70 percent of GDP; and (d) there must be non-accumulation by the state of internal or external arrears on current management. Failure to comply with these convergence criteria by one of the CEMAC members exposes it to sanctions. 3 The World Bank Integrated Public Sector Reform Project (P160801) (see Table 1). Table 1. Oil and Non-oil Revenues Share in GDP (in US$ millions) 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 GDP 3,211 4,043 4.023 5,311 4,530 5,947 6,804 6,979 6,534 6,556 5,092 4,892 Total revenue 1,240 1,792 1,564 2,442 1,307 2,231 2,894 2,976 3,123 2,832 1,498 1,330 Total revenue 38.6 44.3 38.9 46.0 28.9 37.5 42.5 42.6 47.8 43.2 29.4 27.2 / GDP Oil revenue 1,020 1,531 1,284 2,118 934 1,758 2,283 2,303 2,295 1,942 550 430 Oil revenue / 31.8 37.9 31.9 39.9 20.6 29.6 33.6 33.0 35.1 29.6 10.8 8.8 GDP Non-oil 220 261 280 324 373 463 571 663 801 857 902 875 revenue Non-oil revenue / 6.9 6.5 7.0 6.1 8.2 7.8 8.4 9.5 12.3 13.1 17.7 17.9 GDP Source: Government authorities and World Bank, 2016. 10. As part of the continuing efforts to increase domestic revenue , the 2016 Finance Law included measures for improving tax administration, as well as revisions pertaining to personal income tax and new taxes in the forestry sector. The law also modified taxes for telecommunications companies and levied taxes on bank transfers. In addition, as a result of the measure taken by the Government since 2008, to strengthen the capacity of the Directorate General for Taxes (Direction Générale des Impots et des Domaines, DGID) and the Directorate General for Customs (Direction Générale des Douanes, DGD), the receipts from the value added tax (VAT) have increased significantly. The share of VAT represented 7.0 percent of GDP in 2016, compared to 3.4 percent of GDP in 2011 and the customs revenues were estimated at 2.5 percent of GDP in 2016, compared to 1.3 percent of GDP in 2011. The increase of non- oil revenue is also attributable to tax administration reforms, such as the creation of a one-stop shop (guichet unique) for customs operations, the transition from the Automated Systems for Customs Data (ASYCUDA++) to the new efficient automated customs data system, the introduction of the unique taxpayer identification number, and the payment of taxes through the commercial banking system. However, a number of challenges remain, such as (a) the Integrated State Expenditure and Revenue System not yet helping with budget execution and record keeping; (b) the automated tax collection system not yet being operational; and (c) work being needed to further strengthen the tax administration. 11. To increase non-oil revenues, the Government is trying to diversify its revenue base, with an emphasis on the collection of forestry and property taxes, as well as registering economic activity to collect taxes. Forestry generates a turnover of approximately US$200 million per year and contributes 4 The World Bank Integrated Public Sector Reform Project (P160801) about US$40 million,13 nearly 40 percent of which is not reversed to the state due to diversion of funds. 14 The existing loopholes in the tax code and tax collection further limit the efforts to raise revenues from this sector; collection rates of the various forestry taxes ranged between 44 percent and 75 percent15 between 2013 and 2015. As there are limited budgetary resources allocated for the sector, resources at the local level are diverted for direct use by the forestry administration. 16 The absence of transparency and lack of knowledge about existing forestry resources limit the capacity to control forestry exploitation and affect the implementation of sectoral regulations. To address these issues, effective revenue mobilization is a priority together with improved administrative capacity to enhance sectoral governance through a capacity-building program and an effective monitoring mechanism. 12. The urbanization rate of the RoC represents an important potential for growth and development, as well as revenue from property tax . With more than 70 percent of the population living in urban areas, the RoC is one of the most urbanized countries in Sub-Saharan Africa. A property tax was introduced in the RoC in the 2015 budget. However, it will take time to fully exploit the property tax base, as establishing a reliable cadaster and improving property tax administration capacity are difficult tasks. 13. The RoC suffers from informality of economic activity . The informal economy accounts for 28.8 percent of GDP and employs more than 80 percent of the working population, which poses a challenge for the Government in mobilizing tax revenues. It makes broadening the tax base and increasing the number of taxpayers difficult. Expenditure Management 14. The volatility of the budget execution rate continues to be an important challenge in the RoC. After fluctuating between 88.4 percent and 104.4 percent during 2008–2013, the budget execution rate reached 80.65 percent in 2016 compared to 87.9 percent in Kenya and 94.0 percent in Nigeria. The lower budget execution rate affects the quality of expenditure, as well as the desired attainment of sectoral outcomes. For example, although the budget allocation for strategic sectors such as health, education, energy, and agriculture increased by 10 percent between 2008 and 2013, there has been little improvement in sector outcomes due to low budget execution rates. 17 15. In recent years, particularly since the launch of the Heavily Indebted Poor Countries Initiative, the Congolese authorities have adopted a number of significant public finance reform measures to improve the efficiency of spending, including the 2006 Action Plan for the Improvement of PFM the 2008 Action Plan for the Improvement of Public Investment Management (PIM) (revised in 2011), the 2009 13 Nearly 66 percent of the RoC's total landmass is covered by forest. In absolute terms, the RoC has the second-largest volume of forest in Africa with 22 million hectare (ha). Until the rise of the oil sector, timber constituted the RoC's leading export; it now constitutes its second-leading export, contributing as much as 5 percent of annual GDP and 10 percent of foreign trade. Until 1987, the RoC's timber industry was dominated by the Office Congolais des Bois, which enjoyed a monopoly on timber exports. The sector was liberalized substantially between 1990 and 1993 and is now almost entirely private. Production increased accordingly, from approximately 650,000 cubic meter (m3) throughout the 1970s and 1980s to more than 2 million m3 annually since 2010. As of 2012, the RoC surpassed Gabon as Africa's largest exporter of tropical timber, reaching nearly 1 million m3, behind only Malaysia, Papua New Guinea, and Myanmar globally. 14 The Ministry of Forestry carries out cash withdrawals from the forestry companies for the payment of forestry taxes, contrary to the provisions in force that require payment to be made by check to the Director of Treasury. 15 Etat des lieux de l’application de la loi forestière et de la gouvernance en République du Congo de 2013 à 2016 . Projet OI- APVFLEGT. 2017. 16 These resources are often used for purposes other than forest management. 17 As a result, a limited number of people have access to basic services in the RoC. 5 The World Bank Integrated Public Sector Reform Project (P160801) Procurement Code, and the 2012 Organic Law on the State Financial System. In addition, the Congolese authorities have developed an information technology (IT) master plan with the objective of improving the efficiency of PFM systems. As part of this master plan, an automated tax collection system, an automated customs data system, and a certification mechanism for oil revenues have been developed. However, despite the efforts to establish an Integrated State Expenditure and Revenue System, there has been little progress. 18 As a result, the inefficiencies in the expenditure and revenue systems hamper efficiency gains in public resource management, particularly in the public investment system. 16. Large investments have been made by the Government during the last decade, averaging US$600 million per year. Since 2010, the Government has undertaken a massive infrastructure campaign with an aim to diversify the economy. RoC has used most of the available resources from public debt reduction to increase its infrastructure spending, thereby raising its commitment to meeting its development priorities set out in the NDP for 2012–2016. However, the weaknesses in the monitoring and evaluation (M&E) framework of the NDP make the review of the achievement of results difficult. 17. In addition, poor selection of investments through the PIM system, a lack of coordination, and low absorptive capacity of the construction sector, as well as weaknesses in public procurement have led to significant inefficiencies. Classic examples of inefficient investment are the Imboulou Dam Project and the Congo Power Station, where the Government has invested over US$1.6 billion, with improvements in the electricity access rate yet to take place. In addition, the high cost of building infrastructure in the RoC also reduces the efficiency of public investment. For instance, the cost of building a road in the RoC is the highest in the region.19 Substantial reforms of the public investment system including planning, budgeting, and implementation are needed. Specifically, the Government should consider: (a) adopting and implementing a transparent and objective process of investment project selection within public agencies, institutions, and line ministries; (b) planning and coordinating investment decisions with all institutions relevant for the investment; (c) decelerating the pace of public investment to allow the building up of the supply side of the construction industry in the RoC; and (d) targeting the allocations of public resources and providing a geographic coverage of the budget (i.e. by division of rural versus urban areas). 18. Furthermore, the lack of effectiveness and efficiency of the public procurement system continues to affect public investment spending. Significant progress has been made with the introduction of the new procurement code in 2009, including the (a) decentralization of procurement functions to ministerial departments by the creation of Public Procurement Management Units (Cellule de Gestion des Marchés Publics, CGMPs); (b) introduction of open tendering as a basic principle; (c) establishment of a complaints review mechanism for monitoring and processing appeals; (d) operationalization of the Public Procurement Regulatory Authority (Autorité de Regulation des Marchés Publics, ARMP) and the Public Procurement General Controlling Directorate ( Direction Générale du Contrôle des Marchés Publics , DGCMP); and (e) design of a national capacity-building strategy and training of actors involved in the 18 Based on the IT master plan, the Integrated State Expenditure and Revenue System was supposed to be implemented in three parts: infrastructure, software, and training. To date, several activities have not yet begun, notably the development of the software, which is at the heart of the project, and the training of personnel involved in the implementation of this system. The various types of infrastructure delivered have not been exploited and are likely to become obsolete. 19 A paved road measuring 7 meter in width costs an average of US$0.75 million per kilometer in the RoC, as compared to about US$0.4 million per kilometer in Kenya and Nigeria. Factors that contribute towards the high cost are the geographical terrain, use of procurement methods, nationality of contractors, and time trends, among others. 6 The World Bank Integrated Public Sector Reform Project (P160801) implementation of the procurement code. Despite this progress, the implementation of the new procurement system has not yet addressed all the weaknesses of the procurement system with regard to efficiency, economy, and transparency. The main problems remain (a) deficiencies in the planning and budgeting of public investment; (b) a lack of interest by the private sector in meeting public demand; (c) a high level of fraud and corruption associated with insufficient controls and sanctions; (d) weak capacity of civil servants in charge of procurement; and (e) poor performance by the entities responsible for conducting public procurement transactions in line ministries, as well as those involved in the controls and approvals. 19. An evaluation, carried out by the ARMP in August 2014, indicates that the capacities and performance of the CGMPs are uneven. In addition, the new configuration following the appointment of a new government resulted in strong mobility for CGMP members. In some ministries, the CGMPs are closely dependent on the cabinet of the Minister. They are usually replaced when ministers change. As a result, the level and capacity of CGMPs, including the General Directorate of Public Works (Délégation Générale aux Grands Travaux, DGGT), have been considerably weakened. In addition, as an evidence of poor quality of procurement dossiers, a number of bidding documents have been rejected by the DGCMP. The low level of execution of procurement plans (only 30 percent) is also a testament to procurement deficiencies. 20. Public procurement control and approvals need to be improved for the enhancement of the integrity and transparency of the system. Although public procurement audits have been conducted for the last three years, the samples of reviewed contracts were limited. More importantly, these audits did not include high-value contracts (above CFAF 1 billion). The reports are not publicly accessible. Moreover, the complaint review mechanism is ineffective, as the private sector is reluctant to file complaints due to lack of trust. Public Administration and Sector Reforms 21. The public administration reform is a high priority for the Government, but there is no modernization strategy in place yet. The Congolese administration was created after the independence of the country in 1960 on the basis of the colonial administration. However, it has not been reformed since then.20 It is important for the Government to design and implement a reform strategy with the objective of modernizing its public administration. 22. Although the RoC has yet to ratify the African Charter on Values and Principles of Civil Service and Administration,21 several of the values and principles are highlighted in a recent Government document—Strategic Plan for State Reform 2016 (Projet de plan stratégique de réforme de l’État) .22 Evidence in this draft document suggests that there are serious deficits of professionalism and integrity in 20 A number of initiatives have been attempted to improve the situation of the civil service without success, including the civil servants’ census and the computerization of the HR management system. 21 The charter lays down key principles and rules that should be applied by public authorities in their relations with the public to achieve a good administration. The nine principles stipulated in the document are as follows: (a) principle of equality of all users of public service and administration; (b) prohibition of all forms of discrimination; (c) principle of impartiality, fairness, and due process; (d) principle of continuity of public services; (e) adaptability of public services to the needs of users; (f) principle of professionalism and ethics; (g) promotion and protection of rights of users and public service agents; (h) principle of accountability, integrity, and transparency; and (i) effective, efficient, and responsible use of resources. 22 This draft Strategic Plan for State Reform was produced in October 2016 with the support of the United Nations Development Programme (UNDP). 7 The World Bank Integrated Public Sector Reform Project (P160801) the civil service, manifested through poor human resources (HR) management and the unreliability of the personnel data, including strong evidence of ghost workers. 23. There is a wide divergence in the estimation of the total number of civil servants. The RoC is estimated to have around 80,000 civil servants. However, this number is not reliable as there is no civil service database based on a civil service biometric census.23 A lack of a reliable database for the civil servants prevents the Government from knowing accurately the size of the public sector, which accounts for 19 percent of the public spending. The draft government document on the Strategic Plan for State Reform identifies two main causes of poor civil service personnel data: (a) weaknesses in the coordination between the Ministry of Civil Service and State Reform (Ministère de la Fonction Publique et de la Réforme de l’Etat, MFPRE) and Ministry of Economy, Finance, Budget, and Public Portfolio (Ministère des Finances, du Budget et du Portefeuille Public, MFBPP); and (b) corrupt practices of civil service personnel management within the ministries, agencies, or institutions (MAIs). 24. Although the MFPRE has overall responsibility for personnel management, several MAIs directly recruit staff for whom they obtain ex post regularization. While the legal framework and strategic plans have been developed to improve PFM, without a computerized HR management system, staff can freely move from one department to another, or from one city to another, without approval by the relevant authority. A lack of strategic planning for training with insufficient budget for training/staff development amplifies the problems of mismatching of skills and experiences with necessary positions. Furthermore, there is no civil service strategy for career management and recruitment, which leads to disconnects between the needs and actual recruitments.24 25. The challenge posed by weak civil service implementation capability for achieving the country’s development goals is highlighted in the draft Government Strategic Plan for State Reform (2016). The document attributes the overall low efficiency and competence of civil servants to the following factors: (a) low morale due to frozen pay levels (since 1994); (b) poor working environment with inadequate buildings, equipment, and furniture; (c) lack of systematic evaluation of the performance of civil servants; (d) lack of training and retraining programs; and (e) slow internal communication within and among the MAIs. The document proposes the following remedial measures in its ‘Results Framework’: x Improve civil service performance through provision of tools and procedures for ensuring results-oriented management (gestion axée sur les résultats) and introduction of a new performance evaluation system; promotion of change management culture; improved relationship between the civil service and the public; and redefined mission and programs of the National School of Administration and Management; x Strengthen professionalism and ethical standards in the civil service through development, publication, and enforcement of a code of ethical standards for civil servants with a monitoring mechanism; creation of a national corruption observatory with the involvement of civil society for effective monitoring of the fight against corruption in the civil service; and introduction of practical sanctions and rewards of civil servants’ performance; and 23The Government has recently started a biometric census, which is expected to be completed by October 2017. 24 It is reported that there is a ten-year lag between graduation from Government public administration schools and Government recruitment. 8 The World Bank Integrated Public Sector Reform Project (P160801) x Modernize management tools and information systems within the civil service through simplification and automation of procedures; information/communication systems such as Intranet across the Government, e-administration, and electronic archives; coherence in the choice of technological services within the civil service; an interconnected network among MAIs and between the Central Government and subnational governments; and tailor-made information and communication technology training programs for civil servants. Governance in Sectors 26. Oil and forestry are the most important sectors of the Congolese economy. In recent years, there have been significant Government efforts to comply with international standards in these sectors, including the Extractive Industries Transparency Initiative (EITI) and the Reducing Emissions from Deforestation and Forest Degradation (REDD+) Program. 27. The Government received EITI approval in 2013. The RoC is a leading producer of crude oil, diamonds, and gold. It also produces smaller quantities of copper, lead, zinc, construction materials, and, more recently, phosphates and uranium. The country joined the EITI in 2004 and obtained the status of candidature in 2008. In 2013 the EITI board declared the country compliant with the requirements. 28. The country needs to continue complying with EITI requirements to maintain its EITI status, to attract foreign investment to develop mining and gas fields, as well as the diversification of oil production. Owing to the EITI, the RoC has, among other things, succeeded in (a) the publication of quarterly reports that include data on oil sales by the national petroleum company of the RoC (La Société Nationale des Pétroles du Congo, SNPC) and transfers of revenues between the latter and the Treasury; (b) the inclusion in the EITI reports of crude oil resulting from production sharing contracts and its monetization, which has contributed significantly to the transparency of this important part of the national economy; (c) tax payment by oil companies directly to the Treasury and not to intermediate Government institutions; and (d) adoption of a roadmap setting out the steps that will lead, from January 1, 2020, to the disclosure of the real beneficiaries of undertakings operating in the sector. 29. Although the RoC is covered with forests, its non-land use change and forest emissions25 rose 206 percent between 1990 and 2012. The country has committed to lowering its greenhouse gas emissions by 54 percent by 2035 at the 21st Conference of the Parties of the UN’s Framework Convention on Climate Change. As part of the RoC’s efforts to reduce greenhouse gas emissions, the Government is espousing REDD+ to better manage its forests, while also driving economic development and diversification. REDD+ payments represent a way for the country to get paid for climate mitigation services rendered to the global community. It also represents an opportunity to add revenue streams for the forest sector, while the performance-based nature of REDD+ provides an incentive to improve forest governance and management to qualify for the payments. However, institutional constraints of the implementing agencies involved in REDD+ pose challenges for achieving sector wide results. Investing in the modernization of decentralized elements of the forest administration is expected to boost the RoC’s chances of realizing the potential of its Sangha/Likouala Emissions Reduction Program (ER-P) to pilot REDD+ at a jurisdictional level, which is aligning performance-based financing of US$60 million with an additional US$108 million in investments. Ultimately, such efforts are expected to have a positive impact 25 Land use, land-use change and forestry (LULUCF) is defined by the United Nations Climate Change Secretariat as "A greenhouse gas inventory sector that covers emissions and removals of greenhouse gases resulting from direct human-induced land use, land-use change and forestry activities." 9 The World Bank Integrated Public Sector Reform Project (P160801) on improving overall resource mobilization in the sector. 30. The RoC has an outdated institutional and regulatory framework for the state-owned enterprises (SOEs) sector. The SOEs are governed by Law 13-81 of March 14, 1981. As of November 2016, there are 49 SOEs largely concentrated in critical sectors of the economy, such as transport, energy, infrastructure, banking, and insurance. The portfolio includes 22 companies with majority state ownership of 100 percent, with six enterprises where the state owns more than 50 percent, and 21 minority-owned companies. Although some profitable companies pay regular dividends (a total of CFAF 17 billion or approximately US$28 million in 2015), some companies do not pay any dividends, some have tax obligations, some are not profitable, and majority of them do not file their financial statements with the MFBPP, as required by the Decree No-2002-369 of November 30, 2002. In the context of social service delivery, the most important SOEs are the National Utility for Electricity (Société Nationale d’Electricité) and National Utility for Water Distribution (Société Nationale de Distribution d’Eau , SNDE).26 Public Sector Transparency and Accountability 31. The control environment on budget execution is weak . Controls are exercised by two oversight institutions: the General Inspection of Finance (IGF) for internal control and the Supreme Audit Authority (Cour de Comptes et Discipline Budgétaire, CCDB) for external control. The functioning of these oversight institutions is impaired because of inadequate budgetary allocations, as well as the lack of qualifications and training of staff. A common challenge for the control environment is that the audit reports’ recommendations are not always implemented. The central authorities usually fail to impose sanctions, leaving few incentives for ministries and companies to change their behavior. 32. The CCDB does not fully exercise its powers due to lack of independence. The CCDB is able to carry out audits for less than 50 percent of total expenditures due to lack of capacity. In addition, audit reports are not submitted to the Parliament on time, and therefore settlement laws are not produced on time. The recommendations of the CCDB are not implemented due to the lack of follow-up capacity and willingness by the ministries and SOEs. Furthermore, there are no sanctions imposed by central authorities to delinquent ministries and SOEs. Moreover, the CCDB does not apply the international auditing guidelines and standards as described by the International Organization of Supreme Audit Institutions (INTOSAI) and the Regional Training Council of the Supreme Audit Institutions of the State, French- speaking Sub-Saharan Africa. To address these issues, an organic law is being prepared, which should establish the independence of the CCDB and affirm its new responsibility for assessing the performance of public expenditures in accordance with international auditing guidelines and standards. 27 33. The budgetary authority in the RoC is the Parliament. Its functions include adopting the budget and overseeing its execution through its two Economy and Finance Committees.28 However, the audit reports issued by these two committees are of poor quality due to the lack of capacity needed to carry out the oversight function. It is important to note the following distinction. The IGF, which is under the 26 The ongoing World Bank project, Water, Electricity and Urban Development SIL (P147456), provides support to these companies in the context of reforms in the water and electricity sectors. The development objective of the project is to increase access to basic infrastructure services, safe drinking water, and electricity to the inhabitants of targeted areas in the cities of Brazzaville and Pointe-Noire. 27 There has been support from the French Cour des Comptes to conduct performance audit. The CCDB has already conducted a performance audit for the SNDE and has the intentions to continue with the practice in others institutions. 28 The Parliament has been overseeing the budget execution. It is responsible for the issuance reconciliation law ( Loi de reglement), which it did for 2015. 10 The World Bank Integrated Public Sector Reform Project (P160801) supervision of the MFBPP, has a mandate to carry out internal audits regarding the execution of the state budget. The mission of the CCDB is to carry out the external audits of the execution of the state budget, and it is under the supervision of the Parliament. 34. Congolese CSOs have limited capacity to exercise external control over the implementation of public policies by the Government. There are limited resources available for CSOs to carry out their function as outside watchdog organizations. As a result, there is a need to further improve access to information to inform the citizens about the quality of services. In addition, CSOs need to be actively engaged in independent monitoring of budget execution. To this end, the following challenges will need to be addressed: (a) access to information to ensure proper monitoring by CSOs; (b) publication of detailed information about the public investment budget; (c) building capacity within CSOs to allow their staff to monitor the implementation of key governance reforms; and (d) dissemination of CSO monitoring activities to build citizen trust and reliance in the system. C. Higher Level Objectives to which the Project Contributes 35. The proposed project is a key component of the RoC’s Country Partnership Strategy (CPS) FY13– FY16 (report number 71713-CG)29 and is fully aligned with the Government’s PRSP II . Its design also reflects the findings of the 2015 Performance and Learning Review30 (PLR). The CPS is organized around two pillars and the foundation of the new World Bank Strategy for Africa: (a) competitiveness and employment and (b) vulnerability and resilience, for which the foundation is good governance and capacity building. Improved governance/Government effectiveness is one of the five pillars of the RoC’s PRSP II for 2013–2016. Actions envisaged under this pillar include (a) improving HR management; (b) improving staff capacity; (c) developing results-focused management tools; (d) establishing a remuneration system that will encourage performance and improve efficiency in the public service; and (e) creating a decentralized civil service system. 36. The proposed project seeks to support the World Bank’s twin goals of eliminating extreme poverty and promoting shared prosperity by supporting the Government’s effort to increase its fiscal space. The proposed operation will support the Government in improving domestic revenue mobilization, which will in turn increase the effectiveness of tax and nontax revenue mobilization, including from forestry and land. It will also contribute to strengthening public expenditure management to effectively allocate resources to priority sectors with the objective of improved service delivery. Finally, the project will promote better accountability by supporting oversight institutions and facilitating citizen monitoring of public policies. II. PROJECT DEVELOPMENT OBJECTIVES A. PDO 37. The Project Development Objective (PDO) is to improve public resources management and accountability in the Republic of Congo. B. Project Beneficiaries 38. The direct beneficiaries of the project are the Ministries of Finance, Planning, Civil Service, Land, 29http://documents.worldbank.org/curated/en/953881468247277224/pdf/NonAsciiFileName0.pdf 30The objective of the PLR is to discuss the performance of the World Bank program, lessons learned, and adjustments made to the RoC’s CPS to respond to new developments. 11 The World Bank Integrated Public Sector Reform Project (P160801) and Forest Economy, as well as the DGGT, the Directorate General of the Public Portfolio, ARMP, DGCMP, the Parliament, CCDB, IGF, and selected CSOs. The ultimate beneficiaries of the project will be the citizens of the RoC, who can expect to see improvements in the quality of public service delivery. As the project proceeds, improving revenue mobilization—including from forestry and land use—is expected to translate into greater availability of funds for financing the provision of basic social services, while strengthening expenditure management and control will promote greater effectiveness across the public administration. C. PDO-Level Results Indicators 39. The key PDO indicators to be achieved include (a) Increase in non-oil tax revenue (cumulatively, as percentage of the non-oil tax revenue base); (b) Capital expenditure execution rate (as percentage of total capital expenditures); (c) Civil servants managed through the civil service registry (Le Système Intégré de Gestion Administrative et Salariale du Personnel de l'Etat, SIGASPE) (in percentage); and (d) Coverage of internal audit (as percentage of total expenditures). III. PROJECT DESCRIPTION 40. The proposed operation covers selected areas deemed critical to achieving the PDOs. The project design has been informed by World Bank analytical work (including the PLR, PEMFAR, and Policy Notes on governance aspects) and the action program of the RoC. However, there is a need to deepen the knowledge on various aspects of governance challenges facing the country, for which the project will employ a knowledge generation strategy. 41. As the scope of governance is quite wide, a selective approach will be employed to support the implementation of the Government’s priorities. Depending on progress made in the implementation of reforms and the appetite of the Government to reform, the project coverage may be extended through additional financing. The project will focus on three blocks of reforms, which are (a) PFM; (b) public administration; and (c) transparency and accountability. Accordingly, the project is organized into four components: (a) Strengthening Revenue Mobilization and Public Expenditure Management; (b) Modernization of the Public Administration; (c) Improving Transparency and Accountability; and (d) Project Implementation Support. A. Project Components Component 1: Strengthening Revenue Mobilization and Public Expenditure Management (US$19.6 million equivalent) 42. The objective of this component is twofold: (a) to improve non-oil revenue collection and (b) to rationalize the expenditure chain. Subcomponent 1.1: Strengthening Revenue Mobilization (US$7.0 million equivalent) 43. The objectives of this subcomponent are to: (a) secure existing and potential revenues; (b) strengthen the management capacity of tax administration with regard to organization, fiscal control, and procedures automation; (c) improve communication capacities on tax policy measures with other 12 The World Bank Integrated Public Sector Reform Project (P160801) stakeholders, in particular sectoral ministries, the private sector, and CSOs; (d) improve information systems; and (e) rationalize the exemptions system in the non-oil sectors to reduce the loss of revenues. To achieve these objectives, this subcomponent will support the following activities: (a) undertaking of a tax administration diagnostic assessment tool (TADAT) and implementation of its recommendations; (b) review of the forestry tax system and implementation of its recommendations; (c) review of the exemptions system in the non-oil sectors, and implementation of its recommendations; (d) design and implementation of a tax administration modernization strategy; (e) design and implementation of a property tax system for the benefit of MFBPP and the Ministry responsible for land titling; (f) installation of a new computer system in the General Directorate of Tax; (g) development and implementation of a training program for tax administration, and production of a new manual of execution of revenue; and (h) development and implementation of a new communications strategy. Subcomponent 1.2: Strengthening Public Expenditure Management (US$12.6 million equivalent) 44. The objectives of this subcomponent are to: (a) improve strategic planning capacity; (b) improve the efficiency of the public investment budget; (c) strengthen the capacity for public expenditure management; and (d) improve the PFM information system. To achieve these objectives, this subcomponent will support the following activities: (a) identification of policy priorities for the national development plan (NDP); (b) updating of macro-economic data to prepare a suitable medium-term expenditure framework (MTEF); (c) review of the public investment management chain; (d) reform of the public investment management system; (e) measures to improve the institutional and regulatory framework governing SOEs; (f) elaboration of a strategic action plan for PFM reform based on the new PFM legal framework; (g) transposition of six CEMAC PFM Directives into national law; (h) design and implementation of training programs for actors involved in budget execution management; (i) computerization of expenditure management; (j) creation of a website for the Ministry of Planning, Statistics, and Regional Integration (Ministère du Plan, de la Statistique et de l’Intégration Régionale , MPSIR). Component 2: Modernization of the Public Administration (US$10.5 million equivalent) 45. The objective of this component is to develop a public sector modernization strategy and implement it in pilot departments and agencies. Subcomponent 2.1: Improving Civil Service Management Capacity (US$4.0 million equivalent) 46. The objectives of this subcomponent are to: (a) strengthen the capacity of the MFPRE to better manage HR within the public administration and (b) produce a State Reform Strategic Action Plan. To achieve these objectives, this subcomponent will support the following activities: (a) review of the legal, regulatory and institutional framework governing the civil service; (b) design and implementation of the strategic action plan for reform of the public administration; (c) development of a civil service registry, based on the results of the recently completed census; (d) establishment of an employee reference system in the civil service registry; (e) adoption of a new manual of procedures for the management of civil servants; (f) design and implementation of a computerized system for career management in the civil service; and (g) design and implementation of a training program to strengthen the capacity of the MFPRE. Subcomponent 2.2: Modernization of the Departments Implementing REDD+ (US$1.5 million equivalent) 47. The objective of this subcomponent is to pilot the public administration reform actions in the 13 The World Bank Integrated Public Sector Reform Project (P160801) Ministry of Forest Economy, Sustainable Development, and Environment’s (Ministère de l’Economie Forestière, du Développement Durable et de l’Environnement, MEFDDE) ER-P.31 This will build capacity and enable departmental governance structures for REDD+ and the Ministry’s Departmental Forest Economy Directorates to actively participate in decision making and oversee more effective oversight of REDD+ implementation and artisanal commercial logging operations. To achieve these objectives, this subcomponent will support the following activities: (a) building the capacity of Departmental REDD+ Committees in the departments of Sangha and Likouala; and (b) building the capacity of the Forest Economy Directorates of MEFDDE to boost oversight of artisanal and commercial logging operations. Subcomponent 2.3: Modernization of the Public Procurement System (US$5.0 million equivalent) 48. The objective of this subcomponent is to pilot the State Reform Strategic Action Plan in the public procurement system to improve the efficiency, effectiveness, and value for money. The subcomponent is designed to respond to demands for addressing key obstacles to effectiveness and performance, structured around strengthening the public procurement management system. To achieve these objectives. This subcomponent will support the following activities: (a) review of the legal and regulatory framework governing procurement; (b) carrying out of regular annual independent audits of public procurement contracts; (c) strengthening of the institutional framework and management capacity, as well as capacity for collaboration, of CGMPs, ARMP, DGCMP, and DGGT; (d) restructuring and strengthening of CGMPs; (e) implementation of the Public Private Partnership (PPP) framework, as defined in the draft PPP Law under preparation; (f) development and implementation of a procurement information management system (e-tracking system); (g) design and implementation of a national training strategy; and (h) professionalization of the procurement function, along with institutionalization of a training program. Component 3: Improving Transparency and Accountability (US$4.2 million equivalent) 49. The objectives of this component are to strengthen the capacity of the oversight institutions, increase transparency in the forestry and extractive sectors, and promote citizen engagement. Subcomponent 3.1: Supporting the CCDB, IGF, and Economy and Finance Committees of the Parliament (US$2.0 million equivalent) 50. The objectives of this subcomponent are to (a) support the institutional reform of public oversight institutions; (b) build their capacity; and (c) improve transparency. To achieve these objectives, this subcomponent will support the following activities: (a) finalization and implementation of the organic law and code of professional ethics governing CCDB; (b) design and implementation of audit methodology guides for IGF and CCDB, along with adoption of a manual of procedures that complies with the international standards and the code of professional ethics; (c) development and execution of an annual work plan for the benefit of IGF, based on the revised manual of procedures; (d) development and implementation of a training program for the benefit of IGF and CCDB; (e) development and implementation of a training program for the benefit of Economic and Financial Committees of Parliament; (f) strengthening of communication to improve coordination between CCDB and the Economic and Finance Committees of Parliament; (g) strengthening of the archiving systems and website to broadcast regular audit mission reports; and (h) creation of a CCDB website. 31 The ER-P is limited only to the regions of Sangha and Likouala. 14 The World Bank Integrated Public Sector Reform Project (P160801) Subcomponent 3.2: Supporting Social Accountability and Citizen Engagement (US$1.0 million equivalent) 51. The objective of this subcomponent is to strengthen the capacity of selected CSOs to effectively undertake social accountability actions related to PFM. This subcomponent aims to strengthen the commitment of CSOs to serve as independent monitors of the Government budget to improve the execution rate and the quality of public investment. To achieve these objectives, this subcomponent will support the following activities: (a) monitoring of implementation of governance reforms and keeping the population informed of progress; (b) participation in the budget orientation debates and monitoring of budget implementation to ensure that it reflects the needs and priorities of the people; (c) collaboration with the public oversight institutions to improve transparency, accountability and integrity in public administration; (d) monitoring of implementation of recommendations of the audit reports of oversight institutions to ensure that sanctions are taken as needed; and (e) soliciting feedback from the population about the degree of satisfaction with the quality of service delivered by the administration. Subcomponent 3.3: Improving Transparency of the Revenue Collection System in the Forestry Sector (US$0.7 million equivalent) 52. To increase the forestry tax rate, this subcomponent will support the Government’s effort to implement corrective measures following the recommendations of the forestry tax system review, with the objective of improving the transparency of the revenue collection and management. To achieve these objectives, this subcomponent will support the following activities: (a) design and dissemination of a guide on forestry tax policy and regulations; (b) design and implementation of an information-sharing mechanism between MFBPP and MEFDDE; (c) development and implementation of a communications strategy; (d) publication of signed forest concession contracts and related documents (management plans, including social clauses); (e) publication of updated lists of forestry rights holders, including artisanal permits; and (f) publication of statistics on the production and exportation of forest products and taxes paid to the Treasury. Subcomponent 3.4: Improving Transparency in the Extractives Sector (US$0.5 million equivalent) 53. This subcomponent will support the EITI activities with the objective of allowing the RoC to continue to (a) maintain EITI compliance status and (b) improve transparency in the management of extractives resources. To achieve these objectives, this subcomponent will support the production of: (a) quarterly reports, including data on oil sales by SNPC, and transfers of revenue between SNPC and the Treasury; (b) reports on production sharing contracts in the petroleum sector; and (c) reports on conformity with EITI to be produced by an independent expert. Component 4: Project Implementation Support (US$5.7 million) 54. The objectives of this component are to enhance the project implementation capacity and to support the development and application of an M&E system for tracking progress in governance reforms. Subcomponent 4.1: Building Project Implementation Capacity (US$4.2 million) 55. This subcomponent will serve to enhance project implementation capacity. The project will be implemented by the MPSIR. During project preparation, the Minister of Planning has expressed her commitment by putting into place a Project Preparation Committee and chairing its meetings. In view of the current level of fiduciary risk for World Bank project implementation in the RoC, consultants will be 15 The World Bank Integrated Public Sector Reform Project (P160801) hired to manage the procurement and financial aspects, as well as the project’s M&E system. Subcomponent 4.2: Monitoring and Evaluation (US$1.5 million) 56. The project will provide support to capacity building in the form of technical assistance and training for the governance unit. This will enable it to (a) track the implementation of reforms; (b) help the Ministry Delegate within the PMO in charge of relations with the Parliament; and (c) improve technical and administrative management in its relationship with the Parliament. In addition, the project will provide minimum computer equipment to these two PMO structures. B. Project Cost and Financing Table 2. Project Cost and Financing IDA Project Cost Financing Project Components (in US$ (in US$ millions) millions) 1. Strengthening Revenue Mobilization and 19.6 19.6 Expenditure Management 2. Modernization of the Public Administration 10.5 10.5 3. Improving Transparency and Accountability 4.2 4.2 4. Project Implementation Support 5.7 5.7 Total Costs 40.0 40.0 Total Financing Required 40.0 40.0 57. The proposed project is an Investment Project Financing (IPF) operation financed by a US$40 million IDA Credit, to be implemented over a five-year period. After considering other financing modalities, an IPF is suggested as the most appropriate and realistic instrument to address the Government’s needs through advisory support and technical assistance. A Project Preparation Advance (PPA) of US$2 million was committed to finance consultants, goods, and other inputs required to prepare for implementation activities under the three components. These activities support project preparation, including the establishment of baselines and the completion of necessary assessments. C. Lessons Learned and Reflected in the Project Design 58. In designing the project, a number of lessons from the World Bank’s experience in public sector management reforms in the RoC (and beyond) have been taken into consideration and incorporated in the project design. The most significant of these are discussed in Annex 7 and summarized as follows. x High-level political will and reform champions are necessary ingredients for the success of the project. x The internalization of governance reforms takes time and requires long-standing support, and the project design needs to be tailored to client capacity. x The recently closed World Bank Transparency and Governance Repeat Project (TGRP, P122990) in the RoC encourages a simple design for a low-capacity environment. 16 The World Bank Integrated Public Sector Reform Project (P160801) 59. Proper monitoring, evaluation, and cross-institutional collaboration are key for the successful implementation of governance reform programs. IV. IMPLEMENTATION A. Institutional and Implementation Arrangements 60. The MPSIR will be the Implementing Agency. The Minister of Planning has been identified as a reform champion during project preparation. The project will be implemented through a Project Coordination Unit (PCU) that will be created and placed under the leadership of the MPSIR. The PCU will manage the fiduciary functions of the project. To ensure better coordination of various reform efforts and swifter implementation of activities, the PCU will have the added responsibility of following up on project implementation in the various ministries. Otherwise key beneficiaries will be responsible for the implementation of their activities. The Implementation Unit of the ongoing CG-Statistics Capacity Building Project (P133731) (Unité d’Exécution du Projet de Renforcement des Capacités en Statistique, PSTAT) will manage the fiduciary aspect of this project, until the project’s PCU and fiduciary structure is established. However, it is agreed to gradually move the responsibility to the procurement units in the line ministries involved in the project, once the ceiling for decentralizing procurement is increased from its current level. 61. A Technical Steering Committee will be established to provide strategic oversight for the project. The Steering Committee will be chaired by the Prime Minister’s Adviser in charge of governance, with the technical support of the PCU. The Steering Committee will consist of representatives of both cross-cutting and key spending ministries. The Technical Steering Committee will be established before the project effectiveness. 62. The Project Implementation Manual will define the roles and responsibilities of each stakeholder in the project, including the relationship between institutions, rules, and procedures, as well as processing times to react to specific requests from the Government and/or the World Bank. It will be finalized by the PCU, in close collaboration with the beneficiaries, before project effectiveness. This will be done in consultation with the project’s implementing agencies. It will also facilitate its validation by promoting full ownership of its content by all of the stakeholders involved. An administrative, financial accounting and procurement procedures manual will also be prepared and adopted after the effectiveness. B. Results Monitoring and Evaluation 63. The PCU will include an M&E specialist who will be responsible for monitoring and reporting on project results, including the method, data source, and frequency of reporting for each project indicator . The project monitoring system will use administrative data from the responsible entities to be provided with support from the focal points that have been identified within each of the targeted entities. In this way, the project will help reinforce monitoring capacity within each of the targeted ministries and agencies. Project implementation will be guided by the Results Framework and Monitoring, as well as by the theory of change/project logic model/results chain, captured in Annex 6. 64. For accountability purposes, the PCU is committed to provide regular (quarterly) reports. Such reports will be posted on a dedicated project web page, with the latest data for each indicator made available to project beneficiaries and relevant stakeholders. The World Bank has appointed a country- based Task Team Leader, who will undertake regular supervision missions to ensure that key findings are fully implemented to improve the overall project performance. A midterm review will be carried out, not 17 The World Bank Integrated Public Sector Reform Project (P160801) later than two years of project effectiveness. The findings and recommendations will then be used to improve project performance, effectiveness, and efficiency. C. Sustainability 65. Sustainability is a key concern of this project, which is investing in the enhancement of the capacity of government staff to administer and monitor reform programs supported by the Government and donors, through the provision of equipment, training, and technical assistance. This involves a strategic approach. Indeed, the support provided to the Governance Unit within the PMO, to the Ministries of Finance, Civil Service, and Planning, and to the agencies has the objective of building institutions and administrative capacities to increase their effectiveness after the completion of the project. D. Role of Partners 66. Several donors are assisting the Government of the RoC in its effort to implement public sector reforms and are working closely to identify and harmonize their interventions to avoid duplication and waste of resources. These include the following: x The European Union (EU) provides technical assistance through a resident adviser based in the MPSIR, who has been closely involved in the preparation of the MTEF. x The International Monetary Fund (IMF) is supporting the transcription of the six CEMAC directives in the national law through the Regional Technical Assistance Center in Southern Africa (AFRITAC). x The UNDP is involved in the implementation of the public administration reform. x The French Development Agency (Agence Française de Développement, AFD) has expressed its willingness to set up a parallel financing operation to support public sector reforms. V. KEY RISKS A. Overall Risk Rating and Explanation of Key Risks 67. On the basis of the World Bank’s Systematic Operational Risk-Rating Tool (SORT), the overall risk of the project is rated high. This rating is based on several large and interrelated risks, which may jeopardize the implementation of the project and the achievement of the PDO, unless properly managed and mitigated. Key project risks include political and governance, macroeconomic, technical design of the proposed operation, sector strategies and policies, institutional capacity for implementation and sustainability, fiduciary, and stakeholders’ relationships. 68. Political and governance risks are rated high. A new Government has been appointed in 2016 with a reformist Prime Minister at the helm. However, there is a lack of consensus on the implementation approach to the Government’s broader reform program, and not all ministers are willing to receive support from the international community. To mitigate this risk, a gradual approach will be employed. The project implementation will be adapted based on achievement of results and appetite of the Government to undertake reforms. In addition, reform champions, including the Prime Minister, his Adviser in charge of governance, the Ministries of Planning and Civil Service, and different departments within the MFBPP (Tax Administration, Customs Administration), have been identified and will be the key focal points to manage potential challenges that may arise in the course of implementation. The World 18 The World Bank Integrated Public Sector Reform Project (P160801) Bank has appointed a country-based Task Team Leader, who will provide ongoing implementation support and ensure that key challenges are addressed in a timely manner to improve the overall project performance. 69. Macroeconomic risk is rated high. The decline of Government revenues due to the current economic and financial crisis in the RoC is fueling the accumulation of domestic arrears to suppliers and contractors, thereby preventing the Government from continuing to implement its investment program. This situation could lead to the bankruptcy of those suppliers and contractors, as well as to a loss of jobs. Such a development could hamper economic growth and lead to social tensions. The project support to strengthen the tax policy and administration functions will generate resources needed to finance public expenditure programs that promote economic growth and target poverty reduction. 70. Sector strategies and policies-related risks are rated substantial. Governance risks in the RoC affect the whole of the political, economic, and social spheres. The implementation of any program that addresses areas of vested interest such as PFM, procurement, and public administration management will be affected by negative dynamics. To mitigate these risks, the proposed project will support a dialogue on economic governance focusing on the aspects of institutional reforms in the public sector to foster positive dynamics in its interventions with the objective of reducing governance risks. 71. Technical design of the project is rated substantial for engaging in a number of priority areas (PFM, procurement, public administration management, accountably, and citizen engagement). Under the preparation activities for the project, training programs in leadership and rapid result methodologies will be conducted to help identify a group of change agents at the Government level. The project will then rely on this network of change agents to ensure that technical advice and training provided under the project will be effectively translated into behavioral change. In addition, because of capacity constraints, emphasis will be placed on sequencing activities as well as on building evaluation opportunities. 72. Institutional capacity for implementation and sustainability risks is rated high. The limited capacity of the public administration negatively affects the Government’s capacity to implement reforms. The public administration has a high turnover rate, low morale, weak productivity, and limited incentives. Most institutions in charge of various dimensions of PFM systems, such as Ministries of Civil Service, Infrastructure, Health, Education, Forestry, and Energy, are not adequately funded, which undermines their effectiveness. The project and PPA will finance the establishment of a dedicated PCU to support project coordination and implementation. The PCU will be responsible for coordinating with all project beneficiaries and the steering and technical committees to ensure even greater progress across participating institutions. It will also facilitate clear communications and better monitoring of the implementation of the project. In addition, the proposed project will finance technical assistance to the line ministers to allow them to implement reforms. In this context, the project will also support capacity- building activities for the Governance Unit within the PMO. This will enable it to assist the Prime Minister in coordinating and monitoring the implementation of key reforms. Finally, the project will support capacity-building activities for the Ministries of Finance, Planning, and Civil Service. With this support, they will be better able to design and implement reforms with a view to increasing their ownership of reforms. 73. Stakeholders risk is rated high. Sustained stakeholders’ engagement is essential to ensure successful cross-cutting reforms, especially when supporting a large group of beneficiaries, as this project proposes to do. To mitigate this risk, a proactive approach to policy dialogue will be taken by the World 19 The World Bank Integrated Public Sector Reform Project (P160801) Bank, as well as the project implementation team. Project stakeholders will be assisted in formulating arguments and advocate for an agenda of transparency and accountability, at all levels of government. In addition, public sector reforms have more probability of success when space for understanding and acceptance is created. For this reason, the project has been designed according to priorities defined by the stakeholders to enable direct involvement at the highest level of the Government through the project preparation committee. 74. Fiduciary risk is high. The Government’s overall PFM system presents significant weaknesses, due in particular to the functionality and internal system controls of the integrated FM information system. Indeed, internal control mechanisms within the Government and the CCDB are weak. At the project level, fiduciary risks will be mitigated by the PCU, which will have dedicated procurement and FM staff in place. These staff will benefit from training and close supervision by the World Bank procurement and FM staff based in the country office. VI. APPRAISAL SUMMARY A. Economic and Financial (if applicable) Analysis 75. The proposed project is expected to generate a number of benefits, which can be captured in a conservative financial analysis (Annex 4). Component 1 will focus on supporting the tax administration in improving the mobilization of additional non-oil revenues, the rationalization of the tax exemption system, and improvement of transparency and management of tax administration. Through this component, the project is thus expected to improve revenue collection over the project life. Based on conservative assumptions described in Annex 4, the project will generate financial gains estimated at US$200 million over its assumed five-year life, with a financial real net present value (NPV) of US$185.2 million. 76. Through Component 2, the project aims at supporting the Government in designing and implementing an effective civil service management system . The improvement of civil service management capacity supported under Component 2 is expected to equip staff with increased skills and to be more efficient in management of public services. Coupled with a better management of the PFM system, this is expected to increase state capability for more capital investment and will bring about efficiency savings. From the financial analysis, the gains projected over a five-year period show a total value of US$100 million over the assumed five-year project life, with the financial real NPV of US$89 million at a 3 percent discount rate. 32 77. In addition to the financial benefits described in the following paragraphs, the proposed project is most likely to yield several types of economic impacts through the interventions around its different components, including (a) improved social well-being from improved service delivery; (b) improved compliance to tax payment; and (c) crowding-in effects of increased trust in the public administration. 78. The World Bank and other key development partners, including the AFD, EU, IMF, and UNDP, have been engaged in supporting public sector reform in the RoC. There are many reasons for the World Bank’s engagement in support of the country’s own program of reforms, including the strong convening power of the World Bank, the need to strengthen the country’s PFM systems as the platform for managing 32 A 3 percent discount rate is used to meet the CEMAC inflation criterion or ceiling, given that inflation was on average less than 2 percent between 2013 and 2016. 20 The World Bank Integrated Public Sector Reform Project (P160801) budget support resources and the need to strengthen the collaboration framework with donor partners. Moreover, the World Bank is uniquely placed to provide support and knowledge for various public sector and PFM-related issues, including improving domestic revenue mobilization and expenditure management, strengthening oversight institutions, and improving transparency, as well as strengthening civil service management. 79. The proposed areas of intervention were designed through active dialogue with the authorities during project preparation . Thus, the project design is a reflection of where the Government of the RoC sees the greatest value added for World Bank involvement, given the World Bank’s knowledge on the topics in question, as well as the absence of coverage by other development partners. The advantage of the World Bank, compared to other development partners, is its ability to contribute to all stages of the value chain. Accordingly, the World Bank brings a valuable financial and technical contribution to the proposed operation. It is well placed to lead a consensus-building dialogue on public sector and PFM reforms as it has already prepared diagnostic reports. It also plays a leading role in donor coordination. More importantly, the World Bank is a trusted partner of the Government on public sector and PFM reforms. The value added of the World Bank’s engagement is found in the balanced and multidimensional sector support, which targets various aspects of public sector governance in the interests of promoting poverty reduction and shared prosperity. B. Technical 80. The design of the project was built on lessons learned from previous governance operations in the RoC and findings of a set of governance diagnostics undertaken by the World Bank in collaboration with the Government. Building on the governance diagnostic, the design of this project has been informed by an intense process of policy dialogue around key aspects of public sector reforms. Detailed consultations have taken place with the counterparts regarding each of the constituent components of the project. The design of the project has also benefited from close partnership and coordination with other development partners (including the ADF, EU and UNDP). Efforts have also been made to focus on complementary activities and avoid duplication. C. Financial Management 81. A FM assessment (FMA) was undertaken to analyze the capacity of the FM structure by the PSTAT, which will manage fiduciary aspects of the project until the recruitment of the project’s fiduciary team is complete. These arrangements will ensure that the implementing entities (a) use project funds only for the intended purposes in an efficient and economical way; (b) prepare accurate and reliable accounts as well as timely periodic financial reports; (c) safeguard assets of the project; and (d) have acceptable auditing in place. 82. FM arrangements were found to be adequate, subject to meeting the following requirements: (a) opening the Designated Account in a financial institution acceptable to the World Bank; (b) updating the current manual of procedures to take into account grant specificities; (c) implementation of a customized Excel spreadsheet for bookkeeping in advance of the eventual installation of management accounting software; (d) development and installation a computerized information system to record the transactions of the Project and prepare quarterly interim unaudited financial reports; (e) preparation and adoption of the Administrative, Financial, Accounting, and Procurement Procedures Manual, in form and substance acceptable to the Association; (f) recruitment of project coordinator, administrative and financial officer, procurement specialist, monitoring and evaluation specialist, internal auditor, and accountant; (g) 21 The World Bank Integrated Public Sector Reform Project (P160801) recruitment of an internal auditor; and (h) agreeing to the terms of reference (ToRs) for the recruitment of the external auditor (acceptable to IDA). 83. The conclusion of the assessment is that the FM arrangements in place—subject to the implementation of the risk mitigation measures outlined earlier—meet the World Bank’s minimum requirements under World Bank Directive: Financial Management Manual For World Bank Investment Project Financing Operations (Catalogue Number OPCS5.05-DIR.01), issued (retrofitted) on February 4, 2015, and effective from March 1, 2010, and World Bank Guidance: Reference material - Financial Management in World Bank IPF Operations (Catalogue Number OPCS5.05-GUID.02), issued on and effective from February 24, 2015. As such, they are adequate to provide, with reasonable assurance, accurate and timely information on the status of the project as required by the World Bank (IDA). The overall FM residual risk rating at project preparation is considered substantial. The detailed FM arrangements are described in Annex 2. D. Procurement 84. Procurement for goods, works, non-consulting, and consulting services for the project will be carried out in accordance with the procedures specified in the ‘World Bank Procurement Regulations for IPF Borrowers’ dated July 2016 (Procurement Regulations) and the World Bank’s ‘Guidelines on Preventing and Combating Fraud and Corruption in Projects Financed by International Bank for Reconstruction and Development (IBRD) Loans and IDA Credits and Grants’ (revised as of July 1, 2016), as well as the provisions stipulated in the Financing Agreement. 85. The PCU will be responsible to carry out procurement activities under this project. This PCU will be staffed with qualified and experienced procurement specialists, recruited by the PSTAT. Given (i) the country context and associated risk; (ii) the unproven experience of the procurement unit due to the fact that it has to be set up and staffed within the PCU to be created; and (iii) the fact that this project will be the first project to be implemented in RoC under the World Bank New Procurement Framework, the procurement risk is rated high. 86. A Project Procurement Strategy for Development (PPSD) has been prepared with the Bank support, which aims to ensure that procurement activities are packaged and prepared in such a way that they expedite implementation, taking into account (i) the market analysis and the related procurement trends, and (ii) the procurement risk analysis. The PPSD includes the recommended procurement approaches for the project that have been reflected in the approved Procurement Plan, covering the first 18 months of the project implementation (see Annex 2 for more details on procurement). E. Social (including Safeguards) 87. A key social impact of the proposed operation is its contribution to improve domestic revenue collection and increase available resources. Such resources would enable the Government to finance social programs that target poverty reduction. In addition, by supporting the budget rationalization process as well as the internal and external audit functions, the proposed project will simultaneously improve budget allocation and prioritization relative to improved service delivery and social sector investment. In addition, by strengthening the participation of citizens in the budgeting process, the project will provide access to information about public finances, as well as better access to basic services. 22 The World Bank Integrated Public Sector Reform Project (P160801) F. Environment (including Safeguards) 88. Given that the project will essentially focus on building institutional capacity and providing advisory services, environmental impact assessments are not required. Although minor works to be carried out might include refurbishment of office space for key beneficiaries and selected implementing agencies to install adequate equipment, these are not expected to have any adverse environmental impact. The project is, therefore, classified as Environmental Category ‘C’. G. World Bank Grievance Redress 89. Communities and individuals who believe that they are adversely affected by a World Bank (WB) supported project may submit complaints to existing project-level grievance redress mechanisms or the WB’s Grievance Redress Service (GRS). The GRS ensures that complaints received are promptly reviewed in order to address project-related concerns. Project affected communities and individuals may submit their complaint to the WB’s independent Inspection Panel, which determines whether harm occurred, or could occur, as a result of WB non-compliance with its policies and procedures. Complaints may be submitted at any time after concerns have been brought directly to the World Bank's attention, and Bank Management has been given an opportunity to respond. For information on how to submit complaints to the World Bank’s corporate Grievance Redress Service (GRS), please visit http://www.worldbank.org/en/projects-operations/products-and-services/grievance-redress-service. For information on how to submit complaints to the World Bank Inspection Panel, please visit www.inspectionpanel.org. . 23 The World Bank Integrated Public Sector Reform Project (P160801) VII. RESULTS FRAMEWORK AND MONITORING Results Framework COUNTRY : Congo, Republic of Integrated Public Sector Reform Project Project Development Objectives The Project Development Objective (PDO) is to improve public resources management and accountability in the Republic of Congo. Project Development Objective Indicators Unit of Responsibility for Indicator Name Core Baseline End Target Frequency Data Source/Methodology Measure Data Collection Name: Increase in non-oil tax Text US$875m +50% Annually Budget and Tax MFBPP revenue (cumulatively, as Administration Reports percentage of the non-oil tax revenue base) Description: This indicator measures government's ability to improve its non-oil tax revenue collection. Name: Capital expenditure Percentage 40.00 70.00 Quarterly Budget execution report MFBPP execution rate (as percentage of total capital expenditures) Description: Percentage of the capital expenditure execution compared to the total of capital expenditure. This indicator measures actual investments. 24 The World Bank Integrated Public Sector Reform Project (P160801) Unit of Responsibility for Indicator Name Core Baseline End Target Frequency Data Source/Methodology Measure Data Collection Name: Civil servants Percentage 0.00 50.00 Annually Annual report Ministry of Civil managed through the civil Service service registry (Le Système Intégré de Gestion Administrative et Salariale du Personnel de l'Etat (SIGASPE)) Description: This indicator measures the percentage of the civil service managed through the civil service registry at the Ministry of Civil Service Name: Coverage of internal Percentage 50.00 70.00 Annually Audit reports Financial General audit (as percentage of total Inspectorate expenditure) Description: Percentage of total expenditure covered by the external audit. This indicator measures effectiveness of the Audit Institutions Intermediate Results Indicators Unit of Responsibility for Indicator Name Core Baseline End Target Frequency Data Source/Methodology Measure Data Collection Name: Tax administration Text Tax Tax Annually Tax administration reports MFBPP modernizaiton strategy administrat administrat ion ion 25 The World Bank Integrated Public Sector Reform Project (P160801) Unit of Responsibility for Indicator Name Core Baseline End Target Frequency Data Source/Methodology Measure Data Collection modernizat modernizat ion ion strategy strategy not in place fully implement ed Description: Preparation and implementation of a tax administration modernization strategy, based on completed TADAT. Name: Ministries with Number 0.00 5.00 Annually Budget execution report Ministry of Planning, strategic plans that are Statistics and aligned with medium-term Regional Integration budgets Description: Number of selected Ministries for which medium-term strategic plans are prepared and costed. This indicator verifies that the budget of the selected Ministries reflects their sectoral strategies. Name: Share of investment Percentage 0.00 70.00 Annually Ministry of General Directorate projects entered in the Planning, Statistics for Plan and budget in accordance with and Regional Development/Minis the new selection procedure Integration reports try of for investment projects Planning, Statistics and Regional Integration 26 The World Bank Integrated Public Sector Reform Project (P160801) Unit of Responsibility for Indicator Name Core Baseline End Target Frequency Data Source/Methodology Measure Data Collection Description: Percentage of investment projects entered in the budget in accordance with the new selection procedure for investment projects. This indicator verifies adequate preparation of investment projects. Name: Use of competitive Percentage 50.00 70.00 Annually Regulatory Authority for Regulatory procurement methods for Public Procurement report Authority for Public pubic investments (ARMP) Procurement (ARMP) Description: Percentage of public contracts awarded on competitive basis. This indicator measures progress achieved to implement new procurement code. Name: Share of the Percentage 20.00 70.00 Annually Inspectorate General of Inspectorate Inspectorate General of Finance's audit reports General of Finance Finance annual workplan that has been executed Description: Percentage of the Inspectorate General of Finance's annual workplan activities that have been executed compared to the total of workplan activities. This indicator measures Inspectorate General of Finance's ability to execute its workplan. Name: Female audit Percentage 0.00 50.00 Annually Audit Institutions reports Supreme Audit institutions' staff that are Authority and ISSAI/INTOSAI trainned Financial General Inspectorate Description: Percentage of Audit Institutions staff that are ISSAI/INTOSAI accredited compared to the total number of Audit Institutions staff. This indicator measures 27 The World Bank Integrated Public Sector Reform Project (P160801) Unit of Responsibility for Indicator Name Core Baseline End Target Frequency Data Source/Methodology Measure Data Collection Audit Institutions commitment to be effective. Name: CSOs involved in the Number 0.00 5.00 Annually Annual report Ministry of budget preparation process Planning, Statistics and Regional Integration Description: This indicator measures the citizen participation in the budget formulation process Name: EITI compliance Yes/No Y Y Annually Annual report Ministries/Project status maintained Coordination Unit Description: Maintain the EITI compliance status, achieved in 2013. 28 The World Bank Integrated Public Sector Reform Project (P160801) Target Values Project Development Objective Indicators FY Indicator Name Baseline YR1 YR2 YR3 YR4 End Target Increase in non-oil tax revenue (cumulatively, US$875m +10% +10% +10% +10% +50% as percentage of the non-oil tax revenue base) Capital expenditure execution rate (as 40.00 40.00 45.00 50.00 60.00 70.00 percentage of total capital expenditures) Civil servants managed through the civil service registry (Le Système Intégré de Gestion 0.00 0.00 0.00 20.00 35.00 50.00 Administrative et Salariale du Personnel de l'Etat (SIGASPE)) Coverage of internal audit (as percentage of 50.00 50.00 55.00 60.00 65.00 70.00 total expenditure) Intermediate Results Indicators FY Indicator Name Baseline YR1 YR2 YR3 YR4 End Target Tax Tax Tax Tax Tax Tax Administration administration administration administration administration administration Diagnostic Tax administration modernizaiton strategy modernization modernization modernization modernization modernization Assessment Tool strategy not in strategy under strategy under strategy under strategy fully (TADAT) place preparation implementation implementation implemented completed 29 The World Bank Integrated Public Sector Reform Project (P160801) Indicator Name Baseline YR1 YR2 YR3 YR4 End Target Ministries with strategic plans that are aligned 0.00 0.00 2.00 3.00 4.00 5.00 with medium-term budgets Share of investment projects entered in the budget in accordance with the new selection 0.00 0.00 20.00 35.00 50.00 70.00 procedure for investment projects Use of competitive procurement methods for 50.00 50.00 55.00 60.00 65.00 70.00 pubic investments Share of the Inspectorate General of Finance 20.00 20.00 30.00 40.00 55.00 70.00 annual workplan that has been executed Female audit institutions' staff that are 0.00 0.00 10.00 25.00 40.00 50.00 ISSAI/INTOSAI trainned CSOs involved in the budget preparation 0.00 0.00 0.00 2.00 3.00 5.00 process EITI compliance status maintained Y Y Y Y Y Y 30 The World Bank Integrated Public Sector Reform Project (P160801) ANNEX 1: DETAILED PROJECT DESCRIPTION COUNTRY: Congo, Republic of Integrated Public Sector Reform Project 1. The PDO is to improve public resources management and accountability in the RoC. This objective will be achieved by supporting Government efforts to mobilize domestic revenues, improve public expenditure, and enhance public administration management and controls. 2. The proposed operation covers selected areas deemed critical to achieving development objectives. Its design has been informed by solid analytical work (PLR, PEMFAR, and Policy Notes on governance aspects) and the action program of the RoC. 3. As the political and stakeholder risks have been identified as high, a gradual approach will be employed to support the implementation of the priorities, depending on progress made in the implementation and the appetite of the Government to undertake reforms. The project will focus on three areas of support: (a) PFM; (b) public sector administration; and (c) transparency and accountability. 4. Accordingly, the project is organized into four components: (a) Strengthening Revenue Mobilization and Public Expenditure Management; (b) Modernization of the Public Administration; (c) Improving Transparency and Accountability; and (d) Project Implementation Support. Component 1: Strengthening Revenue Mobilization and Public Expenditure Management (US$19.6 million equivalent) 5. The RoC faces several fiscal challenges: (a) lack of sufficient fiscal space due to low oil prices; (b) the taxation system being complex, with a very high effective tax rate and limited capacity of Congolese revenue administration in generating substantial non-oil revenues; (c) the noncompliance with budgetary rules and procedures; (d) substantial delays observed in the country procurement system; and (e) the stalled reforms in PFM coupled with poor computerization leading to budget credibility issues.33 6. Oil revenue windfall negatively affects the country’s ability to implement fully an NDP.34 Pro- cyclicality of fiscal policies creates deficiencies in planning, which result in inefficiency and waste, as there are several large incomplete projects. Pro-cyclicality of fiscal policies created favorable economic conditions from 2008 to 2013, with public investment spending peaking at an average annual rate of 32.8 percent during 2000–2012. However, the oil bonanza has ended with a drop in oil prices and the country is currently facing a difficult public finance situation. Its macroeconomic framework is deemed unsustainable. Therefore, the country has to undertake reforms related to fiscal consolidation to achieve macroeconomic stability, a prerequisite in achieving the twin goals of poverty reduction and shared prosperity. In the short term, improving the efficiency of public investment planning and management and attracting private investment in infrastructure are critical remedies addressing the consolidation challenges. 33World Bank. 2015. Republic of Congo – 2nd Edition of the Economic Update. 34Since the beginning of major oil production in 1970s, Congo has not been able to fully implement an NDP. The 1973–1976 NDP was stopped in 1975 due to disappointing oil production. The 1982–1986 plan was stopped in 1985 because of low government revenue resulting from a sharp decline in oil prices. Finally, the 2012–2016 NDP is no longer followed, since May 2015, after the adoption of the revised budget. 31 The World Bank Integrated Public Sector Reform Project (P160801) 7. The recent PEMFAR study outlines remedies to address fiscal challenges. 35 The objective of this component is to implement some of these recommendations to (a) improve revenue collection and (b) rationalize the expenditure chain. 8. The RoC has a long tradition of state ownership with origins from the socialism regime in 1970s and 1980s. The regulatory framework dates back to 1980s and SOEs are governed by Law 13-81 of March 14, 1981. At the beginning of the privatization program in 1994, the state portfolio consisted of more than 100 enterprises. However, over the past 20 years, the RoC has privatized a large proportion of the assets in the SOE portfolio. As of November 2016, there are 49 SOEs largely concentrated in critical sectors of the economy, such as transport, energy, infrastructure, banking, and insurance. The portfolio includes 22 companies with majority state ownership of 100 percent, with 6 enterprises where the state owns more than 50 percent, and 21 minority-owned companies. Although some profitable companies pay regular dividends (a total of CFAF 17 billion or approximately US$28 million in 2015), some companies do not pay any dividends, some have tax obligations, some are not profitable, and majority of them do not file their financial statements with the MFBPP, as required by the Decree No-2002-369 of November 30, 2002. Subcomponent 1.1: Strengthening Revenue Mobilization (US$7.0 million) 9. Oil revenues represent a significant portion of the total revenues and the falling oil prices in recent years have significantly affected the overall revenue mobilization. To mitigate the exposure to oil price fluctuations, the Government is trying to diversify the revenue base, with an emphasis on the collection of forestry and property taxes. According to a recent IMF study, the country can mobilize more non-oil revenue by improving its revenue collection system.36 The objectives of this subcomponent are to (a) secure existing and potential revenues; (b) strengthen the management capacity of tax administration with regard to organization, fiscal control, and procedures automation; (c) improve communication capacities on tax policy measures with other stakeholders, in particular sectoral ministries, the private sector, and CSOs; (d) improve information systems; and (e) rationalize the exemptions system to reduce the loss of revenues. These objectives will be achieved by reinforcing the institutional structure and capacity of the directorates in charge of revenue mobilization at the Ministries of Finance, Land, and Forest Economy. Key activities include: x Undertaking of a TADAT and implementing its recommendations; x Review of the forestry tax system and implementation of its recommendations, as agreed with the Government; x Review of the exemptions system in the non-oil sectors and implementation of its recommendations; x Design and implementation of a tax administration modernization strategy; x Design and implementation of a property tax system for the benefit of the Ministries of Economy, Finance, Budget, Public Portfolio, and Land; x Building of a new computer system in the DGID; x Development and implementation of a training program for tax administration and development of a new manual of execution; and 35 World Bank. 2015. Republic of Congo – PEMFAR – Implementing Public Financial Management Reforms to Stimulate Growth and Achieve Shared Prosperity. 36 IMF. 2014. “Republic of Congo: Selected Issues.” Country Report No. 14/273. 32 The World Bank Integrated Public Sector Reform Project (P160801) x Development and implementation of a new communications strategy. Subcomponent 1.2: Strengthening Public Expenditure Management (US$12.6 million equivalent) 10. The volatility of the budget execution rates is an important challenge in the RoC. The lower budget execution rate affects the quality of the expenditure, as well as the desired attainment of sectoral outcomes. To address these issues, this subcomponent will support the Government of the RoC in rationalizing its expenditure management system to improve budget allocation and prioritization. The objectives of this subcomponent are to (a) improve strategic planning capacity; (b) improve the efficiency of the public investment budget; (c) strengthen the capacity for public expenditure management; and (d) improve the PFM information system. Key activities include: x Identification of policy priorities for the new NDP; x Updating of macroeconomic data to prepare a credible MTEF; x Review of the PIM chain; x Support for the reform of the PIM system; x Support to the Directorate General of Public Portfolio to improve the overall institutional and regulatory framework for SOEs; x Elaboration of a strategic action plan for PFM reform based on the new PFM legal framework; x Support for the transcription of the six CEMAC PFM directives in the national law; x Design and implementation of training programs for actors involved in budget execution management; x Support for the computerization of expenditure management; and x Creation of a website for the MPSIR. Component 2: Modernization of the Public Administration (US$10.5 million equivalent) 11. The RoC ranks among the worst performers of resource-rich countries in the CPIA ratings on public sector governance cluster. The RoC’s average score on the public sector management and institutions cluster during 2005–2014 is 2.6, which is below the average for resource-rich Sub-Saharan African countries.37 Furthermore, the country lags behind in CPIA indicators on (a) property rights and rule-based governance; (b) quality of budgetary and financial management; (c) efficiency of revenue mobilization; (d) quality of public administration; and (e) transparency, accountability, and corruption 37 CPIA (public sector management and institutions cluster) scores of selected countries: 201 2005- 2005 2006 2007 2008 2009 2010 2011 2013 2014 2 2014 Angola 2.4 2.4 2.4 2.4 2.4 2.4 2.3 2.3 2.3 2.3 2.4 Congo, Rep. 2.6 2.7 2.6 2.6 2.6 2.6 2.6 2.5 2.5 2.5 2.6 Nigeria 2.8 2.8 2.9 2.9 2.9 2.9 2.9 2.9 2.8 2.8 2.9 Resource-rich Sub-Saharan African 3.0 2.9 2.9 2.9 2.9 2.9 2.9 2.8 2.9 2.9 2.9 countries Tajikistan 2.6 2.6 2.6 2.6 2.7 2.8 2.9 3.0 3.0 3.0 2.8 Uzbekistan 2.4 2.4 2.5 2.7 2.8 2.8 2.9 2.9 2.9 3.0 2.7 33 The World Bank Integrated Public Sector Reform Project (P160801) in the public sector. To improve the public sector governance environment, the Government needs to develop a comprehensive modernization strategy. 12. The Congolese administration was created after the independence in 1960, on the basis of the colonial administration. Currently it is regulated by Law No. 021/89 of November 14, 1989, amending the general status of the civil service that defines terms of employment, the administration’s staffing levels and HR management, and mandatory retirement age. A number of decrees have been promulgated by the President in 2011 and 2012 to address the organization and functioning of the High Council of the Public Service for controlling civil servant selection and hiring process without significant impact. 13. The administration is confronted with many constraints: (a) poor management of HR; (b) poor organization of its structures; (c) cumbersomeness and opacity of the proceedings; (d) politicization of civil service; (e) low motivation of the agents; (f) lack of incentive; (g) corruption and fraud; (h) low circulation of information; (i) poor record keeping; and (j) lack of statistics. 14. The objective of this component is to develop a comprehensive public sector modernization strategy and implement it in pilot departments and agencies. Subcomponent 2.1: Improving Civil Service Management Capacity (US$4.0 million equipment) 15. The country is confronted with the following civil service issues: (a) misinterpretation of legal texts; (b) opacity in the recruitment system38; (c) lack of information on the exact number of civil servants; (d) lack of HR management tools and skills; (e) mismanagement of the career of the agents— lack of objective parameters39; (f) absence of a computerized HR management system and the absence of its connection to the payroll; (g) lack of training strategy; (h) chaotic mobility of agents, geographically as well as between different agencies; and (i) lack of computerization in the public administration leading to inefficiencies in service delivery. It is important that the country designs and implements a reform strategy with the objective of modernizing its public administration. The objectives of this subcomponent are to (a) strengthen the capacity of the MFPRE to better manage HR within the public administration and (b) produce a State Reform Strategic Action Plan. Key activities include: x Review of the civil service legal, regulatory, and institutional framework; x Design and implementation of the State Reform Strategic Action Plan; x Development of a civil service registry, based on the results of the recently completed census; x Establishment of employment references throughout the civil service registry; x Adoption of a new manual of procedures for the management of civil servants; x Design and implementation of a computerized system for the management of civil servant careers; and x Design and implementation of a training program to strengthen the capacity within the MFPRE. 38 Forexample, there is no civil service strategy for career management and recruitment, which leads to disconnect between needs and actual recruitment. As a result, there is a ten-year lag between recruitment and graduation from Government public administration schools. 39 The advancement procedures are neither regular nor supported by a system of evaluation based on criteria guaranteeing performance and merit. 34 The World Bank Integrated Public Sector Reform Project (P160801) Subcomponent 2.2: Modernization of the Departments Implementing REDD+ (US$1.5 million equipment) 16. The RoC’s LULUCF emissions rose 206 percent between 1990 and 2012. 40 The country has committed to lowering its greenhouse gas emissions by 54 percent by 2035 at the 21 st Conference of the Parties of the UN’s Framework Convention on Climate Change, held in November 2015. As part of the RoC’s efforts to reduce greenhouse gas emissions, the Government is espousing REDD+ to manage better its forests, while also driving economic development and diversification. REDD+ payments represent a way for the country to be paid for climate mitigation services rendered to the global community. It also represents an opportunity to add revenue streams for the forest sector, while the performance-based nature of REDD+ provides an incentive to improve forest governance and management to qualify for the payments. However, institutional constraints of the implementing agencies involved in REDD+ pose challenges for achieving sectorwide results. Investing in the modernization of decentralized elements of the forest administration is expected to boost the RoC’s chances of realizing the potential of its Sangha/Likouala ER-P to pilot REDD+ at a jurisdictional level, which is aligning performance-based financing of US$60 million with an additional US$108 million in investments. The project will build capacity and enable the effective participation of decentralized MEFDDE and REDD+ structures in decision-making and oversight of forest operations and REDD+ in the ER-P area. Key activities include: x Capacity building for Departmental REDD+ Committees (CODEPA-REDD) in the departments of Sangha and Likouala and x Capacity building and provision of equipment, training, and communications for the Departmental Forest Economy Directorates of Sangha and Likouala and their forest brigades to boost oversight of artisanal and commercial logging operations, with benefits for both tax revenue generation and REDD+ implementation. Subcomponent 2.3: Modernization of the Public Procurement System (US$5.0 million equivalent) 17. As the RoC is preparing a fiscal consolidation program, the reform program should include reforming the public procurement system. To rationalize public expenditures, the Government has carried out an evaluation of its public procurement system, which highlighted limited institutional capacity of the CGMPs.41 The objective of this subcomponent is to pilot the State Reform Strategic Action Plan in the public procurement system to improve the efficiency, effectiveness, and value for money. The subcomponent is designed to respond to demands for addressing key obstacles to effectiveness and performance, structured around (a) strengthening the public procurement management system; (b) introducing a public procurement management system; and (c) strengthening the institutional capacities within the procurement system. Key activities include: x Review and update of the legal and regulatory framework; x Support for the regular conduct of annual independent audits of public procurement contracts; x Strengthening of the collaboration, institutional framework, and management capacity 40 CAIT. 2015. Climate Data Explorer. 2015 Washington, DC. CAIT is the world’s most reliable climate data source hosted by the World Resources Institute (http://cait.wri.org). 41 Although Congo has a robust public procurement code, the procurement system is poorly integrated into the public sector governance modernization efforts and seriously undermined by noncompliance with deadlines. The public procurement system is poorly integrated into the public sector governance system as a result of weak capacity and inadequate HR management in Congolese PFM in general. Procurement plans are undermined by delays in budget preparation, launching tenders, evaluation, and approval and signing of contracts. 35 The World Bank Integrated Public Sector Reform Project (P160801) of the CGMPs, ARMP, DGCMP, and DGGT; x Restructuring and strengthening of the CGMPs in contracting authorities (ministries, agencies, SOEs, and so on); x Support for DGGT in implementing the PPP framework, as defined in the PPP Law under preparation; x Development and implementation of a procurement information management system (e-tracking system); x Updating and support for the implementation of the national training strategy; and x Initiating the professionalization of the procurement function including institutionalization of a training program, which will be explored including the Massive Open Online Courses (MOOC) option. Component 3: Improving Transparency and Accountability (US$4.2 million equivalent) 18. The RoC goes through a cyclical pattern of conflicts with grave consequences. The impact of sociopolitical stability has been devastating to the economy as well as the living standards of ordinary Congolese. The lack of transparency and citizen engagement contributes to social fragility and high income inequalities. In this politically tense period, increasing oversight of budget execution, improving transparency of revenue collection in key sectors, and strengthening the capacity of CSOs will contribute to addressing social fragility. The objectives of this component are to strengthen the capacity of the oversight institutions, increase transparency in the forestry and extractive sectors, and promote citizen engagement. Subcomponent 3.1: Supporting the CCDB, IGF, and Economy and Finance Committees of the Parliament (US$2.0 million equivalent) 19. The control environment on budget execution carried out by the oversight institutions is weak, due to inadequate budgetary allocations, as well as lack of qualified staff. A common challenge for the control environment is that the audit reports’ recommendations are not always implemented. The central authorities usually fail to impose sanctions, leaving very little disincentive or, indeed, incentives for ministries and companies to change their behavior. This subcomponent aims to strengthen the capacity of the IGF, CCDB, and the Economy and Finance Committee of the Parliament to enable them to conduct regular financial audits, monitor performance and compliance, and optimize resources in line with international auditing standards. The objectives of this subcomponent are to (a) support the institutional reform of public oversight institutions, (b) build their capacity, and (c) improve transparency. Key activities include: x Finalization and implementation of the organic law for the CCDB and code of professional ethics; x Design and implementation of audit methodology guides for the CCDB, including a manual of procedures that complies with the international standards and the code of professional ethics; x Development and execution of an annual work plan, based on the revised manual of procedures (IGF); x Development and implementation of a training plan/program for internal and external audit institutions (the IGF and CCDB); 36 The World Bank Integrated Public Sector Reform Project (P160801) x Development and implementation of a training plan/program for the Economic and Financial Committees of the Parliament; x Strengthening of communication to improve coordination between the CCDB and the Economic and Finance Committees of the Parliament (National Assembly and Senate); x Strengthening of the archiving systems and website to broadcast regular audit mission reports; and x Creation of a CCDB website. Subcomponent 3.2: Supporting Social Accountability and Citizen Engagement (US$1.0 million equivalent) 20. Strengthening civil society to enable it to play a bigger role in the RoC’s development is key for citizen engagement. The Congolese civil society is weak and disorganized. More importantly, the lack of available public information on Government activities and programs hampers the effectiveness of CSOs. The Government has adopted a new transparency and accountability code on PFM, which promotes transparency in public resource management through CSO engagement. However, Congolese CSOs have limited capacity to exercise external control over the implementation of public policies by the Government. There are limited resources available to carry out their function as outside watchdog organizations. As a result, there is a need to improve further access to information to inform the citizens about the quality of services. In addition, CSOs need to be actively engaged in independent monitoring of budget execution. The objective of this subcomponent is to strengthen the capacity of selected CSOs to undertake effectively social accountability actions related to PFM. This will increase the commitment of CSOs as independent monitors of the Government budget, to improve the execution rate and the quality of public investment, while enabling them to perform the following functions: x Monitor the implementation of governance reforms and inform the population of the progress made; x Participate in the budget orientation debates and monitor its implementation to ensure that it reflects the needs and priorities of the people; x Collaborate with the public oversight institutions to improve transparency, accountability, and integrity in public administration; x Follow up on the implementation of report recommendations of oversight institutions to ensure that sanctions are taken against the administration, as and when needed; and x Obtain feedback from the population regarding the degree of satisfaction with the quality of service delivered by the administration. Subcomponent 3.3: Improving Transparency of the Revenue Collection System in the Forestry Sector (US$0.7 million equivalent) 21. Even though the forestry sector is an important component of the Congolese economy, its contribution to the public finances is limited, due to the diversion of funds. For instance, the Ministry of Forestry carries out cash withdrawals from the forestry companies for the payment of forestry taxes, contrary to the provisions in force, which require payment to be made by check to the Director of Treasury. The absence of transparency and lack of knowledge about existing forestry resources limit the capacity to control forestry exploitation and affect the implementation of sectoral regulations. This subcomponent will support the Government’s effort to implement corrective measures following 37 The World Bank Integrated Public Sector Reform Project (P160801) the recommendations of the forestry tax system review, with an objective to improve the transparency of the revenue collection and management and the efficacy of tax collection, as measured by collection rates of existing taxes. Key activities include: x Design and dissemination of a guide on forestry tax policy and regulations. Such a guide could include minimum performance objectives for the involved structures; x Design and implementation of an information-sharing mechanism between the MFBPP and the MEFDDE. Such a mechanism will enable the register and share basic forest- related tax between the assessor of the tax (MEFDDE) and the collector (DGT). This mechanism could draw, among others, upon data generated by systems being put in place in the context of the Voluntary Partnership Agreement with the EU and could draw lessons from the linkages between the MFBPP and the Agency for Control of Exports of Forest Products; and x Development and implementation of a communications strategy. 22. With respect to the maintaining the EITI compliance status, the project will support the publication of the: x Signed forest concession contracts and related documents (management plans, including social clauses); x Updated list of forestry rights holders, including artisanal permits; and x Statistics on the production and exportation of forest products and taxes paid to the treasury. Subcomponent 3.4: Improving Transparency in the Extractives Sector (US$0.5 million equivalent) 23. The country joined the EITI in 2004 and obtained the status of candidature in 2008. In 2010, the EITI confirmed significant progress toward compliance and in 2013, the EITI board declared the country compliant with the requirements. Since 2013, the EITI has provided recommendations to improve the transparency of oil management, which are yet to be implemented. The country needs to continue complying with EITI requirements to maintain its EITI status, to attract foreign investment to develop the extractive sector. This subcomponent will support the EITI activities with the objective of allowing the RoC to continue to (a) maintain EITI compliance status and (b) improve transparency in the management of extractives resources. The project will support the production of: x A quarterly report, including data on oil sales by the state enterprise and transfers of revenue between the latter and the Treasury; x A report on sharing and production contracts in the petroleum sector; and x A report on conformity with the EITI, produced by an independent expert. Component 4: Project Implementation Support (US$5.7 million equivalent) 24. The objectives of this component are to enhance the project implementation capacity and to support the development and application of an M&E system for tracking progress in governance reforms. Subcomponent 4.1: Building Project Implementation Capacity (US$4.2 million equivalent) 25. This subcomponent will serve to enhance project implementation capacity. The project will be implemented by the MPSIR. During project preparation, the Minister of Planning has expressed her commitment by putting into place and coordinating the meetings of a Project Preparation Committee. 38 The World Bank Integrated Public Sector Reform Project (P160801) In view of the current level of fiduciary risk for World Bank project implementation in the RoC, consultants will be hired to manage the procurement and financial aspects, as well as the project’s M&E system. Subcomponent 4.2: Monitoring and Evaluation (US$1.5 million equivalent) 26. The project will support capacity building in the form of technical assistance and training for the Governance Unit. This will enable it to (a) track the implementation of reforms; (b) help the Ministry Delegate within the PMO in charge of relations with the Parliament; and (c) improve technical and administrative management in its relationship with the Parliament. In addition, the project will provide minimum computer equipment to these two PMO structures. 39 The World Bank Integrated Public Sector Reform Project (P160801) ANNEX 2: IMPLEMENTATION ARRANGEMENTS COUNTRY: Congo, Republic of Integrated Public Sector Reform Project Project Institutional and Implementation Arrangements 1. The project will be implemented through a PCU that will be created and placed under the leadership of the Minister of Planning, Statistics, and Regional integration, who has been identified as a champion during project preparation. To ensure better coordination of various reform efforts and swifter implementation of activities, the PCU will have the responsibility of following up on project implementation in various ministries. The PCU will manage the fiduciary functions of the project, which include procurement and financial management. However, it is agreed that the responsibility will be gradually moved to the procurement units in the line ministries involved in the project once the ceiling for decentralizing procurement is increased from its current level. Also, key beneficiaries will be responsible for the implementation of their activities. 2. A Technical Steering Committee will be established to provide strategic oversight of all project activities. It will be established before the project effectiveness and it will be chaired by the Prime Minister’s Adviser in charge of governance, with the technical support of the PCU. It will consist of representatives of both cross-cutting and key spending ministries. 3. The Technical Steering Committee will be supported by ‘focal points’ designated by their respective institutions. The focal points will be directly involved in the project activities and will facilitate their day-to-day management and monitoring by establishing a regular channel of communications and exchange between the PCU and the beneficiaries. The focal points will also support the technical leadership in preparing all relevant documentation to be discussed at Technical Steering Committee meetings, which they will also have the right to attend. 4. The Project Implementation Manual will define the roles and responsibilities of each stakeholder in the project, including the relationship between institutions, rules, and procedures, as well as processing times to react to specific requests from the World Bank or the Government. It will be finalized by the PCU, in close collaboration with the beneficiaries, before project effectiveness. A national consultant will be hired to finalize the draft Project Implementation Manual, through the PPA, working in consultation with the project’s implementing agencies. This will also facilitate its validation by promoting full ownership of its content by all stakeholders involved in the project. The administrative, financial accounting and procurement procedures manual will also be prepared and adopted after the effectiveness. Financial Management 5. As part of the preparation phase of the Integrated Public Sector Reform Project, an FMA was undertaken for the PCU. This PCU is in charge of the FM of the ongoing PSTAT. It will manage the fiduciary aspects of the project until the recruitment of a proper fiduciary team for the project. The aim of the assessment was to ensure that the FM arrangements in place (a) are capable of correctly and completely recording all transactions and balances relating to the project; (b) can facilitate the preparation of regular, accurate, reliable, and timely interim financial reports (IFRs) and annual financial statements; (c) can safeguard the project entity assets; and (d) are subject to auditing arrangements acceptable to the World Bank. The assessment concluded that the overall residual FM risk is substantial. 40 The World Bank Integrated Public Sector Reform Project (P160801) Implementation Arrangements 6. The PCU that has been managing the ongoing PSTAT will manage fiduciary aspects of the project until the recruitment of a proper fiduciary team for the project can be made. The current project fiduciary team consists of a Chief Financial Officer (Responsable Administratif et Financier) and an accountant. The FM performance rating following the last FM supervision mission of November 2016 is moderately satisfactory. 7. The FM system of the PCU has been assessed to determine if (a) adequate FM arrangements (staffing, budgeting, accounting, internal control, reporting, and external audit) are in place to ensure that the project funds will be used for their intended purposes in an efficient and economical way; (b) financial reports will be prepared accurately, reliably, and on time; (c) the project’s assets will be safeguarded properly; and (d) the auditing arrangements are acceptable. 8. The FM arrangements were found to be adequate subject to meeting the following requirements: : (a) opening the Designated Account in a financial institution acceptable to the World Bank,; (b) updating the current manual of procedures to take into account grant specificities,; (c) implementation of a customized Excel spreadsheet for bookkeeping in advance of the eventual installation of management accounting software,; (d) development and installation a computerized information system to record the transactions of the Project and prepare quarterly interim unaudited financial reports; (e) preparation and adoption of the Administrative, Financial, Accounting, and Procurement Procedures Manual, in form and substance acceptable to the Association; (f) recruitment of project coordinator, administrative and financial officer, procurement specialist, monitoring and evaluation specialist, internal auditor, and accountant,; (g) recruitment of an internal auditor,; and (h) agreeing to the terms of reference (ToRs) for the recruitment of the external auditor (acceptable to IDA). 9. The conclusion of the assessment is that the FM arrangements in place, subject to the implementation of the risk mitigation measures identified, meet the World Bank’s minimum requirements under World Bank Directive: Financial Management Manual For World Bank Investment Project Financing Operations (Catalogue Number OPCS5.05-DIR.01), issued (retrofitted) on February 4, 2015, and effective from March 1, 2010, and World Bank Guidance: Reference material - Financial Management in World Bank IPF Operations (Catalogue Number OPCS5.05-GUID.02), issued on and effective from February 24, 2015. These are subject to meeting some initial requirements and therefore are adequate to provide, with reasonable assurance, accurate and timely information on the status of the project required by the World Bank (IDA). The overall FM residual risk rating at project preparation is considered substantial. Overview of Project Implementing Entity 10. The PCU (and eventually the Financial and Administrative Service) will have full responsibility for project fiduciary management. The Country’s PFM Situation and Use of Country Systems 11. The World Bank and other donor assessments, notably, the Country Financial Accountability Assessment (CFAA), the Public Expenditure Review (PER), and the Public Expenditure and Financial Accountability (PEFA) for 2008 and 2012, have shown an unsatisfactory economic and financial control environment. This includes weak budgeting preparation and control, financial reporting, external audit, and HR. As a result, the overall country fiduciary risk is still considered high. The repeated PEFA, concluded at the end of 2012, took stock of the areas of progress and revised the existing PFM strategy accordingly. The outcomes of the use of the national PFM systems (use of country systems) assessment, undertaken in April 2013, will be gradually implemented for the World Bank-financed 41 The World Bank Integrated Public Sector Reform Project (P160801) projects. Concerning internal and external audits, discussions will be conducted with the Government to organize the working environment of the IGF and the CCDB. Risk Assessment and Mitigation Measures 12. The World Bank’s principal concern is to ensure that project funds are used economically and efficiently for the intended purpose. Assessment of the risks that the project funds will not be used as intended is an important part of the FMA work. The risk features are determined using two elements: (a) the risk associated with the project as a whole (inherent risk) and (b) the risk linked to a weak control environment of the project implementation (control risk). Table 2.1. Risk Mitigating Measures Conditions Residual Risk for Risks Risk Mitigating Measures Risk Rating Effectiveness Rating (Y/N) Inherent risk x Country level H The World Bank and other donor assessments, notably, H N the CFAA, the PER, and the PEFA for 2008 and 2012 have shown an unsatisfactory economic and financial control environment. This includes weak budgeting preparation and control, financial reporting, external audit, and HR. As a result, the overall country fiduciary risk is still considered high. Compared to 2006, the 2014 PEFA shows that the PFM system in the RoC has experienced some progress in the following areas: improving medium-term predictability and budget preparation quality, preparation of the budget, the organization of procurement and market controls, the organization and control of public procurement, contractual debt management, and capacity building in internal and external control functions. However, in other areas, progress is not commensurate with the stated objectives and efforts made. In particular, this applies to the areas of organization and monitoring of budget implementation, administrative and financial bookkeeping, and the follow-up for extra-budgetary entities. In general, efforts are undermined by the inadequate priority given to (a) the strengthening of IT systems, with important delays in their modernization that are not limited to technical problems, and (b) capacity building in the dissemination of information. x Entity level S — S N x Project level M Recruitment of a Chief Financial Officer, an accountant, M N and an internal auditor on a competitive basis. Review the ToRs for prospective staff, and incorporate a performance element. Control risk 42 The World Bank Integrated Public Sector Reform Project (P160801) Conditions Residual Risk for Risks Risk Mitigating Measures Risk Rating Effectiveness Rating (Y/N) x Budgeting M An annual work plan and budget will be prepared each M N year. The project FM manual of procedures will define the arrangements for budgeting and budgetary control as well as the requirements for budgeting revisions. Annual detailed disbursement forecasts and budgets will also be required. IFRs will provide information on budgetary control and analysis of variances between actual and budget numbers. x Accounting S The PCU staffing arrangement will be strengthened with S N two additional staff: one FM assistant and an accountant, with appointments made on a competitive basis. The PCU’s accounting software will be customized to take into account the specifics of the new project. x Internal control S Recruitment of an internal auditor. S N The current manual of procedures will be upgraded. Regular internal audit missions will be conducted during the project implementation with a focus on fraud and corruption risk. The work program of the current internal audit unit will be updated to reflect the new project specificities. x Funds flow S Opening of a Designated Account at a financial institution S N acceptable to the World Bank. x Organizing frequent controls for each involved actor to help prevent and mitigate the risk of diversion of funds. x Payment requests will be approved by the coordinator and the financial management specialist before disbursement of funds. x Requiring the FM team to ensure monthly submission of the withdrawal application. x Perform an external audit. x Financial M Recruitment of an accountant. M N reporting Computerized accounting system. Purchase appropriate accounting software and customize it to generate financial reports for the project. The current content and format of the PCU of the PSTAT are acceptable to IDA. The IFR of the new project will use a similar format and content, subject to material amendments being made to the said format and content. 43 The World Bank Integrated Public Sector Reform Project (P160801) Conditions Residual Risk for Risks Risk Mitigating Measures Risk Rating Effectiveness Rating (Y/N) x External M Recruitment of an independent external auditor based on M N auditing agreed ToRs developed in line with International Accounting Standards (including fraud and corruption). ToRs will be subject to approval by IDA. x Fraud and M Organizing of frequent controls of each actor to help M N corruption prevent and mitigate risks pertaining to diversion of funds. Payment requests will be approved by the coordinator and the financial manager before disbursement of funds. Require the future FM team to ensure monthly submission of the withdrawal application. x Governance M (a) The ToRs of the external auditor will comprise a specific M N and chapter on corruption auditing; (b) the FM manual of accountability procedures shall be approved three months after project effectiveness; (c) there will be a quarterly IFR, including budget execution and monitoring; and (d) measures to improve transparency are built into the project design. These include, for example, providing information on the project status to the public and encouraging the participation of civil society and other stakeholders. Overall S S inherent risk Overall control S S risk Overall FM risk S S Note: H = High; M = Moderate; N = Negligible; S = Substantial. 13. The FM arrangements will be built on the existing FM system established under the ongoing PSTAT; these arrangements will then be strengthened by implementing the following action plan. Table 2.2. Key Weaknesses and Action Plan to Reinforce the Control Environment Entity Deadline for Effectiveness Issue Remedial Action Recommended Responsible Completion Conditions 1 Opening a Designated Account in a PCU/RoC Two months after N financial institution acceptable to the Government effectiveness World Bank. 2 Acquisition of a computerized PCU/RoC Three months after N information system to record the Government effectiveness project’s transactions and prepare quarterly unaudited IFRs. 3 Updating of the current manual of PCU/RoC Before Y procedures to take into account the Government effectiveness grant specificities, as well as the World Bank’s FM guidelines and directives. 4 Recruitment administrative and financial PCU/RoC Before Y officer, internal auditor and accountant 44 The World Bank Integrated Public Sector Reform Project (P160801) on a competitive basis. Government effectiveness 5 Finalizing of the ToRs for the PCU/RoC Before Y recruitment of an external auditor Government effectiveness acceptable to IDA. 14. In view of the general country FM issues, as well as the issues peculiar to the PCU and the mitigation measures provided earlier, the overall FM risk rating for this project is substantial. The overall risk rating at preparation is substantial. Governance and Anticorruption Considerations 15. The country’s political situation has weakened the governance and corruption environment. In the context of the project, the following governance and anticorruption measures will contribute to enhancing transparency and accountability during project implementation: (a) an effective implementation of the fiduciary mitigation measures should contribute to a strengthening of the control environment; (b) an appropriate representation and oversight of the Steering Committee involving key actors should be ensured; (c) transparency in the implementation of the project’s activities should be guaranteed and the stakeholders and public should be involved during project implementation; (d) the ToRs for both the internal and external auditor units will include a specific chapter on corruption considerations; and (e) the FM manual of procedures will include anticorruption measures with a specific safety mechanism that will enable communities and CSOs to denounce abuses or irregularities. Overall Fiduciary Implementation Arrangements and Staffing 16. The FM arrangements for the project will be handled by the PSTAT’s PCU until the recruitment of the project’s fiduciary team. It will be responsible for implementing and monitoring day-to-day project activities, including budgeting, disbursement, FM, reporting, supervision, management of the Designated Account, and auditing. Project Accounting and Financial Software 17. The current accounting standards in use in the RoC for ongoing World Bank-financed projects will be applicable. Organization for the Harmonization of the Business Law in Africa (Organisation pour l'Harmonisation en Afrique du Droit des Affaires) Accounting System is the assigned accounting system in West and Central African Francophone countries. The PCU will update the existing FM system. This software will be tailored to the scale and nature of the program. It can record and report program operations (by origin of funds, component, and activities) on time. The existing system is a multicurrency, multilocation, and multidonor system that includes the following modules: general accounting, cost accounting, budgeting, asset management, contract management, preparation of withdrawal applications, tracking of donor disbursements, and report generation, including quarterly IFRs and annual financial statements. Project Financial and Accounting Manual 18. The PCU will use the PSTAT’s existing Financial and Accounting Procedures Manual that includes the fiduciary procedures to be updated for the purposes of the new project. It includes a description of the FM system and financial policies and procedures. Specifically, it contains (a) the accounting system to be used (chart of accounts, budget coding, accounting standards); (b) the main transactions cycles; (c) internal control procedures; and (d) a summary of the various operational procedures related to budget management (planning, execution, and monitoring) and asset management, procurement of works, goods, and services, and disbursements. 45 The World Bank Integrated Public Sector Reform Project (P160801) Financial Reporting and Monitoring 19. The PCU will prepare at least two sets of financial reports. The quarterly IFRs, as required by the World Bank and the annual financial statements, will include the project’s consolidated financial statements. The quarterly IFRs will be prepared and submitted to the World Bank 45 days after the closing of each quarter. The IFRs will be based on formats developed in the World Bank’s guidelines on financial monitoring reports, with some adjustments. The manual of procedures will indicate provisions for quarterly and yearly financial reporting, including physical progress. The quarterly reports will include a table on budget execution. The format of this report will comprise (a) a statement of sources and uses of funds; (b) a table summarizing the use of funds by category, activities, and components; (c) an updated procurement plan; (d) a report on the physical progress of activities; and (e) a summary of missions of internal audit, as well as the implementation status of the recommendations of internal or external audit and supervision missions. Internal Control and Auditing 20. Given the country’s high risk rating, an internal audit consultant will be recruited to maintain a good standard of internal control system for the project—specifically by strengthening the internal audit unit of the PCU. The auditor’s mandate will also cover the PPA activities. Furthermore, the project’s administrative and FM procedures provide a clear description of the approval and authorization processes with respect to the rule of segregation of duties. The World Bank will direct attention to the adequacy of internal control during the supervision mission. External Auditing 21. The project financial statements and internal control system managed by the PCU will be subject to annual audits by an independent external auditor acceptable to the World Bank whose mandate will be renewed every two years. 22. The audit report should reflect all the activities of the FM program. It should be submitted to the World Bank within six months after the end of each fiscal year. The selection of an external auditor of project financial statements should be presented to the World Bank for ‘no objection’. Appropriate ToRs for the external auditor will be provided to the project team before project effectiveness and should include a special opinion of the PPA’s activities. 23. The external auditor will provide an opinion about the annual financial statements in accordance with the auditing standards of the International Federation of Accountants. In addition to audit reports, the external auditor will also provide a Management Letter regarding the internal control procedures. It will outline recommendations for improving the control system, accounting, and financial procedures as a result of the audit, as well as maintaining compliance with financial covenants under the Financing Agreement. 24. The project will be required to submit, not later than June 30 of each fiscal year, the annual audited financial statements. In line with the World Bank’s new Access to Information Policy, the project will comply with the disclosure policy of the World Bank regarding audit reports (for instance, by making available to the public without delay (after receipt of all reports) the final financial audit, including qualified audit reports. It will also place the information on its official website within one month after acceptance of the final report by the World Bank. 25. The audit reports that will be required to be submitted by the PCU and the due date for submission is as follows: 46 The World Bank Integrated Public Sector Reform Project (P160801) Table 2.3. Audit Report Requirements Audit Report Due Date Institutional financial statements, that is, annual audited financial Submitted within six months after the end statements (including statements of sources and uses of funds, of each fiscal year with appropriate notes and disclosures) and a Management Letter 26. The project will be required to produce a final audit report no later than six months after the closing of the project. Implementation Support and Supervision Plan 27. FM implementation support missions will be consistent with a risk-based approach and will involve a collaborative approach with the project team. A first implementation support mission will be undertaken six months after project effectiveness. Subsequently, the missions will be scheduled by using the risk-based approach model and will include the following: (a) monitoring of the FM arrangements during the supervision process at intervals determined by the risk rating assigned to the overall FMA at entry and subsequently during implementation (Implementation Status and Results Report); (b) an integrated fiduciary review of key contracts; (c) a review of the IFRs; (d) a review of the audit reports and Management Letters from the external auditors and follow-up on material accountability issues by engaging with the Task Team Leader, client, and/or auditors; (e) close monitoring of the quality of the audit (internal and external) to ensure that it covers all relevant aspects and provides enough confidence about the appropriate use of funds by recipients; (e) physical supervision on the ground; and (f) assistance to build or maintain appropriate FM capacity. 28. Based on the outcome of the FM risk assessment, the following implementation support plan is proposed: Table 2.4. FM Implementation Support Plan FM Activity Frequency Desk reviews IFRs review Quarterly Audit report review of the project Annual Review of other relevant information, such as Continuous, as they become available interim internal control systems reports On site visits Review of the overall operation of the FM system Annual (implementation support mission) Monitoring of actions taken on issues highlighted in As needed audit reports, Management Letters from auditors, internal audit, and other reports Transaction reviews (if needed) As needed Capacity-building support FM training sessions Before project starts and thereafter as needed 29. The objective of this implementation support plan is to ensure that the project maintains a satisfactory FM system throughout the project life cycle. 30. Conclusions of the FMA. The overall residual FM risk is considered substantial. The proposed 47 The World Bank Integrated Public Sector Reform Project (P160801) FM arrangements for this project are considered adequate to meet the World Bank’s minimum fiduciary requirements under World Bank Directive: Financial Management Manual For World Bank Investment Project Financing Operations (Catalogue Number OPCS5.05-DIR.01), issued (retrofitted) on February 4, 2015, and Effective from March 1, 2010, and World Bank Guidance: Reference material - Financial Management in World Bank Investment Project Financing Operations (Catalogue Number OPCS5.05-GUID.02), issued on and effective from February 24, 2015. Disbursements Flow of Funds Arrangement 31. The PCU will have one Designated Account that will be managed by a joint signature of both the PCU FM specialist and the project coordinator. The Designated Account will be opened at a reputable commercial bank acceptable to the World Bank. This account will be held in US$. The Designated Accounts will receive cash advances to pay project expenses eligible for World Bank financing. Any interest earned on funds deposited in the Designated Account shall be deposited into the project account. Payments will be made in accordance with the provisions of the manual of procedures (that is, with joint signatures by the Project Coordinator and the Chief Financial Officer). Reporting on Credit Proceeds 32. The supporting documentation for reporting eligible expenditures paid from the Designated Account should be a summary report of the statement of expenditures and a list of payments against contracts that are subject to the World Bank’s prior review. The supporting documentation for requests for direct payment should be records evidencing eligible expenditures (copies of receipts, supplier invoices, and so on). All supporting documentation for the statement of expenses will be retained by the PCU and will be made available for periodic review by World Bank review missions, as well as internal and external auditors. Minimum Value of Applications 33. The minimum value of applications for reimbursement, direct payment, and special commitments is 20 percent of the outstanding advance made to the Designated Account. The ceiling amount for the Designated Account will be set at CFAF 1.3 million. Disbursement Arrangements: Use of Statement of Expenditures Disbursement Methods 34. By effectiveness, the project will use the transaction-based disbursement procedures, that is, replenishment, direct payment, reimbursement, and special commitments. The transaction-based disbursement method will be applied to the Designated Account, which will receive an initial advance of CFAF 300 million. The Designated Account will be used for all payments inferior to 20 percent of the ceiling (CFAF 1.3 million), and replenishment will be submitted as often as possible. When project implementation begins, the quarterly IFRs produced by the PCU will be reviewed. If the reports are found to be well prepared and produced on a timely basis, and the recipient requests conversion to report-based disbursements, a review will be undertaken to determine if the project is eligible for report-based disbursements. 35. Funds flows for the Designated Account are as illustrated in Figure 2.1. 48 The World Bank Integrated Public Sector Reform Project (P160801) Figure 2.1. Funds Flow Disbursement of Funds to Other Service Providers and Suppliers 36. The PCU will make disbursements to service providers and suppliers of goods and services in accordance with the payment modalities, as specified in the respective contracts/conventions, as well as the procedures described in the project’s Manual of Administrative, Accounting, and Financial Management. In addition to these supporting documents, the project will consider the findings of the internal audit unit while approving the payments. The PCU with the support of its internal audit unit will reserve the right to verify the expenditures ex post, and refunds might be requested for noncomliance of contractual clauses. Misappropriated activities could result in the suspension of financing for a given entity. All funds will have to be tied to clearly defined disbursement expense categories. Disbursements by Category 37. Table 2.5 sets out the expenditure categories to be financed by the Credit. This table takes into account the prevailing country financing parameters for the RoC in setting out the financing levels. In accordance with World Bank standard procurement requirements, contracts will continue to be approved with ‘all taxes included’ for local expenditures. Table 2.5. Disbursement Categories Amount of the Percentage of Financing Allocated Expenditures to Be (SDR) Financed (inclusive Category of Taxes) (1) Goods, works, consulting and non-consulting services, 28,000,000 100 training, and operating costs Amount payable (2) Refund of preparation advance 1,600,000 pursuant to Section 2.07 of the General 49 The World Bank Integrated Public Sector Reform Project (P160801) Conditions Total 29,600,000 100 38. Counterpart funding. There will be no counterpart funding. 39. Monthly replenishment applications. The Designated Account will be replenished through the submission of withdrawal applications on a monthly basis by the PCU account unit. It will include reconciled bank statements and other documents, as may be required until such time as the recipient may choose to convert to report-based disbursements. Procurement: Applicable Procurement Rules and Procedures 40. The procurement of goods, works, non-consulting, and consulting services for the project will be carried out in accordance with the procedures specified in the ‘World Bank Procurement Regulations for IPF Borrowers’ dated July 2016 (Procurement Regulations) and the World Bank’s ‘Guidelines on Preventing and Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA Credits and Grants’ (revised as of July 1, 2016), as well as the provisions stipulated in the Financing Agreement. 41. All goods, works and non-consulting services will be procured in accordance with the requirements set forth or referred to in the Section VI. Approved Selection Methods: Goods, Works, and Non-Consulting Services of the Procurement Regulations, and the consulting services will be procured in accordance with the requirements set forth or referred to in Section VII. Approved Selection Methods: Consulting Services of the Procurement Regulations, PPSD, and Procurement Plan approved by the World Bank. 42. A PPSD has been prepared with the World Bank support, which aims to ensure that procurement activities are packaged and prepared in such a way that they expedite implementation, taking into account (i) the market analysis and the related procurement trends, and (ii) the procurement risk analysis. The PPSD includes the recommended procurement approaches for the project that have been reflected in the approved Procurement Plan, covering the first 18 months of the project implementation. Table 2.6 summarizes the various procurement methods to be used for main activities, financed by the proposed IDA Credit. Table 2.6. Procurement Methods Type of Procurement Selection Methods 1 - Goods (US$12.3 million) Request for Proposals, Request for Bids, Request for Quotations, and Direct Selection 2 - Non-Consulting Services Request for Proposals, Request for Bids, Request for (US$12.8 million) Quotations, and Direct Selection 3 - Consulting Services (US$ Quality Cost Based Selection, Fixed Budget Based 14.9 million) Selection, Least Cost Based Selection, Quality Based Selection, Consultant’s Qualification Based Selection, Direct Selection, and Selection of Individual Consultants. 43. Procurement Plan. The Procurement Plan, including its updates, shall include for each contract (a) a brief description of the activities/contracts; (b) the selection methods to be applied; (c) the cost estimates; (d) time schedules; (e) the World Bank’s review requirements; and (f) any other relevant procurement information. The Procurement Plan covering the first 18 months of the project implementation was approved at project negotiations and will be published on the World Bank website. Any updates of the Procurement Plan shall be submitted for World Bank approval. The recipient shall use the World Bank’s online procurement planning and tracking tools to prepare, clear, and update the Procurement Plans, and manage all procurement transactions and related 50 The World Bank Integrated Public Sector Reform Project (P160801) documentation. 44. Institutional arrangements for procurement. The PCU is to be set up and staffed and will be responsible for ensuring that the fiduciary aspects of the project are managed appropriately. The procurement unit within the PCU will be staffed with qualified and experienced staff who will be responsible for carrying out procurement activities of the project. As needed, the procurement staff to be recruited will benefit from the coaching and assistance of the procurement unit of the PSTAT. The procurement staff will be trained on procurement regulations. 45. Procurement risk assessment. Given the (a) country context and associated risk; (b) unproven experience of the procurement unit because it has to be set up and staffed within the PCU to be created; and (c) the fact that this project will be the first project to be implemented in the RoC under the World Bank’s New Procurement Framework, the procurement risk is rated high. 46. The prevailing risk can be improved to substantial provided that the corrective measures in table 2.6 are implemented. Table 2.7. Procurement Action Plan Corrective Measures Ref Tasks Responsibility Due Date 1 Recruit a well-qualified and experienced staff for the PSTAT Before procurement unit within the PCU. effectiveness 2 Coach and assist the new recruited procurement staff. PSTAT Before effectiveness 3 Train the new recruited procurement staff on the World PCU Three months after Bank’s New Procurement Framework (online courses and effectiveness face-to-face courses) and on the use of Systematic Tracking of Exchanges in Procurement (STEP) tools, which will be used to manage all procurement transactions and related documentation. 4 Prepare a Project Implementation Manual that will include PCU Three months after procurement procedures and arrangements for the project effectiveness along with the standard and sample documents to be used. 5 Organize a launch workshop involving all stakeholders. PCU Three months after effectiveness 6 Develop a contract management system to ensure that all PCU Continuously contracts under the project are effectively and efficiently managed. 7 At the request of the client, use of hands-on expanded Borrower Three months after implementation support (HEIS) for the initial period up to six effectiveness months, while the PCU is being established. 47. Frequency of procurement supervisions. In addition to the prior review to be carried out by the World Bank, at least two implementation support missions will be carried out annually, including field visits to be carried out for post review of procurement actions. As agreed with the Government, contracts will be published on the web. Annual compliance verification monitoring will also be carried out by an independent consultant and will aim to: (a) verify that the procurement and contracting procedures and processes followed for the projects were in accordance with the Financing Agreement; (b) verify technical compliance, physical completion, and price competitiveness of each contract in the 51 The World Bank Integrated Public Sector Reform Project (P160801) selected representative sample; (c) review and comment on contract administration and management issues as dealt with by the PCU; (d) review capacity of the PCU in handling procurement efficiently; and (e) identify improvements in the procurement process in light of any identified deficiencies. Environmental and Social (including safeguards) 48. Given that the project will essentially focus on building institutional capacity and the provision of advisory services, environmental impact assessments are not required. There are some minor works to be carried out that might include refurbishment of office space for key beneficiaries and selected implementing agencies to install adequate equipment. However, these are not expected to have any adverse environmental impacts. The project is, therefore, classified as Environmental Category ‘C’. A key social impact of the proposed operation is its contribution to improving domestic revenue collection, with the attendant impact of increasing available resources. This will help the Government finance social programs that target poverty reduction. Also, by supporting the budget rationalization process, as well as internal and external audit functions, the proposed project will simultaneously improve budget allocation and prioritization toward key service delivery improvements and social sectors. Monitoring and Evaluation 49. The PCU will also include an M&E specialist responsible for monitoring and reporting on project results, including the method, data source, and frequency of reporting for each project indicator. The project monitoring system will use administrative data from the responsible entities. It will be provided with support from the focal points that have been identified within each of the targeted entities. In this way, the project will help reinforce monitoring capacity within each of the targeted ministries and agencies. 50. For accountability purposes, the PCU is committed to providing regular reports to the Government of the RoC, as well as the World Bank. The World Bank will undertake regular supervision missions and ensure that key findings resulting from such visits are fully implemented to improve the overall project performance. A midterm review will be carried out and the findings and recommendations will be used to improve project performance, effectiveness, and efficiency. The M&E specialist will also produce quarterly reports that will be posted to a dedicated project web page. It will contain the latest data for each indicator and will be made available to project beneficiaries and relevant stakeholders. Role of Partners (if applicable) 51. Several donors are assisting the Government of the RoC in its effort to implement the public sector reforms. These include the following donors and type of support: x The EU provides technical assistance through a resident adviser based in the MPSIR who has been closely involved in the preparation of the MTEF. x The IMF is supporting the transcription of the six CEMAC directives through AFRITAC. x The UNDP is involved in the implementation of the public administration reform. x The AFD has expressed its willingness to set up a parallel financing mechanism to support public sector reforms. 52. Donors involved in public sector reforms are working closely together to identify and harmonize their intervention, thereby avoiding duplication and wastage of resources. 52 The World Bank Integrated Public Sector Reform Project (P160801) ANNEX 3: IMPLEMENTATION SUPPORT PLAN COUNTRY: Congo, Republic of Integrated Public Sector Reform Project Strategy and Approach for Implementation Support 1. The implementation support plan for the project has been developed based on specific project activities, current capacity of the implementing agency, political context of the RoC, lessons learned from past public sector reform operations in the country and the region, and the project’s risk profile in accordance with the SORT. This Implementation Support Plan reflects the assessment conducted by the Bank during project appraisal which, built on lessons learned from several years of the Bank’s public sector reform engagement in Africa. 2. Implementation support missions, including field visits, would concentrate in the following areas: x Enhanced Technical Assistance. Implementation support missions will concentrate on the overall implementation of project activities, at all levels and with all beneficiaries. Random field visits will verify compliance with the approved PIM. In addition, enhanced technical assistance will be required on CSO engagement and support, communications, and monitoring and evaluation. The Bank team will facilitate knowledge exchange and mobilize appropriate global expertise, as needed. The team will provide support to the design, development and implementation of the communication strategy for the targeted project beneficiaries, the general public, and internal and external clients. An M&E specialist will provide regular technical assistance and oversight of data collection, and ensure effective flow of information between the multiple participants involved in service delivery. x Client Relations. The Task Team Leader (TTL) will: (i) coordinate the overall Bank implementation support to ensure consistent project implementation, as specified in the legal documents (i.e. Financing Agreement, PIM, etc.); and (ii) meet regularly with the client’s senior representatives to gauge project progress in achieving the PDO and address implementation bottlenecks, as they arise. In addition, the TTL will ensure regular exchanges of information with other key donors supporting activities related to the public sector reform processes, as well as bilateral, multilateral partners and UN agencies. x FM. Supervisions will be conducted over the project’s lifetime. The project will be supervised on a risk-based approach and will include reviews of audits, financial reports and advice to task team on all FM issues. Based on the current overall risk assessment of high, the project will be supervised at least twice a year, with possibility to adjust the intensity of supervisions if and when needs arise. The Implementation Status and Result Report (ISR) will include a FM rating of the project. An implementation support mission will be carried out before effectiveness, to ensure project readiness. To the extent possible, mixed on-site supervision missions will be undertaken with procurement monitoring and evaluation, and disbursement colleagues. x Procurement. With regards to procurement activities, the implementation support will include prior procurement reviews. In addition to the prior reviews to be carried out by the World Bank, at least two implementation support missions will be carried out annually, including field visits for post review of procurement actions. As agreed with the Government, 53 The World Bank Integrated Public Sector Reform Project (P160801) contracts will be published on the web. Annual compliance verification monitoring will also be carried out by an independent consultant and will aim to: (a) verify that the procurement and contracting procedures and processes followed for the projects were in accordance with the Financing Agreement; (b) verify technical compliance, physical completion, and price competitiveness of each contract in the selected representative sample; (c) review and comment on contract administration and management issues as dealt with by the PCU; (d) review capacity of the PCU in handling procurement efficiently; and (e) identify improvements in the procurement process in light of any identified. x Safeguards. Although the project is not anticipating any negative environmental and social impact and the project is categorized as Category C, , the task team will seek advice from environmental and social safeguards specialists on critical issues that may arise during project implementation. The task team will also follow up on any safeguards issues through regular implementation support missions, during which document reviews, site visits and spot-checks will be conducted. x Mid-Term Review. A Mid-Term Review (MTR) will be carried out within two years of project implementation (no later than May 31, 2019). In preparation for the MTR, an independent review of implementation progress will be carried out, including audits. Results will provide input to any potential project revisions or restructuring, at the time. The MTR will cover inter alia review of the Results Framework, SORT, country ownership, stakeholder participation, financial management, procurement processing, and sustainability aspects. Implementation Support Plan and Resource Requirements 3. The World Bank team will provide regular technical supervision and hands-on assistance. It will be focused on proactively identifying and resolving threats to the achievement of the PDO. These supervision missions will be conducted with the support of various specialized technical experts and jointly with the Government. This will help create a dynamic environment for the project, promoting the sharing and implementation of good practices and initiatives. During the first year of the project implementation, regular technical assistance missions will take place to support the client in initiating activities, given the complex nature of the project. The volume of support is expected to be high throughout project implementation. An implementation support plan is provided below, including required skills mix. 4. The Bank task team requires a Work Program Allocation (WPA) to provide implementation support and technical assistance to the project, particularly in light of risks associated and complexities surrounding various activities Time Focus Skills Needed Resource Estimate Partner Role Project start-up, assessments, conducting training for fiduciary staff, setting-up specialized As per the skills mix First twelve months MPSIR support to various project table below beneficiaries, setting up management information systems Supporting implementation As per the skills mix 12-48 months of project activities, MPSIR table below 54 The World Bank Integrated Public Sector Reform Project (P160801) enhanced technical assistance on a number of areas Skills Mix Required Skills Needed Number of Staff Weeks Number of Trips Comments TTL 12 As much as needed Kinshasa-based Procurement Specialist 6 As much as needed Brazzaville-based FM Specialist 6 As much as needed Kinshasa-based M&E / Operations Specialist 6 As much as needed HQ-based Other staff 6 As much as needed HQ and Kinshasa-based Partners Name Institution/Country Role Coordination of EU, IMF, UNDP, FDA World and Brazzaville-based complementary activities 55 The World Bank Integrated Public Sector Reform Project (P160801) ANNEX 4: ECONOMIC AND FINANCIAL ANALYSIS COUNTRY: Congo, Republic of Integrated Public Sector Reform Project 1. This section is organized into two main parts: x Financial analysis. Section A presents the financial analysis to estimate the financial gains from the project over an implementation period of five years. Through Component 1 (Strengthening Revenue Mobilization and Public Expenditure Management), the project will support the securing of the mobilization of existing and future potential non- oil sector revenues. This will include support to mobilize property tax, improve transparency of forestry-based taxation, and rationalize tax exemptions, which is also expected to provide additional revenues. Component 1 will be allocated US$19.6 million. Component 2 (Modernization of the Public Administration) of the project will provide support to rationalize the management system of civil service, while strengthening the capacity of civil servants to improve efficiency in public management. Component 2 will be allocated US$10.5 million. x Economic analysis. Section B shows the economic analysis that captures all the economic benefits of the project that makes society as a whole better-off. These benefits will be assessed in qualitative terms. 2. For the purpose of modeling, the net financial benefits will be calculated with respect to an assumed project life of five years, starting from Year 0. The investment data are derived directly from the project investment costing and is assumed to be made over five years. The RoC’s real growth rate of GDP is assumed to be 2.5 percent per year, on average. The market exchange rate is assumed to be fixed at the average 2016 rate of CFAF 593.2 for US$1. It is assumed that these macroeconomic assumptions remain constant over the project life. Section A. Financial Analysis 3. Component 1 (Strengthening Revenue Mobilization and Public Expenditure Management) of the project will provide support to improve revenue mobilization, as well as better public expenditure management. Component 1 will focus on supporting the tax administration on improving the mobilization of additional non-oil revenues, the rationalization of the tax exemption system, and improvement of transparency and management of tax administration. Through Component 1, the project is thus expected to improve revenue collection beyond the project life. Based on conservative assumptions, the project will generate financial gains estimated at US$200 million over the assumed lifetime of five years, with a financial real NPV of US$185.2 million. Assumptions 4. Assumptions are consistent with the country financial context and calculations made by the IMF in its 2014 Article IV report. These assumptions made it possible to estimate the financial gains. (a) The discount rate is set at 3 percent, which is slightly above the inflation rate. (b) The tax rate is under conservative rules and the Government’s non-oil revenue to GDP is expected to increase annually by 2.5 percentage points starting from 2018 until 2022. (c) Revenue collection from the forestry sector will experience a strong improvement, by adding 1 percentage point each year to the previous ratio of forestry revenue to GDP. 56 The World Bank Integrated Public Sector Reform Project (P160801) (d) Decrease of at least 60 percent of off-budget revenues is expected by the end of the project life. (e) There are no improvements in revenues or losses in the first year of project implementation. 5. Through Component 2, the project aims at supporting the Government in designing and implementing an effective civil service management system. The improvement of civil service management capacity is expected to equip staff with improved skills and to be more efficient in management of public services. Coupled with a better PFM system, this is expected to increase the state’s capability for increased capital investment and bring about efficiency savings. 6. From the financial analysis, the gains projected over a five-year period show a total value of US$100 million over the life of the project, with the financial real NPV of US$89 million at a 3 percent discount rate. Assumptions 7. These estimates were made on the basis of the following assumptions: (a) The ratio of investment to GDP is stable at 18 percent. (b) Investment growth is fixed at 1.2 percent per year. (c) Efficiency of the investment is based on the incremental capital-output ratio (ICOR) (based on the 2007 data of the Revised Minimum Standard Model- Extended [RMSM- X]), and its annual change is established at 0.15 percent. 8. The amounts shown earlier are conservative estimates. The project support will contribute to enhancing public sector management and PFM. Improvements in these areas will contribute to increased confidence in public institutions, which is likely to have spillover effects on tax compliance and payment. Furthermore, more efficient public investments are also likely to improve social well- being while crowding in more private investment will thus spur additional growth. Other expected impacts are described in the following paragraphs. Economic Analysis 9. The proposed project is most likely to yield several types of economic impacts through the interventions around its different components, including the following: x Improved social well-being from improved service delivery. Better efficiency of public expenditures is expected through the support of the project. This will mainly derive from support under Component 1 and public expenditure management in which procurement and public expenditure management are expected to be improved, as well as Component 2 and Component 3. Improvement in these areas will lead to better and more efficient use of public resources, which is expected to result in improved service delivery to the citizens, including investment programs with improved value for money and addressing the needs of the country and the population as a whole. x Improved compliance to tax payment. The project is expected to improve transparency and increase capacity in the management of the tax administration under Component 1. Experience shows that better use of public resources leading to more efficient service delivery also contributes to behavioral changes toward better tax payment compliance. Improved transparency and accountability in the management of public finances supported under both Component 1 and Component 3 are expected to improve the 57 The World Bank Integrated Public Sector Reform Project (P160801) efficiency of the use of public resources toward service delivery. Consequently, improvement of service delivery is expected to bring in more revenues due to improved tax compliance. x Crowding-in effects of increased trust in the public administration. The support provided through the project is expected to improve public sector and PFM and governance. Improvement in these areas will increase trust in the Government by people and businesses and will create favorable conditions for economic growth. This includes, for instance, the attraction of new private investments. Furthermore, more efficient use of public financial resources with more efficient investment programs is also likely to create an attractive environment for the private sector. In this case, improved public investments will crowd in more private investments. Table 4.1. Summary of the Economic and Financial Analysis 2017 2018 2019 2020 2021 2022 Macro baseline Growth 7.5 1.6 0.9 1.0 2.2 2.0 Inflation 3.2 2.7 2.5 2.9 3.0 2.8 Nominal GDP (CFAF, billions) 5,506.9 6,599.4 6,571.2 6,761,6 6,649.4 6.649.4 Discount rate (%) 3 Government revenue / GDP 16.3 23.2 21.9 22.2 21.1 23.4 US$ / CFAF 593.2 Component 1 Non-oil revenues (CFAF, billions) 895.4 1,643.2 1,636.2 1,683.6 1,655.7 1.514.3 Percentage of increase per year (%) — 2.5 2.5 2.5 2.5 2.5 Increase per year (US$, millions) — 38.0 39.0 40.0 41.0 42.0 Increase from 2017 (US$, millions) — 38.0 77.0 117.0 158.0 200.0 Time year 5 Total increase of revenue (US$, millions) 200.0 NPV total increase of revenue (US$, millions) 185.2 Component 2 Capital investment (CFAF, billions) 978.0 990.0 1,002 1,014 1,026.0 1,038.0 Capital investment (US$, billions) 1.65 1.67 1.69 1.71 1.73 1.75 Growth of investment (%) — 1.2 1.2 1.2 1.2 1.2 Increase per year (US$, millions) — 19.5 19.8 20.0 20.2 20.5 Increase from 2017 (US$, millions) — 19.5 39.3 59.3 79.5 100.0 Capital investment / GDP (%) 18 18 18 18 18 18 Congo, Rep.’s ICOR of 2007 3.4 Benefit from the ICOR 0.0 0.002 0.002 0.002 0.002 0.002 58 The World Bank Integrated Public Sector Reform Project (P160801) 2017 2018 2019 2020 2021 2022 Benefit from the ICOR (CFAF, billions) 0.0 1.5 1.5 1.5 1.5 1.6 Savings from the ICOR (US$, millions) 100.0 NPV savings from the ICOR (US$, millions) 89.0 Fiscal expenditures (CFAF, billions) 1,007.1 Customs revenues (CFAF, billions) 210.0 Fiscal expenditures to customs revenues (%) 480 Forestry revenue (CFAF, billions) 3,831 5,607 5,977 6,809.0 7,361,0 7,340.0 Forestry revenue / GDP 0.07 0.08 0.09 0.10 0.11 0.12 Collection rate of forestry revenue (%) 54.5 56.0 57.5 59.0 60.5 62.0 Increase by 1 percentage point a year — 0.015 0.015 0.015 0.015 0.015 Out of budget 390.0 365.6 301.0 256.0 208.2 157.4 Out of budget / GDP (%) 6.7 5.5 4.6 3.8 3.1 2.6 59 The World Bank Integrated Public Sector Reform Project (P160801) ANNEX 5: REPUBLIC OF CONGO 2013 PEFA SCORES COUNTRY: Congo, Republic of Integrated Public Sector Reform Project PEFA Indicator 2006 Assessment 2013 Assessment PI-1 Aggregate expenditure B C outturn compared to original approved budget PI-2 Composition of D D+ expenditure outturn compared to original approved budget PI-3 Aggregate revenue outturn A A compared to original approved budget D+ D PI-4 Stock and monitoring of expenditure payment arrears C D PI-5 Classification of the budget PI-6 Comprehensiveness of B C information included in budget documentation C+ C+ PI-7 Extent of unreported government operations D D+ PI-8 Transparency of intergovernmental fiscal relations PI-9 Oversight of aggregate D D fiscal risk from other public sector entities D D PI-10 Public access to key fiscal information D+ C PI-11 Orderliness and participation in the annual budget process PI-12 Multiyear perspective in fiscal D+ C+ planning, expenditure policy, and budgeting C+ B PI-13 Transparency of taxpayer obligations and liabilities 60 The World Bank Integrated Public Sector Reform Project (P160801) PEFA Indicator 2006 Assessment 2013 Assessment PI-14 Effectiveness of measures for taxpayer registration and tax D+ D+ assessment PI-15 Effectiveness in A NA collection of tax payments PI-16 Predictability in the availability of funds for D D commitment of expenditures PI-17 Recording and management of B+ B cash balances, debt, and guarantees PI-18 Effectiveness of payroll C+ D+ controls PI-19 Competition, value for money, D+ D+ and controls in procurement PI-20 Effectiveness of internal D+ D+ controls for non-salary expenditure PI-21 Effectiveness of internal D D audit PI-22 Timeliness and regularity of D+ D+ accounts reconciliation PI-23 Availability of information on resources received by service delivery D D units PI-24 Quality and timeliness of in- C+ D+ year budget reports PI-25 Quality and timeliness of D+ D+ annual financial statements PI-26 Scope, nature, and follow-up of D D+ external audit PI-27 Legislative scrutiny of the D+ D+ annual Budget Law PI-28 Legislative scrutiny of external NA D+ audit reports 61 The World Bank Integrated Public Sector Reform Project (P160801) PEFA Indicator 2006 Assessment 2013 Assessment D-1 Predictability of Direct A NA Budget Support D-2 Financial information provided by donors for budgeting and reporting A B+ on project and program aid D-3 Proportion of aid that is managed by use of national D D procedures Source: https://pefa.org/sites/default/files/assements/comments/CG-Jun14-PFMPR-Public_0.pdf 62 The World Bank Integrated Public Sector Reform Project (P160801) ANNEX 6: THEORY OF CHANGE/PROJECT LOGIC MODEL/RESULTS CHAIN COUNTRY: Congo, Republic of Integrated Public Sector Reform Project The Project Development Objective (PDO) is to improve public resources management and accountability in the Republic of Congo. Impacts Long-Term Medium-Term Short-Term Outcomes by Key Outputs BY Subcomponent Activities Inputs Outcomes Outcomes Component Component 1: Strengthening Subcomponent 1.1: Strengthening See Annex 1 US$7.0 Revenue Mobilization and Revenue Mobilization million Public Expenditure x Completed the TADAT and Management (US$19.6 million) implemented related x Secured existing and recommendations potential revenues x Reviewed the forestry tax system and x Strengthened management implemented recommendations, as capacity of tax agreed with the Government administration with regard x Reviewed the exemptions system and to organization, fiscal implemented recommendations control, and procedures x Implemented the tax administration automation modernization strategy x Improved communication x Implemented the property tax system capacities on tax policy x New computer system in the DGID measures with other x Implemented the training program for stakeholders, in particular tax administration sectoral ministries, the x Implemented a new communications Improved Improved Improved private sector, and CSOs strategy institutional revenue revenue x Improved information capacity for collection and management systems public rationalization and control x Rationalized exemptions resources of the and improved system to reduce the loss management of revenues 63 The World Bank Integrated Public Sector Reform Project (P160801) expenditure debt Subcomponent 1.2: Strengthening Public See Annex 1 US$12.6 chain management Expenditure Management million x Improved strategic x New NDP planning capacity x Updated macroeconomic data to x Improved efficiency of the prepare a suitable MTEF public investment budget x Reviewed M chain x Strengthened capacity for x Reformed PIM system; public expenditure x Improved SOE institutional and management regulatory framework x Improved PFM information x Elaborated strategic action plan for system PFM reform based on the new PFM legal framework x Transcript of six CEMAC PFM directives in the national law x Implemented training programs for actors involved in budget execution management x Computerized expenditure management x Creation of a website for the MPSIR Component 2: Modernization Subcomponent 2.1: Improving Civil Service See Annex 1 US$4.0 of the Public Administration Management Capacity million (US$10.5 million) x Reviewed civil service legal, regulatory, x Improved strategic and institutional framework planning capacity x Disseminated the State Reform x Rationalized management Strategic Action Plan and implemented of civil servants the strategic action plan x Built capacity within the x Developed a civil service registry, administration to enable based on the results of the completed the MFPRE to better census manage civil servant x Established employment references careers throughout the civil service registry 64 The World Bank Integrated Public Sector Reform Project (P160801) Modernized Public sector x Adopted a new manual of procedures public sector modernization for the management of civil servants administration strategy x Implemented a computerized system implemented for the management of civil servant in pilot careers departments x Implemented a training program to and agencies strengthen the capacity within the MFPRE Subcomponent 2.2: Modernization of the See Annex 1 US$1.5 Departments Implementing REDD+ million x Pilot modernization x Capacity built for the piloting of Improved strategy implemented in Departmental REDD+ Committees in institutional the participating the Sangha and Likouala departments capacity for departmental authorities x Capacity built, equipment, training, public and communications provided for the resources Departmental Forest Economy management Directorates of Sangha and Likouala Subcomponent 2.3: Modernization of the See Annex 1 US$5.0 Public Procurement System million x Improved procurement x Updated the legal and regulatory management system framework x Strengthened capacity of x Conduct of annual independent audits procurement institutions of public procurement contracts x Strengthened collaboration, institutional framework, and management capacity of the CGMPs, ARMP, DGCMP, and DGGT x Restructured and strengthened CGMPs in contracting authorities (ministries, agencies, SOEs, and so on) x PPP framework implemented, as defined in the PPP Law under preparation 65 The World Bank Integrated Public Sector Reform Project (P160801) x Developed and implemented the procurement information management system (e-tracking system) x Implemented a national training strategy x Professionalized procurement function including institutionalization of a training program explored including the MOOC option Component 3: Improving Subcomponent 3.1: Supporting the CCDB, See Annex 1 US$2.0 Transparency and IGF, and Economy and Finance million Accountability (US$4.2 million) Committees of the Parliament x Completed institutional x Finalized and implemented the organic reform of public oversight law and code of professional ethics x Built capacity within the governing CCDB oversight institutions x New audit methodology guides for the x Improved transparency of IGF and the CCDB public oversight institutions x New IGF code of professional ethics, coupled with a manual of procedures adapted to international standards x IGF execution of an annual work plan, based on the revised manual of procedures x Staff internal and external audit institutions’ staff trained (IGF and CCDB) x Implemented a training program for the Economic and Financial Improved Strengthened Committees of the Parliament public sector capacity of x Improved communication between the transparency the oversight CCDB and the Economic and Finance and institutions, Committees of the Parliament accountability increased (National Assembly and Senate) 66 The World Bank Integrated Public Sector Reform Project (P160801) transparency x Archiving systems and website in in the forestry place, to broadcast regular audit and extractive mission reports sectors, and x Operational CCDB website promoted Subcomponent 3.2: Supporting Social See Annex 1 US$1.0 citizen Accountability and Citizen Engagement million engagement x Enhanced capacity of the x Population informed of the progress CSOs to independently made in the implementation of monitor the budget governance reforms execution x Participation in budget orientation debates and ensure that people needs and priorities are reflected x Collaboration between CSOs and public oversight institutions to improve transparency, accountability, and integrity in public administration x Sanctions taken against the administration, as and when needed x Feedback by the population obtained and considered, regarding the degree of satisfaction with the quality of service delivered by the administration Subcomponent 3.3: Improving See Annex 1 US$0.7 Transparency of the Revenue Collection million System in the Forestry Sector x Improved transparency of x Guide on forestry tax policy and forestry management regulations in place x Improved forestry revenue x Operational information-sharing collection and mechanism management x Implemented a communication strategy 67 The World Bank Integrated Public Sector Reform Project (P160801) x Signed forest concession contracts and related documents (management plans, including social clauses) x Updated list of forestry rights holders, including artisanal permits x Available statistics on the production and exportation of forest products and taxes paid to the treasury Subcomponent 3.4: Improving See Annex 1 US$0.5 Transparency in the Extractives Sector million x Maintained EITI compliance x Produced quarterly report, including status data on oil sales by the state enterprise x Improved transparency in and transfers of revenue between the the management of latter and the Treasury extractives resources x Produced report on sharing and production contracts in the petroleum sector x Produced (by an independent expert) conformity report of the EITI 68 The World Bank Integrated Public Sector Reform Project (P160801) ANNEX 7: LESSONS LEARNED AND REFLECTED IN THE PROJECT DESIGN COUNTRY: Congo, Republic Integrated Public Sector Reform Project 1. In designing the project, a number of lessons from the World Bank’s experience in public sector management reforms in the RoC (and beyond) have been taken into consideration and incorporated in the project design. The most significant of these are discussed in this annex. 2. High-level political will and reform champions are necessary ingredients for the success of the project. To tackle politically sensitive reforms, it is necessary to garner support from various agencies responding to different kinds of authority, instead of relying on one single champion. By having multiple champions, broad support and authorization will be generated and high-level responsibility and ownership will be ensured during the project design and implementation. To this effect, the Prime Minister, his Adviser in charge of governance, the Ministries of Planning and Civil Service, and different departments within the MFBPP (tax administration, customs administration) have been identified as champions during the project preparation process and will be the key focal points to manage potential challenges that may arise in the course of implementation. In addition, the World Bank has appointed a country-based Task Team Leader, who will provide ongoing implementation support and ensure that key challenges are timely addressed to improve the overall project performance. 3. The internalization of governance reforms takes time and requires long-standing support, and the project design needs to be tailored to client capacity. The implementation time frame of a governance project needs to be long enough to allow for the necessary adjustment to contingencies inherent to unexpected opportunities resulting from inevitable shifts in reform agendas. Client institutional capacity may not lend itself to breakthroughs and all-encompassing change and systemic reforms. Therefore, World Bank support to governance reforms may, in such circumstances, build on performing agencies and successful initiatives to foster incremental progress. Taking into account this lesson, the project has been designed with a long-term vision, a kind of a programmatic approach while establishing the optimal implementation arrangements in place. 4. The recently closed World Bank TGRP in the RoC encourages a simple design for a low-capacity environment. The proposed project has three main components and a fourth to build internal capacity and support project implementation. Reforms supported will be coordinated by a single PCU that will be created and placed under the leadership of the MPSIR. A Technical Steering Committee will be established to provide strategic oversight of all project activities and will meet regularly to support the implementation of the project. The Steering Committee will be chaired by the Prime Minister with the technical support of the PCU. It will consist of representatives of both cross-cutting and key spending ministries. To ensure better coordination of various reform efforts and swifter implementation of activities, the PCU will have the added responsibility of following up on project implementation at the various ministries. 5. Proper monitoring, evaluation, and cross-institutional collaboration are key for the successful implementation of governance reform programs . A communication system will be established to facilitate the interaction between the World Bank, the PCU, and the implementing agencies. Such a system, together with a strong focus on M&E, will ensure that information flows adequately and is made 69 The World Bank Integrated Public Sector Reform Project (P160801) available to all stakeholders on time. It will inform stakeholders’ relationship and interaction and help monitor their respective performance in handling procedures. A full-time M&E Officer will be responsible for the production of a quarterly dashboard that will be made available to the implementing agencies, to allow them track implementation progress. The focal points supporting the Technical Steering Committee will facilitate their day-to-day management and monitoring by establishing a regular channel of communications and exchange of messages between the PCU and the beneficiaries. 70