i

Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No: 66228-ET

INTERNATIONAL DEVELOPMENT ASSOCIATION

PROJECT PAPER

ON A

PROPOSED ADDITIONAL CREDIT

IN THE AMOUNT OF SDR 193.4 MILLION

(US$ 300.0 MILLION EQUIVALENT)

AND

FROM CRISIS RESPONSE WINDOW RESOURCES

IN THE AMOUNT OF SDR 45.2 MILLION

(US$ 70.0 MILLION EQUIVALENT)

TO THE

FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA

FOR A

PRODUCTIVE SAFETY NET APL III PROJECT

(PSNP APL III)

March 1, 2012

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.

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CURRENCY EQUIVALENTS

(Exchange Rate Effective January 31, 2012)

Currency Unit =Ethiopian Birr (ETB)

ETB17.22 = US$1

US$0.6447 = SDR 1

FISCAL YEAR

July 8 - July 7

ABBREVIATIONS AND ACRONYMS

AED Agricultural Extension Directorate

APL Adaptable Program Loan

BOARD Bureau of Agriculture and Rural Development

BoFED Bureau of Finance and Economic Development

BPR Business Process Re-engineering

CAS Country Assistance Strategy

CBHW Community Based Health Workers

CBPWDP

CCI

Community Based Participatory Watershed Development Planning

Complementary Community Investments

CFSTF Community Food Security Task Force

CGAP Consultative Group to Assist the Poor

CIDA Canadian International Development Agency

COPCU

CPAR

Channel One Programs Coordination Unit

Country Procurement Assessment Report

CRW

CSA

Crisis Response Window

Central Statistical Agency

CSRP Civil Service Reform Plan

DA

DAG

DANIDA

Development Agent

Development Assistance Group

Danish International Development Agency

DCT Donor Coordination Team

DFID

DP

DRM

United Kingdom Department for International Development

Development Partner

Disaster Risk Management

DRMFS Disaster Risk Management and Food Security

DRMFSS Disaster Risk Management and Food Security Sector

DS Direct Support

DWG Donor Working Group

EC European Commission

EFY Ethiopian Fiscal Year

EFSRA Emergency Food Security Reserve Administration

EIA Environmental Impact Assessment

EMCP Expenditure Management and Control Program

EMP Environmental Management Plan

iii

EPA Environmental Protection Agency

ERR Economic Rate of Return

ESMF Environmental and Social Management Framework

EWRD Early Warning and Response Directorate

FIC Federal Information Center

FM

FMTF

FRAs

Financial Management

Financial Management Task Force

Fiduciary Risk Assessments

FSCD Food Security Coordination Directorate

FSP

GAD

Food Security Program

Government Accounts Directorate

GDP Gross Domestic Product

GoE

GTP

Government of Ethiopia

Growth and Transformation Plan

HABP Household Asset Building Program

HIV/AIDS Human Immunodeficiency Virus/Acquired Immunodeficiency Syndrome

ICB International Competitive Bidding

ICR Implementation Completion Report

IDA

IDS

International Development Association

Institute of Development Studies

IFPRI International Food Policy Research Institute

IFR Interim Financial Report

IPM Integrated Pest Management

ISR Implementation Status Report

JCC Joint Coordination Committee

JRIS Joint Review and Implementation Support

JSOC Joint Strategic Oversight Committee

KAC Kebele Appeals Committee

KFSTF Kebele Food Security Task Force

LEAP Livelihood Early Warning Assessment & Protection

LIU Livelihood Integration Unit

LCS Least Cost Selection

MDG Millennium Development Goals

MDTF Multi Donor Trust Fund

MFI Microfinance Institution

MoLSA Ministry of Labor and Social Affairs

M&E Monitoring and Evaluation

MoA Ministry of Agriculture

MoFA Ministry of Federal Affairs

MoFED Ministry of Finance and Economic Development

MOU Memorandum of Understanding

MTEFF Medium-Term Expenditure and Financing Framework

NCB National Competitive Bidding

NGO

NNP

Non-Governmental Organization

National Nutrition Program

NRMD Natural Resource Management Directorate

iv

OFAG

OFSP

Office of the Federal Auditor General

Other Food Security Program

PASDEP Program for Accelerated and Sustained Development to End Poverty

PASS Automated Payroll and Attendance Sheet System

PBS Protection of Basic Services

PCDP Pastoral Community Development Project

PDO Project Development Objective

PEFA Public Expenditure and Financial Accountability

PFM Public Financial Management

PPA Public Procurement Agency

PIM Program Implementation Manual

PLI

PMS

Pastoral Livelihood Initiative

Performance Management System

PSCAP Public Sector Capacity Building Project

PSNP

PW

Productive Safety Net Program

Public Works

PWCU Public Works Coordination Unit

PWFU Public Works Focal Units

PWIA Public Works Impact Assessment

QCBS Quality and Cost Based Selection

RCBP Rural Capacity Building Project

RED&FS Rural Economic Development and Food Security

REPA Regional Environmental Protection Authority

RFQ Request For Quotations

RFSCO Regional Food Security Coordination Office

RIC Regional Information Center

RNE Royal Netherlands Embassy

RuSACCO Rural Savings and Credit Cooperative Organization

RRM Rapid Response Mechanism

RUFIP Rural Financial Intermediation Program

SBDs

SEA

Standard Bidding Documents

Strategic Environmental Assessment

SIDA Swedish International Development Cooperation Agency

SIL Specific Investment Loan

SNNP

SNNPR

SPIF

Southern Nations and Nationalities

Southern Nations and Nationalities Region

Strategic Program and Investment Framework

SWC Soil and Water Conservation

TA Technical Assistance

TLU

TOR

TTL

Tropical Livestock Units

Terms of Reference

Task Team Leader

VLSA Village Lending and Savings Association

UN United Nations

USAID United States Agency for International Development

USD United States Dollar

v

WADs Women‟s Affairs Desks

WFSD Woreda Food Security Desks

WFSTF Woreda Food Security Task Force

WMS Welfare Monitoring Survey

WOARD Woreda Office of Agriculture and Rural Development

WoFED Woreda Office of Finance and Economic Development

WFP World Food Program

Vice President: Obiageli Katryn Ezekwesili

Country Director: Guang Z. Chen

Sector Manager: Lynne Sherburne-Benz

Task Team Leader: Wolter Soer

vi

ETHIOPIA

PRODUCTIVE SAFETY NETS APL III ADDITIONAL FINANCING

TABLE OF CONTENTS

I. Introduction ............................................................................................................................... 12

II. Background and Rationale for Additional Financing .............................................................. 13

III. Proposed Changes ................................................................................................................... 23

IV. Appraisal Summary ................................................................................................................ 24

Annex 1: Results Framework and Monitoring.............................................................................. 34

Annex 2: Operational Risk Assessment Framework (ORAF) ...................................................... 48

Annex 3: Impact evaluation .......................................................................................................... 53

Annex 4: Financial Management and Disbursement Arrangements ............................................ 55

Annex 5: Procurement Arrangements ........................................................................................... 82

Annex 6: Revised Project Costs .................................................................................................... 89

vii

ETHIOPIA

PRODUCTIVE SAFETY NETS APLIII ADDITIONAL FINANCING

Additional Data Sheet

Basic Information - Additional Financing (AF)

Country Director: Guang Zhe Chen

Sector Director: Ritva S. Reinikka

Sector Manager: Lynne Sherburne-Benz

Team Leader: Wolter Soer

Project ID: P126430

Expected Effectiveness Date: June 30, 2012

Lending Instrument: APL

Additional Financing Type: Financing Gap

Sectors: Other social service (50%);

Public Administration-social services

(40%); Central Government

Administration (5%); Sub-national

Government administration (5%)

Themes: Social safety nets (60%);

Natural disaster management (20%);

Vulnerability assessment and monitoring

(20%)

Environmental category: B: Partial

Assessment

Expected Closing Date: June 30, 2015

Basic Information - Original Project

Project ID: P113220 Environmental category: B:Partial

Assessment.

Project Name: Productive Safety Nets APL III Expected Closing Date: June 30, 2015

Lending Instrument: APL

AF Project Financing Data

[ ] Loan [ X] Credit [ ] Grant [ ] Guarantee [ ] Other: Proposed terms: Standard Terms for IDA Credit. The Maximum Commitment Charge Rate payable by

the Recipient on the Unwithdrawn Financing Balance shall be one-half of one percent (1/2 of 1%) per

annum. The Service Charge payable by the Recipient on the Withdrawn Credit Balance shall be equal to

three-fourths of one percent (3/4 of 1%) per annum.

AF Financing Plan (US$m)

Source Total Amount (US$ m)

International Development Association (IDA) 300.00

Crises Response Window (CRW) 70.00

Total 370.00

Client Information

Borrower:

Ministry of Finance and Economic Development

Addis Ababa, Ethiopia

Tel: (251-111) 226-698

Responsible Agency:

Disaster Risk Management & Food Security Sector, Ministry of Agriculture

Addis Ababa, Ethiopia

Tel: (251-111) 503-506

viii

AF Estimated Disbursements (Bank FY/US$m)

Fiscal Year 12 13 14 15

Annual 50 150 140 30

Cumulative 50 200 340 370

Project Development Objective and Description

1. Original project development objective: The development objective of the overall PSNP

APL series is to reduce household vulnerability, improve resilience to shocks and promote

sustainable community development in food insecure areas of rural Ethiopia. The Project

Development Objective for APL III is: Improved effectiveness and efficiency of the Productive

Safety Net Program and related Household Asset Building Program for chronically food

insecure households in rural Ethiopia.

2. Project description: The Additional Financing will continue financing the four

Components of PSNP APL III:

Component 1 (US$290 million): Safety Net Grants will provide cash and in-kind transfers to

chronically food insecure households through: (i) labor intensive public works for able-bodied

households; and (ii) direct support to labor-poor households. This component will also allocate

financing for administrative costs and capital inputs for woredas to provide complementary

inputs as well as technical supervision and monitoring of transfers and public work activities.

This includes additional incentives to woredas that demonstrate improved performance in

timeliness and predictability of transfers to households and Public Works implementation.

Component 2 (US$ 70 million): Drought Risk Financing aims to provide timely resources for

transitory food insecurity in response to shocks within the existing program areas. This

component will be financed using a contingent grant, which will provide resources for scaling

up activities under Component 1 in response to localized or intermediate weather or price-

related shocks in PSNP woredas. In the event no shocks occur, the resources of this component

can be utilized to finance activities eligible under component 1 of the 2013/2014 annual plan.

Component 3 (US$5 million): Institutional Support for the PSNP will support institutional

strengthening activities focusing on (i) program management at all levels; (ii) capacity building

support for the overall program and needs specific to the Risk Financing facility; (iii) monitoring

and evaluation; and (iv) transparency and accountability.

Component 4 (US$5 million): Support to the Household Asset Building Program (HABP) will finance a core set of interventions aimed at: (i) strengthening the delivery of demand-driven

and market-oriented advisory services for household investments; (ii) improving the efficiency

and effectiveness of financial service delivery to food insecure households; and (iii) supporting

program management.

ix

Safeguard and Exception to Policies

Safeguard policies triggered:

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)

[X]Yes [ ] No

[ ]Yes [X] No

[ ]Yes [X] No

[X]Yes [ ] No

[ X]Yes [ ] No

[ ]Yes [X] No

[ ]Yes [X ]No

[ ]Yes [X ]No

[X] Yes [ ] No

[ ]Yes [X] No

Does the project require any waivers of Bank policies?

Have these been endorsed or approved by Bank management?

[ ]Yes [X] No

[ ]Yes [ ] No

Conditions and Legal Covenants:

Financing Agreement

Reference

Description of Condition/Covenant Date Due

Schedule II, A1 The Recipient shall monitor and evaluate the

progress of the Project and prepare Project

Reports in accordance with the provisions of

Section 4.08 of the General Conditions.

Not later than 60

days after the end of

the period covered

by such report.

Schedule II, A2 The Recipient shall carry out a joint review of

the progress of the Project implementation at

regular intervals with the donor partners

financing the PSNP Program.

Every six months

Schedule II, A3 The Recipient shall carry out a joint mid-term

review of the progress achieved under the

Project.

June 30, 2012

Schedule II, B2 The Recipient shall, through MoFED, prepare

and furnish to the Association, in form and

substance satisfactory to the Association,

interim un-audited financial reports for each of

the respective Parts of the Project covering the

period.

Not later than sixty

(60) days after the

end of each quarter

of the EFY

Schedule II, B3 The Recipient shall, through MoFED, have the

Financial Statements for the Project audited in

accordance with the provisions of Section 4.09

(b) of the General Conditions. Each audit of

the Financial Statements shall cover the period

of one fiscal year of the Recipient.

Not later than six

months after the end

of the fiscal year.

x

Schedule II, B3 The Recipient shall, through MoFED, cause

the auditor to provide the Association with

quarterly interim audit reports.

Sixty (60) days of

the end of each

quarter of the EFY.

Schedule II, B4 The Recipient, through MoA, shall, as part of

the audit of the Financial Statements have the

commodity flow and status reports

(statements) for the Project audited in form

and substance satisfactory to the Association.

Not later than six

months after the end

of the EFY.

Schedule II, D2 The Recipient shall, during the implementation

of the Project, through consultants with

qualifications and experience acceptable to the

Association, carry out an independent

procurement review of the procurement under

the Project, under terms of reference

satisfactory to the Association

Annually

Schedule II, Section

IV, B(a)

The Recipient shall for payments made prior to the

date of this Agreement, except that withdrawals in

an amount not exceeding the equivalent of fifty

million dollars ($50,000,000), in respect of

payments made under Category (2) for Safety Net

Grants under Part 2 of the Project, provided that

the Eligible Expenditures thereunder shall have

been incurred after September 1, 2011, and subject

to the requirements in sub-paragraph b) of this

paragraph;

After September 1,

2011

Schedule II, Section

IV, B(b)

The Recipient shall, (under Category (2) for Safety

Net Grants under Part 2 of the Project, unless, in

the event of the occurrence of an event of the

envisaged scope and severity provided for under

the Drought Risk Financing Manual, a work plan

shall have been adopted by the Recipient

satisfactory to the Association, describing the

specific modalities, scale, and timing of safety net

support (Safety Net Grants) to be provided on

account of identified Eligible Beneficiaries in

accordance with the eligibility criteria, procedures,

and guidelines set forth or referred to in the

Drought Risk Financing Manual; and

As and when

required

xi

Schedule II, Section

IV, B(c)

The Recipient shall, under Category (4) in respect

of any payments made in respect of expenditures

for goods, consultants‟ services, audits, Training

and Operating Costs under Part 4 of the Project

(Support for Household Asset Building Activities),

for any fiscal year during the implementation of

the Project, unless the Association shall have

confirmed in writing that the HABP work plan

furnished by the Recipient for the relevant EFY, is

satisfactory to the Association.

Annually

12

ETHIOPIA

PRODUCTIVE SAFETY NETS APL III ADDITIONAL FINANCING

I. INTRODUCTION

1. This Project Paper seeks the approval of the Executive Directors to provide an additional

credit in an amount of US$370 million in IDA Credit, including US$70 million from the IDA

special Crisis Response Window (CRW) resources to the Federal Democratic Republic of

Ethiopia for the Productive Safety Nets (PSNP) APL III Additional Financing, Project P126430

(Credit number 5091-ET).

2. The proposed additional credit would help finance the costs associated with the

implementation of the PSNP APL III Program and strengthen its ability to address the current

and potential future crisis. During appraisal and negotiations of APL III in 2009, it was

recognized that there was a financing gap for the program in the amount of US$526.46 million,

which could not be met immediately by IDA or the development partners. It was agreed at the

time that this financing gap would be filled during the course of implementation. Due to several

additional commitments of various Development Partners, the financing gap was reduced to US$

478.72 million. In May 2011, following discussions with Government, the Bank therefore agreed

to consider additional financing of US$300 million for FY2012. In response to the ongoing

drought in the Horn of Africa, IDA CRW resources of US$70.0 million were added to the

original amount to finance the crisis related risk financing mechanism which will make available

a total of US$370 million in Additional Financing. Based on the revised budget estimate (Annex

6) this additional financing will reduce the financing gap to USS 108.72 million. Other

Development partners are currently working on proposals to address the remaining financing

gap. The financing gap is expected to be closed.

3. There are three main reasons for the PSNP (APL III) Additional Financing:

Filling the financing gap: The proposed US$370.0 million additional financing would

contribute towards filling the existing financing gap. Additional support from other partners is

under preparation to close the remaining gap.

Further strengthening of design and efficiency aspects: These resources would allow IDA

to continue to finance and strengthen the PSNP APL III, which unlike the previous two phases

includes the Household Asset Building Program (HABP) that requires significant effort and

resources. The additional resources would also allow IDA to continue to strengthen PSNP design

and efficiency (effective implementation of HABP approaches, effective program management

and coordination, M&E, transparency and accountability measures, etc) to achieve its objectives

of improving food security, using a multisectoral approach. Further, they would enable PSNP to

incorporate more firmly a systematic disaster risk management and climate adaptability agenda

into the social safety nets program of Ethiopia.

Strengthening crisis response capability through replenishment of the risk financing

facility: Most of the PSNP areas are affected by the current drought; this has resulted in

additional need for support to both existing PSNP clients as well as transitory food insecure

households in PSNP woredas. The additional financing will help ensure that the program

13

maintains its ability to provide timely resources for transitory food insecurity in response to

shocks within existing program areas. Part of the additional financing will be used to replenish

the risk financing facility of the program, which was triggered in July 2011 and disbursed

US$134.7 million to address transitory needs. Resources in the total amount of US$250.0 million

were made available by the World Bank for the drought affecting the Horn of Africa through the

Bank‟s IDA Crisis Response Window. In order to replenish the risk financing mechanism,

US$70.0 million of these resources have been allocated to the PSNP APLIII. The total amount of

Additional financing of US$370 million is appropriate to further strengthen the future timely

response of PSNP to such shocks.

II. BACKGROUND AND RATIONALE FOR ADDITIONAL FINANCING IN THE AMOUNT OF US$ 370.0

MILLION

4. While Ethiopia has experienced high economic growth in recent years, poverty and

chronic food insecurity remain major challenges. It is estimated that about 29.2 percent of

households live below the food poverty line. Most of these food insecure households are

subsistence farmers, depending on rainfed agriculture and therefore vulnerable to weather

fluctuations. High population growth has also contributed to decline in farm sizes, and

environmental degradation remains a problem. Dramatic variations in rainfall and climate and

repeated environmental shocks further contribute to poverty and food insecurity.

5. As a result, every year for over two decades (1986-2006) the Government launched

international emergency appeals for assistance to meet the consumption needs of food insecure

households. Although this humanitarian assistance was substantial and saved many lives,

evaluations have shown that it was unpredictable for both planners and households, and often

arrived too little, too late. As a consequence, the emergency aid could not be used effectively and

did little to protect livelihoods, prevent environmental degradation, generate community assets,

or preserve physical or human household assets. Despite the large food aid inflows, there was an

increasing trend in chronic food insecurity in the wake of repeated droughts as vulnerable

households fail to cope with shocks and slide deeper into poverty.

6. Therefore, in 2005, the Government of Ethiopia (GoE) and development partners realized

the need to introduce a predictable, long term and developmental Safety Net as an appropriate

mechanism to respond to chronic food insecurity and recurrent climatic shocks. The PSNP APL

III is the third phase of World Bank financing for the Productive Safety Net Program (PSNP),

which was launched in 2005 as part of the Government‟s Food Security Program. The

implementation of PSNP over the last six years has already shown significant impact.

7. The effects of the current drought crisis in the Horn of Africa have been mitigated in

Ethiopia to a great extent due to the presence of the PSNP. The PSNP aims to reduce household

vulnerability to chronic and transitory food insecurity, improve resilience to shocks and promote

sustainable community development in food insecure areas of rural Ethiopia. The PSNP was

designed to reform and complement the existing humanitarian support system, and to be the

main instrument for assisting chronically food insecure people in rural Ethiopia. It was scaled up

significantly in 2006, and currently reaches 7.57 million people, which is roughly 8.0 percent of

the total population. It is anticipated that the PSNP will have reached in total 8.3 million people

by 2015.

14

8. The Government has received technical and financial assistance from a consortium of

10 Development Partners: United Kingdom Department for International Development (DFID),

Irish Aid, European Commission (EC), European Union (EU), Canadian International

Development Agency (CIDA) Swedish International Development Agency (SIDA), Netherlands,

Danish International Development Agency( DANIDA), United States Agency for International

Development (USAID) and International Development Association (IDA) led by the World

Bank to help prepare and implement the Program. The World Bank is supporting the

Government through a three-stage APL and has provided significant IDA financing through APL

I, II and III. APL I ran from January 2004 to December 2006 in the total amount of US$113.7

million, and APL II ran from January 2007 to June 30, 2010 in the total amount of US$ 207.9

million1. APL III, consisting of an IDA grant of US$350 million and IDA credit of US$130

million for a total of IDA US$480 million, began in January 2010 and is scheduled to close on

June 30, 2015.

9. Crisis Response Window Resources: The PSNP APLIII Additional Financing will

include US$70 million from the CRW. The main objectives of the CRW are to establish a more

systematic approach for IDA to respond to severe crises caused by exogenous shocks, to enhance

IDA‟s capacity to provide rapid response and effectively participate in global disaster response

efforts, and to provide additional and predictable financing to countries hit by crises. The current

emergency in the Horn of Africa reflects a convergence of factors that are broader than drought

alone, encompassing record high food prices and a humanitarian crisis aggravated by conflict in

Somalia. The aggregate level of resources required to address both the short and longer-term

aspects of the crisis are very substantial, and in short supply. The proposed CRW allocation for

Ethiopia through the PSNP APLIII Additional Financing would contribute towards this financing

gap.

Objectives and phases of PSNP

10. The Development Objective of the overall PSNP APL series is to reduce household

vulnerability, improve resilience to shocks and promote sustainable community development in

food insecure areas of rural Ethiopia. This is to be achieved through continued consolidation of a

safety net system that: (i) provides timely, predictable, and appropriate transfers to beneficiary

households, thereby enabling effective consumption smoothing and avoiding asset depletion; (ii)

creates productive and sustainable community assets that contribute to the large-scale

rehabilitation of severely degraded areas; (iii) stimulates local markets through demand linkages;

(iv) establishes more effective responses to drought shocks to avoid increasing destitution among

affected households; and (v) integrates and effectively supports critical interventions that build

assets, promote increased productivity, and encourage diversification at the household level.

11. Program Description: APL Phase I: The first APL phase (2005-2006, IDA US$70

million, Implementation Completion Report (ICR) “satisfactory”) focused on Transition from

emergency relief to a productive and development-oriented safety net. Phase I accomplished the

following: (i) provided predictable, multi-annual resources to the Government; (ii) replaced food

with cash as the primary medium of support; (iii) made resources available for critical capital,

1 APLI financing includes an IDA grant of US$70 million for APL I plus a US$43.7 contribution from the IDA

supported Emergency Demobilization and Reintegration Project (EDRP). APLII financing includes an IDA grant

and credit of US$175 million plus Additional Financing of US$25 million from the GFRP and US$ 7.89 million

exchange rate gains.

15

technical assistance, and administrative costs to effectively support the public works; (iv)

strengthened community involvement by supporting community targeting and local-level

participatory planning as core principles of the program; and (v) related public works activities to

the underlying causes of food insecurity, especially with respect to soil and water conservation

measures. It put in place the essential elements of the new productive safety net system.

12. APL Phase II: APL I was followed by a second APL phase (2007-2009 IDA US$175

million, Additional Financing US$25 million, ICR: “satisfactory”), focusing on Consolidation

of the progress made under Phase I and continuing to strengthen technical capacity for program

implementation. Phase II has: (i) improved the efficiency and predictability of transfers by

continuing to build capacity of government systems and by strengthening resource planning and

mobilization; (ii) strengthened program governance by enhancing existing targeting and

grievance systems as well as introducing more transparency in program procedures; (iii)

increased the productivity of public works through a systematic focus on community planning

using integrated watershed management techniques and enhanced involvement of technical staff

from Natural Resource Management Directorate (NRMD) at all levels; (iv) strengthened

monitoring and evaluation systems; and (v) developed more efficient financing instruments for

risk management to ensure a more predictable and timely response to shocks.

13. APL Phase III: It was agreed with the Government during preparation for APL III that

strengthening livelihoods to the extent that households become food secure and resilient to

shocks is a process that is longer and more complex than that suggested by the initial five-year

timeframe of the program covered by APL I and APL II. The World Bank‟s Board of Directors

therefore approved the addition of a third phase to the APL series to span a further five years

(timeframe 2010-2015, IDA US$480 million) from the end of APL II. APL III focuses on

Integration and continues to consolidate program performance and maximize the program‟s

long-term impacts on food security by ensuring effective integration and coordination with other

critical interventions. Phase III has: (i) introduced initiatives to further improve the timeliness

and predictability of transfers, notably through closer performance monitoring and provision of

incentives; (ii) initiated further work to strengthen public works, particularly focusing on

regional and federal oversight, coordination, and monitoring; (iii) strengthened program

accountability through a number of additional “bottom-up” and “top-down” monitoring and

accountability mechanisms; and (iv) supported Government to increase the efficiency and

effectiveness of the Household Asset Building Program (HABP) to further promote sustainable

graduation from food insecurity.

14. The Ethiopia Productive Safety Nets Program (APL III) provides US$480 million of IDA

financing, of which US$130 million are IDA credit and US$350 million are IDA Grant.

Approved by the Board on October 22, 2009, its development objective is to improve

effectiveness and efficiency of the Productive Safety Net Program and related Household Asset

Building Program (HABP) for chronically food insecure households in rural Ethiopia. The IDA

resources leveraged more than US$1.327 billion from the Government of Ethiopia and nine

development partners. However, the total financing need is currently estimated at US$2.2896

billion and the US$478.72 million financing gap will be partially met by the proposed IDA

US$370 million additional financing. The remaining gap of US$ 108.72 million will need to be

resourced from the Government and other development partners. Current indications from

Development Partners are that the remaining gap is expected to be closed.

16

Alignment with Country Priorities

15. PSNP is the largest safety net program in Ethiopia and is a key instrument for promoting

food security and reducing vulnerability. The presence of the program has strengthened the

Government‟s capacity to manage the risks of drought and to mitigate the effects of the current

drought crisis. It forms a core component of the Government‟s Food Security Program and the

Growth and Transformation Plan (GTP), the country‟s current five year plan. In addition, the

latest Country Assistance Strategy aims to support Ethiopia in achieving four main strategic

objectives, consistent with the Government of Ethiopia‟ GTP and the World Bank‟s Africa

Strategy: (i) fostering economic growth; (ii) improving access to and quality of basic service

delivery; (iii) reducing vulnerability; and (iv) fostering improved governance. The PSNP (APL

III) is strongly aligned with all of the objectives of the CAS.

Program implementation and results

16. Disbursements: PSNP APL III became effective on January 18, 2010. Since then it has

disbursed 66.9 percent of IDA and is on schedule for full disbursements by December 2012.

17. Development Partnerships and the Multi-Donor Trust Fund: PSNP (APLIII) continues to

build on a strong partnership between the Government and ten development partners. IDA will

continue the strong commitment to donor harmonization and accountability established during

PSNP APL I and II, and ongoing under APL III. IDA‟s contribution under these projects has

successfully leveraged US$1.25 billion from nine other development partners. Of this amount, a

total of US$231.8 million in commitments to the program will be channeled through a Multi

Donor Trust Fund (MDTF) managed by the World Bank. In addition, USAID, DFID, SIDA and

Irish Aid contribute funds directly to the Program.

18. Joint Reviews and Implementation Support (JRIS) mission: Since project effectiveness in

January 2010, the Government, World Bank, and Donor Partners have conducted three Joint

Review and Implementation Support (JRIS) missions. The ISR after the JRIS mission in

November 2011 rated that the overall progress in meeting the Program‟s development objectives

as Moderately Satisfactory.

19. The JRIS Missions have focused on four thematic areas: General Program Management,

Financial Management and Procurement, Public Works, and Household Asset building. Within

these thematic areas, issues requiring attention include timeliness and primacy of transfers,

financial management and reporting, graduation, capacity building, monitoring and evaluation,

roll out of the program to pastoral areas and cross cutting issues such as gender.

20. Results (See Annex 3): Bi-annual Impact Evaluations and panel surveys have been

incorporated into implementation and design of the PSNP program. To date, three high quality

rigorous evaluations have been conducted for the program.

21. The impact evaluation found that participation in the PSNP significantly improved

household food security, as measured by changes in the self-reported household food gap. The

impact of the PSNP on food security was found to be larger when transfers were predictable and

of a higher value. Households that received these transfers and inputs from OFSP/HABP

experienced an improvement in food security by 1.53 months (or 47 days). Overall progress

towards achieving the PDO is therefore rated as satisfactory.

22. Results from the 2010 impact evaluation show that the PSNP continues to have a positive

impact on livelihoods, even during times of crisis. These findings reinforce the earlier finding

17

that the impact of the Program is greater and appears across a wider range of indicators when

households receive predictable, high value transfers. On average, households participating in

public works reported that their food security improved by 1.05 months. There is an

improvement in food security in all regions and these are statistically significant. There are

positive impacts on productive assets and livestock holdings, with an increase in livestock

holdings by one tropical livestock unit, and an increase in productive assets by 112 real birr.

There are differences in the impact on livestock holdings across regions. Direct Support also

improved food security: increasing average Direct Support payments from 500 to 2500 Birr leads

to a two month improvement in food security. Higher levels of Direct Support have led to more

rapid asset accumulation. There is no evidence that Direct Support has disincentive effects or

reduces (“crowds out) private transfers, and there is some evidence that private transfers are

crowded in.

23. A growing body of evidence2 shows that the PSNP is having a significant positive impact

at the community level. The Public Works Impact Assessment carried out in 2008 found that soil

and water conservation activities have significantly increased wood and herbaceous vegetation

cover. The construction of water conservation structures within the closed areas has reduced

surface runoff, increased infiltration and raised groundwater levels, thereby enhancing spring

yields and increasing stream base-flows. In several communities, springs last longer into the dry

season. Additionally, the number of domestic water supplies has doubled.

24. There is also evidence that these community-level benefits are resulting in improved

livelihoods. An estimated 34 percent of households surveyed reported significant benefits from

the closed areas that had increased the availability of forage for livestock. Up to 87 percent of

households reported that family health had improved as a result of access to PSNP water

supplies. It is important to note that these benefits accrue to the community at large beyond the

immediate target group of the Program.

25. Asset creation and protection: The PSNP is having a significant impact on asset

accumulation.3 The joint receipt of the PSNP and OFSP/HABP benefits leads to the

accumulation of 1.001 Tropical Livestock Unit and an additional 133.6 Birr in tools compared to

households that received neither. This is supported by evidence from other surveys that shows

that PSNP beneficiaries are using cash transfers to invest in farming inputs and livestock. These

findings also hold true during times of crises, when the PSNP has proven to be effective at

helping households avoid distress sales of assets.

26. Utilization of education and health services: PSNP beneficiaries have increased their use

of social services. In 2006, 46.1 percent of a sample of PSNP beneficiary households reported

that they used health facilities to a greater extent compared with the year before, and 76 percent

attributed this to the PSNP. In 2008, 26.7 percent of households reported increased use of health

2 Evaluation Reports Include: (i) Impact evaluations and panel surveys. (ii) Regional Information Center Reports:

Regular monthly reports. (iii) Social Assessment to confirm the effectiveness of program targeting and assess

relevant social issues. (iv)-Public Works Impact Assessment to determine if the objectives of the PSNP PW have

been met. (v)-Biannual Impact Evaluation that measures change in household food gap (vi) Risk Financing impact

assessment to determine if the objectives of Risk Financing were met. (vii) Public Works Reviews, which examine

the quality and effectiveness of the public works planning process, and the quality, effectiveness and sustainability

of the public works subprojects.

3 When transfers are made with delay, impacts are less.

18

facilities over 2007, and 47 percent attributed this increase to the PSNP. This information,

together with reports that PSNP beneficiaries use some of their cash transfers to invest in health

and education, indicates that the Program is having a positive impact on human capital

accumulation.

27. Agricultural productivity: The PSNP is enabling households to take risks that improve

household productivity. A major finding of the impact evaluation from 2008 was a synergy

between the HABP and PSNP. Conditional on receiving the PSNP for five years, households that

also had OFSP or HABP assistance produced 147kg more of grains. This suggests that by

allowing households to focus on long-term investments and providing more regular cash flow,

the PSNP is a critical element of a strategy to effectively improve agricultural productivity.

28. Improvement of Nutrition Practices and the PSNP: The Project Implementation Manual

(PIM) of the PSNP includes nutrition interventions designed on the basis of lessons learned from

a nutrition pilot implemented under the program. The pilot tested ways in which the National

Nutrition Program (NNP) and PSNP can complement each other and ways to promote nutritional

aspects in the PSNP. Lessons from the pilot have been incorporated into the PIM. The pilot also

resulted in the creation of an institutional framework and a task force, housed in the Ministry of

Health, with representation from the Food Security Coordination Directorate of the Ministry of

Agriculture. The Task Force focuses on implementation of the lessons learned from the pilot.

The PSNP prioritizes lactating women and malnourished children as its target groups for all

program interventions. Furthermore, Health Bureaus/offices at the woreda level and the Health

Extension Workers at the community levels are already members of the Woreda and Kebele

Food Security Task Forces. In addition, health extension workers use payment sites and Public

Works gatherings to disseminate nutrition information and conduct health related education and

awareness raising activities.

29. As outlined in the PIM, PSNP Public Works (PWs) can include nutrition-related

interventions. Links will be established with the PW planning process to ensure

complementarities. The PSNP PW planning process is demand driven and can therefore only

include activities, such as nutrition related interventions, when they have been prioritized by

communities. In addition, efforts will be made to promote nutrition sensitive initiatives during

the HABP business planning process at the household and community level

30. Legal Covenants: Overall, the Project is well on its way to achieve its dated covenants

on time (by the June 2012, Mid-Term Review). In particular, areas where progress is noted

include the following covenants:

a. an approved Disaster Risk Management (DRM) Policy - a draft DRM Policy is currently

before the relevant authority for approval; it is expected that the policy will be approved

during the 3rd

quarter of FY 2012.

b. the development of a National Social Protection Strategy - the National Social Protection

Platform is currently finalizing the draft policy document for submission to the Council of

Ministers in 2012;

c. Independent process evaluation of experience to date with the Risk Financing within the

broader emergency response system. The Task Team is currently preparing a concept note

for the evaluation in close consultation with GFDRR. The evaluation is expected to take

place in April/May 2012.

19

d. Independent assessments of PSNP based on representative surveys – International Food

Policy Research Institute/Institute for Development Studies (IFPRI/IDS) have now submitted

draft Impact Reports4 with the results of the impact survey completed in 2010;

e. Independent assessments of systems effectiveness for HABP - IFPRI/IDS have now

submitted draft Impact Reports with the results of the impact survey completed in 2010;

f. An agreed set of actions to address the financing gap – The Disaster Risk Management

and Food Security Sector (DRMFSS) has made a presentation of the funding requirements

for PSNP to the Development Assistance Group (DAG). Several Development Partners are

in the process of preparing additional financing proposals at present with the aim to close the

financing gap.

31. Implementation Challenges: Despite these favorable developments, implementation of

improvements to the Financial Management (FM) and Monitoring systems has been slow and

consequently have resulted in a Moderately Satisfactory rating for the overall program

implementation. These implementation difficulties were foreseen as a significant implementation

risk, and are described in more detail below.

32. Primacy of Transfers: Primacy of cash and food transfers is an agreed principle of the

PSNP program. The principle recognizes that transfers are to be made to clients of the PSNP

regardless of their participation in public works. However, a lack of administrative capacity to

oversee the implementation of the primacy of transfers principle, as well as a tendency to

withhold transfers until associated public works have been completed, may lead to significant

delays in transfers and in turn negatively affect the impact of the program. However, clear

agreements have been reached during the recent JRIS in May 2011 and this has since improved.

The commitment of primacy of transfer has been reconfirmed both at the federal and regional

level.

33. Implementation Capacity and Sustainability Despite significant improvements and

some important results, capacity gaps still exist with regard to coordination, planning,

management, results-based monitoring, financial management, and procurement. High rates of

staff turnover, which are particularly acute at the woreda-level, affect the efficiency and

effectiveness of implementation. Several ongoing procurement activities related to building local

physical capacity are yet to be finalized (for example distribution of generator sets, large-scale

vehicle procurement, etc). These will significantly address capacity constraints experienced to

date.

34. Weak capacity for HABP implementation presents a new and substantial challenge that,

if not addressed appropriately, will undermine the impact of the redesign of this component

undertaken as part of APL III. A major new capacity building facility for PSNP (financed by

CIDA) is currently being rolled out and will focus on building capacity for program management

in all areas, including HABP, particularly at the regional level. In order to address high rates of

4 PSNP List of Impact Evaluation Reports and Panel Surveys which inform program implementation decision

making :(i) IFPRI/CSA Ethiopia Food Security Program Report on the 2008 survey, IFPRI and GoE 2010 (draft)

(ii)IFPRI/CSA Ethiopia Food Security Program Report on the 2008 survey, IFPRI and GoE 2009a (iii) IFPRI/CSA

Ethiopia Food Security Program Report on the 2008 survey, IFPRI and GoE 2009b (iv) IFPRI/CSA Ethiopia Food

Security Program Report on the 2008 survey, IFPRI and GoE 2007 (v)IFPRI/CSA Ethiopia Food Security Program

Report on the 2008 survey, IFPRI and GoE 2006.

20

staff turnover, attention will be given to strengthening training programs for regional, woreda,

and kebele staff and offering these on a rolling basis.

35. Technical Design Quality and coverage of the Household Asset Building Program:

HABP must be an effective complementary intervention to the PSNP, to ensure a high

probability of household graduation. The Government has re-designed this program and

significant support from APL III is allocated to help make it more effective. Nevertheless, a

commitment to implementing the program‟s new approach is required, particularly in terms of

promoting market-based approaches to providing credit and enhancing the quality of technical

support provided by the extension service. As part of APL III, technical assistance is provided to

ensure that modalities for enhancing fund flows to financial institutions operating in food

insecure communities follow sound financial principles. Continuous awareness creation at all

levels will ensure widespread understanding of the Program. Furthermore, ongoing supervision

of the proposed reforms under the HABP will provide opportunities for taking corrective actions

as necessary during implementation.

Program Risks

36. Overall Implementation Risk is rated as Substantial. As summarized in the Operational

Risk Assessment Framework (Annex 2), the main risks associated with the operation are as

follows:

37. Prioritization of program implementation: The Government has embarked on an

ambitious Growth and Transformation Plan (GTP). This includes the implementation of the

PSNP and HABP as well as s investments in large infrastructure, such as the Complementary

Community Investment Program (CCI program).The Government sees the implementation of the

GTP as its main vehicle for graduating people out of poverty and to economic sustainability.

However, it has been observed that woredas are not always able to implement all programs under

the GTP simultaneously. In the short term, there is risk of woredas not prioritizing PSNP in

relation to their other responsibilities. This has been identified by PSNP JRIS missions as a key

source of delays in the implementation of the program, particularly affecting the timeliness of

food and cash transfers. In addition, there is a need to better balance the focus on CCI with

household level asset building as a means to graduation in order to avoid delays in the plans for

graduation at scale.

38. Vulnerability to shocks: Ethiopia remains vulnerable to significant shocks. The

possibility of price and/or weather-related shocks affecting the target population during the life

of the Program remains high, as evidenced in 2008 and most recently in 2011. In 2011, rains

were late in the low land areas of Somali, Afar, and Oromia, and severe drought conditions

occurred in many areas. The impacts of climate change are likely to exacerbate these

vulnerabilities. To mitigate this risk, the PSNP design aims to effectively respond to shocks,

including those associated with climate change by: (i) adaptive measures such as soil and water

conservation activities as well as small scale irrigation and the focus on integrated watershed

management, and (ii) building capacity to scale up in response to shocks, guided by woreda level

risk management plans and financed through the use of contingency budgets at the woreda and

regional level; and risk financing resources at the federal level.

39. Program governance and financial management: Evidence to date suggests that

overall governance of the Program is improving and that steps are being taken to address the

systemic challenges that exist. These systemic issues include: (i) Given the nature of the

21

program, there are large cash balances that are held at the region and woreda levels that entail

significant fiduciary risks, (ii) low budget execution has been observed recently; (iii) internal

audit remains weak across the country; (iv) there is inadequate follow up on audit findings to

ensure corrective action is taken at the woreda level; (v) while timeliness of Interim Financial

Reports (IFRs) has improved, there are ongoing concerns regarding their quality; (vi) inadequate

controls surrounding maintenance of payrolls; and (vii) the commodity audit report raised issues

regarding food transfers. The following measures have been implemented to strengthen the

Program‟s governance and financial management framework: (i) establishment of an

independent appeals/redress procedure; (ii) a communication campaign focusing on financial

transparency; (iii) fiduciary controls verified by the Annual Audits, interim Financial Audit, and

Procurement Review, with actions taken at woreda level and system-wide based on findings; (iv)

computerization of the payroll system (PASS) rolled out under APL II are mandatory under APL

III; and (v) introduction of client cards with charters of rights and responsibilities, which makes

it easier for clients to clearly understand their entitlements. FM Risk is rated as: High. For a full

discussion of FM arrangements, refer to Annex 4.

40. Fiscal sustainability: The PSNP is a large program with evolving financing needs.

Development partners and Government may not be in the position to maintain the necessary

long-term financing, particularly in the current climate of economic uncertainty. This could

undermine the ability of the Program to maintain current levels of support, as well as its ability to

scale up in response to shocks. Currently there is a substantial financing gap for the Program.

However, the emerging evidence on outcomes and impacts provides a solid justification for

government and existing partners to continue support for the Program. A Medium-Term

Expenditure and Financing Framework (MTEFF) for the five year life of the Program is agreed,

which maximizes the multi-annual commitments to the Program and therefore builds

predictability. Based on the MTEF, a resource mobilization strategy has been developed to fill

the residual financing gap. A similar strategy was effective at addressing significant financing

gaps during APL I and II.

41. Program Financing and Long Term Sustainability: Given the depth of poverty and the

nature of risk and vulnerability in Ethiopia, there will be a sizeable population in need of support

from the Government for some time to come. To this end, the Draft Disaster Risk Management

Policy and the Disaster Risk Management Strategic Program and Investment Framework (DRM-

SPIF) which is under preparation is clearly proposing appropriate programs for Disaster

Reduction, Disaster Risk Management, Response, and Recovery. A National Social Protection

Policy is to be finalized soon which recognizes the need for the establishment of a permanent

safety net in the country. In addition, the 10 year Agricultural Investment Framework has clearly

stipulated a number of programmatic interventions which would enhance rural livelihood and

improved production and productivity of the agricultural sector. This program is supporting the

Government to set up a much more efficient and effective safety net going forward.

42. Linkages to the enabling environment and growth: The Food Security Program (FSP)

(including the PSNP and HABP) is a necessary but not sufficient condition to enable graduation

of program beneficiaries. The broader enabling environment plays a critical role and is important

for meeting the Program‟s higher level objectives. This includes strengthening multi-sectoral

linkages to other sources of growth and basic services. If the broader rural growth process

remains weak, household level graduation will likely remain limited. As part of APL III, the

HABP includes capacity building of existing Micro Finance Institutions (MFIs) and Rural

22

Savings and Credit Cooperative Organization (RuSACCOs). The PSNP APL III finances several

studies on the viability of credit for PSNP clients. A pilot in four regions, funded by the Gates

Foundation, has been developed to test the possibilities for electronic transfers of PSNP cash

payments. The pilot may also test the introduction of financial services, such as savings. These

approaches promise to leverage the diversified package of financial services that these

institutions can offer. HABP will also actively promote off-farm income-earning opportunities.

The complementary Agricultural Growth Program (AGP) aims to improve agricultural systems

and prospects for improved agricultural productivity. This is likely to have a positive impact on

rural job opportunities.

43. The team acknowledges that FSP, and within that the PSNP, is one part of the GoE‟s

multi pronged and multi sectoral Growth Transformation Plan to achieve its desired outcome of

food security. Besides PSNP and HABP, investments in the enabling environment are necessary.

These include Complementary Community Investments (CCI) like feeder roads and small scale

irrigation, which have significant development impacts and are part of the inputs that enable

graduation of PSNP clients. CCI is fully funded by GoE and is not linked to donor funding. Both

the CCI and PSNP public works are planned within the framework of district plans. This ensures

that there is no overlap. In order to achieve a structural solution to food insecurity, a significant

number of the current PSNP clients will also need to get access to alternative livelihoods options.

The GTP envisages strong employment creation (however results so far are lagging behind.) and

complementary programs focusing on employment creation are needed. The broader issue of

main drivers for Food Security and Insecurity were discussed at the time of APLIII, and will be

revisited during the Mid-Term Review (MTR) for the PSNP.

44. Graduation targets: Use of ambitious household graduation targets by the Government

may provide perverse incentives at lower administrative levels and result in premature

graduation and therefore increased household vulnerability. To mitigate against this risk, the

Government has developed empirical evidence-based graduation benchmarks and guidelines.

Regions and woredas have been instructed not to exclude beneficiaries that have not met the

graduation benchmarks and to include households identified for graduation for one additional

year. Disaster Risk Management and Food Security Sector has communicated to Regions that

beneficiaries have guaranteed access to the Program for at least three years. Recently, it was

realized that the region level asset based benchmarks are difficult to assess and might not be

applicable to all livelihoods in a given region. Therefore, the government and development

partners have agreed to develop a flexible and simple graduation estimation tool which is

specific to individual livelihood zones.

Sustainability of community assets created by Public Works: Although an estimated 80

percent of public works are rated satisfactory or better, the technical quality and maintenance

arrangements for some types of projects remain problematic (i.e. roads and water). If public

works are not built to minimum technical standards, following good environmental practice and

with the necessary operations and maintenance arrangements in place, the sustainability of public

works, the state of the environment and the program impact will be undermined. The Natural

Resource Management Directorate (NRMD) within the Ministry of Agriculture ( MoA) is now in

a position to fulfill its mandate to provide oversight of public works, and will identify the most

effective way to upgrade capacity in key sectors. The NRMD and the Ministry of Transport are

working jointly to plan for increased technical oversight of the rural roads construction under the

Public Works program, and for possible integration of the PW rural roads into the national

23

transport network. Further cross-sectoral coordination at the federal level is planned to determine

how to best address identified capacity gaps. The NRMD is presently engaged in a major review

of training and capacity building needs for improved environmental management and

performance of the Environmental and Social Management Framework (ESMF) implementation.

In addition, an upgrading of the annual Community Based Participatory Watershed Development

(CBPWD) training will incorporate specific modules on maintenance. These modules will be

informed by the new rural road maintenance policy currently under development. The

government is currently developing a national social protection policy with active participation

of the World Bank and other development partners. The draft policy document has taken lessons

from PSNP and clearly indicates Social Safety Nets as one of the priority instruments in the

implementation of social protection in Ethiopia.

III. PROPOSED CHANGES

45. There are no changes to the PSNP design and implementation approach. Rather,

Additional Financing resources of US$370.0 million will contribute to (i) partially filling the

current financing gap of US$482.6 in the program which was recognized at the time of Board

approval and is reflected in the financing plan of APL III, and (ii) replenishing the crisis related

risk financing mechanism. Other proposals for additional financing from different development

partners are under preparation (i.e. DFID, Danida and CIDA).

46. This Additional Financing request falls within the parameters of OP/BP 13.20.

Implementation during the eighteen months of PSNP (APL III) has been moderately satisfactory.

The loan‟s covenants have been and are on track to being met. Financial management, a

recognized implementation risk, has shown some improvement in the area of timeliness of

reporting as well as improved follow-up on audit findings. Nevertheless, it continues to be a

challenge as financial audit reports have been qualified for four consecutive years. Government

is taking proactive measures to address these issues.

47. No substantial changes in the Project‟s activities accompany this request. The PSNP

program remains the largest social safety net program in Ethiopia and impact evaluation reports

show that it is has improved effectiveness and efficiency of productive safety nets for chronic

food insecure households. It is shifting the approach from one of humanitarian relief, which is

characterized by short term and unpredictable responses, to an effective safety net that is able to

move people into food security and resilience to absorb short term shocks. Additional Financing

would continue and extend support for safety net grants for food and cash transfers through

Public Works and Direct Support and for institutional capacity building.

Proposed Additional Financing Activities

48. The Additional Financing will continue financing the four Components of PSNP APL III:

Component 1 (US$290 million): Safety Net Grants will provide cash and in-kind transfers to

chronically food insecure households through: (i) labor intensive public works for able-bodied

households; and (ii) direct support to labor-poor households. This component will also provide

performance incentives to woredas to improve the timeliness and predictability of transfers to

24

households. It will further allocate financing to woredas to provide complementary inputs as well

as technical supervision and monitoring of transfers and public work activities.

Component 2 (US$ 70 million): Drought Risk Financing aims to provide timely resources for

transitory food insecurity in response to shocks within the existing program areas. This

component will be financed using a contingent grant, which will provide resources for scaling up

activities under Component 1 in response to localized or intermediate weather or price-related

shocks in PSNP woredas. In the event that no shocks occur, the resources of this component can

be utilized to finance activities eligible under component 1 of the 2013/2014 annual plan.

Component 3 (US$5 million): Institutional Support for the PSNP will support institutional

strengthening activities focusing on (i) program management at all levels; (ii) capacity building

to fill any remaining gaps in general and those specific to the Risk Financing facility; (iii)

monitoring and evaluation; and (iv) transparency and accountability.

Component 4 (US$5 million): Support to the HABP will finance a core set of interventions

aimed at: (i) strengthening the delivery of demand-driven and market-oriented advice for

household investments; (ii) improving the efficiency and effectiveness of financial service

delivery to food insecure households; and (iii) supporting program management.

Costs by component (Detailed Costs by Component in Annex 6)

Component Original

cost

estimate

Revised

cost

estimate

IDA

Commit-

ments at

appraisal

Changes

with AF

Revised

IDA

commit-

ments

1. Safety Net Grants 1936.20 1898.95 398.50 290.00 688.50

2.Drought Risk Financing 160.00

230.00 50.00 70.00 120.00

3.Institutional Support 77.35 77.35 14.00 5.00 19.00

4. Support to the HABP 83.30 83.30 17.50 5.00 22.50

Total 2,256.85 2,289.60 480.00 370.00 850.00

IV. APPRAISAL SUMMARY

Economic Analysis

49. The economic benefits of the PSNP include: (i) improvements in household well-being as

a result of consumption smoothing, asset protection, and avoidance of negative coping behaviors;

(ii) enhanced livelihoods through asset accumulation and increased productivity; and (iii)

increased use of social services, market access and agricultural productivity as a result of the

infrastructure created through the community public works. PSNP provide both protective and

productive benefits to households and communities.

50. Household-level benefits. The bi-annual impact evaluations concluded that the Program

is smoothing household consumption and protecting assets, even during times of crisis. The

transfers provided to households are equivalent to about 40 percent of annual food needs. While

much of the cash transfers are used for consumption purposes, roughly 25 percent of funds are

invested in productive assets. There is emerging evidence that participation in the PSNP supports

25

households to adopt high risk/high return strategies such as taking credit, leading to higher rates

of agricultural productivity.

51. Community level benefits. A composite economic rate of return is not possible to

calculate because the specific public works projects are not identified in advance and, for most of

the soil and water conservation and rural road projects, expected rates of return vary widely

depending on location. However, a growing body of evidence shows the positive impact public

works are having on rural livelihoods. Soil and water conservation projects have resulted in

significant and visible increases in wood and herbaceous vegetation cover and a broader range of

plant species diversity. Small-scale irrigation projects were found to have increased incomes

between 4-25 percent. In addition to health gains from greater access to clean water, water

projects were found to significantly reduce the distance women and children travel to fetch

water. An analysis for a sample of projects found positive benefit-to-cost ratios ranging from 3.7

for water supply interventions to 1.8 for soil and water conservation and health infrastructure.

52. Overall program efficiency. The use of cash transfers creates administrative

efficiencies, largely by reducing the costs of transporting food. These gains have been calculated

to be over US$21 million annually. PSNP compares favorably with international efficiency

benchmarks for safety net and public works programs in terms of labor intensity and targeting. In

the PSNP, 7.8 percent of program resources are absorbed in administrative costs, which is below

the international benchmark of 10 percent for a well-run safety net program.

53. Fiscal and macroeconomic implications. The PSNP annual budget is currently about

1.2 percent of GDP. In comparison, most developing countries spend between 1-2 percent of

GDP on safety net programs. To date, the shift to cash transfers through the PSNP appears to

have little, if any, inflationary effect. A 2008 woreda level analysis concluded that there is no

evidence to suggest that increasing the size of PSNP cash transfers can fuel inflation. Of more

concern, however, is the impact inflation can have on the purchasing power of the cash transfers.

Continuous monitoring is required to ensure that the value of the cash transfer is not eroded by

inflation, thereby undermining the move to the more cost effective cash transfers.

Technical Analysis

54. APL III is built upon the significant technical groundwork laid during the first five years

of program implementation as well as an extended formulation process for the new FSP that has

strengthened the design of the PSNP. There is a Program Implementation Manual (PIM) and

related Operational Summary and detailed subject-specific guidelines, including that for the

Drought Risk Financing. The PSNP PIM has been revised to reflect design changes agreed as

part of APL III.

55. Under the PSNP, Government continues to conduct training programs on the different

guidelines using a cascade training approach. Under APL III further upgrading is undertaken to

ensure a more systematic approach to transferring knowledge and skills to program

implementers. This is informed by efforts to evaluate the curricula and quality of the training

provided. This is particularly critical in light of the high levels of staff turnover within the public

service, especially at woreda level.

56. One of the most significant training programs is training on participatory planning

processes. The Development Agent (DA) training includes instruction in the work norms and

sectoral technical standards (roads, irrigation, soil and water conservation, etc.) that have been

26

developed to ensure the technical quality of the public works projects produced under the

Program5.

Financial Management

57. Annex 4 details the steps underway to mitigate against risk exposure under the PSNP

APLIII. A Financial Management (FM) assessment was conducted for APL III from May to

June 2009 in accordance with principles outlined in “Financial Management Manual For World

Bank-Financed Investment Operations” issued by the Financial Management Sector Board on

March 1, 2010 and AFTFM financial management Assessment and Risk Rating Principles. The

assessment was supplemented by a review of quarterly Interim Financial Reports (IFRs), audit

reports and Implementation Status and Results Report (ISR). The objective of the Assessment

was to determine whether the participating institutions in the program have adequate financial

management systems and related capacity in place to satisfy the World Bank‟s Operation

Policy/Bank Procedure 10.02 with respect to financial management. It is the conclusion of the

Bank‟s FM assessment that the FM arrangements meet World Bank requirements as per OP/BP

10.02 and can be relied upon to provide, with reasonable assurance, accurate and timely

information on the status of the project.

58. The FM arrangements for the project will use the country‟s public financial management

(PFM) system at the Federal Government level. It will use project specific arrangements at the

regional and woreda levels. The Government Chart of Accounts that underwent the necessary

modifications to accommodate the project specific reporting requirements will be used. These

FM arrangements will cover all program funds.

59. The strengths of the PFM system include the budget process, compliance with financial

regulations, and the well-defined accounting system, including the computerized accounting

system at the federal and regional levels. Staff responsible for the project‟s FM are experienced

in IDA financed projects. However, there are deficiencies in the system that may negatively

impact the project, such as a shortage of accountants and internal auditors mainly at woreda

level, delays in reporting, and limited focus and effectiveness of internal audit. The scale of the

project and complexities arising from the large number of implementing institutions can also

pose implementation challenges. Financial reporting for the Program requires submission and

consolidation of timely and accurate reports from a large number of institutions. As such, there

are delays in the submission of quarterly financial reports from woredas, some of which are quite

remote, and regions. This may also delay the audits.

60. Further FM challenges of the program for which an action plan is now in place (See

Annex 4) include (i) the last five consecutive annual audit reports have been qualified and have

identified a number of systemic and recurrent issues in audit management letters; (ii)

deterioration in budget execution; (iii) holding huge amounts of cash at regional and woreda

levels; (iv) mixing of program funds with other project funds at the regional level in some

regions; (v) internal audit remains weak across the country; (vi) there is poor follow up on audit

findings at the woreda level, (vii) while timeliness of IFRs has improved, there are ongoing

concerns regarding their quality; (viii) poor maintenance of payroll records, (ix) the commodity

5 The technical standards take the form of “infotechs” that provide detailed technical specifications for around 70

different project types.

27

audit report raised issues regarding food transfers and differences in the utilization reports

between the regional and woreda levels; (x) limited monitoring and supervision capacity of

MoFED and regions; and (xi) turnover and shortage of qualified accountants and auditors mainly

at the woreda level. The long process involved in producing reports from woredas to regions,

and from regions to MoFED, often delays the timely submission of financial reports to the

development partners. Timely submission of reports (both audited and unaudited) is, however,

significantly improving, although the need for constant follow up remains.

61. MoFED has restructured the Channel One Programs Coordination Unit (COPCU) which

is responsible for the financial management of the program, with the view to mitigate the risks

and resolve the challenges noted in the program. The restructuring includes recruitment of three

additional accountants to explicitly work on the program. There is also a senior financial

management specialist recruited by CIDA providing technical assistance. An additional three

accountants will be recruited to closely monitor and supervise regions and woredas and give

hands-on training. The structure has also cascaded down to the regions. The current project has

recruited and maintained a significant number of accountants and cashiers at federal, regional,

and woreda levels. The project requires 783 positions for the handling of financial management

of the project. It is expected that the current staffing levels will continue to operate for the

additional financing. The staffing level needs to be monitored to ensure that any vacant positions

during the implementation of the project are immediately filled. To tackle the high staff

turnover, COPCU has made salary adjustments to the program staff.

62. Remedial actions are in place for a number of observed weaknesses and are on track.

Significant attention has been devoted to addressing the issues raised and the financial

management of PSNP over the last year. There has been constructive engagement of MoFED

through the Financial Management Task Force for PSNP which is addressing some of the project

specific challenges that affect this project. There is also improved dialogue in identifying some

of the systemic issues that require a more strategic response at the portfolio level. To this end,

FM experts of development partners have undertaken an analysis to identify the outstanding

audit report findings for which appropriate action still needs to be taken.

63. Further, MoFED has undertaken an assessment at the regional and woreda levels to

identify the main reasons for the outstanding issues that have emerged from the audits of 2007-

2009 and submitted a report including a clear action plan for how those issues would be

addressed. For those expenditures where adequate documentation could not be provided in time

or where expenditures were found not to be in line with the Program Implementation Manual

(PIM), Government agreed to refund these amounts to the project account6. MoFED has

refunded back the total amount of ETB 22,413,225.42 (US$1,301,581) to the program bank

account. From the rest of the audit report findings which are classified as outstanding issues by

Development Partners (DPs). MoFED has indicated that they have addressed findings amounting

to ETB 310,481,909.57(US$18,030,308). To further ascertain the actions taken, DPs have

requested MoFED to allow for independent review of these outstanding findings, for which

MoFED agreed. The review is expected to be finalized by March 15, 2012.

6 MoFED noted that additional justifications were submitted by regions totaling ETB 9,0 million or US$0.522,6

million. However, these were received after the deadline due to logistical problems.

28

64. In addition, an independent audit firm has conducted a review and assessed the

qualification issues from the 2010 audit to make necessary recommendations. The report

revealed that most of the management letter issues have been properly addressed by the

implementers. The audit firm has also recommended ways to strengthen the control over cash

and the close monitoring of advances and payables which will be shared with MoFED to convert

the same into tangible action plans.

65. MoFED has made progress on the following actions agreed with them as of November

30, 2011: (i) finalized the FM manual based on the comments of Donor Partners ; (ii) submitted

the interim audit reports for the 3rd

quarter( April 8, 2011) of the fiscal year 2010/2011) and the

1st quarter (October 10, 2011) of the fiscal year 2011/2012); (iii) submitted a detailed action plan

for rectifying the findings of the commodity audit report for the year ended July 7, 2010; and (iv)

finalize the independent investigation of all issues that led to a qualification for the 2010 audit.

66. The Bank has conducted two in-depth financial management reviews which entail

detailed transaction review of program expenditures from the federal level to regions and

woredas. The review

looked into the six core financial management areas of budgeting,

accounting, internal control, fund flow, financial reporting and auditing aspects of the program.

Transaction reviews along with the source documents has been conducted. The results of the

reports have led to constructive dialogues with government on ways to improve the systems in

place. A similar exercise is planned to be conducted in March 2012. The external audit Terms of

Reference clearly indicates that the auditor should, on a sample basis, verify that payments to

beneficiaries as documented in payrolls were actually made to the beneficiaries who are engaged

in various safety net activities. This is intended to give assurance to all stakeholders that

expenditures are tracked down to the actual beneficiaries of the program.

67. The program has developed a computerized Payroll and Attendance Sheet system (PASS)

to effectively manage the payroll payment to beneficiaries. As per the PIM of the project, using

PASS is mandatory in all PSNP woredas in Amhara, Oromiya, SNNP and Tigray Regions,

including those supported by NGOs. Data on attendance is entered in the PASS by the woreda

food security office. The attendance sheet data is then transferred to the woreda finance office in

electronic form. Based on this data the woreda finance office generates a payroll through the

PASS and effects payments to beneficiaries. While there is progress regarding PASS, some

regions have reported implementation challenges in operating this software effectively.

68. Going forward, the intensive supervision plan of donors on the program will continue.

Joint Review and Implementation Support missions, monthly financial management task force

meetings, action plans of audit report findings, interim quarterly audits and commodity audits

will continue to provide up to date information on the FM of the program. Through the FM task

force meetings and continued supervision, implementation of agreed actions will be closely

monitored to ensure that other observed weaknesses, such as budget monitoring and capacity

concerns, are addressed. Annex 4 outlines an action plan of remedial actions to be taken to

address observed weaknesses related to Financial Management. Guidelines on Preventing and

Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA Credits and

Grants, dated October 15 2006 and revised in January 2011.

29

Procurement

69. A large portion of the PSNP procurement that is undertaken at federal level is

progressing well. However, there are some challenges during implementation in terms of

compliance with agreed procedures at regional and woreda level. Public works under the PSNP

include numerous small contracts in the regions and woredas which require better forecasting,

planning, selection and monitoring. Given the weak capacity at local levels there is a need to

simplify procurement procedures at woreda level which would allow woredas to carry out

procurement only through shopping procedures. Despite several training activities there are

indications that procurement procedures are still not uniformly applied across all program areas.

The Annual Procurement Audit (an agreed program action) will be expedited and closely

monitored to determine if this is, in fact, a problem and, if so, the scale and nature of the issues at

hand. The task team will work closely with Government to quickly address the recommendations

of the Procurement Audit and ensure continuous follow-up. Furthermore, to address weak

capacity, specific training geared towards the specific procurement weaknesses in a particular

region will be designed and implemented to strengthen procurement capacity at regional and

woreda levels. Training has been one of the various mitigation measures recommended in the

JRIS Missions, which needs to be carried out and strengthened in all regions. Such a

procurement training offered in one region, Oromia, resulted in improvements. Annex 5 outlines

an action plan for mitigating measures which would address the weaknesses in procurement

practices at regional and woreda levels.

Social and Poverty Impacts

70. The Program is expected to have significant positive social and poverty impacts. It targets

large parts of the population that are believed to be most vulnerable given the food and macro-

economic crisis: 7.6 million chronically food-insecure people. The additional support to the

PSNP will help to ensure that the livelihoods of PSNP clients are not threatened by a financing

shortfall that might emerge as a result of the current drought. A funding gap has the potential to

weaken the safety net just as clients have struggled to deal with the current emergency situation

in rural Ethiopia. Ensuring that the targeted households continue to be covered adequately by the

Program will therefore make a very important contribution to reducing poverty now, as well as

avoiding destitution in the future.

71. Evidence suggests that the targeting of the PSNP has been good and has improved since

2005; clients and non-clients alike report that the targeting process is fair. However, there

continues to be reports of exclusion in program woredas, which is attributed to the high rates of

poverty in rural areas. As part of APL III, the PSNP communication strategy will be enhanced to

ensure that communities are well informed of the targeting criteria for, and objectives of, the

Program.

72. A strategic assessment of the impact of the implementation of the PSNP Program on

vulnerable Program beneficiaries has been undertaken as part of the 2010 Impact Evaluation

conducted by the Central Statistical Agency (CSA) and the International Food Policy Research

Institute (IFPRI). Draft final reports have been received. Additional work to verify and

triangulate some of the findings with administrative Program data is ongoing.

73. Social Accountability: The PSNP APL III Project Appraisal Document outlines steps to

strengthen bottom-up accountability as a way of pressing for better program performance during

the phase 2010 – 2015. A number of steps have already been introduced, notably: 1) a system of

30

PSNP Client Cards; 2) a Charter of Rights and Responsibilities; and 3) a Performance

Management System (PMS). The document also called for the strengthening of the appeals

system. The planned introduction of a Social Accountability Mechanism within the PSNP fits

well within the context of the Government of Ethiopia‟s current development strategy, the

Growth and Transformation Plan. It also comes at an opportune time with the onset of the new

and expanded phase of the Protection of Basic Services (PBS) Social Accountability

subprogram, which is a strong and successful example of a program in Ethiopia that has made

important gains. The June 2010 Evaluation Report outlines a number of lessons learned on which

the PSNP can build. In line with the PBS experience, the PSNP Social Accountability

Mechanism will consist of activities that aim to institutionalize capacity building and

mechanisms for social accountability, improving service delivery by allowing citizens to

evaluate service provision. This is done through channeling funds to local civil society

organizations that enhance the ability of citizens to provide feedback on the quality and priorities

of the services provided by PSNP. The Community Score card is an important tool that will used

to gather citizens feedback. This feedback will be used as a basis for Interface Discussions

between citizen groups and service providers and the development of agreed action plans to

improve services.

74. It is proposed that a PSNP Social Accountability Mechanism be incorporated into the

PBS Social Accountability Program, with its focus on monitoring and user-based feedback as a

demand-driven intervention. The introduction of this mechanism will complement other

accountability measures such as Client Cards, Charter of Rights and Responsibilities and the

Performance Management System. Ultimately, it aims to lead to more involvement of clients in

key steps of the process leading to the receipt of their entitlement. The selection of woredas for

the PBS social accountability activities would include PSNP woredas, ensure that the food

security sector be part of the community analysis and that PSNP staff at regional and woreda

levels be invited to social accountability training sessions. The lessons from these efforts would

then be considered jointly by PSNP and PBS, and PSNP would design a separate PSNP Social

Accountability Mechanism. Implementation of the best practices from the PBS across 34 PSNP

woredas will begin by March-April, 2012.

Gender

75. Women in rural Ethiopia have a heavy workload of both productive and reproductive

tasks and their participation in decision-making can be limited. The design of the PSNP has

aimed to address these issues. Women who participate in public works are required to work

fewer hours than male participants in recognition of their reproductive work. Women who are

pregnant or breastfeeding are moved from public works to direct support. A recent study

concluded that women are well represented in most PSNP decision-making bodies, particularly

at local levels. Despite this, the study noted that some women experience difficulties expressing

their views in public forums and accessing the kebele appeals committee (KAC). In response, the

Program has ensured that representatives of the Women‟s Affairs Desks (WADs) are included in

the KAC.

Eligible Subprojects

76. Every effort is made to ensure that the subprojects implemented are environmentally,

socially, technically and operationally appropriate, and are sustainable. To do this, there is a

series of „eligibility filters‟ through which each subproject must pass:

31

(i) The PW program consists of small, stand-alone, community-level subprojects. The

design of the program limits subprojects to those that are labor intensive, and use

simple tools, have communal benefits, are accepted and approved by the community,

are feasible and sustainable, are productive, and provide for women‟s participation.

(ii) All subprojects must be covered by standard published government designs,

incorporating basic environmental mitigating measures. In particular, all Natural

Resource Management (NRM) subprojects and roads must be planned and designed

following within the „watershed approach‟, as set out in the government Community-

Based Participatory Watershed Development Guidelines (CBPWDG).

(iii) Once a subproject is proposed for implementation in the Annual PW Plan, a

subproject screening process eliminates any subprojects that lie outside the mandate

of the PSNP, or would be too complex to handle within the program design. PSNP

design limits the subprojects to those that are simple, are in a rural area within easy

reach of the beneficiaries‟ place of residence, can be planned, processed and

implemented at kebele level, within the tight annual PSNP planning and

implementation cycle, and utilize only manual labor. These constraints require the

exclusion of any subprojects that are in or adjacent to, internationally disputed areas;

or which might involve the physical re-location of residents; or any involuntary loss

to any household of assets or access to assets. For reasons of safety and potential

environmental damage that could not be mitigated at kebele level within the PSNP

planning cycle, subprojects that incorporate a high dam, or that involve a priority

forest area, or involve land-use changes such as the draining of a wetland, are also

ineligible.

Environmental Assessment and Safeguards

77. One of the key objectives of the PSNP is to address the underlying causes of food

insecurity, to which environmental degradation is universally agreed to be a major contributor.

The adoption of the integrated CBPWDG approach during APL II has already had considerable

positive impacts on the environment. Public works activities under APL III will continue to

follow the CBPWDG approach, and are thus expected to constitute a vehicle for continued

environmental transformation. Experience shows that these positive environmental impacts will,

in turn, enhance productivity and livelihoods. Thus the emphasis in APL III is on environmental

transformation coordinated with household-level interventions and opportunities for livelihood

enhancement.

78. While these environmentally beneficial impacts from the public works are expected to

continue, past mass mobilization efforts in environmental rehabilitation under previous

governments in Ethiopia have frequently failed or been abandoned. Such adverse outcomes

occur particularly if the location or design of public works does not follow good environmental

practice or are incompatible with optimum overall management of the watershed. To ensure that

standards are maintained to avoid such scenarios, the approach to the environmental performance

and sustainability of public works is three-pronged: (i) public works are derived from a

community-based approach to integrated watershed management, supported by a budget to

provide technical and material inputs; (ii) the design and implementation of the public works

follow the standards set out by MoA, which are made available along with training to concerned

woreda staff and DAs; and (iii) public works projects are screened for possible negative

32

environmental impacts thereby ensuring that these project designs not only incorporate

appropriate mitigating measures but also comply with both Ethiopia‟s Environmental Impact

Assessment (EIA) Proclamation and the ESMF.

79. While any impact from the community public works would be limited in scale and site-

specific, the ESMF is designed to identify and mitigate potential adverse impacts such as:

Community road-works activities altering drainage patterns and increased flooding and

soil erosion;

Small-scale irrigation projects causing depletion of surface or groundwater sources;

Health facilities producing medical waste with potential for contamination of water

bodies and groundwater.

80. The Public Works ESMF Screening process flags subprojects that require special

attention, and for which special procedures are provided: those involving disposal of medical

waste, those likely to use pesticides, those in the vicinity of a National Park or designated buffer

zone, and those involving a small dam (less than 15 m). In order not to exclude subprojects that

the community may wish to implement but which might involve minor asset loss of a voluntary

nature, there is a Voluntary Loss of Assets procedure which covers any cases of minor voluntary

asset loss. For such cases compensation is provided within the subproject. The ESMF Screening

process then assesses and addresses any potential social, environmental or cultural heritage

impacts, and recommends mitigating measures.

81. Responsibility for overall coordination of ESMF implementation lies with the NRMD

through its PWCU. Responsibility for managing the process and ensuring that there is sufficient

capacity at the lower levels lies with the regional PWFUs. Individual public works sub-projects

screening is conducted by the DA, and supervised by the Natural Resources Expert in the woreda

Natural Resources Desk.

82. The Public Works Reviews under APL II indicated that despite the improvements in the

rate of ESMF implementation experienced since APL I, and the lack of any significant concerns

about negative environmental impacts associated with public works, there is still a need to

strengthen implementation of the ESMF. This was due principally to the finding that in some

cases (a) ESMF screening was being applied to a Kebele-wide group of subprojects, rather than

to individual subprojects; (b) the standard of impact assessment involved in the screening

exercise fell short of the required standard; and (c) not all subprojects were being screened, due

to an assumption that environmentally positive subprojects did not need screening.

Consequently, the Federal NRMD considerably strengthened the PWCU, and made further

commitments under APL III to (i) strengthen the Regional PWFUs to ensure that the ESMF is

implemented for all subprojects, and to a high standard; (ii) upgrade the ESMF training

materials; (iii) provide further training, guidance and support in ESMF implementation to

regional and woreda technical staff and DAs; and (iv) strengthen the monitoring of ESMF

implementation in the PW M&E system.

83. During the course of 2010 and 2011 under APL III, the ESMF screening guidance was

clarified, PW subproject definitions for screening purposes were established and additional

ESMF awareness-creation and improved training was given to regional and woreda staff, and to

DAs. Consequently, the findings of the 1st 2011 PW Review (conducted in mid-2011) indicate

that the rate of ESMF implementation is now generally high, and that quality is noticeably

33

improving. It is expected that for the majority of PSNP woredas (apart from pastoral areas

where the ESMF procedures are still being rolled out), the safeguards rating will in future be

Satisfactory.

84. The HABP ESMF procedure, which is being rolled out between December 2011 and

April 2012, adopts a Strategic Environmental Assessment (SEA) approach. It requires a Woreda

Environmental Plan to be drawn up for each woreda, and the potential cumulative impacts from

each type of household-level activity to be identified. Based on this data, a list of acceptable

activities for the woreda is developed, together with a Woreda Environmental Management Plan

and impact monitoring and follow-up procedures.

85. Since subprojects involving high dams (15m or more), and their equivalent as defined by

safeguard policy OP 4.37 (Safety of Dams) are ineligible and are screened out, OP 4.37 is not

triggered. Subprojects involving smaller dams are eligible but are subject to WB Guidelines for

Small Dams. OP 4.11 (Physical Cultural Resources) is triggered. The procedure requires the

identification and avoidance of cultural or religious sites, and agreement on any mitigating

measures with the stakeholders. Chance finds such as archaeological artifacts require cessation

of construction works and notification to the relevant authorities. Since subprojects involving

any form of involuntary resettlement are ineligible, OP 4.12 (Involuntary Resettlement) is not

triggered.7 OP 7.50 (International Waterways) is triggered, and is addressed by the riparian

notifications made for APL III, which covers the period 2010-2014. Note that the

implementation period for PSNP Public Works is until December 2014, after this period only

closing activities will be undertaken. In the event that further extension of the Public Works

activities will be agreed upon in a later stage, all necessary steps to extend the timeframe will be

undertaken in accordance with OP 7.50. Finally, OP 4.10 (Indigenous Peoples) is not triggered.

7If during supervision the task team finds that land acquisition resulting in involuntary resettlement is taking place,

OP 4.12 will be triggered and a Resettlement Action Plan prepared.

34

ANNEX 1: RESULTS FRAMEWORK AND MONITORING

Ethiopia: Productive Safety Nets Project, APL III

Revisions to the Results Framework Comments/

Rationale for Change LONG-TERM PROGRAM DEVELOPMENT OBJECTIVE FOR THE PRODUCTIVE SAFETY NET

PROGRAM (2005-2014)

Current (PAD) Proposed

Reduce household vulnerability,

improve resilience to shocks and

promote sustainable community

development in food insecure areas

of rural Ethiopia.

No change proposed

Long-Term Program indicators

Current (PAD) Proposed change*

Average number of months

households report being food

insecure.

No changes proposed The first and second indicators measure

changes in food consumption, a key

indicator of food security. The two

indicators are complementary as the first

measures long-term changes in food

security, while the second captures short-

term impacts. The third indicator captures

changes in household assets.

All three indicators were measured in 2008

and 2010; the first and third indicators were

also assessed in 2006. Retaining these

indicators therefore provides an assessment

of the performance of the APL series.

% of households with consumption

below 1800 Kcal/person per day.

No changes proposed

% change in household asset

(physical).

No changes proposed

PROJECT DEVELOPMENT OBJECTIVES FOR THIRD PHASE, APL III (2010-2014)

Current (PAD) Proposed

Improved effectiveness and

efficiency of the Productive Safety

Net Program and related Household

Asset Building Program for

chronically food insecure households

in rural Ethiopia.

No changed proposed The proposed Additional Financing aims to

fill a financing gap that was identified at the

time of APL III Board Approval and thus is

consistent with the PDO of the PSNP APL

III.

PDO indicators

Current (PAD) Proposed change*

% of participants reporting they are

able to plan ahead on the basis of

PSNP transfers.

No changes proposed Indicates to what extent the PSNP provides

households with reliable transfers This

indicator was measured in 2008 and 2010.

% of households reporting direct

benefit from community assets.

No changes proposed Indicates to what extent the PSNP creates

productive and sustainable community

assets that are beneficial to community

members. It was measured in 2006, 2008

and 2010.

% of PSNP households report that

they have developed an on- or off-

farm income generating opportunity

No changes proposed Indicates to what extent the PSNP the extent

to which households are accessing credit

and advisory services through HABP. This

35

Revisions to the Results Framework Comments/

Rationale for Change attributable to HABP. indicator will be carefully reviewed in the

upcoming PSNP APL III Mid-Term

Review.

Intermediate Results indicators

Current (PAD) Proposed change*

Component 1: Safety Net Grants

Transfers made on time (%)8. No changes proposed Indicators one through three measure the

extent to which the PSNP is providing

transfers to households that are (i) timely

and (ii) appropriate. Indicators four and five

assess the public works in terms of technical

quality of implementation and

sustainability.

These indicators were assessed in 2009 and

2010. Retaining these indicators therefore

provides an assessment of the performance

of the PSNP APL III Project Component 1.

% of transfers received that have an

average value of at least 15 kg of

grain per month.

No changes proposed

% of households participating in the

PSNP for 3 consecutive years or

more.

No changes proposed

% of public works reaching

satisfactory standards and

sustainability ratings.

No changes proposed

% of public works that have an

established management mechanism

at completion.

No changes proposed

People in project areas with access to

“Improved Water Sources”

(number)9.

No changes proposed

Project beneficiaries

(number), of which female

(percentage).

No changes proposed These indicators were listed out output-level

indicators in the PAD and intermediate

result indicators in the ISR. This was to

enable regular reporting as they are core

indicators. For consistency, it is recorded

here as an intermediate result indicator.

Person days provided in labor-

intensive public work (number).

No changes proposed

Health facilities constructed,

renovated, and/or equipped (number).

No changes proposed

Classrooms built or rehabilitated

(number).

No changes proposed

Roads rehabilitated, rural (km). No changes proposed

Roads constructed, rural (km). No changes proposed

Improved community water points

constructed or rehabilitated under the

project (number).

No changes proposed

Area with improved land and water

management technologies (ha).

No changes proposed

Component 2: Risk Financing

% of transfers to participants within

75 days after RF triggered.

No changes proposed Indicates extent to which the PSNP risk

financing is providing timely transfers to

transitory food insecure households.

Since the PSNP APL III launched, the Risk

Financing mechanism has only been

triggered once, in 2011. Therefore, data on

8This indicator is consistent with the World Bank Results Chain for Social Protection in Africa. Timeliness is

measured as the number of woredas that deliver 90 percent of transfers to participants within 45 days after the end of

the month to which the transfers apply in 4 of the 6 months. 9 This indicator is consistent with World Bank Core indicators.

36

Revisions to the Results Framework Comments/

Rationale for Change this indicator is currently being collected for

the first time.

No. of woredas with contingency

plans in place.

No changes proposed This indicator was listed an out output-level

indicator in the PAD and an intermediate

result indicator in the ISR for regular

reporting. It was added to the ISR because it

assesses the functioning of systems that are

required to support the RF, even without it

being triggered. For consistency, it is

recorded here as an intermediate result

indicator.

Component 3: Institutional Support to PSNP

% of beneficiaries and non-

beneficiaries reporting that the

targeting processes are fair.

No changes proposed Indicates the effectiveness of measures to

improve the transparency and accountability

of the PSNP. Evaluates whether program

procedures, implementation, coordination,

monitoring and reporting are effective and

efficient.

Data was collected on these indicators in

2008 and 2010.

% of beneficiaries who received all

information needed to understand

how the program works.

No changes proposed

Percent of woredas that have posted

budgets in public places.

No changes proposed These indicators were listed out output-level

indicators in the PAD and intermediate

result indicators in the ISR for regular

reporting. For consistency, it is recorded

here as an intermediate result indicator.

Percent of kebeles with functioning

appeals committees in place.

No changes proposed

Percent of woredas using PASS. No changes proposed

Component 4: Support to Household Asset Building Program

% of HABP beneficiaries report that

they are satisfied that their business

plans reflect their priorities, needs

and capabilities

No changes proposed Indicate the effectiveness of measures to

improve the delivery of credit to food

insecure households by shifting to

appropriate service provides and developing

a wider range of financial products.

Assesses the effectiveness of systems

change to deliver advisory services to food

insecure households that are market-

oriented and of higher quality.

This indicator and the associated targets

will be carefully reviewed in the upcoming

PSNP APL III Mid-Term Review.

Average repayment rates for HABP

credit.

No changes proposed

% of credit to food insecure

household delivered through MFIs,

RuSACCOs and VSLAs.

No changes proposed

* Indicate if the indicator is Dropped, Continued, New, Revised, or if there is a change in the end of project target value

37

REVISED PROJECT RESULTS FRAMEWORK Long-Term Program Indicators: Reduce household vulnerability, improve resilience to shocks and promote sustainable community development in food insecure areas of

rural Ethiopia.

PDO Level Results Indicators

Co

re

UOM10

Baseline

Original

Project

Start

(2008)

Progress

To Date

(2010)11

Cumulative Target Values

Frequency Data Source/

Methodology

Responsibility

for Data

Collection

Comments 2011 2012 2013 2014

Average number of months households

report being food insecure12. Number

PW -

3.64

DS -

3.80

All 3.20

3.24

3.42

Bi-

Annual13

Impact

evaluation CSA/DRMFSS Annual Numbers

households with consumption below

1800 Kcal/person per day 14. % 27

PW 33.5

DS 30.6

13 Bi-Annual Impact

evaluation CSA/DRMFSS

change in household physical assets, in

real terms ETB15. %

PW -

4,568

DS -

2,349

PW 10.3

DS 5.0

PW 15

DS 10 Bi-Annual

Impact

evaluation CSA/DRMFSS

PSNP APL III Project Development Objective (PDO): Improved effectiveness and efficiency of the Productive Safety Net Program and related Household Asset Building

Program for chronically food insecure households in rural Ethiopia.

PDO Level Results Indicators

Co

re

UOM

Baseline

Original

Project

Start

(2008)

Progress

To Date

(2010)

Cumulative Target Values

Frequency Data Source/

Methodology

Responsibility

for Data

Collection

Comments

2011 2012 2013 2014

1. participants reporting they are able

to plan ahead on the basis of PSNP

transfers16.

% 27 35 50 70 Bi-Annual Impact

Evaluation CSA/DRMFSS

Annual

percentages

10 UOM = Unit of Measurement. 11 For new indicators introduced as part of the additional financing, the progress to date column for the PDO level revised result indicators will be reported in the July 2012 ISR, as

the impact evaluation is in the process of being finalised and these indicators will be subject to change. . 12 This indicator measures the average number of months that households report being food insecure from all income sources . This measure is from the IFPRI/CSA panel survey,

which asks households to report the number of months, out of the preceding 12 months, that they had “no problems satisfying the food needs of the household.” The target

represents a reduction by 4 standard deviations. 13 Every two years. 14 This is measured as kcal/person in 7 days before survey. The detailed methodology for this measure is found in the IFPRI/CSA 2009 Impact Assessment Report. The baseline is

the unconditional means for kcal per person in the 7 days before the survey households reported in 2008. 15 Assets are the value of livestock and productive equipment used in agriculture in Birr. The methodology for this calculation follows that used in the IFPRI/CSA analysis of the

2008 panel survey. This indicator reports on agricultural assets only as information on non-agricultural assets was not collected. 16 The baseline from this figure is reported in the 2008 Panel Survey of 8 woredas. This indicator will be captured in the FSP household survey.

38

2. households reporting direct benefit

from community assets17. %

PW-86

DS-67

97

96

95

90

95

95 Bi-Annual

Impact

Evaluation CSA/DRMFSS

Annual

percentages

3. PSNP households report that they

have developed an on- or off-farm

income generating opportunity

attributable to HABP.

% 36%18 n/a 70 90 Bi-Annual Impact

Evaluation CSA/DRMFSS

Annual

percentages

Beneficiaries19

Project beneficiaries,

Number

0

7.82 mln. 8.29 mln Annual PSNP Annual

Report DRMFSS Annual values

Of which female (beneficiaries) Number

n/a n/a

4.14

mln. Annual

PSNP Annual

Report DRMFSS Annual values

Intermediate Results and Indicators

Intermediate Results Indicators

Co

re Unit of

Measur

ement

Baseline

Original

Project

Start

(2008)

Progress

To Date

(2010)

Target Values

Frequency Data Source/

Methodology

Responsibility

for Data

Collection

Comments 2011 2012 2013 2014

Intermediate Result 1: Outcome 1: Appropriate timely and predictable transfers received by households in response to chronic requirements.

Outcome 2: Quality, new and existing, community assets with operational management mechanisms established.

1. Transfers made on time20. % 6 12.5 50 60 70 80 Monthly,

Annual

Information

Centre DRMFSS

17 This indicator is measured with data from the IFPRI/CSA 2008 Descriptive Report on the FSP household survey. The baseline figures were calculated for the APL II results

framework. 18 The baseline data is the percent of households participating in the PSNP in 2008 that reported having received support from the Government‟s OFSP in 2006 or 2008. The data

source is IFPRI/CSA 2008 Descriptive Report. 19

All projects are encouraged to identify and measure the number of project beneficiaries. The adoption and reporting on this indicator is required for

investment projects which have an approval date of July 1, 2009 or later (for additional guidance – please see http://coreindicators). 20 This indicator is consistent with the agreed results chain for social protection in Africa. Timeliness is measured as the number of woredas that report delivering 90 percent of

transfers to participants within 45 days after the end of the month to which the transfers apply, in 4 out of 6 months. The wording of the target reflects the fact that payments are

made following the completion of public works requirements, which are carried-out during the month. The baseline data is based on an analysis of timeliness of payments in the 80

woredas that report to the Federal Information Center. Starting in 2010, Regional Information Centers will collect data from all woredas, which will enable an assessment of the

timeliness of transfers across the Program.

39

2. Transfers received that have an

average value of at least 15 kg of grain

per month21.

% 0 n/a 90 90 90 90 Annual Wage rate

study DRMFSS

3. Households participating in the

PSNP for 3 consecutive years or more. % 47 65 75 85 Bi-annual

Impact

Evaluation DRMFSS

4. Public works reaching satisfactory

standards and sustainability ratings. % 85 90 90 90 90 90 Annual

PW Review

and regular

monitor

NRMD

5. Public works that have an

established management mechanism at

completion.

% 94 68 95 95 95 95 Annual PW Review NRMD

6. People provided with access to

“Improved Water Sources” under the

project (number)22.

Number 13,128 2.3 mln. Annual

PSNP report

with standard

beneficiary

norms.

NRMD

No targets are included

as the planning of public

work is community

driven and thus targets

not identified in advance

by project management.

7. Person days provided in labor-

intensive public work. Number 227 mln. 235 mln.

226

mln.

229

Mln 212 mln

157

mln5772

50

Annual PSNP Report DRMFSS Annual Number

8. Health facilities constructed,

renovated, and/or equipped. Number 0 232 Annual

PW regular

monitor NRMD

No targets are included

as the planning of public

work is community

driven and thus targets

not identified in advance

by project management.

9. Classrooms built or rehabilitated. Number 0 2,077 Annual PW regular

monitor NRMD

No targets are included

as the planning of public

work is community

driven and thus targets

not identified in advance

by project management.

10. Roads rehabilitated, rural. km 0 42,417 Annual PW regular

monitor NRMD

No targets are included

as the planning of public

work is community

driven and thus targets

not identified in advance

21 Rapid food price inflation in 2008 eroded the purchasing power of the cash transfer. In response the Government increased the wage rate in 2009. However, a lag in available

data from CSA does not allow this to be calculated at present. The Government is committed ensuring that the cash wage rage can purchase 15 kg of maize per month, which is

traditionally the cheapest grain in local markets. Additionally, the wage rate for food and cash is set nationally. The annual wage rate study will be used to calculate this indicator

based on an assessment of woreda markets, rather than the national price of maize, as was the case in Y4. 22 This indicator is consistent with World Bank Core indicators.

40

by project management.

11. Roads constructed, rural. km 0 23,736 Annual PW regular

monitor NRMD

No targets are included

as the planning of public

work is community

driven and thus targets

not identified in advance

by project management.

12. Improved community water points

constructed or rehabilitated under the

project (number).

Number 0

6,857 Annual

PW regular

monitor NRMD

No targets are included

as the planning of public

work is community

driven and thus targets

not identified in advance

by project management.

13. Area with improved land and water

management technologies. ha 0 167,150 Annual

PW regular

monitor NRMD

No targets are included

as the planning of public

work is community

driven and thus targets

not identified in advance

by project management.

Intermediate Result 2: Outcome 1: Transitory cash and food needs addressed effectively in PSNP woredas, to the limit of risk financing resources.

14. Transfers to participants within 75

days after RF triggered. % n/a n/a23 70% 75% 80% 85%

Following

RF trigger

Risk

Financing

Review

DRMFSS

15. Woredas with contingency plans in

place. Number 0 243 243 255 255 255 Annual PSNP Report DRMFSS

Target is based on

current number of

woredas in PSNP

(excluding Afar and

Somali Regions)

Intermediate Result 3: Outcome 1: Transparency and accountability of PSNP improved.

Outcome 2: Institutional capacity to manage the PSNP strengthened.

16. Clients and non-clients reporting

that the targeting processes are fair24. % 85 65 90 90 Bi-Annual

Impact

evaluation CSA/DRMFSS

23

The program is currently in the process of preparing a review of the experiences with the implementation of the Risk Financing facility in the second half of

2011. Data from this review is not yet available. 24 The baseline data is from the 2008 Financial Transparency and Accountability report on the PSNP. The Y6 data is from the IFPRI/CSA 2010 Descriptive Report; this change in

data source likely explains the decline in the rating.

41

17. Beneficiaries who received all

information needed to understand how

the program works.

% 68 73 80 90 Bi-Annual Impact

evaluation DRMFSS

18. Woredas that have posted budgets

in public places. % 0 42 83 85 90 95 Annual

Information

Centre DRMFSS

19. Kebeles with functioning appeals

committees in place. % 90 90 90 90 95 95 Annual

Appeals

Audit DRMFSS

20. Woredas using PASS. % 0 93 97.3 98 99 100 Annual PSNP Reports DRMFSS

Intermediate Result 4: Outcome 1: Advisory services are demand-driven and market-oriented.

Outcome 2: Financial services channeled through appropriate institutions

21. HABP beneficiaries report that

they are satisfied that their business

plans reflect their priorities, needs and

capabilities

% 0 n/a 65 80 Bi-Annual

HABP

systems

assessment

DRMFSS &

Ag. Extension

Directorate

22. Average repayment rates for

HABP credit.

% 72

PW -50

DS - 46 90 95 Bi-Annual

Impact

evaluation CSA/DRMFSS Annual Number

23. Credit to food insecure household

delivered through MFIs, RuSACCOs

and VSLAs.

% 52 PW - 37

DS - 43 85 95 Bi-Annual

Impact

Assessment DRMFSS/CSA

42

Monitoring and Evaluation System

1. The Government has established a single monitoring and evaluation system for the Food

Security Program that includes detailed assessments of the PSNP and HABP. This system is

designed to assess progress towards higher level objectives while also responding to the realities

of collecting regular monitoring data through Government systems. The system is guided by an

integrated logical framework to ensure concerted progress towards the overall objective of

reducing food insecurity in rural Ethiopia.

2. In particular, regarding monitoring of the HABP, the Government confirmed that it will

assess progress towards achieving the objectives of the HABP, as outlined in the new program

logframe. This will be done using the FSP monitoring system, required assessments as outlined

in the Program document and logframe, and the independent FSP household survey, which is

undertaken by CSA in collaboration with an international institute every two years. As has been

the practice so far, Government will continue to share these assessment reports with development

partners. This information will be the basis for management decisions between the Government

and development partners to improve the performance of the Program.

3. The FSCD is responsible for the overall monitoring of the Program, while the NRMD,

AED, and MoFED respectively oversee the monitoring of the PSNP public works, HABP

technical services, and financial management. Program evaluations are carried out by

independent bodies. The sections below describe the various components of the M&E system. A

summary of the system is found in Table 6.

A. Regular monitoring data

4. Information at output and activity level is collected regularly through Government systems.

This includes information on beneficiaries, transfers, public works, and delivery of technical

services through the extension system. Public works monitoring records the location, number,

type, and design of all implemented public works. In addition, in APL III, watersheds will be

mapped at to track changes over time. Financial reports provide information on budget expended

according to agreed line items. Further, following the release of Risk Financing resources,

reports will be consolidated through the Government system.

5. This type of reporting aims to keep stakeholders apprised of expenditures and activities,

verify the proper implementation of processes described in the PIM and other program

documents, and identify areas where performance does not match expectations so that program

managers can take corrective actions. Information collected by the regular monitoring system is

expected to flow both “upwards” and “downwards”. As each office fulfills its reporting

requirements up the chain, it will be expected to also report back to those providing the data.

6. Regular monitoring data is collected through Government implementing bodies. Regular

monitoring of public works is the responsibility of the NRMD through its PWCU, while the

AED monitors the implementation of HABP technical services and overall financial reporting is

carried out by MoFED. FSCD combines and analyzes these data to prepare a comprehensive and

continuous assessment of progress in implementation. A summary of responsibilities follows:

(a) Community level: Weekly tracking and monthly reporting on food security activities are

submitted to kebele.

(b) Kebele level: DAs submit monthly reports on implementation progress as compared with

the FSP plan to the Food Security Desk.

43

(c) Woreda Level: The Food Security Desk regularly monitors safety net and household

asset building activities, compiles the data and reviews implementation against plans. The

Finance Office reports on resource utilization. Monthly, quarterly, and annual reports are

submitted to the regional food security coordination office; data on PSNP public works is

submitted to the Regional PWFU; data on HABP is submitted to the Extension Office; and

financial reports are submitted to BoFED.

(d) Regional Level: The Regional Food Security Coordination Office compiles data

submitted by woredas and reviews progress. Quarterly and annual synthesis reports are

submitted to FSCD. The regional Public Works Focal Units analyze data on public works

submitted by woredas and undertake additional monitoring activities as required. The

Agricultural Extension Office is similarly responsible for the monitoring of HABP technical

services. BoFED consolidates and analyzes the woreda financial reports.

(e) Federal Level: The FSCD collects reports from the Regions and implementing partners,

particularly PWCU, AED, MoFED and NGOs on a quarterly basis and also prepares an

annual report. This data is analyzed in a consolidated report to provide a comprehensive

overview of progress in implementation. The Public Works Coordination Unit analyses data

on public works submitted by Regions. The AED is similarly responsible for data on the

delivery of technical services for the HABP. MoFED prepares the interim financial reports

on the PSNP and HABP, including in-kind resources.

7. Reporting follows the Government of Ethiopia‟s fiscal year, which begins on July 8 and

ends on July 7. Annual plans for the PSNP and HABP are completed by June 30 and will be used

as the basis for preparing quarterly achievement reports of the following fiscal year.

B. Real-time monitoring data

8. Regular monitoring data is augmented with real-time data from a range of sources,

particularly on the PSNP. Real-time monitoring of the PSNP was instituted in APL I to mitigate

humanitarian risks and continues to provide a vital source of timely data on Program

performance to decision-makers at all levels.

9. The Federal Information Center (FIC) previously collected data every two weeks from

about 80 woredas to provide real-time information on the timeliness of PSNP transfers. The FIC

compiled and distributed information in response to the needs of decision-makers. As part of

APL III, Regional Information Centers (RICs) have been established. They will collect data on

transfers and other key indicators for monitoring performance targets and determining

performance incentives. They cover all PSNP woredas in Afar, Amhara, Oromiya, SNNP, and

Tigray Regions. A RIC will be established in Somali as the Program rolls out in this Region.

Once the RICs are well established, the scope of the FIC will subsequently change to focus on

quality control and data auditing, while continuing to provide program-wide analysis on program

performance.

10. As the cornerstone of Government‟s Risk Management Strategy for the PSNP, the Rapid

Response Mechanism (RRM) addresses critical implementation problems as they occur. The

RRM detects problems that warrant immediate attention and responds rapidly to resolve the

problems, thus reducing any potentially serious humanitarian or other risk. Rapid Response

Teams are regularly deployed to Kebele, woreda, and Regional levels to monitor implementation

progress. This is done through focus group discussions with implementers, beneficiaries, and

44

non-beneficiaries and a review of records. Teams also follow up to solve any problems and

ensure that consistent follow-up is provided

C. Systems assessments

11. A number of independent systems audits were adopted in APL II to improve information

flows on systems and processes, particularly at woreda level, with the aim of strengthening

implementation and overall accountability.

12. The Appeals Review assesses the effectiveness of the appeals system at woreda and Kebele

levels and disseminates best practices. This review ensures the Kebele Appeals Committee is

functioning as expected and that records are being kept. The Independent Procurement

Assessment reviews woreda procurement systems and processes to ensure that procedures and

guidelines are followed and makes recommendations on how procurement could be improved.

13. In APL III, the Financial Audit fulfills three functions: audit of accounts, systems audit,

and review of transactions to beneficiaries to ensure that funds disbursed are used for purposes

intended. Existing roving and annual audits have already been amalgamated into one

streamlined audit process with quarterly as well as annual reporting. Additionally, a Commodity

Audit of in-kind resources will be introduced into the PSNP. This audits commodity management

systems to ensure the proper oversight and management of in-kind resources with the overall aim

of strengthening accountability. The audit includes a review of transactions to beneficiaries to

ensure that resources are used for the purpose intended.

D. Assessments of output indicators

14. The Program commissions a number of independent studies and reviews to assess progress

towards outputs. These studies aim to assess if the program is on track to achieving its purpose

and to identify any adjustments needed. The results of the various studies will also inform

adjustments to program activities.

15. A set of annual woreda level reviews provides the main opportunity to assess indicators at

this level. The First Annual Public Works Review assesses the adequacy of community public

works plans and the integration of these into the woreda plan. The Second Annual Public Works

Review, which occurs towards the end of the public works season, assesses the quality of works

constructed during the season and reviews project sustainability.

16. Additional assessments of outputs are carried out at the Federal level. A Review of the

PSNP Risk Financing will be carried out each time it is triggered to determine the effectiveness

of the response. The Wage Rate Study is conducted annually to ensure that the PSNP provides an

appropriate cash wage rate by assessing market prices of key cereals in PSNP woredas.

17. Building on the review of targeting and studies on HIV/AIDS and Gender completed under

APL II, a further Social Assessment focusing on program targeting and other relevant social

issues will assess the quality of program targeting and confirm that the most vulnerable continue

to be targeted by the program.

E. Impact evaluations

18. A set of impact evaluations aim to measure the changes that are brought about for the

direct and indirect beneficiaries and/or their institutional structures as a result of the activities

initiated by the program. These are carried out through independent assessments.

45

19. A regionally representative household survey is carried out every two years to assess the

impact on direct and indirect beneficiaries as a result of activities initiated by the Program. The

2010 survey is completed and the final draft report is just issued. This survey also provides

valuable information on implementation progress. Quantitative household-level information is

augmented through qualitative assessments, addressing beneficiary perceptions and related social

issues.

20. A second evaluation assesses the impact of PSNP public works at community level using a

sample of watersheds from across program woredas. This examines the impact of PSNP public

works to determine if they have met their objective such as conserving soil or moisture, growing

crops through irrigation, or providing market access through road networks.

Table 1: PSNP and HABP M&E System

Key Reports, Assessments, Audits and Evaluations

Types of

reports

Information provided Frequency Examples of

indicators

Monitoring

Reports

Regular collection of information at output and

activity level, including regular financial reports

(IFRs).

Monthly from

woreda to

Regional level;

Quarterly to

Federal level

- Number of public

works completed

- Volume of transfers

delivered

Information

Center

Reports

Information collection from a sample of woredas

largely focused on timeliness of transfers, but also

includes price data. A key set of indicators on the

HABP may also be collected.

Every two weeks

- Date and amount of

transfers to woredas

and beneficiaries

- Average maize

prices

Rapid

Response

Mechanism

Report

Regular assessments of implementation at kebele,

woreda and regional levels to address critical

implementation problems as they occur. This includes

transfers to beneficiaries, public works, capacity issues

and others.

Every two months

from Federal level

(regularly from

Regional and

below)

- Number of

households targeted

- Beneficiary

satisfaction with

PSNP

Annual

Assessments

- Purchasing power study to set an appropriate wage

rate for the PSNP

- PW Review (planning) to assess the adequacy of PSNP

public works plans

- PW Review (technical) to review the quality and

sustainability of PSNP PW

- Risk Financing (RF) Review to determine the

effectiveness of the RF response, if triggered

- Appeals Review to assess the functioning of the

appeals system

- Independent Procurement Assessment to review

procurement processes at woreda level

- Annual

- Annual

- Annual

- As needed

- Annual

- Annual

- Average prices in

PSNP markets over

time

- Number of public

works meeting

technical standards

- Number of

Appeals Committees

established

- Volume of goods

procured

Audits

- The Financial Audit includes an audit of accounts;

systems audit; and review of transactions to

beneficiaries to ensure that funds were used for

purposes intended.

- The Commodity Audit review to ensure in-kind

resources are used for the purpose intended

- Quarterly

rolling, annual

- Annual

- Percent of

households receiving

full payment

- Quality of food

stock records

Evaluations

- Social Assessment to confirm the effectiveness of

program targeting and assess relevant social issues

- Public Works Impact Assessment to determine if the

objective of the PSNP PW were met

- Once

- Every two years

-Qualitative review

of targeting

- Benefit-cost

assessment of public

46

Types of

reports

Information provided Frequency Examples of

indicators

- Biannual Impact Evaluation, a regionally

representative household survey, to assess outcomes

and impacts of all component of FSP

- Risk Financing impact assessment to determine if the

objectives of RF were met

- Every two years

- As needed

works

- Change in

household food gap

Source: FSP Formulation Document 2009.

21. Government and development partners carry out Joint Review and Implementation Support

(JRIS) Missions twice a year following an agreed schedule from 2010-2014. The monitoring

activities below have been established for each of the JRIS Missions:

Semi-Annual Review by June 2010

Review implementation of PSNP Client Card System and Charter of Client Rights and

Responsibilities.

Adopt a revised monitoring system based on the FSP (including PSNP and HABP) logframe

and systems review to include, inter alia, PSNP cash and food transfers, public works, HABP

technical and financial services, and risk financing.

Review PSNP Rolling Training Program (and each subsequent June JRIS).

Completed semi-annual Public Works Review (planning) and recommendations identified

(and each subsequent June JRIS).

Review functioning of federal and regional Information Center systems and agreed steps to

further strengthen the system, as necessary (and each subsequent June JRIS).

Progress report on program implementation, including woreda performance and public works

monitoring, completed and recommendations identified (and each subsequent June JRIS).

Woreda-by-woreda assessment of implementation of PASS in Amhara, Oromia, SNNP, and

Tigray Regions and recommendations agreed (and each subsequent June JRIS).

Review progress of pastoral program roll out and identify recommendations to strengthen

implementation (and each subsequent June JRIS).

Semi-Annual Review by October 2010

Agree Appeals Review findings and recommendations (and each subsequent October JRIS).

Agree Procurement Review findings and recommendations (and each subsequent October

JRIS).

Semi-Annual Public Works Review (technical) completed and recommendations identified

(and each subsequent October JRIS).

Review of the performance management system for all PSNP woredas (and each subsequent

October JRIS).

Provide evidence that the revolving funds and credit lines under HABP are being managed

according to sound financial principles, including commercial interest rates.

47

Semi-Annual Review by June 2011

Additional to the above, review findings of 2010 Household and Public Works Impact

Assessments and agree modifications to program design, as necessary.

Semi-Annual Review by November 2011

The November 2011 JRIS will focus on the review of impact and outcome of the

program.

48

ANNEX 2: OPERATIONAL RISK ASSESSMENT FRAMEWORK (ORAF)

Project Stakeholder Risks Rating High

Description : Description :

In May 2010, Ethiopia held parliamentary elections. The

ruling party won 499 out of 547 seats, while regional and

opposition parties received 46 and 2 seats, respectively.

Though the Government on its part declared the process was

democratic and the political space wide open, the results

have raised concerns among some Development Partners on

the narrow space for citizen‟s formal political engagement.

.

Donors are under increasing pressure to demonstrate their

funds are delivering results and not leading to a reduction in

political space. Without credible, survey-based evidence of

results and strengthened transparency and accountability

mechanisms, they might decide to withdraw support to

maintain their institution‟s reputation.

Risk Management: The “Aid Management and Utilization Report” finds that the numerous

PSNP accountability mechanisms are quite robust, though could be further strengthened.

To this end, the Bank will continue to work through the country program on further

improvements for citizens engagement, by promoting improved local transparency and

accountability measures.

Resp: Bank Stage: Imp. Due Date : Continuous Status: Ongoing

Risk Management: PSNP works to ensure food security and timely transfers of food and

cash and to strengthen monitoring and evaluation systems that monitor progress towards

these goals. The program promotes independent survey-based quality checks on results,

and opportunities for local multi-stakeholder engagement for accountability.

Resp: Client Stage: Imp. Due Date : Continuous Status: Ongoing

Implementing Agency Risks (including fiduciary)

Capacity Rating: High

Description: The last four audit reports for PSNP have been

qualified and internal control weaknesses were noted. Weak

follow up of findings and action plans to resolve issues.

Delays are also noted in submitting audit reports.

Risk Management: Regular FM Task force meetings, comprising key Government and

Development Partner agencies will be conducted to closely monitor the implementation of

agreed actions related to FM issues.

Resp: Client/DPs Stage: Impl. Due Date : Monthly Status:Ongoing

49

Weaknesses are still noted in the budget monitoring/control

aspect.

There are still concerns regarding the quality and timeliness

of financial reporting. There are apparent weaknesses in internal audit functions at

all levels. Capacity constraints continue to exists, especially

at lower levels, and particularly regarding fiduciary aspects.

Weak capacity at the regions level in supervising and

supporting woredas

Risk Management : MoFED‟s Channel one coordination unit will be strengthened to improve on supervisory

capacity, including hiring of additional FM staff.

Resp: Client Stage: Impl. Due Date : 07 July

2012

Status: Partially

am Completed

Risk Management: For most of the systemic and structural issues (e.g. the internal audit

function), the Government has agreed to undertake a joint diagnostic with development

partners to formulate an appropriate response to these structure challenges.

Resp: Client/DPs Stage:Impl. Due Date :March 2012 Status:Not yet

due

Risk Management : FM Manual revision will be finalized and necessary training will be

conducted to all levels.

Resp: Client Stage: Impl.

Due Date :31 March

2012

Status: Partially

completed

Risk Management : The 2010 Audit reports is being investigated by DPs and the current

status of the past audits action plans are being investigated.

Resp: DPs Stage: Impl. Due Date :31 March

2011

Status:

Substantially

Completed

Risk Management : Action plans (short and long term) were developed and agreed with the

Government to address FM issues of the project in May/June 2011 JRIS. Implementation

of these action plans will be closely monitored.

Resp: Client/DPs Stage:Impl. Due Date :Continuous

Status:In

progress. Not yet

due

Governance Rating: Moderate

Description :

The Government completely backs this Program. It is an

integral for the GoE‟s Growth and Transformation Plan, and

it has created the institutional infrastructure to facilitate its

implementation.

Risk Management : Risk Management :

The following measures have been implemented to strengthen the Program‟s governance

framework: and to mitigate the low risk of fraud corruption (i) an independent appeals/

redress procedure; (ii) a communication campaign focusing on financial transparency; (iii) fiduciary controls

verified by the Annual Audit, including the interim Financial Audit, the Procurement

50

There is no evidence to date that program resources may be

used for personal ends or special interests, a situation which

can reduce the availability of resources to vulnerable

households. Such an occurrence, though it has not occurred

in the Program, could significantly damage the credibility of

the Program at local and national levels. If it were to occur it

could also imply significant reputational risk for the World

Bank. Evidence to date suggests that overall governance of

the Program is good and that there are no systematic

problems. Concerns around the accuracy of payments to

beneficiaries in some woredas have been investigated and

actions agreed to strengthen the system. A large number of NGOs participate in the PSNP providing

support in specific woredas to all aspects of program

implementation. These NGOs are financed directly and

solely by USAID. The newly approved CSO law may affect

their ability to be effectively involved in the program.

Review, with actions taken at woreda level and system-wide based on findings; (iv) computerization of the payroll system (PASS) rolled out under APL II is mandatory

under APL III The PSNP activities are related to service delivery, an activity that is explicitly permitted

under the law. The PSNP DWG is in the process of revising the MOU with the

Government, which will reflect the role of NGOs.

Resp: Client Stage: Prep.. Due Date :Jan 18,

2010

Status:

Completed

Project Risks

Design Rating: Moderate

Description: If the HABP is not an effective complementary

intervention to the PSNP, the probability of household

graduation will be reduced. Significant support from APL III

is envisaged to help make it more effective. Nevertheless, a

commitment to implement the new approach is required,

particularly in terms of promoting market-based approaches

to providing credit and enhancing the quality of technical

support provided by the extension service.

Risk Management: Technical assistance will be provided to ensure that modalities for

enhancing fund flows to financial institutions operating in food insecure communities

follow sound financial principles.

Resp: Client Stage: Impl. Due Date : Continuous Status:Ongoing

Risk Management : Continuous awareness creation at all levels will ensure widespread

understanding of the Program.

Resp: Client Stage:Impl. Due Date :Continuous Status:Ongoing

Risk Management : Ongoing supervision of the proposed reforms under the HABP will

provide opportunities for taking corrective actions as necessary during implementation.

Resp: Client/Bank Stage: Impl. Due Date :Continuous Status:Ongoing

Social & Environmental Rating: Low

51

Description :

The latest reviews based on structured sampling show that

the regions in which the PSNP is established are now

approaching 100% in ESMF screening compliance.

However, due to the very large number and dispersed nature

of the community-driven sub-projects, there are complexities

in achieving full safeguards compliance. Thus there is the

risk of not achieving 100% safeguards compliance is

Moderate. However, even if not fully mitigated, any potential

negative impacts are likely to be modest, localized and

limited in scale. Furthermore, the standard designs followed

for PW subprojects incorporate basic mitigating measures,

even before application of the ESMF. Thus the risk of

significant negative impacts even if not fully mitigated is

judged to be very low. Therefore overall, the risk of

significant negative impacts is rated as Low.

Risk Management : The following measures have been taken to strengthen the Program's

safeguards framework: The NRMD is engaged in a program of recruitment with support

from CIDA, to ensure adequate capacity for safeguards monitoring; the definitions of PW

subprojects have been revised to facilitate quality Screening following ESMF procedures;

a training program for the launch of the HABP component of the ESMF has been

launched; the data collection instruments to be used in the PW Implementation Reviews

are being strengthened in terms of ESMF monitoring, and work has commenced on

establishing a GIS-mapped database of all subprojects to facilitate monitoring of the

implementation of safeguards mitigating measures.

Resp: Client Stage:Impl. Due Date :Continuous Status: Ongoing

Program & Donor Rating: Moderate

Description : Harmonized donor support.

The PSNP is a large program with evolving financing needs.

Existing/new development partners and Government may not

be in the position to maintain the necessary long-term

financing, particularly in the current climate of economic

uncertainty. This will undermine the ability of the Program to

maintain current levels of support, as well as its ability to

scale up in response to shocks. Currently there is a

substantial financing gap for the Program

Risk Management: The emerging evidence on outcomes and impacts provides a solid

justification for existing partners to continue support for the Program. A revised MTEFF

for the five-year life of the Program is being agreed, which will maximize the multi-annual

commitments to the Program and therefore build predictability

Resp: Client/DPs Stage:MTR Due Date :Nov, 2012 Status:Not yet

due

Risk Management : Depending on the outcome of this exercise, a resource mobilization

strategy will be developed to fill the residual financing gap. A similar strategy was

effective at addressing significant financing gaps during APL I and II.

Resp: Client Stage:MTR Due Date :Nov, 2012 Status:Not yet

due

Delivery Monitoring & Sustainability Rating: Moderate

Description : Although an estimated 80 percent of public

works are rated satisfactory or better, the technical quality

and maintenance arrangements for a significant minority of

projects are problematic (i.e. roads and water). If public

works are not built to minimum technical standards,

following good environmental practice, and with the

Risk Management : The NRMD is now in a position to fulfill its mandate to provide

oversight of public works, and will identify the most effective way to upgrade capacity in

key sectors. Further cross-sectoral coordination at the federal level is planned to determine

how to best address identified capacity gaps.

Resp: Client Stage: Impl. Due Date :07 July Status: Partially

52

necessary operations and maintenance arrangements in place,

the sustainability of public works, the state of the

environment and the program impact will be undermined

2012 completed

Risk Management : The NRMD is presently engaged in a major review of training and capacity-building needs for improved environmental management and performance of ESMF implementation. An upgrading of the annual CBPWDP training will incorporate specific modules on maintenance, informed by the new rural roads policy

Resp: Client Stage: Impl. Due Date : 07 July

2012

Status: Partially

completed

Risk Management :. A program of collaboration between and the Ministry of Transport is underway to support the rural roads component of the public works program.

Resp: Client Stage: Impl. Due Date : Continuous Status: Ongoing

Overall Implementation Risk Rating Substantial

53

ANNEX 3: IMPACT EVALUATION

1. The Government and development partners employ a set of independent impact

evaluations to measure the changes brought about by the Productive Safety Net Program (PSNP).

These are: (i) an assessment of the impact of the Program on beneficiary and non-beneficiary

households, including male and female members; and (ii) an assessment of the impact of the

public works investments, particularly related to soil and water conservation.

Delivering predictable transfers to the poorest rural citizens

2. Analysis of regionally representative data collected in 2010 covering Amhara, Oromia,

Southern Nations and Nationalities Region (SNNPR) and Tigray Regions concluded that the

PSNP continues to be well targeted to the poorest households in chronically food insecure rural

woredas. Further analysis carried out using 2008 data shows that nationally, the PSNP is well

targeted to the poorest households. This suggests that the geographic and community-based

targeting, which applies an administratively determined targeting criteria, is working well. There

continue to be widespread reports that the size of the poor population in PSNP woredas outstrips

available resources. Within this context, there appear to be renewed efforts to ensure that all

members in targeted households are included in the Program.25

3. While earlier studies had found that implementers, non-beneficiaries and beneficiaries

widely understood poverty to be the reason for household participation in the PSNP, it appears

that this understanding has declined in recent years. Instead, there is a growing perception in

some areas that households are randomly assigned to participate in the PSNP or by a quota.26

This is attributed, in part, to the fact that the PSNP caseload has stabilized over time, with over

60 percent of households participating in public works in 2008, 2009 and 2010.

4. Significant investments have been made since 2006 to improve the predictability of cash

and food payments to program clients. These investments appear to be paying off: woredas with

dedicated accountants trained in the use of the automatic Payroll and Attendance Sheet System

(PASS), available vehicles, and advance transfer of cash resources from the Region make more

timely cash payments than other program woredas. There is also some suggestion that clients are

more likely to report that they have all the information needed to understand how the program

works, although there is some variation across regions and between men and women.

5. These improvements seem to be leading to the provision of more predictable payments in

some regions to a greater extent than others. Households are more likely to report that payments

are made on a timely basis in 2010 than 2008, but overall, this ranges between 14 percent in

Oromia and 54 percent in SNNP. The majority of households report that they are paid in full,

with the exception of Oromia where this was reported by 44 percent of households. Analysis of

household-level data draws attention to regional differences in the level of payments provided to

similar households.

6. The PSNP is increasingly being used to respond to shocks. The woreda and regional

contingency budgets are regularly used to respond to emergencies, such as drought and food

price increases. The Government triggered the PSNP Risk Financing facility to respond to the

2011 drought

25

This is referred to as full family targeting. 26

In contrast, between 2006 and 2008, households increasingly described the PSNP targeting as fair and transparent

and directed to the poorest households.

54

Building productive public works

7. Public works are planned through the Community-Based Participatory Watershed

Development Planning and are integrated into the woreda development plan. Women are less

likely to participate in these processes than men.

8. Public works are widely perceived to be beneficial. In 2010, roughly 80 percent of

respondents reported benefiting from the construction or maintenance of roads, 72 percent from

wells and 64 percent from water harvesting. It appears that male-headed households are more

likely to report benefiting from such investment than female-headed households.

9. An estimated 90 percent of public works were assessed to reach the satisfactory standards

and sustainability ratings. Efforts are being made to ensure that sufficient arrangements are made

for the operations and maintenance of public works. Most recently, 68 percent of public works

reviewed had an established management mechanism at completion.

Program impacts

10. Results from the 2010 impact evaluation suggest that the PSNP continues to have a

positive impact on livelihoods, even during times of crisis. These findings reinforce the earlier

finding that the impact of the Program is greater and appears across a wider range of indicators

when households receive predictable, high value transfers.

11. On average, households participating in public works reported that their food security

improved by 1.05 months. There is an improvement in food security in all regions and these are

statistically significant. This improvement is 0.75 months in Tigray, 1.84 months in Amhara,

0.88 months in Oromia and 1.32 months in SNNPR. While households receiving five years of

payments in Tigray saw their food security improve by 1.64 months, even household obtaining

one year of payments saw a positive improvement in their food security and this reduces the

magnitude of the double difference impact estimate for Tigray.

12. There are impacts on productive assets and livestock holdings with an increase in

livestock holdings by one tropical livestock unit, and an increase in productive assets by 112 real

birr. There are differences in the impact on livestock holdings across regions. Five years

participation raises livestock holdings by 0.38 TLU relative to receipt of payments in only one

year. There is no impact in Tigray. This is likely because in Tigray, beneficiaries are discouraged

from accumulating livestock as part of a general effort aimed at reversing environmental

degradation. In Amhara, households receiving transfers for only one year saw their holdings fall

by -1.32 TLU while those receiving payments for all five years experienced a small increase,

0.29 animals. This leads to a 1.62 TLU impact. In SNNPR, the PSNP increases livestock

holdings by 0.55 TLU.

13. Direct Support improved food security as measured by the number of months that the

household reported that it could meet its food needs. In the few cases where average Direct

Support transfers have been large, this effect is substantial. Increasing average Direct Support

payments from 500 to 2500 Birr leads to a two month improvement in food security.

14. There is no evidence that Direct Support has disincentive effects. Higher levels of Direct

Support have led to more rapid asset accumulation. There is no evidence that Direct Support

reduces (“crowds out) private transfers and there is some evidence that private transfers are

crowded in.

55

ANNEX 4: FINANCIAL MANAGEMENT AND DISBURSEMENT ARRANGEMENTS

1. Introduction. A Financial Management (FM) assessment was conducted for APL III

from May to June 2009 in accordance with the financial management principles outlined in the

“Financial Management Manual For World Bank-Financed Investment Operations” issued by the

Financial Management Sector Board on March 1, 2010 and AFTFM Financial Management

Assessment and Risk Rating Principles. In addition, reviews of the quarterly Interim Financial

Reports (IFRs), audit reports and implementation support and review missions were assessed.

The objective of the assessment was to determine whether the participating institutions have

adequate financial management systems and related capacity in place to satisfy the World Bank‟s

Operation Policy/Bank Procedure 10.02 with respect to financial management.

2. PSNP is one of the largest safety net programs of its kind in the world operating in 320

woredas. It provides support to around 7.6 million individuals in Ethiopia through cash and food

transfers – with the bulk of the transfers taking place during the first six months of the calendar

year. Due to the scale of the program and the volume of cash transfers – this program faces a set

of fiduciary challenges. The last four consecutive annual audit reports have been qualified and

have identified a number of systemic and recurrent issues as outlined in the management letters.

Some of the key issues identified by audit are weaknesses in budget discipline, periodic

excessive cash balances maintained at the woreda and regional level, limited monitoring and

supervision capacity of MoFED and regions, internal control weaknesses, untimely submission

of IFRs and their related quality and weak follow up on audit findings at the woreda level.

Significant attention has been devoted to addressing several of these issues over the past years.

While gains have been made - notably enabled by the constructive engagement of MoFED

through the Financial Management Task Force - it is increasingly clear that there is need for

more remedial action on project specific FM challenges as well as FM challenges of more a

structural nature, which are currently in progress. To address the project specific challenges, the

FM experts of the development partners have undertaken an analysis to identify the outstanding

audit report findings for which appropriate action still needs to be taken. Further, MoFED has

undertaken an assessment at the regional and woreda level to identify the main reasons for the

outstanding issues that have emerged from the Audit of 2007-2009. Based on the assessment,

MoFED has submitted a report including a clear action plan for how those issues would be

addressed. In addition, an independent audit firm has been recruited to review and assess the

qualification issues from the 2010 audit and make necessary recommendations. Through the FM

task force meetings and continued supervision, implementation of agreed actions will be closely

monitored to ensure that other observed weaknesses, such as budget monitoring and capacity

concerns, are addressed. The FM challenges of a more structural nature are addressed through

the existing PFM reform activities.

3. Government has demonstrated commitment to improve the financial management of

channel one programs of which the PSNP is part by significantly strengthening its capacity

through the channel one program coordination unit (COPCU). As a result, COPCU has been

reorganized at the Federal level and COPCU units have been established at the Regional levels.

The COPCU staffing capacity and its senior management has been strengthened.

Executive Summary

4. The FM arrangements for the project will continue to mostly use the country‟s regular

public financial management (PFM) system at the Federal Government level and use project

56

specific arrangements at the regional and woreda levels. The Government Chart of Accounts, has

undergone the necessary modifications to accommodate the project specific reporting

requirements. These FM arrangements will cover all program funds..

5. The strengths of the PFM system include the budget process, compliance with financial

regulations, and the well-defined accounting system, including computerized accounting at the

federal and regional levels. Staff responsible for the project‟s FM are experienced in IDA

financed projects. However, there are deficiencies in the system that may negatively impact on

the project, such as a shortage of accountants and auditors mainly at woreda level, delays in

reporting, and limited focus and effectiveness of internal audit. The scale of the project and

complexities arising from the large number of implementing institutions can also pose

implementation challenges. Financial reporting for the Program requires submission and

consolidation of timely and accurate reports from a large number of institutions. This is

challenging as there are regular delays in the submission of quarterly financial reports from

woredas, some of which are quite remote, and regions. This may also delay the audits.

6. The APL II audit reports noted a number of accounting and internal control weaknesses

for which the Government will take actions to rectify and improve. These have been detailed in

action plans, the implementation of which will be reviewed by the World Bank and development

partners. Design features of APL III that aim to address these weaknesses include: (a) ensuring

that there is a clear and revised FM Manual and provision of necessary and adequate training (b)

providing FM support/supervisions/monitoring and close follow-up by MoFED and BoFEDs to

lower levels of Government (c) appointing auditors early (d) ensuring a more robust use of the

interim audit function (transaction-based system and internal control testing), and (e) linking the

interim audit with the final financial audit to minimize delays or facilitate early completion of the

external audit.

7. The FM risk for the project is rated as High and is expected to be Substantial after taking

into account mitigation measures. . APL III has a revised FM manual. This manual would ensure

that the current situation is well captured and that new developments, such as the procedures

pertaining to the asset building component and other relevant aspects, are included. Action plans

on the various activities to be completed with regards to FM arrangements have been agreed and

documented.

8. The FM-related covenants include: submission of Interim Financial Reports (IFRs) for

the project for each fiscal quarter within 60 days of the end of the quarter; quarterly submission

of reports on the findings noted during the interim audit due within 60 days of the end of each

fiscal quarter; submission of annual audited financial statements and audit report within 6

months of the end of each fiscal year and submission of the commodity audit report within 6

months of the end of each fiscal year.

9. It is the conclusion of the Bank‟s FM assessment that the FM arrangements meet World

Bank requirements as per OP/BP 10.02. It is adequate to provide, with reasonable assurance,

accurate and timely information on the status of the project required by the World Bank.

57

Risk Assessment and Mitigation

Risk Risk

Rating Risk Mitigating Measures

Incorporated into Project Design

Residual

Risk

Rating

Conditions for

Effectiveness

(Y/N)? Inherent Risk Country Level Risk arises from

weak capacity,

including turnover

and shortage of

qualified accountants

and auditors.

S This is being addressed by the ongoing

Civil Service Reform Program

supported by PSCAP and Protection of

Basic Services (PBS)II.

S N

Entity Level There are a number

of players

implementing the

project. Monitoring

and enforcement of

financial regulations

and rules of the

project needs

improvement.

H The program still faces challenges on

monitoring and coordination amongst

various implementers. The APL III

revised manual stipulates the respective

responsibilities of players in the

program. This is expected to help

remove latent overlaps and confusion

and also helps deal with key issues of

monitoring and coordination. In

addition, there is experience in

managing World Bank financed projects

within MoFED and MoA. MoFED‟s

Channel One Program Coordinating

Unit (COPCU), which is restructured

recently, will facilitate and monitor FM

aspects of the project.

S N

Project Level The project is

complex with the

involvement of a

large number of

dispersed entities and

a mix of large and

small amounts of

disbursement.

H As above. Capacity building trainings/workshops

to project accountants and relevant

internal auditors will be planned and

conducted.

S N

Inherent risk H S Control Risk Budgeting Low budget

utilizations are noted

particularly for the

first three quarters of

a year. Lack of satisfactory

variance analysis to

monitor budget

implementation was

H The annual work plan and budget of the

program will be finalized timely and

submitted to regions and woredas to

ensure that the implementation of the

program begins as planned. Budget will be closely monitored by

MoA, MoFED and DPs to tackle

challenges in slow implementation of

the program.

S N

58

noted. Variance analysis training should be

offered by MoFED and developed on a

continuous basis. Proper follow up will

be done by MoFED and MoA on the

utilization of budget. The FM manual lays out detailed budget

preparation and control procedures Accounting Cutoff and some

accounting problems

such as posting and

coding errors were

noted in the past. There is also the risk

of delays in recording

of transactions. IBEX is not fully

utilized at the regions

and woredas. There

is also high turnover

of staff

H The FM manual has been revised to

outline clearly the cut-off procedures

and areas where accounting processes

are not explicit, as well as to address

FM issues pertaining to additional

components like the support to HABP.

Regular training to regional and woreda

staff and close follow-up of woreda

accounts will help with timely recording

of transactions. Regular supervision and

close follow-up will be made by

MoFED and BoFEDs. The FM

taskforce meeting on monthly basis will

also follow up on pertinent issues

related to accounting.

S N

Internal Control Internal audit

function is weak. Further, satisfactory

action has not been

taken on issued audit

management letters

on a timely basis. Weaknesses in cash

management are

noted Cash and in-kind

support may not

reach the target

clients. Huge amount of

resources are usually

seen at the lower

levels.

H In addition to the risk mitigation

measures mentioned in “Accounting”

above, internal auditors of

Regions/woredas will review the project

at least once per year. It is expected that

the capacity building component of PBS

will enhance the effectiveness of the

current regional/BoFED internal audit

departments. The interim audit, focusing

on internal control and transfer of funds

and resources to clients will be

conducted, thereby helping to ensure

that funds are used for the purposes

intended. The need to act on

management letter weaknesses was

agreed during APL III Negotiations and

COPCU at MoFED will be involved in

facilitating actions and follow-up at

regional level. The strengthened use of

PASS (payroll system) and the rolling

out of client ID cards in tracking clients

will be given attention to ensure that the

target clients are being addressed. Circulars are distributed instructing the

woredas to minimize cash on hand. In

addition, discussions are underway with

MoFED to identify other risk mitigating

S N

59

measures. MoFED will also track the

size of cash at hand at woredas, and DPs

will follow up on this. Funds flow There may be delays

in flow of funds to

the lowest

implementation

levels.

S Close supervision by development

partners will continue. The interim audit

will continue to focus on internal

control and transfer of funds.

Appropriate planning and projection of

disbursements will be monitored

frequently.

M N

Financial Reporting Delays in reporting,

which was noted in

the past, has

improved. However,

there are still quality

issues on the

submitted IFRs

H All woredas will be required to submit

monthly reports to BoFEDs, which will

consolidate reports every quarter. Heads/deputy heads of WoFEDs need to

review the IFRs issues by the woredas

to ensure the accuracy and quality. Regular training on the preparation of

IFRs will be conducted by MoFED.

Close follow-up will be done by

MoFED and development partners.

S N

Auditing Delay in submission

of audit reports. Lack

in resolving and

following up of audit

report findings and

action plan.

H Follow up on the timely closure of

yearly accounts will be done by DPs.

COPCU will strengthen its effort to

follow up actions plans. DPs will

continue to follow up on the

implementation of action plans.

S N

Control Risk H S

Total Project FM

Risk H S

10. In the view of the above table, the inherent and control risk of the project is assessed as

Substantial. The overall financial management risk rating of the additional financing remains

Substantial as in the main project (APL III).

Strengths and Weaknesses of Proposed Financial Management System

11. The main weaknesses of the FM arrangements continue to be turnover and shortage of

qualified accountants and auditors, mainly at woreda level, delays in reporting, limited attention

to the internal audit, and capacity limitations. The long process involved in producing reports

from woredas to regions, and from regions to MoFED is delaying the timely submission of

financial reports to the development partners. Delayed submission of reports (both audited and

unaudited) is, however, significantly improving, although the need for constant follow up

remains.

12. Lessons from APL II: Audit reports noted weaknesses in the accounting and internal

control areas. These include: (i) repeated problems in supporting payments with adequate

documents; (ii) cutoff problems/errors; (iii) posting/coding errors; (iv) issues with cash

certificates and bank reconciliation; (v) some control weaknesses in connection with payroll

payments to clients; (vi) inconsistencies between woreda and regional reports; (vii) idle

60

resources, (viii) lack of ledgers and transaction registers including not being up-to-date; and (ix)

lack of analysis and follow up of long outstanding debtors and creditors. MoFED is taking steps

to address these weaknesses, and these efforts have been detailed in action plans. The World

Bank and development partners will monitor the implementation of the agreed actions. In

addition, MoFED and BoFEDs will intensify efforts to support the WoFEDs. This will include

regular field visits to WoFEDs and robust reviews and checks on the reports. Ongoing trainings

will also address accounting problems noted.

Financial Management Implementing Entities

13. At the federal level, MoFED will continue to be responsible for the overall financial

management of the project. This includes, but is not limited to, the management of the

designated and the pooled Birr accounts, transferring funds to BoFEDs and MoA (based on the

direction of MoA), producing regular financial reports, and facilitating the annual audit of the

project account. MoFED will ensure that acceptable financial management systems are in place

and are well documented in the FM manual. The MoA is responsible for oversight and

coordination of the project. It will also be responsible for the funds transferred to it from

MoFED.

14. At the regional level, BoFEDs continue to be responsible for ensuring that a suitable

accounting system covering both regional and woreda levels are established. BoFEDs will

continue to collect and aggregate all financial data and information from BoA and woredas on

the Project, review the effective use of accounting procedures by woredas, and provide technical

support and assistance to them. Each region will prepare quarterly and annual reports, which will

be sent to the federal level. BoAs are responsible for the management of the funds transferred to

them for implementation.

15. At the woreda level, a suitable accounting system is established for the disbursement of

funds for activities financed under the PSNP, including the HABP component. The records of

funds utilized will be maintained in accordance with sound accounting practices that are capable

of generating accurate and timely information for verification. Woreda accounting personnel will

receive training on how to maintain accurate accounts for the funds. In case woredas face

difficulties in accounting or handling financial records, the region will provide timely assistance

and training to resolve such difficulties. WoFEDs (i) ensure that the budgets for the PSNP are

received in a timely manner and monitored closely at the woreda level to guarantee smooth

implementation of approved plans and activities; (ii) undertake timely PSNP (and Risk

Financing) payments to beneficiary households, supervising personnel, and for the purchase of

relevant equipment and materials; and (iii) exercises necessary fiduciary controls and reports on

fund utilization to Regional BoFEDs.

16. MFIs at regional level or below and RuSACCOs at woreda or kebele levels will benefit

from the capacity building activities financed under the HABP. They will not directly receive

development partner financing from BoFEDs or WoFEDs but they will receive support from the

capacity building activities of the program.

17. There should be strong coordination and communication between MoA and MoFED in

implementing the project. A number of committees like the Joint Strategic Oversight Committee,

Regional Steering Committees, and Technical Committees at federal and regional levels will

help foster linkages between Government implementing agencies and development partners.

61

Budgeting

18. The overall budgetary arrangements of APL III will continue to prevail for the Additional

financing. Based on the government‟s budget manual, the Budgetary Institutions prepare their

budgets in line with the budget ceilings and submit these to MoFED within six weeks following

the budget call. The budgets are reviewed first by MoFED and then by the Council of Ministers.

The final recommended draft federal budget is sent to Parliament in early June and is expected to

be cleared at the latest by the end of the EFY.

19. The PSNP is on budget at the federal level with the project budget being proclaimed in

the budget of the Federal Ministry of Agriculture.

20. Each region is required to prepare a consolidated PSNP work plan and budget for all

components for each budget year based on inputs from lower levels and submit this to MoA. A

consolidated budget will be submitted by MoA to MoFED. This budget is broken down by

appropriate project category or components along with quarterly classifications. Based on the

Program budget, a detailed and comprehensive fund transfer schedule by region and woreda will

be prepared and disseminated by MoA to all relevant stakeholders in July of each year.

21. The FM Manual of PSNP has been revised to reflect the current situations in terms of

budgeting, accounting, fund flows, internal controls, financial reporting, and auditing issues and

to include new developments like the procedures pertaining to the HABP component and other

relevant aspects.

22. Activities continue to be identified within the Government‟s Chart of Accounts, thereby

facilitating budgeting, accounting and financial reporting for the project funds.

Accounting

23. As in APL II and III, the Government‟s accounting policies and procedures are expected

to be largely used for the accounting of the project. The Ethiopian Government follows a double

entry bookkeeping system and modified cash basis of accounting. This is documented in the

Government‟s Accounting Manual. This has been implemented at the federal level and in many

regions. The Government‟s Accounting Manual provides detailed information on the major

accounting procedures. On the basis of this manual, the APL III FM Manual has been revised to

include the new HABP component, food resources, aid in-kind accounting, and strengthen other

relevant aspects. This updated FM manual will be used for this additional financing.

24. The project currently uses manual accounting system in most places. The existing woreda

level accounting software (IBEX) does not have a project accounting module as yet, so the

accounting for PSNP has to be completed outside of the IBEX system. The Chart of Accounts

(budget codes) described above helps with the preparation of relevant quarterly and financial

statements, including information on the total project expenditures.

25. The program has adopted a computerized Payroll and Attendance Sheet system (PASS)

supported through IT Helpdesks at Regional level. As per the Project Implementation Manual

(PIM) of the project, using PASS is mandatory in all PSNP woredas in Amhara, Oromia, SNNP

and Tigray Regions, including those supported by NGOs. Data on attendance is entered into

PASS by the woreda Food Security Office. The attendance sheet is transferred to the woreda

62

Finance Office in electronic form as required by PASS. The payroll is generated by the system

and payment effected to beneficiaries.

26. There are weaknesses and problems observed in the accounting and internal control

areas, which need attention, as discussed in the “Strengths and Weaknesses” section above.

Further weaknesses are noted in the yearly audit reports of the project. MoFED is taking steps to

address these weaknesses but much still remains to be done. MoFED and BoFEDs should

intensify efforts to support the WoFEDs. Regular field visits to WoFEDs and robust reviews and

checks on the reports should be continued. Ongoing capacity building trainings would also

address the accounting problems noted.

27. The current project has recruited and maintained a significant number of accountants and

cashiers at federal, regional, and woreda levels. The project requires 783 positions for the

handling of financial management of the project. The reports submitted by MoFED do not

explicitly indicate the positions that are vacant. It is expected that the current staffing levels will

continue to operate for the additional financing. The staffing level needs to be monitored to

ensure that vacant positions are filled during the implementation of the project.

Internal Control and Internal Auditing

28. Internal control comprises the whole system of control, financial or otherwise,

established by management in order to: (i) carry out the project activities in an orderly and

efficient manner; (ii) ensure adherence to policies and procedures; (iii) ensure maintenance of

complete and accurate accounting records; and (iv) safeguard the assets of the project. Regular

government systems and procedures will be followed, including those relating to authorization,

recording and custody controls. The project‟s internal controls, including processes for recording

and safeguarding of assets, are also documented in the FM Manual which is under revision.

These procedures will continue to be applicable.

29. It is widely accepted that one of the weakest features of the entire PFM system in Ethiopia

is the weak Internal Audit system across the country. This in turn affects the strength of the

overall internal control environment. For PSNP the internal control environment over payment to

beneficiaries is strengthened by the usage of a computerized system of maintaining attendance

sheets electronically through PASS and client cards. “Client cards” were introduced in all

Regions to provide evidence of entitlements under the Program and proof of payment. The client

cards have a picture of both the husband and wife and enable the beneficiaries, local decision-

makers and Federal level officials to better track receipt of payments over time. Attached with

client cards, there is a charter of rights and responsibilities which clearly describes the rights and

responsibilities of the clients. Such cards enable the program to control that payments are being

made to entitled beneficiaries only. In addition to this the interim audit Term of Reference (TOR)

of the program indicates that the external auditor should track payments to beneficiaries on a

sample basis quarterly. The TOR clearly indicates that the auditor should, on a sample basis,

verify that payments to beneficiaries as documented in payrolls were actually made to the

beneficiaries who are engaged in various safety net activities. .

30. The nature of the project is that at certain periods, large cash amounts have to be held to

meet anticipated payments to program beneficiaries. Owing to the serious risk such arrangements

entail, cash safes have been purchased. A new requirement has been instituted to keep program

63

funds separate from funds held for other purposes. These requirements have been supplemented

by MoFED directives on the subject matter.

31. For PSNP Internal audit (post audit reviews) will be carried out by the Internal Audit

Departments of the respective entities. MoFED, BoFEDs and WoFEDs have internal audit

departments that perform this function, including an assessment of whether the budget utilization

is in line with the intended purposes. Furthermore, there are Inspection Departments in MoFED

and BoFEDs that (i) ensure the quality of internal audits in the Ministries at federal level and

Sector Bureaus at region level; (ii) follow-up on the audit recommendations noted by audit

reports at different Ministries and Sector Bureaus; and (iii) provide training and improving

manuals, among other responsibilities. The staffing of Departments varies from region to region.

However, the lack of effective and value adding internal audit function at all levels was noted in

APL II has continued in APL III. The action plan for APL III has noted actions to improve this

function. Despite these weaknesses, given that the program avails huge resources to regions and

woredas, the internal audit departments at regions and woredas must conduct reviews on the

accuracy of payments to beneficiaries, accuracy of financial reports produced, cash on hand

management, record keeping and follow up of external audit report findings.

32. To ensure transparency and social accountability in the program, the annual woreda-by-

woreda resource allocation plan for the PSNP is posted on the MoFED website. The safety net

budget and public works plan are posted for public review at the woreda and community levels.

The program also promotes posting of beneficiary lists and lists of appeals and appeal resolutions

in woredas and kebeles. A number of specific structures and processes have been established

with the aim of deepening local accountability. To guarantee timely and objective treatment for

those who might have a grievance, an appeals system was introduced across the program

woredas. By design, this system is separate from that for the beneficiaries targeting committee

and reports directly to locally elected councils to maintain integrity and independence. For APL

III, the Appeals Review will continue to provide advice and guidance to Kebele Appeals

Committees (KAC) and relevant woreda and regional decision-makers in order to strengthen the

overall appeals system. The internal audit units of both woredas and regions have the

responsibility to review appeals which relate to resource management of the program and follow

up on their resolution.

Funds Flow and Disbursement Arrangements

33. From a design perspective, the bulk of the support provided under PSNP is planned to be

utilized during the period January to June which is the period when most support is required in

the food insecure areas that PSNP operates in. From the track record so far, it is seen that there

are some delays in timely release of funds for this program both for cash disbursements as well

as for food transfers.

34. The flow of funds and disbursement arrangements for APL III will continue to be

applicable for the additional financing. The additional financing will be part of the IDA credit.

The Segregated US Dollar Designated Account already opened for the IDA credit and grant at

the National Bank of Ethiopia will be used for the additional financing. Other existing

operational bank accounts will continue to be applicable.

64

35. The project will continue to use report based disbursement arrangements. The current

fund flow mechanism will continue to prevail. Withdrawal Applications will continue to be

submitted along with the quarterly IFR. The World Bank in its own capacity and on behalf of

other development partners for Bank-administered Multi-Donor Trust Funds (MDTFs) will then

deposit their share of financing to a Designated Account that Government has designated for that

purpose in the National Bank of Ethiopia.

36. The Government and development partners, including the World Bank, will continue to

agree on the annual budget and work plans. Definitive proportions of financing between the

Government and the development partners will be established each quarter. The World Bank

Task Team Leader (TTL) will advise the World Bank‟s Loan Department of the share of

financing to be disbursed by the World Bank for the project by linking it to the projected cash

flow.

37. The project will follow the advances method, using Designated Accounts as outlined

above as well as the Reimbursement, Direct Payment, and Special Commitment methods.

38. Retroactive financing for payments made after September 01, 2011 under the Drought

Risk Financing component of the program up to an aggregate amount not to exceed US$ 50

million will be allowed. This will enable the program to maintain its ability to provide timely

responses to transitory food insecure households within existing program areas as and when the

need arises.

39. The following chart illustrates the funds flow system:

65

IDA

Separate US$ segregated

Designated Accounts at NBE

Pooled Birr account at MoFED

BoFEDs

Fund flow

Report flow

MDTF for

PSNP

DPs

MoA

WoFED

clients/ local suppliers

BoARD

WoARD

Other DPs

66

Financial Reporting

40. The project will continue quarterly preparation of the Consolidated Interim unaudited

Financial Reports (IFR). This will be submitted to the World Bank within 60 days of the end of

the quarter. The format and the content, which are consistent with the World Bank‟s standards,

have been agreed with MoFED and MoA as well as development partners and are documented

in the minutes of Negotiation for APL III. A common single IFR will be used for all the finances

of the program including this additional financing. The existing format of IFRs for APLIII will

continue to be used.

41. MoFED, in the quarterly IFR, should ensure that advances received as well as

documentation of expenditure for each financier including this additional financing are

separately identified and reflected. The undocumented balance of each financier must be solely

monitored and reported accordingly.

42. The annual financial statement of APL III will include transaction of this additional

financing.

43. Although there have been significant improvements as a result of the steps taken by

MoFED and MoA to enhance the timeliness of reporting and auditing, the program continues to

experience some delays in the completion and submission of quality reports. The reports coming

from woredas and regions to MoFED are usually delayed and are sometimes incomplete with

inadequate documentation. Training, adequate support and follow up of woreda staff on the

preparation of reports and stringent review of woreda reports by MoFED and BoFED could help

alleviate this problem. While timing has improved, quality of IFRs remains still a challenge.

44. Financial reports are sent from WoFEDs to the BoFEDs on a monthly basis. These

reports must be backed up with trial balances to ascertain that reports are generated from the

accounting records of the program. Zonal accountants will play a role in ascertaining that the

financial reports they receive from woredas are backed with trial balances and must check for

accuracy and quality. The BoFEDs will ensure that the reports received from the lower level are

complete and meet all expected standards. After performing this quality control, BoFED will

consolidate and submit quarterly financial reports including the respective Trial balances to

MoFED. MoFED will in turn check, consolidate, and submit quarterly IFRs to development

partners within 60 days of the end of the quarter. A consolidated trial balance for the program

needs to be attached with the quarterly IFR that MoFED submits to DPs.

Auditing

45. The project will continue to have its annual financial statements audited by an external

auditor acceptable to the Bank.

46. The auditor will continue to submit the audit report in a form and content satisfactory to

the World Bank within six months of the end of the Ethiopian Fiscal Year. As part of this annual

audit, the same audit firm will continue to conduct a review of the financial transactions of the

program at woreda level which constitutes the Interim audit.

47. The audit Terms of Reference (TOR) which has been agreed for APL III at negotiation is

applicable for the additional financing. The TOR clearly indicates that along with other internal

control checking procedures, the auditor should, on a sample basis, verify that payments to

beneficiaries as documented in payrolls were actually made to the beneficiaries who are engaged

in various safety net activities. This is intended to give assurance to all stakeholders that

67

expenditures are tracked down to the actual beneficiaries of the program. The agreed terms of

reference is annexed to the minutes of negotiation of APLIII.

48. Reports summarizing the findings of the interim audit will continue to be submitted on a

quarterly basis to the World Bank and development partners within 60 days of the end of the

quarter. The auditor will use, among other tools, the results of the interim audit in forming an

opinion on the Project Financial Statements. The auditor will plan and perform the interim audit

in such a manner that it will add value and reduce the time it takes to produce the final financial

audit report. The findings of the interim audit reports will be followed up by the Government,

World Bank and other development partners.

49. Lessons from APL II show that the audit reports are being qualified year after year with

recurring issues on the management letter. Although action plans have been submitted on a

yearly basis, there was a need to ensure that appropriate actions are being implemented. To this

end, per request of donor partners, MoFED submitted an internal assessment report on the

findings and actions taken for the audit reports of the years 2007, 2008 and 2009. Where

adequate documentation could not be provided or where expenditures where found not to be in

line with the PIM, Government agreed to refund those amounts to the project account. MoFED

has in total refunded back ETB 22,413,225.42 to the program bank account as indicated by an

official letter of MoFED sent to the Bank on January 3, 2012. From the rest of the audit report

findings which are classified as outstanding issues by DPs, MoFED has indicated that they have

addressed findings amounting to ETB 310,481,909.57. To further ascertain the actions taken,

DPs and MoFED have agreed to commission an independent review of these outstanding

findings. The review is expected to be finalized by April 15, 2012.

50. The latest audit report for the year ended July 7, 2011 was qualified. The report was

submitted before the due date. The qualification points are: (i) lack of cash count certificates presence of significant amount of outstanding and un-cleared suspense vouchers in the ending

cash balances, (ii) long outstanding receivable and payable balances which were not cleared

subsequently and (iii) Improper end-of-year treatment of expenditures and cut-off period

problems. The auditors are of the opinion that in the absence of a satisfactory system to ensure

that all expenditures made from these advances have been properly accounted for, they were

unable to certify that these advances fairly represent the account receivables and payables as of

the balance sheet date. In addition, there are a number of internal control weaknesses noted in the

management letter. These include issues such as: (i) unexplained differences between cash

counts and accounting records and discrepancies in Bank reconciliations; (ii) treating advances

as expenditures; (iii) lack of supporting documents for payments/expenditures; (iv) failure to

comply with procurement guidelines in some procurements; (v) control weaknesses with payroll

payments to clients; (vi) inconsistencies between woreda and regional reports; (vii) the repeated

existence of idle resources; (viii) occasional lack of ledgers and transaction registers including

not being up to date; and (ix) lack of analysis and follow up of long outstanding debtors and

creditors. The audit report was accepted on the basis that MoFED agrees to an independent

investigation of all issues that have led to a qualification and that MoFED will monitor the

implementation of the resultant action plan to address the weaknesses. A major challenge at the

woreda level is the poor follow up on audit reports.

51. An independent consultant, a consortium of local (HST chartered Certified accountants

and authorized auditors) and international consultants (Deloitte Nairobi) has done an

independent review of the audit report findings for 2010 audit report. The report revealed that

68

most of the management letter issues of the visited woredas have been solved. The reason for the

repeated qualification points was investigated and the consultants found that the internal control

system is appropriately in place but the execution needs to be strengthened. The overall capacity

limitation in the country leads to systemic issues which cannot be solved within the scope of

PSNP alone. The report has identified useful recommendations to improve the control over cash,

advances and payables. Further discussion will be held with MoFED on the findings and

recommendations to have concrete action plans to rectify the recurring issues. MoFED, in

collaboration with MoA, has issued a plan of action to address the weaknesses noted on the

audit report. Development partners including the World Bank will monitor implementation of

the agreed actions.

52. Food transfers managed through Government systems currently account for around 35 %

of the annual payments planned under this program. The Commodity Audit for 2010 raised some

fiduciary concerns regarding the arrangements for food transfer. Mitigating measures have been

identified and action plans to address these measures have been developed and are currently

under implementation.

Financial Covenants

53. MoFED will submit the audited Program accounts to the World Bank 6 months after the

end of each fiscal year, which ends on July 7. The audited financial statement will include all

sources of funds for the Program, including this additional financing, and funds from other

development partners and the Government. In addition, reports on the findings noted during the

interim audit will be submitted quarterly to the World Bank and development partners within 60

days of the end of the quarter.

54. MoFED will submit quarterly IFRs to the World Bank 60 days after the end of each

quarter period.

55. MoA will submit annual commodity audit report within 6 months of the end of the fiscal

year ending of July 7 of each year.

Financial Management Action Plan

56. The May and November 2011 Joint Review and Implementation Support missions rated

the financial management of the program as Moderately Unsatisfactory (MU). Clear action plans

were presented to improve the situation. Most of the agreed up on actions have been completed.

The action plan below incorporates the unmet actions of the May 2011 JRIS along with

continued actions to be taken by the project to strengthen its financial management system and

the dates they are due to be completed by.

Table 1: Financial Management Action Plan

Action Date due by Responsible

1 Budgetary discipline should be monitored; BoFEDs

should review major variances from woreda reports and

prepare variance analysis as part of their report.

Ongoing BoFED

2 MoFED should coordinate with BoFEDS and MoA to

prepare variance analysis and report on variances with

valid justifications to use this as a management tool

Quarterly MoFED

69

Action Date due by Responsible

3 Develop critical performance indicator March 31, 2012 MoFED/BoFE

D

4 Staffing data of the project to be maintained and

monitored to ensure that there are no vacant positions

affecting project implementation

Quarterly as part of

the IFR MoFED/BoFE

D

5 Trainings on the revised FM manual with particular

emphasis on budget preparation and variance analysis;

all relevant issues on accounting, reporting and fund

flow arrangements will be provided.

March 31, 2012 MoFED/ MoA

6 Ongoing trainings will be conducted, including budget

analysis training, IFR preparation training, etc. Ongoing MoFED

MoFED and BoFEDs should undertake adequate robust

reviews and checks on the reports submitted to them

from Regions and woredas, respectively. MoFED/

MoA should take action on woredas that delay reports.

Ongoing MoFED

8 MoFED should track the submission date of quarterly

reports from BoFEDs to monitor the regions and exert

effort in identifying the problems behind late

submissions. The same will also be done by BoFEDs

for the woredas.

Quarterly/should

form quarterly IFR MoFED/BoFE

D

9 Finalize the independent review of outstanding issues

of audit findings of the years 2007, 2008 and 2009 for

ETB310, 481,909.57.

April 15, 2012 DPs

10 Implement action plans to address weaknesses noted in

the audit reports of the year ended July 7, 2010. March 31, 2012 MoFED/ MoA

11 Prepare an action plan based on the independent

assessment of the 2010 audit report and monitor the

implementation of the resultant action plan to address

the weaknesses.

March 15, 2012 MoFED and

DPs

12 MoFED and BoFED should conduct regular field visits

to support as well as monitor the performance of

WoFEDs.

Quarterly MoFED

13 Management meeting involving decision makers to

discuss progress on the FM aspects of the program Quarterly MoFED/ MoA

14 Increased engagements of Internal Audits at all levels

to identify control weaknesses early. In this respect,

workshops or capacity building activities/training will

be conducted for auditors at regional and woreda level.

Ongoing MoA/MoFED

15 Follow up and take action on the agreed FM action

plans of JRIS and related supervision mission reports As per dates stated

in the action plan MoFED/ MoA

16 Regular coordination meetings between BoFED and

BoAs on FM issues Monthly BoFEDs &

BoAs

17 Close supervision by the World Bank and development

partners including the FM Task force meeting

conducted monthly.

Ongoing Development

partners and

MoFED

70

Supervision Plan

57. The project will be subject to a minimum of two annual supervision missions to be

conducted jointly with development partners. Supervision activities will include: review of

quarterly financial management reports; review of annual audited financial statements, and

timely follow up of any resulting issues; transaction review; participation in project supervision

missions as appropriate; and updating the FM rating in the Implementation Status Report (ISR).

The monthly financial management taskforce meeting with MoFED will continue on a monthly

basis to follow up on agreed action plans and deliverables.

71

Overview of progress made on improvements to the financial management system and

future implementation support strategy for the PSNP APL III

58. Significant improvements to the financial management system of the PSNP have been

made since the first phase of the project. Further improvements are still in the process of being

rolled out that will have a positive impact on the financial management system of the program.

An overview of these improvements is outlined in the following section:

Change in the design of the fund flow arrangement of PSNP from Channel 2 model to

Channel 1(b)

59. The shift to Channel 1(b)27

from Channel 2 (effective on January 1, 2006) was a positive

development that brought additional activities to both the Ministry of Finance and Economic

Development (MoFED) and regional Bureaus of Finance and Economic Development (BoFED),

in line with the core financial management system of the Government. To prepare for this shift

from the original arrangement (MoFED-FFSCB-RFSCO-WoFED) to MoFED-BoFED-WoFED,

a financial management assessment on the capacity of MoFED and BoFEDs was undertaken.

The assessment focused on staffing, training, recording and reporting, auditing and roles and

responsibilities of MoFED, FFSCB, BoFEDs and RFSCOs. The assessment concluded that there

was sufficient capacity to implement the PSNP through these government systems. Following

the shift to Channel one the financial management arrangements for the PSNP mostly use the

country‟s regular public financial management (PFM) system.

60. The strengths of the PFM system are associated with the budget process, compliance with

financial regulations and a well-defined accounting system, including the computerized

accounting system at federal and regional levels. This has had a positive impact on the

implementation of the PSNP.

61. Finally, Channel 1 is stronger in terms of internal control, funds flow and transfers in

addition to reporting compared to Channel 2. As such, the shift has had a positive impact on the

implementation of the PSNP from a financial management perspective.

Institutional strengthening and staffing 62. PSNP has been managed by MoFED‟s Government Accounts Directorate (GAD) since

the shift to Channel 1 became effective. This arrangement had its flaws in that the unit was

already stretched with general government accounting work. During the November 2009 JRIS a

case team was established to provide technical assistance as needed to Regions for the

accounting of donor financed programs within treasury and accounts departments and an

additional accountant was hired for the PSNP at the federal level.

63. GoE has realized the need to establish a separate unit within MoFED (Channel One

Programs Coordination Unit (COPCU)) to better coordinate similar projects within the ministry

and give focus to the strengthening of the financial management of these programs. In August

2011, MoFED further realized that there were some overlaps between the GAD and COPCU and

27 Channel 1(b) uses the full treasury system of the country at the Federal level only. Channel 2 fund flow arrangement uses the

treasury system partially and only at the federal level. Under this line, budget is proclaimed federally but does not use the

government disbursement system and accounts are not consolidated with federal accounts.

72

hence restructured COPCU to focus on specific programs. The PSNP now has 4 accountants in

this unit. The same structure has been cascaded to the regions. The regional coordinators are

already recruited and recruitment of additional accountants is underway. In addition it was

decided to increase the number of staff in the COPCU with three further positions in order to

have sufficient capacity to travel to the regions and woredas to provide hands on training and

monitoring.

64. To ensure that there are sufficient human resources to deliver the program objectives

minimum staffing levels have been set. It has been agreed that 80% of woredas/regions must

meet minimum staffing standards for financial management and 80% of training program should

be implemented as scheduled (and evaluated). The quarterly IFR of the program (April 8 – July

7, 2011) provided a summary of available FM staff by region (see table below), confirming that

at least 80% of woredas meet the agreed minimum staffing levels.

Table 1: Summary of FM staff by Region-

s/n Region No. of

Accountants

No. of

Cashiers

Total

1 Amhara 110 141 251

2 Tigray 28 50 78

3 Oromia 96 92 188

4 SNNP 123 113 236

5 Harari 2 - 2

6 Somali 14 11 25

7 Afar 2 - 2

8 Dire

Dawa ?

1 - 1

Total 367 407 783

65. Although staff turnover, particularly at woreda level, is high in the country and cannot be

solved by specific projects Government has increased salaries of contract staff working on

Channel one projects to reduce the level of turnover at program level.

Interim financial reports

66. Timeliness. The timely submission of IFRs has improved throughout the years. The

below graph shows the progress seen in this area. (The data is taken from the record in PRIMA,

WB).

73

Figure 1: Trends in timely submission of IFRs

67. Quality. The program has been working on the quality of IFRs over time. The main

problems with quality revolved around inconsistency among different reports and schedules,

casting errors, inadequate explanation/ notes /supporting schedules to the reports (eg variance

analysis detailing reasons why actual expenditure is different from the agreed budget),

incomplete reports, and substantive issues related to budget monitoring, under spends and

overruns not adequately explained; excessive cash holding at woredas; etc. The review of the

recent IFR for the quarter ended July 7, 2011 revealed that most of the shortcomings in the

reporting observed earlier have now been rectified and reporting has been further strengthened

by including additional information such as a summary of donations in kind, a cash forecast

table, a list of contracts subject to Bank‟s prior review and a budget utilization explanation from

the regions and FFSCD. The Government has committed itself to introduce further

improvements to the reporting as and when required in close consultation with the development

partners.

Audit reports

68. Annual audit reports. The project had received qualified audit reports for four

consecutive years. The management letters accompanying the audit reports also revealed a

number of weaknesses. Based on the audit findings and the comments in the management letters,

the Government has prepared detailed action plans to rectify these findings. However, some of

the repetitive weaknesses observed, proved to be difficult to address. DPs therefore agreed with

Government that all the audit report findings from the period 2007 to 2009 should be

investigated by MoFED and that an overview of concrete actions implemented to address the

observed weaknesses should be provided to the DPs. Accordingly, MoFED conducted an

extensive investigation of all the findings and submitted a report on the actions taken to address

these findings. The report revealed that most of the findings have been properly addressed but

that there are also a number of unresolved issues. The unresolved issues are mainly related to

capacity limitations and recording problems rather than fraudulent actions. To resolve the

0

50

100

150

200

250

300

350

1st

Q 2

00

9

2n

d Q

20

09

3rd

Q 2

00

9

4th

Q 2

00

9

1st

Q 2

01

0

2n

d Q

20

10

3rd

Q 2

01

0

4th

Q 2

01

0

1st

Q 2

01

1

2n

d Q

20

11

3rd

Q 2

01

1

4th

Q 2

01

1

1st

Q 2

01

2

Days submitted

Submision deadline

74

outstanding issues, MoFED and the regional BoFEDs have reviewed the records and have

provided relevant documentation and justification for the majority of the findings. For those

expenditures where adequate documentation could not be provided or where expenditures where

found not to be in line with the PIM, the Government has made a refund to the project account.

In total an amount of USD 1,299,305.71 has been refunded. In addition, the Government and

Development Partners have agreed that an independent auditor will review the additional

documentation provided by the Government to ensure that the evidence provided indeed

constitutes eligible expenditures in the context of the PSNP. This exercise is expected to be

finalized by the end of February 2012.

69. Furthermore, to better understand the reasons behind the qualification points of the audit

reports, the Bank recruited a consortium of local (HST chartered Certified accountants and

authorized auditors) and international consultants (Deloitte & Touche Kenya) to do an

independent review of the audit report findings for 2010 audit report. The consulting firms

finalized their report in November 2011. The report revealed that most of the management letter

issues of the visited woredas have been resolved. The consultants observed that the internal

control system is in place but that the regular execution of internal control functions needs to be

strengthened. The consultants further noted that overall capacity limitations of the Government

system at local levels lead to systemic constraints in the implementation of the PFM system.

These constraints cannot be solved through a program like the PSNP. The team has flagged

these issues to the CMU to be included in the current CPPR. Further discussions with MoFED on

how to address the systemic weaknesses in the implementation of the PFM system are ongoing.

Meanwhile, at program level further institutional strengthening activities, especially at regional

and woreda levels, are ongoing as outlined in the action plan presented in the table below.

Internal control mechanisms

70. Financial management manual. The financial management manual of the program,

which provides for detailed internal control procedures, has been revised. Training on the manual

will be conducted in February 2012.

71. Cash Management. Due to the nature of the project, large amounts of cash are expected

to be held at the woreda level. To mitigate the fiduciary risk, safes have been purchased and

installed in all PSNP woredas. Woredas are now expected to keep PSNP funds separate from

funds held for other purposes. MoFED has issued directives that all cash should be deposited in

the Bank in a timely manner and that PSNP funds should not be mixed with other funds.

72. Interim audits. As part of the annual audit process the program conducts quarterly

interim audits. Interim audit reports for the year 2010/2011 lagged behind whilst the

restructuring of COPCU was underway and the workload of the GAD was a problem. However,

as of to date all interim audit reports have been received. Based on the current structure of

COPCU, the interim audits are expected to be conducted in a timely manner to give real time

information on the program performance and to take appropriate action as early as possible.

73. Commodity audit. The program has in place a commodity audit arrangement to ensure

that the commodity flow of the program is going smoothly. The audit for 2010 has been received

and an action plan has been agreed with government to address the audit findings.

75

74. Expenditure tracking. The interim audit Terms of Reference (TOR) of the program

indicates that the external auditor should track payments to beneficiaries on a sample basis

quarterly. The TOR clearly indicates that the auditor should, on a sample basis, verify that

payments to beneficiaries as documented in payrolls were actually made to the beneficiaries who

are engaged in various safety net activities. In addition, the FM team of the bank conducts in-

depth reviews on a yearly basis. This includes a detailed transaction review of selected projects.

75. Payroll management (beneficiary payments). The program has developed a

computerized Payroll and Attendance Sheet system (PASS). As per the PIM of the project, using

PASS is mandatory in all PSNP woredas in Amhara, Oromia, SNNP and Tigray Regions,

including those supported by NGOs. Data on attendance is entered in the PASS by the woreda

food security office. The attendance sheet data is then transferred to the woreda finance office in

electronic form. Based on this data, the woreda finance office generates a payroll through the

PASS and effects payments to beneficiaries.

76. Client cards for beneficiaries. The internal control over payments to beneficiaries is

further strengthened by the use of client cards. These client cards were introduced in all Regions

to provide evidence of entitlements under the Program and proof of payment. The client cards

have a picture of both the husband and wife and enable the beneficiaries, local decision-makers

and Federal level officials to better track receipt of payments over time. A charter of rights and

responsibilities, which clearly describes the rights and responsibilities of the clients, is attached

to the client card.

77. Transparency and social accountability. To ensure transparency and social

accountability in the program, the annual woreda-by-woreda resource allocation plan for the

PSNP is posted on the MoFED website. The safety net budget and public works plan are posted

for public review at the woreda and community levels. The program also promotes posting of

beneficiary lists and lists of appeals and appeal resolutions in woredas and kebeles. A number of

specific structures and processes have been established with the aim of deepening local

accountability. To guarantee timely and objective treatment for those who might have a

grievance, an appeals system was introduced across the program woredas. By design, this system

is separate from the targeting mechanism and reports directly to locally elected councils to

maintain integrity and independence. For APL III, regular Appeals Reviews will continue to

provide advice and guidance to Kebele Appeals Committees (KAC) and relevant woreda and

regional decision-makers in order to strengthen the overall appeals system. The internal audit

units of both woredas and regions have the responsibility to review appeals which relate to

resource management of the program and follow up on their resolution.

Implementation support plans

78. Based on the risk based approach for supervision, there will be implementation support

and supervision missions for the PSNP two times a year jointly with donors and government.

Regional visits, including visits to selected woredas, will back these joint missions. The

Financial Management Task Force (FMTF) meets on a monthly basis in MoFED to follow up on

financial management action plans, deliverables, audit report findings and any challenges that the

76

program is facing. As mentioned earlier, the Bank conducts in-depth reviews, which go beyond

the normal supervision, to look into documents and transactions in a detailed way.

Other assessments and coordination

79. Independent Fiduciary Risk Assessments (FRAs) conducted by DFID. The FRA of

the PSNP undertaken in 2005 assessed the fiduciary risk as “between B (medium risk) and C

(high risk)”. This assessment was on a 3 point scale (low medium or high.) The FRA of 2007

assessed the risk against the 4 point scale published by DFID in September 2007 as “between B,

low to moderate risk and C moderate to substantial.” The FRA of 2009 classified the overall

fiduciary risk as moderate, “classification B, according to the scale in the DFID How to Note of

March 2009”. There was therefore an improvement between the FRA undertaken in 2005, the

assessment in 2007 and again in 2009. The 2009 FRA concluded that, whilst there is still scope

for improvements, the trajectory of change is positive and for this reason the fiduciary risk is

deemed to be lower than it was in 2007.

Coordination with other donor financed projects to strengthen the FM of the program

80. Safety Net Support Facility (SNSF). This is a Canadian International Development

Agent (CIDA) project which aims to strengthen capacity building and improvement of the PSNP.

FM is one of the pillars. The project has already assigned technical assistants on FM to every

region. The project was launched a while ago but is now picking up its activities. This is

expected to enhance the capacity of the program in the regions.

81. Food Management Improvement Program (FMIP) – DPs are exploring ways to use

this World Food Program (WFP) funded project to strengthen the commodity management

system of the program.

82. A number of studies and diagnostics have been undertaken to understand the Public

Financial management aspects at various tiers of government. Based on these studies, a number

of activities have been initiated. Government, with the support of DPs, is carefully implementing

a number of recommendations aimed at strengthening the systems at various levels. Recently, the

focus is on woreda level staffing and internal controls since the CIDA concluded that remarkable

improvements have been made at Federal and regional level.

Progress on agreed actions to improve financial management aspects of the program

83. The table below outlines the progress on agreed actions related to financial management

aspects of the project as described in the Project Paper.

Table 2: Status of agreed actions

Action Date due by Responsible Status as of Dec 14, 2011

77

Action Date due by Responsible Status as of Dec 14, 2011

1 Budgetary discipline should be

monitored; BoFEDs should review

major variances from woreda reports

and prepare variance analysis as part

of their report.

Ongoing BoFED MoFED has begun to attach

the variances with

justification for the regions

to the quarterly IFRs. This is

an ongoing process.

2 MoFED should coordinate with

BoFEDS and MoA to prepare

variance analysis and report on

variances with valid justifications

and use this as a management tool

Quarterly MoFED Ongoing

3 Adjust accountant job description

and develop critical performance

indicators

December 15,

2011

MoFED/BoFE

D

Job description has been

developed but the critical

performance indicator is

still outstanding

4 Staffing data of the project to be

maintained and monitored to ensure

that there are no vacant positions

affecting project implementation

Quarterly as part

of the IFR

MoFED/BoFE

D

Ongoing

5 Finalize the FM manual based on the

comments of Donor Partners

November 30,

2011

MoFED Finalized

6 Trainings on the revised FM manual

with particular emphasis on budget

preparation and variance analysis; all

relevant issues on accounting,

reporting and fund flow

arrangements will be provided.

December 31,

2011

MoFED/ MoA Due to logistical issues, the

training was postponed. It is

planned to be conducted

before May 31, 2012

7 Ongoing trainings will be conducted,

including budget analysis training,

IFR preparation training, etc.

Ongoing MoFED Ongoing

8 MoFED and BoFEDs should

undertake robust reviews and checks

on the reports submitted to them

from Regions and woredas,

respectively. MoFED/ MoA should

take action on woredas that delay

reports.

Ongoing MoFED Ongoing

9 MoFED should track the submission

date of quarterly reports from

BoFEDs to monitor the regions and

to exert effort in identifying the

problems behind late submissions.

The same will also be done by

BoFEDs for the woredas.

Quarterly/should

form quarterly

IFR

MoFED/BoFE

D

Ongoing

10 Submit detailed action plan for

rectifying the findings of the

commodity audit report for the YE

July 7, 2010

November 30,

2011

MoA Submitted. A

comprehensive action plan

for the overall commodity

management is still being

worked out so that findings

may not repeat themselves

again next year

78

Action Date due by Responsible Status as of Dec 14, 2011

11 Submit the interim audit reports for

the 3rd

quarter ( April 8, 2011) of the

fiscal year 2010/2011) to

the 1st quarter( October 10, 2011) of

the fiscal year 2011/2012)

November 30,

2011

November 30,

2011

MoFED All reports submitted

12 Finalize the action on the outstanding

audit findings of the years 2007,

2008 and 2009

November 30,

2011

MoFED and

DPs

MoFED already submitted

the report and refunded back

ineligible expenditures to

the program account

13 Implement action plans to address

weaknesses noted in the audit reports

of the year ended July 7, 2010.

March 31, 2012 MoFED/ MoA Ongoing

14 Finalize the independent

investigation of all issues that have

led to a qualification for 2010 audit

November

30,2011

MoFED and

DPs

Finalized

15 Prepare an action plan based on the

independent assessment of 2010

audit report and monitor the

implementation of resultant action

plan to address the weaknesses.

December 15,

2011

MoFED and

DPs

The report is being reviewed

by DPs and expected to be

finalized by January, 2011.

The action plan will be

developed afterward. The

submission of the report by

the consultant was delayed

and awaiting comments

from DPs took more time

than anticipated.

16 MoFED and BoFED should conduct

regular field visit to support as well

as monitor the performances of

WoFEDs.

Quarterly MoFED Ongoing

17 Management meeting involving

decision makers to discuss progress

on the FM aspects of the program

Quarterly MoFED/ MoA Ongoing

18 Increased engagements of Internal

Audits at all levels to identify control

weaknesses early. In this respect,

workshops or capacity building

activities/training will be conducted

for auditors at regional and woreda

level.

Ongoing MoA/MoFED Ongoing

19 Follow up and take action on the

agreed FM action plans of JRIS and

related supervision mission reports

As per dates

stated in the

action plan

MoFED/

MoA

Most actions have already

been taken. The status of the

action plan is attached

below.

20 Regular coordination meetings

between BoFED and BOAs on FM

issues

Monthly BoFEDs &

BoAs

Ongoing

21 Close supervision by the World Bank

and development partners including

the FM Task force meeting

conducted monthly.

Ongoing Development

partners and

MoFED

Ongoing

79

Table 3: May 2011 Joint Review and Implementation Support (JRIS) mission action plan update.

OUTPUT 4B: CAPACITY TO MANAGE: FINANCIAL MANAGEMENT & PROCUREMENT

Issue Agreed Action Responsible Party

Period Status

I. Immediate Short Term Actions- To be resolved by the next JRIS

Follow-up on agreed FM actions of APL III

a. Submit revised FM Manual b. Trainings on revised FM manual c. Submit Commodity Audit Reports.

a. MoFED (COPCU)

b. MoFED c. FFSCD

a. 10 July 2011 b. End

September 2011

c. June 05, 2011

a. Done b. Ongoing (will start by mid Dec 2011) c. Done

Monitoring a. MoFED should conduct at least two field visits to four regions (including sample woredas) to monitor the performances of Regions and woredas. Simple field visit report will be maintained after each visit.

b. BoFED should conduct two field visits to at least 25% of woredas support as well as monitor the performances of WoFEDs. Simple field visit report will be maintained after each visit and will be communicated to MoFED.

2 MoFED, FSCD & DPs

3 BoFED

a. Before the next JRIS

b. Before the next JRIS

a. Done b. Done( field visit done, but report was not shared with DPs)

Commitment-Involvement of high-level decision makers

a. Conduct Quarterly management meeting involving decision makers (Relevant State Ministers of MoFED and MoA and senior technical staff) to discuss progress of the FM aspects of the program-one meeting before the next JRIS.

b. Continue the FMTF monthly meeting involving Directors, senior technical staff of MoFED and MoA as well as donors to coordinate the implementation of agreed actions. Update to Action plan will be provided by COPCU

c. Conduct one FM consultative meetings between MoFED, MoA, BoARD and BoFED to discuss project FM issues

a. MoA (FFSCD)

b. MoFED (CoPCU)

c. MoFED (COPCU) & FSCD

a. Before the next JRIS b. Monthly c. Before the next JRIS

a. Ongoing b. Ongoing c. Done (MoFED and BoFED, but not inclusive of BoA). Agreed to undertake at least once before the next May JRIS Mission

Follow up and coordination efforts at regional level

Conduct regular monthly coordination meetings between BoFED and BoARD (just like the federal FMTF). Minutes will be sent to MoA and MoFED for information purposes.

BoARD (RFSCO) & BoFED to be followed by FFSCD

Before the next JRIS

Ongoing, but not systematic (scheduled on regular basis)

FM Staff Capacity and accountability

a. Adjust all FM job descriptions and develop critical performance indicators (the SNNPR experience could help) to clarify duties and responsibilities - Revised FM manual to take on Board. Disclose this to all

b. Regions to report on staffing data to MoFED (COPCU) and FSCD

c. MoFED will in turn submit program wide staffing data to FM TF

a. MoFED & BoFED b. BoFED c. MoFED

a. Before the next JRIS b. June 30 2011 c. July 10 2011

a. Pending b. Ongoing (agreed to include this as of quarter IFR)

80

Issues raised on Audit

a. Submit interim audit reports for EFY 2003 1st and 2nd quarter;

b. Submit interim audit reports for EFY 2003 3rd quarter;

c. For the year ended July 7 2010 audit conduct a review or investigation on issues leading to qualification;

d. Respond to DPs letter of April 26 2011- in reference to Both July 7 2009 and 2010 audit issues;

e. Generally For the past audit issues (last four year issues) finalize and submit report on the result of the MoFED teams of experts visit to regions on issues/reasons and status of action plans of the past;

a. MoFED (GAD)

b. MoFED c. DPs d. MoFED e. MoFED/

DPs

a. May 31 2011 b. For 3rd quarter

by June 30 2011

c. Before the next JRIS

d. Include in internal assessment report by 15th June 2011

e. June 30 2011

a. Done b. Done c. Ongoing d. Done e. Done

Issues raised on IFRs

a. Issues concerning IFRs Timeliness MoFED will track on deadlines and will

bring to the attention of BoFED and MoA and the FM TF the issue of delays in the submitting reports by highlighting the region failing to submit on time; remedies on defaulter region will be agreed at FMTF;

BoFED will send a report tracking of deadlines recording the timing they received quarterly reports from each woredas and submit the same to MoFED as part of the IFR. The region will take action on defaulting woredas and will inform MoFED

b. Issues concerning IFRs-Quality-MoFED and BoFEDs should undertake adequate robust reviews and checks on the reports- use of checklist on IFRs; spot checks through field visit; etc

a. For IFR timeliness-as follows:

MoFED BoFED

b. For IFR quality-as follows:

MoFED/ BoFED

MoFED

a. For IFR timeliness issues-as follows:

To be presented on each FM TF

For the 3rd qrt IFR- May 31 2011 and 4th qrt IFR by Sept 7 2011

b. Before the next JRIS

a. Partly done (Submission dates are done, but remedies on defaulting woredas and regions pending b. Ongoing (partly done)

Budgetary issues a. Follow up with regions to adhere to the instructions on budget discipline

b. Review management and administrative budget issues and discuss with FFSCD to come up with proposals (e.g. the management budget calculation to include the cash and food as a base cost or assessing the impact on management budget as a result of the directive using a consultant) to be discussed at federal level FM TF and JSOC for decision.

c. BoFEDs should review woreda reports and follow up on budget utilization. For major variances the BoFEDs should collect explanation from woredas on budget variances as part of reports. BoFED should then submit detail explanations on regional budget variances as part of IFRs to MoFED

a. MoFED/FFSCD

b. (PMFC (comprising MoFED, FSCD and DPs)

c. MoFED

a. Before the next JRIS

b. July 15 2011 c. Part of IFR-

ongoing basis

a. Done (MoFED sill share information on the discussion done in Assosa and Adama) b. Done c. Ongoing

Transfer and Fund Flows

Ensure that transfers to clients/ beneficiaries from woredas are on time. Ensure on time payroll preparation and on time submission of attendance sheet

BoFED/WoFED/WoARD

Before the next JRIS

Ongoing (Oromia and SNNPR have already put deadlines). Needs proper communication

81

Issues with the revised MoFED’s Directive staffing & miscellaneous expenditures

MoFED/ MoA should resolve issues with the directives so that it is encompass MoA sectoral concerns.

a. FFSCD/MoFED

Before the next JRIS

Done

Log frame deliverables

EFY 2003 3rd quarter IFR will have information on indicators 4.1 & 4.7.

MoFED Before the next JRIS

Pending (agreed to be included in the 1st IFR)

Training a. Review training modality (content, targeting, duration, methodology, etc) using a consultant or SNSF (Safety Net support facility) by consulting with stakeholders. Prepare a strategy on training.

b. Rolling Training on FM manual training will be conducted on a regular basis- using consultant

c. Ensure adequacy of capacity building budget

a. MoFED b. MoFED/

FFSCD c. MoFED/

FFSCD

a. December 2011

b. Ongoing c. Ongoing

a. Ongoing b. Ongoing (will start by mid Dec 2011) c. Ongoing

Staff Turnover a. Complete assessment of HR needs and current vacancies

b. ensure that there is adequate staffing at all levels and that staffs have adequate capacity to perform duties

MoA/MoFED

a. Assessment to be completed before submission of Annual plan for EFY04; b.Ongoing

a. Pending b. Ongoing

Accountability and commitment

a. Informing senior level management regularly at all levels

b. Prepare/review or implement performance (result) based management system.

c. WoFED head will be held accountable for PSNP issues on. This will be communicated by higher officials at regions (regional BoFED Head or regional presidents)

d. BoFEDs and MoFED should take appropriate action on weak performers (FM staff that are not delivering should be held accountable). Their action should be communicated to all woredas as a lesson to the rest of woredas

e. Introduce result based performance management system and take action on the results coming out of the management system

MoFED/BoFED (including FSCD and Regional FSOs for (e))

ongoing a. Ongoing b. Pending c. Ongoing (improvement observed in some regions) d. Ongoing e. Ongoing (MoFED to submit data base of staffing, prepare short note and send to regions)

Log frame deliverables

Collect data and report to FM TF on whether the FM indicators “institutional capacity” are being adhered. Review log frame assumptions, activities, indicators are valid or realistic. MTR discussion on this is needed

MoFED ongoing Pending. MoFED needs to send out to regions to include information as part of the IFR. CoPCu coordinators will be responsible for this

82

ANNEX 5: PROCUREMENT ARRANGEMENTS

Introduction:

1. The procurement arrangements described in this Annex are by and large those provided

for PSNP APL III. Most of the procurement arrangements related with procurement under the

PSNP APL III remain unchanged and the risk rating also remains the same. Procurement under

the project has remained a challenge owing mainly to capacity limitations particularly at regional

and woreda level and also because of lack of commitment of implementing agencies. In this

Annex developments in the procurement environment are highlighted. Moreover findings of

procurement capacity assessments carried out in the Federal Implementing Agency as well as in

the Oromia Region are also provided. On the basis of the forgoing the procurement risk ratings

as well as the recommendations are reviewed to reflect the existing reality.

Procurement Environment:

2. The new Procurement Law of the Federal Democratic Republic of Ethiopia, No.

649/2009 which came into effect upon its publication in the Negarit Gazeta on September, 9,

2009 provides for the establishment of bodies including the Public Procurement and Property

Administration Agency (PPA), and the Complaints Review Board. The proclamation has

entrusted the PPA with the responsibility of preparing, updating and issuing authorized versions

of the procurement directive and manuals, Standard Bidding Documents (SBDs), procedural

forms, and any other attendant documents pertaining to procurement and property

administration. Currently, updated National SBDs for procurement of goods, works, and services

commensurate with the new proclamation are being prepared by the Public Procurement and

Property Administration Agency through support provided by the Bank. However, the

documents which include SBDs, manuals and forms have not been issued as yet. Until such new

National SBDs are issued, the procurement system continues to follow the National SBDs issued

under the old proclamation.

3. The World Bank has reviewed the existing national bidding documents for procurement

of goods and works and has found them to be generally acceptable. Based on this review,

contracts that will be procured under National Competitive Bidding (NCB) may follow the

Recipient‟s procurement procedures, subject to the following additional procedures: (i) the

Recipient‟s standard bid documents for procurement of goods and works shall be used; (ii) if

pre-qualification is used, the World Bank‟s standard prequalification document shall be used;

(iii) margin of preference shall not be applicable; (iv) bidders shall be given a minimum of 30

days to submit bids from the date of availability of the bidding documents; (v) use of merit

points for evaluation of bids shall not be allowed; (vi) foreign bidders shall not be excluded from

participation; and (vii) the results of evaluation and award of contract shall be made public, and

(viii) in accordance with paragraph1.16(e) of the Procurement Guidelines, each bidding

document and contract financed out of the proceeds of the Financing shall provide that: (1) the

bidders , suppliers, - contractors and subcontractors shall permit the World Bank, at its request,

to inspect their accounts and records relating to the bid submission and performance of the

contract, and to have said accounts and records audited by auditors appointed by the World

Bank; and (2) the deliberate and material violation by the bidder, supplier, contractor or

subcontractor of such provision may amount to an obstructive practice as defined in paragraph

1.16(a)(v) of the Procurement Guidelines. Under the project, the Recipient is obliged to continue

to apply the above mentioned NCB modifications to its procurement procedures notwithstanding

83

the adoption of the new procurement proclamation. The World Bank will review the new

procurement proclamation together with the new directives and revised SBDs in order to

determine the modifications needed for Ethiopia‟s revised NCB procedures to be acceptable for

use in World Bank-financed contracts.

4. The “Ethiopia 2002 Country Procurement Assessment Report” (CPAR) identified

weaknesses in the country procurement system and recommended actions to address these areas.

The new federal procurement law addresses some of these shortcomings but the Bank will need

to assess the new procurement regime when the new directives and revised SBDs are available to

it. In October/November 2010 the draft Ethiopia Country Procurement Assessment Report was

produced to update the 2002 CPAR. Key findings include lack of directives, manuals and SBDs

at federal and regional level, lack of independent procurement bodies at Regional level, low

management capacity, capacity problem of procurement personnel at all level, and low level of

monitoring and oversight, and non-functional complaint mechanisms. This is now being

supplemented by Regional CPARs by incorporating the assessment of the procurement systems

in the Regional States. As the current CPAR is validated by stakeholders and finalized the

Federal and Regional Governments are expected to follow-up and implement the

recommendations provided under the 2010/11 CPAR to address the shortcomings identified.

5. Procurement under the Productive Safety Net Program Additional Financing to be

financed through funding contributed by IDA as well as by other development partners, whether

through an MDTF administered by the Bank or directly into the Government‟s pooled birr

account at the federal level, will be carried out in accordance with the World Bank‟s "Guidelines:

Procurement under IBRD Loans and IDA Credits" dated January, 2011; "Guidelines: Selection

and Employment of Consultants by World Bank Borrowers" dated January, 2011; and the

provisions stipulated in the IDA Financing Agreement, MDTF Grant Agreements, and bilateral

grant agreements.

6. Procurements at the regional level would generally involve contracts procured through

National Competitive Bidding (NCB) and Shopping procedures whilst procurement at the

woreda level would be limited only to shopping procedures. The NCB and Shopping procedures

at the regional and woreda levels would be carried out in accordance with regional procurement

proclamations which will have been reviewed and modified to be acceptable to the World Bank

and using national SBDs issued by PPA in 2006 subject to the exceptions provided in Para. 2

above. Under APL III additional financing, the Recipient is obliged to continue to follow the

NCB modifications to its procurement procedures as stated above notwithstanding the adoption

of the new procurement proclamations. When the revised SBDs will be available, the World

Bank will review the new procurement proclamations at Federal and Regional level together

with the new directives and revised SBDs in order to determine the modifications needed for

Ethiopia‟s revised NCB procedures to be acceptable for use in World Bank-financed contracts.

The PIM for the Project would then be revised as necessary to capture the World Bank‟s

comments.

7. Procurement under the Additional Financing: The Additional Financing will continue

financing the four components of PSNP APL III. Hence the procurement to be conducted under

the additional financing to provide inputs for public works, goods and equipment needed for

institutional support; procurement of bulk food items; small value works contracts; procurement

of non-consulting services such as transport, operating costs and training and workshops for

84

capacity building needs, will follow procurement procedures similar to those stipulated for PSNP

APL III.

8. Margin of Preference for Domestic Goods: Under the Additional Financing in

accordance with paragraph 2.55 and 2.56 of the Procurement Guidelines the borrower may grant

a margin of preference of 15% (fifteen percent) in the evaluation of bids under ICB procedures to

bids offering certain goods produced in the Country of the Borrower, when compared to bids

offering such goods produced elsewhere.

9. Assessment of the Implementing Agencies’ Procurement Capacity: Procurement

Capacity Assessment for PSNP Additional Financing was undertaken by the World Bank

procurement specialists in two PSNP implementing agencies: Food Security Coordination

Directorate (FSCD) and the Oromia Food Security, Disaster Prevention & Preparedness

Commission. The procurement capacity of the two implementing agencies was assessed in

October 2011. The procurement capacity assessment was carried out using the questionnaires

provided in the Procurement Risk Assessment and Management Systems (P-RAMS). In general,

although there are encouraging efforts at all levels to recruit procurement staff and introduce

public procurement procedures, there are major procurement performance limitations in all

Ethiopian public procurement implementing entities. The procurement capacity assessment

indicates that there are significant capacity limitations and systemic constraints in the Ethiopian

public procurement environment. In particular, due to its highly decentralized implementation

arrangements and high turnover of procurement staff common in public organizations, the

procurement risk of the proposed project is rated ”HIGH”.

10. The procurement assessment of the two implementing agencies included a review of the

eleven risk factors of the P-RAMS.

Risk Factor 1: Accountability for Procurement Decisions in the Implementing Agencies;

Risk Factor 2: Internal Manuals and Clarity of the Procurement Process;

Risk Factor 3: Record Keeping and Document Management Systems;

Risk Factor 4: Staffing;

Risk Factor 5: Procurement Planning;

Risk Factor 6: Bidding Documents, Pre-qualification, Short listing and Evaluation Criteria;

Risk Factor 7: Advertisement, Pre-bid/proposal Conference and Bid/Proposal Submission;

Risk Factor 8: Evaluation and Award of Contract:

Risk Factor 9: Review of Procurement Decisions and Resolution of Complaints;

Risk Factor 10: Contract Management and Administration;

Risk Factor 11: Procurement Oversight

11. The FSCD and the procurement unit under the Early Warning and Response Directorate

had several years of experience with multi-development partner collaboration in several sectors

related to the present project. In addition, the PSNP has been under implementation for over a

decade (APL I, II and III). Regardless of over a decade of experience with World Bank and

Multi-Donor supported projects, the FSCD and the procurement unit under the EWRD have not

developed the procurement capacity needed to handle the large amount of procurement under

85

these institutions. The FSCD and the procurement unit under the EWRD, through which all

procurement activities of both Directorates are processed, are dependent on procurement

consultants who are hired for specific World Bank supported projects. PSNP APL III is

currently being handled by one procurement consultant hired for the project, but there is a need

to assign a counterpart staff to work with the consultant and learn on the job.

12. The procurement capacity assessment was carried out at the procurement unit of the

EWRD which handles the procurement of the FSCD with the assistance of the procurement

consultant. The assessment carried out in light of the above parameters reveals that the

procurement capacity situation of the agency is weak to handle procurement of projects financed

by the World Bank. The agencies internal manuals and clarity of the procurement process,

record keeping and document management systems, procurement planning, staffs with

experience and satisfactory track record, handling procurement processes in a professional

manner, contract management and administration are all found to be requiring strengthening.

The unit is staffed with one coordinator and two purchasers and is engaged in handling the

routine purchasing activities of the two Directorates under the DRMFSS. There are no staffs

with experience and satisfactory track record in procurement in general and on donor funded

projects specifically to handle all aspects of procurement under the two Directorates. Moreover,

there seems to be no attempts to provide quality training to staff for continuous skill

development in procurement and contract management.

13. The procurement capacity assessment was also carried out in Oromia Region. The

general procurement capacity situation of the Region, as revealed through the above parameters,

is also found to be weak. The agency‟s procurement processes, organization and staffing, control

mechanism, staff capacity, procurement planning and completeness of procurement records

leaves much to be desired. Moreover, lack of an independent procurement oversight body is

another limitation in the accountability of the procurement function of the Region.

14. At regional and woreda levels, limited capacity of the staff to plan and process

procurement under donor supported projects is a major weakness. Consequently under PSNP

APL III non-compliance to agreed procedures, procuring without procurement plan and

inadequate procurement documentation owing by and large due to limitation in capacity has

remained a major challenge. Particularly, lack of clarity on procurement procedures to be

followed at regional and woreda levels when there are discrepancies between Regional

regulations and Bank Guidelines remains a major challenge which needs to be tackled under the

Additional Financing. This combined with inadequate internal and external control mechanism

in procurement makes the procurement risk rating for the project “high”.

15. Institutional Setup for Procurement: The institutional setup for procurement under the

Additional Financing will remain the same as in PSNP APL III. The Ministry of Agriculture (

MoA) is responsible for oversight and coordination of the Additional Financing through the

Food Security Coordination Directorate (FSCD). The Ministry provides necessary technical

support for PSNP planning and implementation. The Program will be largely implemented

through decentralized arrangements at regional and woreda level. The more decentralized

implementation arrangements coupled with the general public procurement performance gaps

in the country and high procurement staff turnover may undermine procurement

implementation of the Additional Financing unless specific capacity building actions are

designed and implemented.

86

16. At regional level, Regional Food Security Coordination Offices of the BOAs of the

participating regions will be responsible for overall implementations, including developing and

consolidating annual implementation plans, procurement plans, mobilizing technical assistances

from other line agencies. The procurement section of BOA (and other line ministries) will have

the primary responsibility for NCB procurement for goods and procurement of consulting

services. Regional Procurement Coordinators of the PSNP will continue to provide technical

assistants for the planning, processing and supervision of procurement activities. Because of the

limited procurement capacity, woredas will have primary responsibility for the procurement of

off the shelf goods and equipment and small scale procurement of works through Shopping

procedures only. Contract awards will follow established government procedures acceptable to

the World Bank.

17. Procurement risk rating and mitigation plans: The key systemic issues and risks

concerning procurement for implementation of the Additional Financing have been identified.

The overall project risk for procurement is rated “HIGH” and the thresholds for prior review, for

ICB, including the maximum contract value for which the short-list may comprise exclusively

national firms in the selection of consultants are agreed (Table below).

Table5.1: Thresholds

Category Prior Review

Threshold (US$)

ICB

Threshold

(US$)

National Short-List

Max Value (US$)

Works

Goods

≥5,000,000

≥500,000

≥5,000,000

≥500,000

NA

NA

Consultants (Firms)

≥200,000

NA

<200,000

Consultants (Individuals)

≥100,000

NA

NA

18. Table 5 summarizes the procurement issues identified and the proposed action plan to

enhance the capacity of the executing agencies to implement project procurement. The matrix

covers findings and actions to be taken at both the federal and regional/woreda levels. Some of

the actions were provided in the PSNP APL III PAD but have not been implemented. Hence

these recommendations need to be strictly followed and implemented for a proper

implementation of the procurement aspect of the project.

Table5.2: Summary of Findings and Actions (Risk Mitigation Matrix)

Major

findings/issues Actions proposed Responsibility Targeted date

1 Inadequate

procurement

planning and

execution

1. The FSCD will recruit an additional

procurement specialist at the federal level

and provide more technical support to the

sub-national implementing agencies.

2. The procurement unit under the DRMFSS

shall recruit at least two additional

procurement staff and the staff shall be

provided with basic procurement training

equivalent to the courses provided at regional

FSCD At the beginning

of the

implementation

of the Additional

Financing

87

procurement training centers (e.g. ESAMI

and GIMPA) 2

. Lack of

procurement

technical

assistance to

the sub-

national level

1. Procurement advisors recruited under PSNP

APL III should be functional by being placed

in Regional Food Security Coordination

Offices (RFSCO) in the Bureaus of

Agriculture and by ensuring their mobility to

provide support to the woredas

FSCD/RFSCO At the beginning

of the

implementation

of the Additional

Financing

3 Lack of clarity

on

procurement

procedures at

regional and

woreda levels.

1. The FSCD should revise and simplify the

PSNP Procurement Manual to provide clarity

on procedures to be followed, and

disseminate them to implementing agencies

to follow the procedures stipulated in the

manual for procurement under PSNP APL III

and Additional Financing

FSCD At the beginning

of the

implementation

of the Additional

Financing

4 Lack of

procurement

supporting and

control

systems.

Annual independent procurement reviews. FSCD/RFSCO Annually two

months after the

end of the FY

5 Lack of staff

skilled in

procurement

management

1. Specific capacity building actions are

designed and implemented; 2. The procurement coordinators recruited for

each Region under PSNP APL III shall be

placed in the Regional Food Security

Coordination Offices in the Bureau of

Agriculture and shall provide the necessary

technical assistance to staff at woreda level. 3. The procurement staff and the tender

committee members at regional and woreda

levels should undertake basic procurement

training.

FSCD/RFSCO In the first six

months of

implementation

of the Additional

Financing

6 Inadequate

Procurement

records

keeping

1. Training on procurement records keeping

will be provided to all regions and woredas. 2. The regional offices are to be supported

with necessary office equipment and supplies

(scanners, computers and printers, box files,

file folders, etc) from the project.

FSCD/RFSCO At the beginning

of the

implementation

of the Additional

Financing

7 At woreda

level

procurement is

carried out

without

procurement

plan

1. Simplified procurement plan templates for

use by woredas should be developed and sent

to all PSNP woredas and they should be

required to have procurement plans approved

by the Woreda Cabinet before starting

procurement activities.

FSCD/RFSCO Before project

launch

8 At the

woredas, the

procurement

arrangement is

“pool” system

1. The pool in each woredas will assign one

existing staff from the pool to be responsible

for PSNP procurement.

Each region Before project

launch

88

and this seems

to create delays

in the project

procurement 9 The Regional

Food Security

Coordination

Offices have

limited

capacity and

facilities

1. Each region to provide timely access to

transport facilities for procurement staff to

be able to support procurement monitoring

under the project. 2. The Regional Food Security Coordination

Office will be capacitated with manpower

and training

FSCD/RFSCO Within the first

six months of

project

implementation

19. Procurement Plan: The Borrower has drafted a procurement plan for the Project that

will provide the basis for the procurement methods and implementation schedule. The approved

final procurement plan will be included in the project database and made available for inspection

at each Regional bureau and at the office of the FSCD. The Plan will be updated in agreement

with the Project Team annually or as required to reflect the actual project implementation needs

and improvements in institutional capacity.

20. Frequency of Procurement Supervision: In addition to the prior review of procurement

actions under ICB and QCBS to be carried out from the World Bank Country Office, at least two

supervision missions per year will be carried out.

89

ANNEX 6: REVISED PROGRAM COSTS

Program Cost By Component and/or Activity Local Foreign Total

US$ million US$ million US$ million

Component 1: Safety Net Grants

A. Sub-component: Public Works 1,077.02 1,077.02

B. Sub-component: Direct Support 269.26 269.26

Contingencies for Food and Cash Transfers 269.26 269.26

Capital and Administrative Budgets 200.44 1.50 201.94

Performance incentive grants 14.16 14.16

Component 2: Drought Risk Financing 150.00 80.00 230.00

Component 3: Institutional Support to PSNP 71.85 5.50 77.35

Component 4: Support to HABP 79.30 4.00 83.30

Total Baseline Cost 2,198.6 91.00 2,289.60

Physical Contingencies 0 0 0

Price Contingencies 0 0 0

Total Program Costs 2,198.6 91.00 2,289.60

Total Financing Required 2,198.6 91.00 2,289.60

1. Estimated taxes and duties are US$13.65 million, and the total project cost, net of taxes,

is US$2,275.95 million. Therefore, the share of project cost net of taxes is 99 percent.

2. Of the total project cost of US$2,289.60 million, IDA will finance US$850.0 million

(37 percent); other development partners, US$1,330.88 million (58 percent) of which US$580.9

million from USAID and WFP will be provided in the form of in-kind resources, and

Government will provide cash counterpart financing of US$10.0 million. The total remaining

financing gap for all the components is estimated at US$108.72 million or some 5 percent of

total estimated Program costs. Other development partners are currently working on additional

financing proposals to close this gap. Current indications from development partners are that the

remaining gap can be addressed

3. Should the PSNP remain underfinanced, measures will be taken to scale back the design

of the Program during the last year of implementation, which is sufficiently flexible to allow

such changes. This approach is, however, undesirable given the vulnerability of target

households, which, if not covered by the PSNP would likely require support through the

emergency appeal system. Development partners recognize that the PSNP is a more effective and

efficient response than the emergency appeal system providing an additional incentive to ensure

that the PSNP is fully financed.

4. In addition to the financing for the PSNP and HABP detailed above and in Tables 7

through 9 below, the Government will allocate significant resources to finance the credit

component of the HABP, complementary community infrastructure, and the resettlement

program. This amounts to 2 billion ETB annually (equivalent to US$160.3 million) for at least

the first three years of the current program phase. This budget is allocated to Regions on the

90

basis of a Vulnerability Index and is transferred in the form of a Federal block grant. Regions

then allocate the block grant to the initiatives of the Food Security Program depending on their

local requirements and priorities. Simultaneously, the Government allocates significant in-kind

resources (amounting to an estimated US$53.0 million) to the Program through, for example, the

use of dedicated government staff at all levels and logistic support.

5. Historic contributions of development partners to APL I and II are detailed in Table 7:

Table 2: Development Partner Financing for Phase 1 and Phase 2 of PSNP

Phase Sources of Financing from Partners (in USD million)28

CIDA DFID EC IDA29

Irish

Aid

RNE SIDA USAID WFP Total30

1st Phase

2005-2006

34.0 95.9 37.5 113.7 21.3 0 4.3 102.4 0

409.0

2nd

Phase

2007-2009

72.5 138.5 187.8 200.0 44.2 34.8 23.0 314.2 25.1 1,040.2

Total: 106.5 234.4 225.3 313.7 65.5 33.7 27.3 416.6 25.1 1,449.2

Source: World Bank Project Document.

6. The details of financing for APL III are detailed below.

Table 3: Updated Program Total Cost by Component (including contingencies)

(in US$ million)

Program Component Total Updated IDA Contribution

1. Safety Net Grants 1,898.9 688.5 2. Drought Risk Financing 230.0 120.0 3. Institutional Support to PSNP 77.4 19.0 4. Support to HABP 83.3 22.5 Total Program Cost 2,289.6 850.0 Source: Government of Ethiopian 2009.

28

Contributions from USAID and WFP are in-kind. The methodology that underpins these calculations is described

in the footnotes of Table 9. 29

This includes an IDA grant of US$70 million for APL I plus US$44 from the World Bank‟s portfolio in Ethiopia

(EDR project) and an IDA grant of US$175 million for APL II plus Additional Financing of US$25 million from the

GFRP. 30

The reasons for this increase in financing to APL II as compared with APL I are as follows: APL II was one year

longer than APL I; PSNP beneficiary numbers increased from 5.4 to 7.57 million; the wage rate was increased twice

from 6 to 8 to 10 birr currently; additional resources were provided through the PSNP in 2008; the value of food

increased in 2008 and 2009.

91

Table 4: Ethiopia Productive Safety Net Program, APL III (2010-2015)

Updated breakdown of Costs by Sources of Financing (in US$ millions)

Sources of Financing (signed and indicative)

Project Component Budget

1 GoE IDA DFID EC CIDA

Irish

Aid USAID2 WFP SIDA RNE Danida Subtotal

Financin

g Gap

COMPONENT 1: SAFETY NET

GRANTS 1,898.95 0.00 688.50 239.41 76.91 108.19 68.80 457.00 50.00 21.50 66.32 18.20 1,794.93 -104.02

I. Transfers

(i) Public Works Subcomponent 1,077.02 0.00 390.00 134.52 43.26 61.25 38.74 261.14 28.57 12.29 37.33 10.40 1,017.56 -59.46

(ii) Direct Support Subcomponent 269.26 0.00 97.50 33.63 10.82 15.31 9.69 65.29 7.14 3.07 9.33 2.60 254.39 -14.87

II. Other

(i) Contingencies (Cash & Food) 269.26 0.00 97.50 33.63 10.82 15.31 9.69 65.29 7.14 3.07 9.33 2.60 254.39 -14.87

(ii) Capital Budget 201.94 0.00 73.13 25.22 8.11 11.48 7.26 48.96 5.36 2.30 7.00 1.95 190.79 -11.15

(iii) Administrative Budget 67.31 0.00 24.38 8.41 2.70 3.83 2.42 16.32 1.79 0.77 2.33 0.65 63.60 -3.72

(iv) Performance incentive

grants3 14.16 0.00 6.00 4.00 1.20 1.00 1.00 0.00 0.00 0.00 1.00 0.00 14.20 0.04

COMPONENT 2: RISK

FINANCING4 230.00 0.00 120.00 31.45 0.00 0.00 0.00 73.85 0.00 0.00 0.00 0.00 225.30 -4.70

COMPONENT 3:

INSTITUTIONAL SUPPORT5 77.35 0.00 19.00 27.00 5.55 13.80 5.50 0.00 0.00 1.50 5.00 0.00 77.35 0.00

PSNP SUB-TOTAL 2,206.30 0.00 827.50 297.86 82.46 121.99 74.30 530.85 50.00 23.00 71.32 18.20 2,097.58 -108.72

COMPONENT 4: SUPPORT TO

HABP 83.30 10.00 22.50 36.12 0.00 8.39 6.29 0.00 0.00 0.00 0.00 0.00 83.30 0.00

TOTAL PROGRAM: 2,289.60 10.00 850.00 333.98 82.46 130.38 80.59 530.85 50.00 23.00 71.32 18.20 2,180.88 -108.72

92

Footnotes: (i) The budget for APL III was calculated based on a number of assumptions. These are: a) Public Works will be completed by 2014, b) 40% of program beneficiaries

graduate between 2009 and 2014, with no graduation in pastoral regions; c) the wage rate increases progressively from 10 to 16 birr; and, d) a progress move towards cash in

highland areas. (ii) Contributions from USAID for the PSNP are stated in-kind. For APL II, in-kind contributions to the PSNP have been valued at the prevailing market rate per

year. To calculate the value of the in-kind contribution to APL III, an average price per MT per year was used, ranging from USD 450 to USD 550. It is also important to note

that the USAID contribution to the PSNP is allocated through NGOs and WFP. USAID has also allocated financing to NGOs to support HABP-like activities that are not

reflected here. (iii) The performance incentive grant will be allocated annually to those woredas that meet a set performance standard. The grant is equivalent to 30% of the

administrative budget and will be used to supplement the administrative and capital budgets. As such, use of this grant will be reported against administrative and capital budget

lines. (iv) The overall resource envelope for Risk Financing is increased to USD 230 million in order to ensure the ability of the program to respond to another drought shock in

the remaining program period. This is based on requirements for emergency response resources in PSNP woredas during 2011. (v) The Institutional Support to PSNP component

is financed through allocations to Government and to the Multi-Donor Trust Fund (MDTF), a Trust Fund managed by the World Bank. Of the IA allocation to Institutional

Support, an estimated 300,000 will be channeled through the MDTF. US$13.8 million of the CIDA allocation to this component is channeled through the CIDA Regional

Support Facility.