Document of The World Bankdocuments.worldbank.org/curated/pt/... · National Investment Code . ......

Document of The World Bank

Report No: ICR00001762

IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA-H4920)

ON A

GRANT

IN THE AMOUNT OF SDR 2.7 MILLION (US$ 4.0 MILLION EQUIVALENT)

TO THE

REPUBLIC OF LIBERIA BORROWER

FOR A

SECOND RE-ENGAGEMENT AND REFORM SUPPORT PROGRAM PROJECT

December 15, 2010

Poverty Reduction and Economic Management 4 Country Department West Africa 1 Africa Region

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CURRENCY EQUIVALENTS

(Exchange Rate Effective November 30, 2010)

Currency Unit = Liberian Dollar US$ 1.00 = LR$69.50

FISCAL YEAR July 1 – June 30

ABBREVIATIONS AND ACRONYMS

AfDB African Development Bank BOB CAS CBL

Bureau of the Budget Country Assistance Strategy Central Bank of Liberia

CFAA CISCAB

Country Financial Accountability Assessment Civil Service Capacity Building

CMC Cash Management Committee CWIQ Core Welfare Indicators Questionnaire DP Decision Point under the Enhanced HIPC Initiative ECOWAS Economic Community of Western African States EGSC EGRIP

Economic Governance Steering Committee Economic Governance and Institutional Reform Project

EITI Extractive Industries Transparency Initiative EU European Union FDI Foreign direct investment FY Fiscal Year GDP Gross Domestic Product GEMAP Governance and Economic Management Assistance Program GFRP Global Food Crisis Response Program HIPC Heavily Indebted Poor Countries IBRD International Bank for Reconstruction and Development IDA International Development Association IFC International Finance Corporation IMF International Monetary Fund I-PRSP Interim Poverty Reduction Strategy Paper JCAS Joint Country Assistance Strategy JISN Joint Interim Strategy Note LECAP Liberia Expenditure Control and Accounting Program LACE Liberian Association for Community Empowerment LEITI Liberia Extractive Industry Transparency Initiative LIC-DSA Low-income country debt sustainability analysis LICUS Low Income Countries Under Stress LISGIS Liberia Institute of Statistics and Geo-Information Services LRDC Liberia Reconstruction and Development Committee MoF NIC

Ministry of Finance National Investment Code

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NGOs Non-governmental Organizations NTGL National Transitional Government of Liberia PFM Public Financial Management PRGF Poverty Reduction and Growth Facility PRS Poverty Reduction Strategy PEMFAR Public Expenditure Management and Financial Accountability Review PPCC Public Procurement and Concessions Commission RRSP I RRSPII

Re-engagement and Reform Support Program-I Second Re-engagement and Reform Support Program Grant

SMP Staff Monitored Programs SOE State-Owned Enterprise UN United Nations UNDP United Nations Development Programme UNMIL United Nations Mission in Liberia UNSC United Nations Security Council USAID United States Agency for International Development

Vice President: Obiageli K. Ezekwesili

Country Director: Ishac Diwan

Sector Manager: Miria A. Pigato

Task Team Leader: Errol G. Graham

ICR Team Leader James A. Hanson

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REPUBLIC OF LIBERIA

RE-ENGAGEMENT AND REFORM SUPPORT PROGRAM II

CONTENTS

Data Sheet A. Basic Information B. Key Dates C. Ratings Summary D. Sector and Theme Codes E. Bank Staff F. Results Framework Analysis G. Ratings of Program Performance in ISRs H. Restructuring

1. Program Context, Development Objectives and Design ............................................ 1 2. Key Factors Affecting Implementation and Outcomes .............................................. 4 3. Assessment of Outcomes ............................................................................................ 9 4. Assessment of Risk to Development Outcome ......................................................... 17 5. Assessment of Bank and Borrower Performance ..................................................... 19 6. Lessons Learned ....................................................................................................... 20 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners .......... 21 Annex 1 Bank Lending and Implementation Support/Supervision Processes ............. 22 Annex 2. Beneficiary Survey Results ........................................................................... 23 Annex 3. Stakeholder Workshop Report and Results ................................................... 24 Annex 4. Summary of Borrower's ICR and/or Comments on Draft ICR ..................... 25 Annex 5. Comments of Cofinanciers and Other Partners/Stakeholders ....................... 27 Annex 6. List of Supporting Documents ...................................................................... 28 Annex 7: Liberia Map Number 33435R2 ..................................................................... 29

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A. Basic Information

Country: Liberia Program Name: LR - Reengagement and Reform Support Program 2

Program ID: P113450 L/C/TF Number(s): IDA-H4920

ICR Date: 12/21/2010 ICR Type: Core ICR

Lending Instrument: DPL Borrower: GOVERNMENT OF LIBERIA

Original Total Commitment:

XDR 2.7M Disbursed Amount: XDR 2.7M

Revised Amount: XDR 2.7M

Implementing Agencies: Ministry of Finance

Cofinanciers and Other External Partners: B. Key Dates

Process Date Process Original Date Revised / Actual

Date(s)

Concept Review: 02/03/2009 Effectiveness: 06/25/2009 06/25/2009

Appraisal: 03/12/2009 Restructuring(s):

Approval: 05/21/2009 Mid-term Review:

Closing: 06/30/2010 06/30/2010 C. Ratings Summary C.1 Performance Rating by ICR

Outcomes: Satisfactory

Risk to Development Outcome: Substantial

Bank Performance: Satisfactory

Borrower Performance: Satisfactory

C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings

Quality at Entry: Satisfactory Government: Not Applicable

Quality of Supervision: Satisfactory Implementing Agency/Agencies:

Not Applicable

Overall Bank Performance:

Satisfactory Overall Borrower Performance:

Satisfactory

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C.3 Quality at Entry and Implementation Performance IndicatorsImplementation

Performance Indicators

QAG Assessments (if any)

Rating:

Potential Problem Program at any time (Yes/No):

No Quality at Entry (QEA):

None

Problem Program at any time (Yes/No):

No Quality of Supervision (QSA):

None

DO rating before Closing/Inactive status:

Satisfactory

D. Sector and Theme Codes

Original Actual

Sector Code (as % of total Bank financing)

Central government administration 90 90

General industry and trade sector 10 10

Theme Code (as % of total Bank financing)

Administrative and civil service reform 20 20

Public expenditure, financial management and procurement

60 60

Regulation and competition policy 10 10

Tax policy and administration 10 10 E. Bank Staff

Positions At ICR At Approval

Vice President: Obiageli Katryn Ezekwesili Obiageli Katryn Ezekwesili

Country Director: Ishac Diwan Ishac Diwan

Sector Manager: Miria A. Pigato Antonella Bassani

Program Team Leader: Errol George Graham Errol George Graham

ICR Team Leader: James A. Hanson

ICR Primary Author: James A. Hanson F. Results Framework Analysis

Program Development Objectives (from Project Appraisal Document) The objectives of the proposed grant are to support government-owned ongoing reforms (articulated in the PRSP) to improve the country's fiduciary environment, rebuild public institutions and improve the environment for private sector-led growth. More specifically, the RRSP II focuses on: (i) improving the efficiency of budget preparation and execution and increasing the professionalism and improving the human resource

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management of the civil service; and (ii) improving the investment climate through the reform of the revenue and private investment regimes. Revised Program Development Objectives (if any, as approved by original approving authority) (a) PDO Indicator(s)

Indicator Baseline Value

Original Target Values (from

approval documents)

Formally Revised Target Values

Actual Value Achieved at

Completion or Target Years

Indicator 1 : Average variance between budget out-turn and legislated budget for each ministry

Value (quantitative or Qualitative)

19 percent 15 percent 1.7 Percent

Date achieved 06/29/2007 06/30/2010 06/30/2010 Comments (incl. % achievement)

Indicator 2 : % of value of non-competitive procurement without justification Value (quantitative or Qualitative)

80 percent No more than 20 percent

9.2


Data for actual value based on information available for only three quarters of the 2009/10 fiscal year.

Indicator 3 : % of Civil Servants captured in the Biometrics system Value (quantitative or Qualitative)

None 100 percent 70 Percent


The target was not met due largely to the underestimation of the funding requirement for the work including covering the rural counties.

Indicator 4 : Audit reports for five high risks Ministries and Agencies completed by the GAC and submitted to the Legislature


No external audits done

External audit of the central government's accounts submitted to the Legislature within nine months of the year end for FY08/09.

External audit of the central government's accounts submitted to the Legislature within nine months of the year end for FY08/09.

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Indicator 5 : % automaticity in the approval of investment incentives (measured as a share of the total number of incentives)


Nil 100 percent No assessment possible due to lack of data


No data is available to assess the achievement of the indicator

(b) Intermediate Outcome Indicator(s)

Indicator Baseline Value

Original Target Values (from

approval documents)

Formally Revised

Target Values

Actual Value Achieved at

Completion or Target Years

Indicator 1 : Timely budget reports being produced by the Comptroller General in the Ministry of Finance.


No budget reports produced

Timely budget report being produced by the Ministry of Finance.

Timely budget report being produced and published by the Ministry of Finance.


G. Ratings of Program Performance in ISRs

No. Date ISR Archived

DO IP Actual

Disbursements (USD millions)

1 07/17/2009 Satisfactory Satisfactory 0.00 2 11/30/2009 Satisfactory Satisfactory 4.31

H. Restructuring (if any) Not Applicable

1. Program Context, Development Objectives and Design

1.1 Context at Appraisal

1. In August 2003 Liberia entered a new era with the signing of the Accra Comprehensive Peace Agreement. The previous 14-year conflict (1989-2003) killed an estimated 270,000 Liberians; involved much of the population in civil conflict; left the country as one of the poorest in the world, with a per capita income of US$163 in 2005 and 64 percent of the population in poverty; made delivery of education and health services nearly impossible; and destroyed the country’s public and private infrastructure. The free and fair legislative and presidential elections of November 2005 resulted in the inauguration of Africa’s first democratically elected female president, in January 2006. The president’s party did not have a majority in parliament, however, active interactions with the opposition and civil society led to support for enactment of many reforms and progress on many fronts. The next national elections are scheduled for November 2011.

2. Liberia’s economy has been recovering since 2006. The recovery is driven by agriculture; inflows from and spending by international donors; and initiation of new businesses and economic activity in the new climate. Real GDP growth rose from an estimated 5.3 percent in 2005 to 7.8 percent in 2006,1 with inflation in single digits. GDP growth accelerated to 9.4 percent in 2007 and was estimated at 7.1 percent in 2008 before it fell to an estimated 4.6 percent in 2009 as demand for exports fell during the worldwide recession. Inflation rose to 14.7 percent in 2007 (year-end to year-end), largely reflecting the worldwide rise in commodity prices. Inflation fell back to 9.4 percent in 2008. Revenues—which had evaporated owing to the collapse in economic activity combined with widespread rent-seeking behavior in the customs and revenue administrations—rose by 16 percent in the five months after the new Government took office, and increased by an additional 74 percent in FY 2006-07 over FY05/06. The fiscal accounts, including grants were in surplus through 2008. However, the current account of the balance of payments remained in large deficit, financed largely by donor grants, foreign direct investment and expenditures by UNMIL.

3. After assuming office in 2006, Liberia’s government faced a major external debt problem. At end-June 2007, Liberia’s public and publicly guaranteed external debt reached an estimated US$4.7 billion or 645 percent of GDP (including arrears, capitalized interest, and penalties), most of which was in arrears. This debt included US$1.6 billion in multilateral debt to the IMF, World Bank, and AfDB;2 bilateral debt (primarily to Paris Club creditors) of US$1.4 billion; and commercial debt estimated at US$1.6 billion.3 This debt and the associated debt service were clearly unsustainable.

1 Both the IMF and the World Bank agree that GDP is not well-estimated in Liberia and efforts are ongoing to improve Liberian statistics in general. The total GDP is probably underestimated. 2 The IMF and IDA/IBRD were Liberia’s largest creditors, accounting for approximately 17 percent and 9 percent of total claims, respectively. 3 Commercial debt was estimated at US$1.1-1.6 billion; however, the exact amount of commercial debt was uncertain at the time, owing to the destruction of most debt records during the conflict and multiple lootings and fires at the

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Addressing the debt problem required substantial support, including unusually deep relief from the international community.4

4. The first Re-engagement and Reform Support Program IDA Grant (RRSPI) was approved in December 2007 to assist in debt reduction. Since Liberia was at high risk of debt distress, the RRSPI’s single tranche, was provided on grant terms, and the proceeds were disbursed to: (i) provide direct reimbursement of a bridge loan of US$376.6 million to clear Liberia’s arrears to IBRD and IDA and (ii) support cash flow needs in the period immediately after Liberia cleared its arrears to the IBRD and IDA, including future debt service obligations. By normalizing relations between Liberia and the World Bank through clearance of Liberia’s arrears, and supporting the Government’s efforts to establish a rigorous fiscal program for the Liberian economy, the RRSPI supported Liberia’s accelerated recovery and growth in the context of a multi-donor re-engagement process.

5. Liberia completed its first full Poverty Reduction Strategy in March 2008 that sets out the government’s priority agenda for the three year period from April 2008 to June 2011. The comprehensive strategy builds on the gains made under the 150-day action plan and the Interim Poverty Reduction Strategy (I-PRSP). The PRS process began in mid-2007, and included extensive stakeholder participation, through regional consultations across all 15 counties, thematic consultations, and specific stakeholder group consultations. The PRS is built around four pillars, which represent the core strategic areas of intervention: Peace and Security, Economic Revitalization, Governance and Rule of Law, and Infrastructure and Basic Services. In addition, six priority cross-cutting themes were mainstreamed through the pillar strategies, including gender equity, peace-building, environmental issues, HIV and AIDS, children and youth, and monitoring and evaluation (M&E).

6. Following the PRS, the Bank prepared a Joint Country Assistance Strategy (JAS) with the AfDB for the period FY 09–12 to support Liberia’s transition from post conflict recovery to long-term development. The JAS which was discussed at the Board on April 21, 2009 is focused on addressing selected key constraints to growth as well as enhancing the policy and institutional framework to ensure that growth is increasingly pro-poor. The JAS, which is fully aligned with the PRSP pillars and objectives, focuses on three strategic objectives: (i) rebuilding core state functions and institutions; (ii) rehabilitating infrastructure to sustain economic growth; and (iii) facilitating pro-poor growth.

Ministry of Finance, and the fact that much of the debt was no longer owned by the original creditors. Liberia’s estimated commercial debt was unusually large, compared with other HIPC countries, because, in part, Liberia’s middle-income status in the 1980s had allowed it to borrow commercially more readily than other HIPC countries. 4 The sizes of the arrears and debt were exceptionally large relative to Liberia’s estimated GDP (US$500 million). The ratio of the net present value (NPV) of Liberia’s external debt-to-export was 1,567 percent at end-June 2007, far above the threshold under the HIPC Initiative; the debt-to-GDP ratio was 263 percent. Debt service due in 2007 was equivalent to 16 percent of GDP.

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7. The Second Re-engagement and Reform Support Program IDA Grant (RRSPII) of SDR 2.7 million (US$4 million) was designed to support the objectives of the Joint Country Assistance Strategy of the World Bank and the African Development Bank (JCAS) and of the Liberian government and its PRS. The RRSPII was coordinated with the Bank’s Economic Governance and Institutional Reform Project (EGRIP) and the Enhanced HIPC initiative, the African Development Bank (AfDB) budget support operations, and the IMF Poverty Reduction and Growth Facility (PRGF). The IDA funds for RRSPII were on grant terms, since Liberia was at high risk of debt distress and was eligible for annual, exceptional, post-conflict IDA allocations. The value added of the operation is that it contributed directly to the Government’s Poverty Reduction Strategy objectives of rebuilding core state functions and institutions and economic revitalization as well as supported Liberia’s efforts toward achieving HIPC completion point.

1.2 Original Program Development Objectives (PDO) and Key Indicators (as approved) 8. The objectives of the RRSPII grant are to support government-owned ongoing reforms (articulated in the PRSP) to improve the country's fiduciary environment, rebuild public institutions and improve the environment for private sector-led growth. More specifically, the RRSP II focuses on: (i) improving the efficiency of budget preparation and execution and increasing the professionalism and improving the human resource management of the civil service; and (ii) improving the investment climate through the reform of the revenue and private investment regimes.

1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and Reasons/Justification

9. The PDOs and indicators were not revised.

1.4 Original Policy Areas Supported by the Program (as approved)

10. The overall aim of the JCAS and the government’s Interim Poverty Reduction Strategy (I-PRSP) and the current Poverty Reduction Strategy (PRS) is to ensure Liberia’s transition from post-conflict recovery to long-term development. The focus is on three key policy areas:

(i) Rebuilding core state functions and institutions and improving public sector management and transparency;

(ii) Rehabilitating infrastructure to sustain economic growth; and

(iii) Facilitating pro-poor growth.

11. The RRSPII supports a specific subset of key policy reforms under areas (i) and (iii), to rebuild core state functions and institutions, improve public sector management and transparency, and facilitate pro-poor growth by: (i) improving the

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efficiency of budget preparation and execution and increasing the professionalism and improving the human resource management of the civil service; and (ii) improving the investment climate through the reform of the revenue and private investment regimes.

Policy area I: Rebuilding core state functions and institutions

12. In the policy area of rebuilding core state functions and institutions, RRSPII focused on four core areas. These were: (i) extending the use of the interim system for accounting and reporting in the Ministry of Finance by providing access to the system to the Comptroller General office to facilitate the preparation of timely budget reports; (ii) improving the legislative framework for public financial management by submitting to Parliament a Public Finance Act, as well as amendments to the Public Procurement and Concessions Act (PPCA); preparing implementing regulations, manuals and instructions for implementing the PPCA; (iii) approving by Cabinet a comprehensive Civil Service Reform Strategy and publish it; and (iv) auditing of Government accounts for key ministries for FY05-06 and FY06-07.

Policy area 2: Facilitating Pro-poor growth

13. In the policy area of facilitating pro-poor growth RRSPII focused on two important legislative actions. These were: (i) submitting to Parliament a bill reforming the Liberia Revenue code thereby reducing the scope for discretionary, ad hoc fiscal incentives; and (ii) submitting to Parliament a bill reforming the National Investment Code, to eliminate ad hoc incentives to individual investors.

1.5 Revised Policy Areas (if applicable) 14. The policy areas were not revised.

1.6 Other significant changes 15. There were no significant changes in design, scope and scale, implementation arrangements, or funding.

2. Key Factors Affecting Implementation and Outcomes

2.1 Program Performance (supported by a table derived from a policy matrix) 16. The RRSPII was a single tranche operation. The operation was approved on May 21, 2009 and became effective on June 25, 2009. All five prior actions were fully implemented (Table 1).

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Table 1: Liberia RRSPII Prior Actions and Status at Project Presentation

17. There were five key indicators linked to the prior actions, one for each action. These indicators (Table 2) are the basis for assessing the performance of the operation. The indicators related to PFM performance have been met. The indicators related to civil service reform have not been met and the indicator related to pro-poor growth has been met in law. However, there is no data on approved concessions since the passage of the Investment Code in April 2010 to provide the basis for verifying the automaticity of the incentives given to the investors.

Prior Actions Implementation Status at Project Presentation

I. Rebuilding Core State Functions and Strengthening Public Sector Management and Transparency 1. Extend the use of the interim system for accounting and reporting in the Ministry of Finance by providing access to the system to the Comptroller General Office to facilitate the preparation of timely budget reports.

Implemented: Access to the accounting and reporting system (SunSystem) has been provided to the Comptroller General Office and the first budget report was produced in August 2008.

2. Improve the legislative framework for public financial management by submitting to the Parliament a Public Finance Management Act, as well as amendments to the Public Procurement and Concessions Act (PPCA). Prepare implementing regulations, manuals and instructions to implement the PPCA.

Implemented: A Public Finance Management Act (PFM) was passed in September 2009 and the implementing regulations were approved in November 2009. In accordance with the PFM act and regulations: (i) the budget for FY 2011 was prepared; (ii) IPSAS accounting standards and a new chart of accounts were adopted; (iii) the accounting function at Ministry of Finance was unified; and (iv) Debt Management Committee was appointed in April 2010. The amendments to the Public Procurement and Concessions Act (PPCA) were submitted to the Parliament in April 2009 and passed in August 2009. The implementing regulations, a manual and instructions were prepared in March 2009 and passed in November 2009 by the Cabinet.

3. Approve by Cabinet a comprehensive Civil Service Reform strategy and publish it.

Implemented: A Civil Service Reform Strategy “Smaller Government Better Service” covering the period 2008-2011 was completed and approved by the Cabinet in June 2008. The Strategy has also been published.

4. Audit Government accounts for key ministries for FY05-06 and FY06-07.

Implemented: The General Auditing Commission has completed transactional audits of the Government accounts for FY05/06 and FY06/07, as well as the audits for individual ministries (Finance, Education, Health, Public Works, Lands, Mines and Energy) for FY05-06 and FY06-07.

II. Facilitating Pro-poor growth

5. Submit to the Parliament a bill reforming the Liberia Revenue Code (LRC) and the National Investment Code, including the elimination of ad hoc incentives to individual investors.

Implemented: A New National Investment Code (which reflects a revision to Section 204e of the old code) was submitted to the Parliament, in conjunction with the amended Revenue Code in April 2009. The new Revenue code, reducing the scope of ad hoc incentives was passed in September 2009; the reforms in the Investment Code including the elimination of the ad hoc incentives, was enacted in April 2010.

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Table 2: Liberia RRSPII Key Indicators of Outcome

1. Average difference between out-turn and legislated budget for each Ministry, as measured by PEFA indicator PI-2 Baseline: 19% (2007) Target: 15% (FY09/10) 2. % of value of non-competitive procurement without justification. Baseline: 80% (2008) Target: No more than 20% (June 2010) 3. Percentage of civil servants captured in the Biometrics System, based on the one staff, one file principle.

Baseline: 0 percent (2008) Target: 100 percent (June 2010) 4. Audit reports for five high risks M&A completed by the GAC and submitted to the Parliament. Baseline: no external audit reports submitted (2008) Target: External audit of the central government’s accounts submitted to the Parliament within nine months of year end for FY08/09

5. Automaticity in the approval of investment incentives for investments not requiring the approval of the Parliament. Baseline: No automaticity in investment incentives approval (2008) Target: 100% automaticity in investment incentives (Measured as a share of the total number of incentives) (June 2010)

2.2 Major Factors Affecting Implementation:

External Factors

18. The global economic crisis has had a negative impact on the Liberian economy and created challenges in managing the budget. The international economic slowdown has resulted in both lower commodity prices and export volumes. In addition, foreign investment was lower and/or delayed in key growth sectors (mining, rubber, oil palm and forestry). Substantial job losses occurred in the export and construction sectors. The government responded to the global crisis on a number of fronts. First, it waived the import duty on rice, the country’s food staple at an overall cost of US$8.7 million or about 0.9 percent of the FY09/10 GDP. It is also implemented, with support from IDA, a Cash-for-Work Temporary Employment Project to provide income to vulnerable households. Second, the government has been able to obtain more grants to help fill the gap from lower tax revenues. Third, the government has tried to broaden the tax base, through tax policy reforms and modernization of domestic tax and customs administration to improve tax compliance and increase tax revenues. As a result of the crisis, tax revenues for FY2009/10 were nearly US$18 million lower than projected. This in the face of demand to increase expenditure for programs to protect the vulnerable created challenges for the government to meet the expenditure variance target of 15 percent.

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Factors under Government Control

19. Two major factors were critical to the positive implementation of the program: strong government ownership and strong donor support and coordination. These are discussed in turn below.

Strong Government Ownership

20. The government demonstrated strong ownership of the reform program supported by the RRSPII. The specific reforms supported by this operation were critical elements in the Government’s strategy as set out in its PRS and have been promoted and advanced by both the President and the Minister of Finance. The strength of Liberia’s ownership of the reform program reflects substantial support from civil society. The EGSC, which is the steering committee for the GEMAP, includes representatives from civil society. The GEMAP technical team also has civil society representation. Moreover, the Liberia Reconstruction and Development Committee (LRDC) includes representatives from civil society. Finally, PRS was developed through a broad participatory process that involved administrative and technical personnel, elected officials, women and youth leaders, NGOs, the private sector, and the donor community. In sharp contrast to the marginalization that previously existed in Liberia—which contributed heavily to the outbreak of conflict—discussions were conducted on reducing poverty in all of Liberia’s 15 counties by county and development superintendents, tribal chiefs, and clan chiefs. The precedents for broad participation that were established in formulating I-PRS and PRS have now become an expected part of the process for future Government policy statements.

Effective Donor Coordination

21. The RRSP II was implemented in the context of very close coordination among the donors active in Liberia. Two of the prior actions for the operation, related to: (i)the legislative framework for public financial management law and (ii) audits were very closely coordinated with structural benchmarks for the IMF’s program because they were considered to be critical measures for both the Bank’s and the IMF’s program in Liberia. The European Union’s budget support operation included inter alia, both general and specific tranche release conditions that called for progress in the PFM area. The AfDB budget support operation which was approved in 2008 also had conditionalities related to progress on the PFM system. While there was some consistency of conditionalities across donors providing budget support there could have been better harmonization of these conditionalities to reduce the transactions cost for the Government.

22. The Bank’s support through RRSPII was a response to Government efforts to align donor support in order to lower transaction costs and to harmonize the policy dialogue with donors around PRS priorities. The World Bank took the lead in supporting the Government in the development of the Common Assessment Framework (CAF) as a strategic tool for jointly assessing results under the Government’s reform program. With the phase-out of GEMAP at HIPC completion point in June 2010, the Government is committed to using the CAF as the primary mechanism for harmonizing

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donor support to Liberia (including budget support). The main donors, including the three donors providing budget support are fully engaged in the CAF process which is managed by the Budget Support Working Group led by the Ministry of Finance. Donor aid coordination and policy dialogue is now managed through the Liberia Reconstruction and Development Committee (LRDC), chaired by the President, which serves as a coordinating mechanism for development assistance as well as the oversight body for the PRS.5 Through the LRDC, the government articulates its national priorities and works directly with donors to ensure that resources are directed to priority interventions.

2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization:

23. M&E design, implementation, and utilization are rudimentary in Liberia. Poor quality data is the result of both the destruction of statistical capability, as well as the obsolescence of base line data and surveys which are more than a quarter of a century old, in an environment where much productive capacity has been destroyed.6 These data limitations have been exacerbated by weak financial and human resources for M&E. Consequently, the government has had to completely rebuild its statistical capacity and assemble reliable baseline data on poverty, demographics, and key economic sectors. The Liberia Institute of Statistics and Geo-Information Services (LISGIS) has, despite severe capacity constraints, made significant progress, including implementing a number of national surveys;7 conducting Liberia’s first population census in over 20 years; and developing a National Strategy for the Development of Statistics to provide a framework for the revitalization of statistical capacity in Liberia.

24. Despite the lack of a strong formal M&E system, the government was pro-active in monitoring the areas critical to prior actions. For example, regular meetings of the Cash Management Committee and budget support working group as well as at the higher level of the EGSC tracked and monitored progress towards outcome. The adequacy of budget execution and monitoring was also addressed by other activities financed under other Bank instruments (e.g., LICUS and TFLIB grants and the EGIRP), as well as by the IMF and other donors, and supported by RRSPII.

2.4 Expected Next Phase/Follow-up Operation (if any):

25. The RRSPII prepared the ground for possible future support to Liberia through a follow-on development policy operation. In anticipation of this support, the

5 The LRDC is organized in accordance with the four Pillars in the Government’s PRS, thus ensuring that donor support is aligned with the Government’s reform agenda. 6 The last population census was conducted over 20 years ago, economic statistics were limited to Monrovia for many years, and routine data collection at service delivery agencies collapsed. 7 These include a Core Welfare Indicators Questionnaire (CWIQ) Survey; a Demographic and Health Survey (DHS); a Comprehensive Food Security and Nutrition Survey (CFNS); and a Participatory Poverty Assessment (PPA). A National Population and Housing Census was also planned in 2008.

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RRSP’s policy matrices proposed “subsequent phases” of reform measures that could sequentially follow on from the key measures and DPO prior actions.

26. As the Government’s has maintained its commitment to and continued its progress on its reform agenda, a follow-on operation – the Third Re-engagement and Reform Support Program (RRSPIII) was submitted to the Board in September 2010. The objectives of this proposed grant are to support government-owned, ongoing reforms to strengthen public sector functions and governance and to improve the environment for pro-poor, private-sector-led growth that is more broadly shared. More specifically, the RRSPIII focuses on: (i) further improving budget planning and execution; (ii) enhancing revenue administration; and (iii) improving land administration to reduce conflicts and enhance the investment climate.

3. Assessment of Outcomes

3.1 Relevance of Objectives, Design and Implementation

27. The objectives, design, and implementation of RRSPII were highly relevant to Liberia’s development priorities as expressed the PRS. The RRSPII’s design and support were appropriate to country circumstances and were necessitated by Liberia’s exceptional status as a post-conflict country with a history of economic mismanagement and poor governance. The operation was also consistent with the Bank’s assistance strategy, was complementary with other Bank activities in Liberia, reflected the Bank’s global priorities, and was closely coordinated with IMF and AfDB overall operations and support to the Government of Liberia. Finally, the RRSPII anticipated the potential risks well and identified reasonably appropriate mitigating measures.

Consistency with Government Priorities

28. The RRSPII was consistent with the priorities articulated in Liberia’s PRS. The reform and rebuilding of core state functions and institutions; the improvement in public sector management, transparency and governance; and the facilitation of pro-poor growth. The specific reforms supported by the operation (Table 1) were major elements in that strategy; they were listed in the Government’s policy matrix for the operation and strongly promoted by the Government, including getting the proposed laws passed in a divided Parliament subsequent to the approval of RRSPII.

Program Design

29. Owing to Liberia’s fragile security and economic circumstances, program design appropriately proceeded under the Bank’s Operational Policy 8.60 on Development Policy Operations, especially as it related to such countries.8 Under RRSPI, Liberia had

8 OP 8.60 notes that “countries affected by crisis or conflict may require an unusually quick response from the Bank. There may not be sufficient time or country capacity to adequately address design considerations (such as possible distributional effects, effects on natural resources and the environment, fiduciary arrangements), or a strong policy program developed with stakeholder consultation.”

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already received exceptional arrears clearance support from the allocation of IDA resources to finance the full amount of Liberia’s IBRD/IDA arrears, reflecting Liberia’s low level of income, very high level of indebtedness, and limited capacity to mobilize domestic resources.9 The policies supported were important elements supporting both the JCAF and the Government’s program.

Relationship with Bank Strategy

30. The RRSPII was designed to support the objectives of the Joint Country Assistance Strategy with the African Development Bank (JCAS) as well as the Liberia’s PRS. The overarching strategy of the government and the JCAS was to support Liberia’s transition from post-conflict relief to long-term development, while laying the foundations for sustained, shared economic growth. That strategy was underpinned by a three-pronged approach focusing on rebuilding of state capacity, ensuring visible impact and transparency, and strengthening donor coordination. This overall strategy reflected the Bank’s Lessons-Learned from other post-conflict countries and the steps that would be needed to prevent back-sliding into conflict. Principally, these included a focus on governance reforms and the need to ensure high levels of donor support for critical reform measures focused on Public Financial Management and other governance areas, within what was typically a narrow window of opportunity.

31. The RRSPII directly supported this strategy through its support for preparation of timelier budgets, improvement of the legislative framework for managing public expenditures, development of a strategy for Civil Service Reform, auditing of key ministries, and reform of the revenue and investment codes, including the elimination of ad hoc incentives to individual investors.

Complementarities with Other World Bank Activities

32. The RRSPII was implemented in close coordination with other Bank interventions. These include: (i) analytical work under the Public Expenditure Management and Financial Accountability Review (PEMFAR), 10 which has been the basis for reform of public financial management reforms; and (ii) technical assistance through various sources. These included: (a) a US$6 million Technical Assistance Grant to the government, for implementation of the GEMAP 11 and other needed reforms

9 This exceptional approach was consistent with that of the AfDB and the IMF. Under the AfDB’s Post Conflict Country Facility (PCFF) framework, arrears clearance would typically be shared equally between the borrower, the PCCF, and donors. Given Liberia’s limited payment capacity, however, one third of the cost was financed by bilateral donors and two-thirds from PCCF resources; in recognition of Liberia’s weak financial resources, bilateral donor assistance also financed the 1 percent contribution that typically would have been required from Liberia. Likewise, the IMF Executive Board amended the IMF’s PRGF-HIPC Trust Instrument to allow certain SMPs in clearly defined circumstances to count towards the track record under the HIPC initiative, and subsequently agreed that Liberia’s performance under its SMP satisfied this provision. 10 The PEMFAR also included a Country Financial Accountability Assessment (CFAA), a Country Procurement Assessment Review (CPAR), an assessment of the systems and arrangements for budget planning, and an analysis of public expenditure allocations.

11 RRSPII directly supports the principles of GEMAP.

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identified by PEMFAR and to reach the HIPC Completion Point; (b) a technical assistance grant for US$11 million through the Economic Governance and Institutional Reform Project (EGIRP), to provide medium-term support for improvement of the efficiency and transparency of managing financial and human resources that focuses on revenue administration, public procurement, budget execution and payroll management, as well as to improve financial management and governance in the mining sector; (c) the Liberia Land Sector Reform Project (US$3 million equivalent), (d) budget training for members of the new legislature from the World Bank Institute; and (e) statistical capacity building assistance from the Statistical Capacity Building Trust Fund administered by the Bank. An IFMIS project is assisting the government in financial management through the provision and installation of computerized financial management information systems in the Finance Ministry and strengthening manual programs in the line ministries and counties.

Alignment with Good Practice Principles on Conditionality

33. The RRSPII was explicitly aligned with the Bank’s five Good Practice Principles on Conditionality. In accordance with these principles, the RRSPII reinforced ownership by being embedded in the GEMAP framework and through its alignment with the PRS; by using the Government’s Economic Governance Steering Committee (EGSC) as a coordinated accountability framework; and by supporting a focused set of prior actions that were chosen in conjunction with the Government and other partners, in light of their priorities.

Risks and Risk Mitigation

34. The RRSPII satisfactorily recognized the principal risks to the reform program and identified factors that would mitigate these risks. Broadly speaking, the risk mitigation factors included the Government’s commitment to macroeconomic stability and its close communications with opposition parties in parliament and its close interaction with civil society. In addition, the actions supported by RRSPII, notably the PFM law, the start on Civil Service reform, and the new Liberia Revenue and Investment Codes, will themselves reduce the risks to the sustainability of the reforms, by helping to make public financial management stronger and more transparent and reducing the risks of corruption. During the implementation of the operation, the risks to the program listed in Table 3 either did not arise or were successfully mitigated. While external shocks were indicated as a possible risk, the fiscal impact of the global economic crisis was larger than anticipated. However, macroeconomic stability was maintained.

3.2 Achievement of Program Development Objectives

35. RRSPII supported five important institutional and policy actions that contributed directly to the CAS objectives of rebuilding core state functions and institutions and economic revitalization. The prior actions were critical to deepening Governance reforms and aimed at: (i) improving the efficiency of budget preparation and execution and increasing the professionalism and improving the human resource

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management of the civil service and (ii) improving the investment climate through the reform of the revenue and private investment regimes.

Objective 1: Improving the efficiency of budget preparation and execution and increasing the professionalism and improving the human resource management of the civil service. 36. In the area of improving the efficiency of budget preparation and execution, RRSPII supported the extension and use of the interim system for accounting and reporting in the Ministry of Finance by providing access to the system to the Comptroller General Office to facilitate the preparation of timely budget reports. The lack of an adequate system for accounting, control and reporting on the budget and on expenditure in particular has led to larger variances between budget out-turn and legislated budget. The extension of the interim accounting system to the Comptroller General’s office facilitated in part through technical assistance from the EGIRP project was expected to facilitate more accurate monthly budget reporting, including variances. An important outcome of this support was therefore more effective planning and execution of the budget as reflected in a reduction in variance between the legislated budget and the actual budget. The 2007 PEFA reported a total expenditure variance of 19 percent. The RRSPII targeted a reduction in the total expenditure variance to 15 percent for the (FY09/10) budget.

37. The reforms have resulted in an improvement in the preparation and execution of the budget. Although the global crisis in 2008/09 has made budgetary management difficult given the reduction in revenues, the quarterly fiscal reports from the Comptroller General’s office and consequently better expenditure planning has helped to keep expenditures in line with revenues. For the 2008/09 budget, expenditures in the base budget were US$298.1 million while the expenditure for the contingent budget12 was US$270.2 million. The actual expenditure out-turn was US$250.5 million. This reflected a difference of US$47.6 million or 15.9 percent compared with the base budget but a variance of 7.3 percent when compared with the contingent budget. The variance largely reflects the Government’s slowdown of domestic expenditure in response to the slowdown in revenues as well as the inability of spending ministries to utilize allotments largely due to weak procurement capacity. For the 2009/10 budget, the risk adjusted or base budget approved was US$287.6 million and the actual expenditure out-turn was US$282.2 million, reflecting a variance of less than 2 percent.

38. Significant progress was made on PFM legislation. The RRSPII also supported policy actions to improve the legislative framework for public financial management by supporting the submission to the Parliament of a Public Finance Act, as well as

12 The Government prudently prepared a base and a contingent budget to reflect the uncertainties surrounding some of the revenues from the concessions.

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amendments to the Public Procurement and Concessions Act (PPCA); and the preparation of implementing regulations, and manuals to implement the Acts. A comprehensive PFM law with attendant regulations addressing weaknesses in budget preparation and execution including cash planning as well as debt management was expected to strengthen fiscal management. The public Procurement and Concessions Act passed in 2005 was a significant step towards addressing the issues of non-competitive procurements. The Act required amendments to revise thresholds and to change rules governing licensing procedures and clarify roles and responsibilities of the Public Procurement and Concession Commission. The amended PPCA and related regulations, manuals and instructions were therefore expected to lead to a reduction in the share of non-competitive procurement from its 2008 baseline value of 80 percent to no more than 20 percent by June 2010.

39. In August 2009, the Legislature approved a new Public Finance Management (PFM) law.13 The draft law was submitted to the Legislature in September 2008. The law was passed in a special session of the Legislature some six to nine months later than expected. As a result of delays in approving the law, there were corresponding delays in drafting the regulations (which were prepared with IMF technical assistance). The law covers the full public financial management cycle, including budget preparation, approval and execution, borrowing, public debt and guarantees, cash management, accounting and reporting, internal control and audit, and autonomous agencies and special funds. Following this, in November 2009, the President approved the enabling regulations for the law. Since that time, the authorities have made impressive advances in implementing the new law: (i) the FY2010/11 budget was prepared according to law, (ii) a unified accounting function was put in place in the Ministry of Finance, (iii) a high level debt management committee was established, which issued a revised debt management strategy for the post-HIPC completion point period, and (iv) a chart of accounts and international accounting standards were adopted. 40. The amendments to the Public Procurement and Concessions Act were submitted to Parliament in April 2009 but passage was delayed. The implementing regulations, manual and instructions were prepared in March 2009. However, the amended Act was only passed on September 16, 2010. The delay in the passage of the amended Act was in part due to the debate on whether to have a separate institution with oversight for concessions. However, operating on the basis of the spirit of the amended Act, the Government was still able to make substantial progress in reducing the level of non-competitive procurement—a common source of corruption. Based on contracts data regularly published by the Procurement and Concession Commission, the percentage of value of non-competitive procurement has been substantially reduced from around 80 percent in 2008 to 7.5 percent for contracts issues for the 2008/09 fiscal year. Data available only for the first three quarters of the 2009/10 fiscal year ending in June 2010 showed that 9.2 percent of the total value of contracts for the period was non-competitive, well below the target of 20 percent.

13 The PFM law was signed into law by the President on September 2, 2009.

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41. The Government has made remarkable progress on budget execution oversight through the conduct of audits for the first time in more than twenty years. The prior action under RRSPIII supported the audit of Government accounts for key spending ministries (Health, Education, Public Works, Finance and Lands Mines and Energy). This was considered to be an important step towards reviving the audit functions and supporting the Parliament’s key oversight role. A key indicator of the outcome under this prior action was that the external audits of the central government’s accounts were submitted to the Legislature within nine months of year end for FY08/09.

42. The Government has made considerable progress in developing and implementing a pragmatic audit strategy. The General Auditing Commission (GAC) was strengthened through the engagement of experienced auditors from neighboring countries. In addition, the logistical capability of the GAC was enhanced through technical assistance under the EGIRP project. Up to June 2010, the GAC has completed more than 25 audits including the audits for 2005/06, 2006/07 and 2007/08 for the five key spending ministries. The audits for the five key spending ministries were submitted to the Legislature and the President and also published in April 2009.

43. In the area of improving human resource management of the civil service, RRSPII supported the approval by the Cabinet of a Civil Service Reform Strategy and its publication. This strategy is expected to provide the framework for rebuilding a smaller more effective civil service. A critical first step to strengthening human resource management in the civil service was the implementation of a biometric identification system which is based on the one-staff, one-file principle. This was necessary for the establishment of an effective Human Resource Management Information System (HRMIS). The indicator was to capture 100 percent of civil servants into the biometric system by June 2010.

44. The implementation of the Civil Service Reform Strategy which was approved by the Cabinet in June 2008 had a slow start. However, learning from the first phase of implementation, the Government decided that more focus was needed and accordingly identified five medium-term priority areas as follows: (i) pay reform; (ii) establishing a HRMIS; (iii) pensions reform; (iv) creating a merit based system; and (v) decentralizing CSA services. The Medium Term Pay Reform Strategy as well as a new rationalized grading structure for civil servants was completed and adopted by the Cabinet in 2010. This will allow the government to move into the new grading structure, reduce discretionary allowances and target their salary increases in FY10/11. The government completed the pilot phase of the HRMIS and was expecting to have a complete clean employee registry by March 2010. However this did not happen because of delays in completing the biometric work. As of September 2010, only about 70 percent of the civil servants have been captured in the biometric system. While the target of having all civil servants in the system by June 2010 was not unrealistic, it was not met due largely to the underestimation of the funding requirement for the work including covering the rural counties. Furthermore, although some funding was available under World Bank technical assistance (EGIRP), the reallocation of the funds did not take place quickly and the implementation lost momentum. It is now estimated that the total biometric capture

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will be completed by end-December 2010. Not much progress has been made in the other three priority areas.

Objective 2: Improving the investment climate through the reform of the revenue and private investment regimes. 45. In this area, the prior actions for RRSPII supported policy actions to improve the environment for private investment. The specific policy actions involved the submission to the Parliament of bills to reform the Liberia Revenue Code and the National Investment Code14. This was a necessary step in the rationalization of the incentive framework for investment in Liberia. One specific measure of this rationalization was the repeal of section 204(e) of the Revenue Code which allowed the Government to enter into ad hoc tax concessions with individual investors on a case by case basis. A key indicator of the outcome under this prior action was therefore the 100 percent automatic approval of incentives for investors based on the reformed Revenue code.

46. In April 2010, the Investment Act and the Investment Commission Act were approved by the Government and signed by the President. The new Investment Act repealed and replaced the previous Investment Incentives Act of 1973. It simplifies and streamlines non-fiscal incentives for new investments mainly by eliminating any discriminatory and discretionary measures. Fiscal incentives are removed from the Investment Act and now provided for, on a non-discretionary basis, in the Liberia Revenue Code as amended in August 2009. The National Investment Commission Act of 1979 was also amended and replaced. The new Investment Commission, which comprises a number of Ministers (Finance, Planning, Justice, Commerce and State for Economic affairs), will provide advice to the Government on investment policy, identify projects, evaluate concession awards, and assist investors in complying with laws and regulations. However, the key indicator described above could not be assessed as there is no data on approved concessions since the passage of the Investment Code in April 2010 to provide the basis for verifying the automaticity of the incentives given to the investors.

3.4 Justification of Overall Outcome Rating Rating: Satisfactory 47. The RRSPII is rated satisfactory. The operation’s objectives, design, implementation, and outcomes were highly relevant to Liberia’s own development priorities and country circumstances as defined by Liberia’s in its PRS, and as articulated in public statements by the government. The operation was also fully consistent with the Bank’s assistance strategy as expressed in the JCAS. It was complementary with other Bank activities in Liberia, reflected the Bank’s global priorities, and was closely coordinated with the IMF, the AfDB and other donors’ activities. The operation’s PDOs

14 Technical assistance for the drafting of the Revenue Code was provided by the IMF and assistance for the drafting of the investment code was provided by the IFC.

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were broadly met, since the laws that were submitted to Parliament as prior actions were also passed through the efforts of the administration, despite the divided nature of Parliament. These objectives were important in achieving the country’s priorities and the key indicators of the project’s success have been essentially completed with the notable exception of the completion of the of civil servant biometric system. This operation was appropriately supported by technical assistance provided through complementary Bank activities in the areas of capacity building and public financial management strengthening through the EGIRP and other grants.

3.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development 48. Although the gains in these areas are difficult to measure, the operation anticipated some positive poverty impacts through the distributional effects from improved public financial management and better targeting of social assistance. In addition, the grant was expected to enhance the country’s capacity to better provide basic services with a beneficial impact on the poor. It was also anticipated that IDA support through this operation would have an important signaling role and serve as a catalyst for the other donors to increase budget support to Liberia.

49. Distributional changes in spending were manifest in the budget, where the allocations for the core poverty ministries, including Public Works, Education, Health and Agriculture, showed substantial increases. These increased expenditures are expected to improve infrastructure, expand access to the Basic Package of Health Services, rehabilitate and construct schools, and improve agriculture —a sector in which a large proportion of the poor is engaged. The allocation in the 2008/09 budget of resources for development activities in the counties has also increased 300 percent over the 2007/08 budget. This implies, potentially, a better distribution of resources to the poor across the counties.

50. Ability to track donor support is improving as a result of the RRSPII, although difficulties remain owing to the large share of donor support outside of the budget. An estimate from the Aid Management Unit in the Ministry of Finance put the FY2009/10 disbursement on non-Government executed project at US$340.3 million compared with the budget of US$282 million including US$23 million in donor grants. The AfDB has provided direct budget support since the work on arrears and the EU is considering the provision of budget support. (b) Institutional Change/Strengthening 51. When the RRSPI was prepared, the Liberian Government was characterized by exceptionally weak capacity, even by low-income developing countries standards. The prolonged civil conflict resulted in the loss of much institutional capacity and the near-total breakdown of established practices and procedures, notably for public financial management. Moreover, most of the civil servants recruited over the previous two decades, and a large share of the state-owned enterprise (SOE) staff were unqualified, poorly-educated, patronage appointees. The low level of staff education and training makes capacity building difficult but it is proceeding.

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52. The RRSPII supported some improvement in institutions. The accounting system is being shared across government to help in the preparation of the budget and with the Controller General to monitor outcomes. The framework for public financial management has been substantially improved with the PFM Act and the amendments to the Procurement and Concessions Act. The work on the biometric identification system is systematically removing ghost workers from the Government’s payroll. The General Auditing Commission has been strengthened. Finally, the new Revenue code will strengthen and make more transparent the granting of concessions, by eliminating the granting of ad hoc concessions, and improving tax and customs administration.

53. The RRSPII was accompanied by substantial, intensive technical assistance for capacity improvement that was provided by the World Bank and other donors in the areas covered by the operation. World Bank-supported training has strengthened legislators’ budget oversight capability and improved Liberia’s statistical capacity. An EITI Secretariat was established as part of Liberia’s compliance with the extractive industry initiative under RRSPI with extensive support from the World Bank and other donors; this will help in the set up of new concessions under the framework of RRSPII that eliminates ad hoc incentives in concessions. Although the Cash Management Committee (CMC) existed prior to this operation, it has become more active and obtained the authority and capability to monitor and account for transactions.

(c) Other Unintended Outcomes and Impacts (positive or negative, if any) None

3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops Not applicable

4. Assessment of Risk to Development Outcome Rating: Significant 54. The risks facing the project were satisfactorily assessed, as were the factors that would help to mitigate them. The reforms achieved under the operation have benefitted from the strong ownership and the commitment of the Government. Some of the reforms themselves serve to mitigate some of the risks that might undermine the development outcomes.

55. Security risks: The internal security situation in Liberia remains fragile because a significant number of ex-combatants are still unemployed. Although pro-poor growth will help, there are few strong domestic institutions that can mediate conflicts and enable their resolution without recourse to violence. In addition, externally, the political situation in Liberia’s neighbors, Côte d’Ivoire, Guinea, and Guinea-Bissau remains fragile. Mitigating the risk to reforms from deterioration in security posed by these threats will require Liberia to develop effective security institutions based in law and subject to civilian authority, and continued efforts to promote both domestic and sub-regional peace and security.

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56. Political risk: Reforms of public financial management, public administration and the investment framework required legislative reforms. At the time of RRSPII, the Government of president Sirleaf lacked a majority in Parliament, and therefore may have faced difficulties in enacting its legislative agenda, particularly as the election of 2011 approached. However, close interaction with the opposition parties in parliament, supported by technical assistance in explaining the government’s position, enabled the president and her party to pass a number of bills, including those submitted to parliament as prior actions for RRSPII. In addition, this risk has been partially mitigated through training of legislators and legislative staff, funded by the Bank (including through the EGIRP) and other partners. Another factor mitigating this risk is the government’s close interaction with civil society and key stakeholders. Civil society has come to expect this interaction and it is likely to continue after the 2011 elections.

57. Macroeconomic Risk: The country remains highly vulnerable to domestic and external shocks. Mitigation of this risk will eventually come from more rapid growth, and improved revenue performance as timber and iron ore exports and foreign investment improve. The government’s demonstrated commitment to fiscal prudence and economic stability is another mitigation factor, along with the PFM and the improvement in the revenues, procurement, and concessions under legal changes supported by RRSPII. In addition, the World Bank, IMF and other donors closely monitor Liberia’s progress. Substantial progress has been made on reducing debt and the HIPC completion point was reached at end-June 2010, resulting in a reduction of debt to 15 percent of GDP.

Fiduciary Risk: Liberia faces risks from failure to suppress corruption or make effective use of its limited fiscal space. To some extent, the actions under RRSPII themselves mitigate these risks. Examples are the new PFM law, the improvements in the Public Procurement Act, the beginnings of civil service reform, and the Revenue and Investment laws and the improvements in tax payer biometric identification. Measures of good governance are improving but remain low. Liberia’s ranking on Transparency International’s 2009 Corruption Perception Index, which has improved. In 2010 Liberia ranked 87th out of 178 countries with a score of 3.3 out of 10 compared with a ranking of 97th out of 180 countries with a score of 3.1 out of 10 in 2009 and a ranking of 150th out of 179 countries with a score of 2.1 out of 10 in 2007. Nevertheless, and the fiduciary risk assessed in RRSPII remains substantial. 58. Implementation risk: Implementation capacity is limited in Liberia and will improve only slowly. There is a lack of well- qualified middle and senior staff and civil service remuneration is low. Attempts are being made to reduce this problem through the Civil Service Reform supported under RRSPII. Other approaches to reduce the problem are the use of external experts; support for higher salaries through a Senior Executive Services program financed by a Bank emergency project; and capacity building efforts, including an active training program by the Bank (including through the EGIRP) and other partners. Although the laws arising from RRSPII and other efforts to improve governance and fiduciary responsibility represent substantial progress, they sometimes lack sufficient backing for actions on violations. Examples include the lack of resources and qualified staff to implement the Public Procurement Act. Another issue is improvement in the follow-up to audits.

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5. Assessment of Bank and Borrower Performance

5.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: Satisfactory 59. Quality at entry was ensured through a high level of consistency between the operation and the JCAS, and by close management attention to the importance of and potential for implementation of the prior actions. The prior actions were set in close coordination with the specific programs that the government considered important, ensuring government ownership. The approach followed explicitly the Bank’s good practice principles on conditionality into program design and implementation. Finally, the prior actions were limited in number but appropriately focused, ensuring that they targeted key reform needs in the country, as defined by the country and the Bank together.

60. The design of RRSPII at entry was closely coordinated with ongoing programs of World Bank technical assistance and with the IMF and other donors in numerous aspects. These aspects included programs for enhancing governance such as EGRIP, GEMAP, and a LICUS trust fund grant, as noted, as well as specific efforts to build capacity in the Parliament and strengthen statistical capacity. Collaboration with the IMF was close, with a division of labor based on respective areas of strength.

(b) Quality of Supervision Rating: Satisfactory 61. Supervision was carried out through close consultations with the government and with other development partners through the GEMAP, EGSC and the LRDC. This approach both reduced transaction costs for the government and ensured program adherence to the government’s development priorities. In particular, the supervision took place in close collaboration with the IMF across a number of areas. Close consultation with other development partners began in the preparation of the Joint Country Assistance Strategy in 2008, and continued through regular meetings with the donors and government to confer on strategy and implementation issues.

(c) Justification of Rating for Overall Bank Performance Rating: Satisfactory 62. The RRSPII was a well-designed and implemented operation, as described above. Bank performance for both quality at entry and supervision were rated satisfactory. Correspondingly, overall Bank performance is rated satisfactory.

5.2 Borrower Performance (a) Government Performance Rating: Satisfactory

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(b) Implementing Agency or Agencies Performance Rating: Not applicable as described above. The Government and the implementing agency were the same. (c) Justification of Rating for Overall Borrower Performance Rating: Satisfactory

63. ICR Guidelines (Appendix A) identify nine criteria for rating Government performance. Overall Government performance is rated satisfactory in accordance with seven of these criteria:

Government ownership and commitment to achieving the development objectives was strong.

The enabling environment included supportive macro, sectoral, and institutional policies that were appropriate to country circumstances.

Stakeholders and civil society were consulted extensively in the formulation of the PRS and the RRSPII supported key reforms of the PRS.

Fiduciary requirements were met satisfactorily.

Implementation issues were resolved on a timely basis.

The relationships and coordination with the Bank and other donors through the EGSC and the LRDC were excellent throughout.

The PRS provide a comprehensive framework for continued growth and poverty reduction and transition to the next series of operations.

64. Some lack of progress has been described above in terms of: (i) the adequacy of the Government’s implementation capacity, and (ii) M&E arrangements, including the utilization of M&E data in decision-making and resource allocation. This however was due to the low base of Liberia’s human resource and to the substantial technical capacity constraints. The assessment finds it commendable that the Government was able to deliver the agreed program despite the significant post conflict challenges facing the country.

6. Lessons Learned 65. The success of the RRSPII operation shows that gains can be made with Government ownership and commitment. These gains are achievable even in countries facing risks from low capacity and post-conflict issues, such as Liberia, and within the context of even a small project. RRSPII was able to support a few, specific, important, prior reforms that that had been indicated through substantial consultation with civil society, that the government owned completely, and to which it was committed. The government’s ownership and commitment was shown by its ability to obtain

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parliamentary approval of the required legislation, despite the lack of a government parliamentary majority.

66. In countries with limited capacity for implementation, it is particularly important to select a few focused actions that are deemed essential to supporting the government’s broader reform program. Such selectivity will not only reduce the transactions costs on a government that is already burdened by multiple management demands, but it will also increase the likelihood that such focused actions are both likely to be enacted and to move the reform program forward. RRSPII is an example; the anticipated results of the operation and its prior actions were defined realistically and taking into account the government’s implementation capacity, including specific processes such as audits.

67. In countries where capacity is weak it is necessary to ensure that Development Policy Operations are accompanied by a critical mass of technical assistance. This is necessary to ensure that the commitment and willingness to reform is supported by the capacity to reform. This was the case in RRSPII, where there was substantial support from technical assistance provided by other World Bank operations and by other donors. This technical assistance will be necessary to support the further implementation of the elements supported by the RRSPII, for example to develop further the audit capacity and follow-up to use the results, and to develop the capacity for enforcing competitive procurement. As in the case of RRSPII, the effectiveness of policy and institutional reform operations is enhanced by its complementarities with other Bank financed technical assistance operations and the efforts of other active donors in the reform areas, such as the AfDP, the EU, and the IMF.

68. A Common Assessment Framework that is managed by the Government and supported by the donors can be an effective tool for facilitating deeper harmonization of donors support. The CAF that was developed and implemented with World Bank support provided the focal point not only for assessing results and agreeing strategic interventions but also provided the basis for harmonizing the trigger for budget support operations between the World Bank, the African Development Bank and the European Union.

69. Identifying good indicators to evaluate progress can be difficult, especially in countries with data and capacity. Also given the short time span covered by the operation, it was difficult to find indicators that could show improvement by the close of the operation. This is particularly important for stand-alone operation where there is no succeeding operation to continue the monitoring of the indicator.

7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/Implementing agencies Please see Annex 4 (b) Cofinanciers (c) Other partners and stakeholders

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Annex 1 Bank Lending and Implementation Support/Supervision Processes

(a) Task Team members

Names Title Unit Responsibility/

Specialty Lending Errol Graham Sr. Economist AFTP4 Team Leader Winston Percy Onipede Cole Sr. Financial Management Specialist AFTFM FM Emmanuel Doe Fiadzo Senior Economist AFTP4 Anthony Mensa-Bonsu Consultant AFTPC Procurement Rajiv Sondhi Sr. Finance Officer CTRFC Finance Officer Jonathan David Pavluk Sr Counsel LEGAF Legal Anna Kristiina Karjanlahti ET Consultant AFTP4 Rebecca Simson E T Consultant AFTP2 Glaucia Reis Ferreira Language Program Assistant AFTP4 Esther Bryant Team Assistant AFMLR

Supervision Winston Percy Onipede Cole Sr Financial Management Specialist AFTFM Emmanuel Doe Fiadzo Senior Economist AFTP4 Rebecca Simson E T Consultant AFTP2 (b) Staff Time and Cost

Stage Staff Time and Cost (Bank Budget Only)

No. of staff weeks USD Thousands (including travel and consultant costs)

Lending

Total: 33.21 189,333.69 Supervision/ICR

Total: 0.00

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Annex 2. Beneficiary Survey Results Not applicable

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Annex 3. Stakeholder Workshop Report and Results Not applicable

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Annex 4. Summary of Borrower's ICR and/or Comments on Draft ICR

Government of Liberia RRSPII Implementation Completion Report

(i) Assessment of the operation’s objective, design, implementation, and operational experience The design, implementation and operational experience were positive, as evidenced by the program’s success. The RRSP II prior actions were anchored in our national reform agenda and the program was designed to support the strengthening of our public financial management, both in terms of execution and transparency, while facilitating pro-poor growth. The prior actions were also consistent with our HIPC triggers. The RRSPII supported reform in five crucial areas: (i) budget preparation; (ii) the legislative framework for managing public sector expenditure from budgeting to expenditure and then accounting and reporting; (iii) a strategy for Civil Service reform and improved effectiveness; (iv) audit of key ministries for FY05-06 and FY 06-07; and (v) reform of the revenue code and the investment code, including the elimination of ad hoc incentives to individual investors. (ii) Assessment of the outcome of the operation against the agreed objectives The government successfully implemented all five prior actions which included the passage of a comprehensive Public Financial Management Law in August 2009 and amendments to the Liberian Revenue Code in September 2009. We launched SunSystem to automate our accounting and reporting functions across government and a first budget report was produced in August 2008. We submitted amendments to the Public Procurement and Concessions Act in April 2009 and these were subsequently enacted in August 2009. A new National Investment Code was submitted to the Legislature in conjunction with an amended Revenue Code. We also completed and Cabinet approved a civil service reform strategy. Our General Auditing Commission completed a series of audits for five key government ministries including Finance, Education, Public Works, Land Mines and Energy and Health for FY05-06 and FY06-07. (iii) Evaluation of the borrower’s own performance during the preparation and implementation of the operation, with special emphasis on lessons learned that may be helpful in the future These ambitious reforms set the framework for stronger economic and financial management increasing transparency and accountability across government. However, issues of implementation and execution remain in a low-capacity environment and we continue to rely heavily on our partner’s technical input. The legislative agenda for the prior actions was heavy and passage of the laws at times proved more difficult

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than envisaged but this also strengthened intra governmental policy dialogue and coordination. (iv) Evaluation of the performance of the Bank, any co-financiers, or of other partners during the preparation and implementation of the operation, including the effectiveness of their relationships, with special emphasis on lessons learned The World Bank has been strong in providing invaluable technical and financial support. The International Monetary Fund has also provided crucial technical, especially in the area of public financial management. We have appreciated donor coordination efforts and flexibility in these areas.

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Annex 5. Comments of Cofinanciers and Other Partners/Stakeholders Not applicable

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Annex 6. List of Supporting Documents

World Bank (chronological order)

Joint Staff Advisory Note on the Republic of Liberia Interim Poverty Reduction Strategy Paper, April 25, 2007.

Operations Committee Memorandum, “Liberia: Proposed Country Re-engagement and Reform Support Program Revised Documentation,” July 18, 2007.

Memorandum and Recommendations of the President of the International Development Association to the Executive Directors on Assistance to the Republic of Liberia under the Enhanced HIPC Debt Initiative, Report no. 42524-LR, February 27, 2008.

Memorandum, Operations Committee (OC) Review, “Liberia: Proposed Country Re-engagement and Reform Support Operation – Revised Documentation for Virtual OC Review,” 7/19/2007.

IDA Program Document, Re-engagement and Reform Support Program, Report No. 40307-LR, November 20, 2007.

‘Emergency Project Paper for an IDA Grant in the Amount of SDR6.7 Million (US$ 11.0 Million Equivalent) o the Republic of Liberia for an Economic Governance and Institutional and Institutional Reform Project,” Report No. 42836-LR, April 29, 2008.

Joint IDA-IMF Staff Advisory Note on the Poverty Reduction Strategy Paper; Report No. 44153-LR, June 24, 2008.

Supervision of RRSPII and Identification of RRSPII Aide Memoire, November 2009.

IDA Program Document, Second Re-engagement and Reform Support Program (RRSP II), Report No. 46508-LR (Draft), December 2009.

International Monetary Fund (chronological order)

“Liberia—Staff Report for the 2008 Article IV Consultation, First Review of the Three-Year Poverty Reduction and Growth Facility Arrangement, Financing Assurances Review, and Requests for Waiver and Modification of Performance Criteria,” November 24, 2008.

“Liberia – Letter of Assessment,” December 3, 2008

Lodewyk Erasmus; Jules Leichter; Jeta Menkulasi “ Dedollarization in Liberia—Lessons from Cross-country Experience” , IMF Working Paper, WP/09/37.

S I E R R AS I E R R AL E O N EL E O N E

G U I N E AG U I N E A

C Ô T EC Ô T ED ’ I V O I R ED ’ I V O I R E

Wologiz

i Rang

e W

onogizi

Mts

.

Nimba M

ts.

Mt. WuteveMt. Wuteve(1,380 m)(1,380 m)

L O FAL O FA

B O M IB O M IM A R G I B IM A R G I B I

B O N GB O N GN I M B AN I M B A

G R A N DG R A N DB A S S AB A S S A

R I V E R C E S SR I V E R C E S S G R A N D G E D E HG R A N D G E D E H

S I N O ES I N O E

G R A N DG R A N DK R UK R U

MA RY L A

ND

GRANDGRANDCAPECAPE

MOUNTMOUNT

BoBo

GelahunGelahun

VahunVahun

KolahunKolahun

KlayKlay

TototaTototaZienzuZienzu

PalalaPalala

BotataBotata

YopieYopie

YekepaYekepa

TapetaTapeta

GuataGuata

TradeTradeTownTown

GongleeGonglee

PynePyne

Kola TownKola TownPoabliPoabli

BabuBabu

KopoKopo

TawlokehnTawlokehn

PliboPlibo

NyaakeNyaake

JuazohnJuazohn

PelokehnPelokehn

KahnwiaKahnwiaTawakeTawake

BokoaBokoa

HartfordHartford GaamodebiGaamodebi

SagleipieSagleipie

GloieGloie

TobliTobli

ZorzorZorzor

HarbelHarbel

KakataKakataCareysburgCareysburg

Bong TownBong TownTubmanburgTubmanburg

BopoluBopoluGbarngaGbarnga

ZwedruZwedru

BarclayvilleBarclayville

SenniquellieSenniquellie

VoinjamaVoinjama

G B A R P O L UG B A R P O L U

R I V E R G E ER I V E R G E E

BensonvilleBensonville

Fish TownFish Town

GbalatuahGbalatuah

KarnplayKarnplayGantaGanta

Kongo

Bo

Gelahun

Vahun

Kolahun

Klay

TototaZeansue

Gbalatuah

Palala

Botata

Yopie

Yekepa

Karnplay

Tappita

Guata

TradeTown

Gonglee

Pyne

Kola TownPoabli

Babu

Nana Kru

Kopo

Tawlokehn

Plibo

Nyaake

Juazohn

Pelokehn

KanweakenTawake

Sasstown

Grand Cess

Bokoa

Sehnkwehn

Hartford Gaamodebi

Ganta

Sagleipie

Gloie

Tobli

Zorzor

Harbel

Careysburg

Bong TownTubmanburg

BopoluGbarnga

Buchanan

Cestos City

Greenville

Zwedru

Barclayville

Fish Town

Harper

Senniquellie

Robertsport

Voinjama

Kakata

BensonvilleMONROVIA

L O FA

G B A R P O L U

B O M I

MONTSERRADO

M A R G I B I

B O N GN I M B A

G R A N DB A S S A

R I V E R C E S S G R A N D G E D E H

R I V E R G E ES I N O E

G R A N DK R U

MA RY L A

ND

GRANDCAPE

MOUNT

S I E R R AL E O N E

G U I N E A

C Ô T ED ’ I V O I R E

Dube

Cestos

St. Joh

n

St. Paul

Nia

nda

Via

Loffa

Gbeya

Nuon

ATLANTIC OCEAN

To Buedu

To Irié

To Nzérékoré

To Lola

To Danané

To Toulépleu

To Tabou

To Zimmi

To Kenema

To Pendembu

Wologiz

i Rang

e W

onogizi

Mts

.

Nimba M

ts.

Mt. Wuteve(1,380 m)

11°W 10°W 9°W 8°W

10°W 9°W 8°W

5°N

6°N

7°N

8°N

9°N

4°N

5°N

6°N

7°N

8°N

9°N

LIBERIA

This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other informationshown on this map do not imply, on the part of The World BankGroup, any judgment on the legal status of any territory, or anyendorsement or acceptance of such boundaries.

0 20 6040 80

0 60 Miles4020

100 Kilometers

IBRD 33435R2

JULY 2007

L IBERIASELECTED CITIES AND TOWNS

COUNTY CAPITALS

NATIONAL CAPITAL

RIVERS

MAIN ROADS

RAILROADS

COUNTY BOUNDARIES

INTERNATIONAL BOUNDARIES

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Documents

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