Document of The World Bank FOR OFFICIAL USE ONLY Report No: PAD1002 INTERNATIONAL DEVELOPMENT ASSOCIATION PROJECT APPRAISAL DOCUMENT ON A PROPOSED CREDIT IN THE AMOUNT OF SDR 4.0 MILLION (US$6.1 MILLION EQUIVALENT) AND A PROPOSED IDA GRANT IN THE AMOUNT OF SDR 15.5 MILLION (US$23.9 MILLION EQUIVALENT) TO THE CENTRAL AFRICAN REPUBLIC FOR AN EMERGENCY PUBLIC SERVICES RESPONSE PROJECT April 10, 2014 AFTMW Core Operations Services Africa Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS (Exchange Rate Effective February 28, 2014) Currency Unit = CFA Francs CFA Francs 475.5723 = US$1 US$1.5474 = SDR 1 FISCAL YEAR January 1 – December 31 ABBREVIATIONS & ACRONYMS AfDB African Development Bank AFTMW Africa Region Financial Management Unit – West and Central BEAC Banque des Etats d’Afrique Centrale CAR Central African Republic CEMAC Commission Economique et Monétaire d’Afrique Centrale CPS Country Partnership Strategy CS REF Cellule de Suivi des Réformes Economiques et Financières DA Designed Account ECCA Economic Community of Central African States EOI Expression of Interest EU European Union FACA Forces Armées de Centrafrique FBS Selection under Fixed Budget FDI Foreign Direct Investment FM Financial Management GEMAP Liberia Governance and Economic Management Assistance Program Ges’Co Computerized financial management system GPN General Procurement Notice HDI Human Development Index HR Human Resources ICB International Competitive Bidding IDA International Development Association IDP Internally Displaced People IFMIS Computerized financial management system IFR Interim Financial Report IMF International Monetary Fund IPF Investment Project Financing ISR Implementation Support Report LCS Least Cost Selection LIBs Limited International Biddings ii Licus Low Income Country Under Stress NCB National Competitive Bidding NGO Non Governmental Organization OCHA Office for Coordination of Humanitarian Affairs OHADA Organisation pour l’Harmonisation du Droit des Affaires en Afrique ONI National Office of Information system (Office National Informatique) OP/BP Operational Policies / Business Procedures ORAF Operational Risk Assessment Framework PEFA Public Expenditure and Financial Accountability PER Public Expenditure Review PFM Public Financial Management PREM Poverty Reduction and Economic Management PRGF Programme de Réforme Globale des Finances Publiques QBS Quality-Based Selection QCBS Quality- and Cost-Based Selection SAI Supreme Audit Institution SPF State Peace-Building Funds SPN Specific Procurement Notices SSS Single Source Selection TOFE State Operations Financial Statement ToRs Terms of Reference TSA Treasury Single Account UN United Nations UNDB online United Nations Development Business online WA Withdrawal Applications WBG World Bank Group Regional Vice President: Makhtar Diop Country Director: Gregor Binkert Sector Director: Edward Olowo-Okere Sector Manager: Renaud Seligmann Task Team Leader: Kolie Ousmane Maurice Megnan/ David Tchuinou iii PAD DATA SHEET Central African Republic EMERGENCY PUBLIC SERVICES RESPONSE PROJECT (P149884) PROJECT APPRAISAL DOCUMENT . AFRICA AFTMW Report No.: PAD1002 . Basic Information Project ID EA Category Team Leader P149884 C - Not Required Kolie Ousmane Maurice Megnan/David Tchuinou Lending Instrument Fragile and/or Capacity Constraints [ X ] Investment Project Financing - Fragile States Financial Intermediaries [ ] Series of Projects [ ] Project Implementation Start Date Project Implementation End Date 05-May-2014 31-Dec-2015 Expected Effectiveness Date Expected Closing Date 05-May-2014 31-Dec-2015 Joint IFC iv No Sector Manager Sector Director Country Director Regional Vice President Renaud Seligmann Edward Olowo-Okere Gregor Binkert Makhtar Diop . Borrower: Central African Republic Responsible Agency: Ministry of Finance / CS REF Contact: Gervais Doungoupou Title: Technical Advisor / Head of CS REF Telephone No.: 236746105 Email: gm_doungoupou@yahoo.fr . Project Financing Data(in US$ Million) [ ] Loan [ ] Grant [ ] Guarantee [X] Credit [ X ] IDA Grant [ ] Other Total Project Cost: 30.00 Total Bank Financing: 30.00 Financing Gap: 0.00 . Financing Source Amount BORROWER/RECIPIENT 0.0 IDA Grant 13.1 IDA Credit 0.0 IDA recommitted as a grant 10.8 IDA recommitted as a credit 6.1 Total 30.0 . v Expected Disbursements (in US$ Million) Fiscal 2014 2015 2016 Year Annual 7.00 22.38 0.62 Cumulati 7.00 29.38 30.00 ve . Proposed Development Objective(s) The project development objective is to re-establish an operational government payroll and related financial management systems. . Components Component Name Cost (US$ Millions) Payment of current salaries 26.80 Technical assistance to core structures in the Ministries of 3.20 Finance and Civil Service . Institutional Data Sector Board Public Sector Governance . Sectors / Climate Change Sector (Maximum 5 and total % must equal 100) Major Sector Sector % Adaptation Mitigation Co-benefits % Co-benefits % vi Public Administration, Law, and General public 60 Justice administration sector Public Administration, Law, and Central government 40 Justice administration Total 100 I certify that there is no Adaptation and Mitigation Climate Change Co-benefits information applicable to this project. . Themes Theme (Maximum 5 and total % must equal 100) Major theme Theme % Public sector governance Administrative and civil service reform 70 Public sector governance Other public sector governance 30 Total 100 . Compliance Policy Does the project depart from the CAS in content or in other significant Yes [ ] No [ X ] respects? . Does the project require any waivers of Bank policies? Yes [ ] No [ X ] Have these been approved by Bank management? Yes [ ] No [ ] Is approval for any policy waiver sought from the Board? Yes [ ] No [ ] Does the project meet the Regional criteria for readiness for implementation? Yes [ X ] No [ ] . vii Safeguard Policies Triggered by the Project Yes No Environmental Assessment OP/BP 4.01 X Natural Habitats OP/BP 4.04 X Forests OP/BP 4.36 X Pest Management OP 4.09 X Physical Cultural Resources OP/BP 4.11 X Indigenous Peoples OP/BP 4.10 X Involuntary Resettlement OP/BP 4.12 X Safety of Dams OP/BP 4.37 X Projects on International Waterways OP/BP 7.50 X Projects in Disputed Areas OP/BP 7.60 X . Legal Covenants Name Recurrent Due Date Frequency Project Implementation Manual 01-Jun-2014 Description of Covenant The Recipient shall update the Project Implementation Manual in form and substance satisfactory to the Association. Name Recurrent Due Date Frequency Indigenous Peoples Planning 01-Jun-2014 Framework Description of Covenant The Recipient shall prepare the Indigenous Peoples Planning Framework, in form and substance viii satisfactory to the Association, and shall ensure that it is consulted upon and disclosed in accordance with the Policies of the Association. Name Recurrent Due Date Frequency External Audit 01-Oct-2014 Description of Covenant The Recipient shall recruit an external auditor acceptable to the Association. Name Recurrent Due Date Frequency Computerized Accounting System 01-Oct-2014 Description of Covenant The Recipient shall upgrade the existing computerized accounting system in place at CS REF to be acceptable to the Association. . Conditions Source Of Fund Name Type Description of Condition Team Composition Bank Staff Name Title Specialization Unit Aissatou Diallo Senior Finance Officer Senior Finance Officer CTRLA Aleksandar Kocevski E T Consultant Operations Officer AFTMW Bernard Harborne Lead Social Lead Social SDV ix Development Specialist Development Specialist Diego Garrido Martin Senior Operations Senior Operations AFTDE Officer Officer Enagnon Ernest Eric Financial Management Financial Management AFTMW Adda Specialist Specialist Evelyne Huguette Team Assistant Team Assistant AFMCF Madozein David Tchuinou Senior Economist Team Lead AFTP3 Haoussia Tchaoussala Procurement Specialist Procurement Specialist AFTPW Kolie Ousmane Maurice Sr Financial Team Lead AFTMW Megnan Management Specialist Kouami Houssinou Senior Procurement Senior Procurement AFTPW Messan Specialist Specialist Midou Ibrahima Country Manager Country Manager AFMCF Mark Roland Thomas Sector Manager Sector Manager AFTP3 Olivier P. Godron Country Program Country Program AFCCM Coordinator Coordinator Ozong Agborsangaya- Senior Operations Senior Operations OPSFC Fiteu Officer Officer Renaud Seligmann Manager Manager AFTMW Siobhan McInerney- Senior Counsel Senior Counsel LEGAM Lankford Souleymane Coulibaly Lead Economist Lead Economist AFTP3 Non Bank Staff Name Title Office Phone City x . Locations Country First Location Planned Actual Comments Administrative Division Central Bangui Commune de X African Bangui Republic Central All other cities All other cities X African Republic xi CENTRAL AFRICAN REPUBLIC Emergency Public Services Response Table of Contents I. STRATEGIC CONTEXT .................................................................................................1 A. Country Context ............................................................................................................ 1 B. Long-term Drivers of Fragility ..................................................................................... 2 C. Situation of Urgent Needs of Assistance and Capacity Constraints ............................. 3 D. Economic and Sector Context....................................................................................... 4 E. Higher-Level Objectives to Which the Project Contributes ......................................... 9 II. Project Development Objectives .....................................................................................10 A. PDO............................................................................................................................. 10 B. PDO-Level Results Indicators .................................................................................... 10 III. PROJECT DESCRIPTION ............................................................................................11 A. Project Components .................................................................................................... 11 B. Project Financing ........................................................................................................ 14 C. Lessons Learned and Reflected in the Project Design ................................................ 17 IV. IMPLEMENTATION .....................................................................................................17 A. Institutional and Implementation Arrangements ........................................................ 17 B. Results Monitoring and Evaluation ............................................................................ 18 C. Sustainability ................................................................................................................ 18 V. KEY RISKS AND MITIGATION MEASURES ..........................................................19 A. Risk Rating Summary Table ....................................................................................... 19 B. Overall Risk Rating Explanation ................................................................................ 19 VI. APPRAISAL SUMMARY ..............................................................................................20 A. Economic and Financial Analyses .............................................................................. 20 B. Technical Evaluation .................................................................................................. 22 C. Financial Management ................................................................................................ 23 D. Procurement ................................................................................................................ 23 E. Social Impact (including safeguards).......................................................................... 24 xii F. Environmental Impact (including safeguards) ............................................................ 24 ANNEX 1: RESULTS FRAMEWORK AND MONITORING ...............................................25 ANNEX 2: DETAILED PROJECT DESCRIPTION ...............................................................30 ANNEX 3: IMPLEMENTATION ARRANGEMENTS ..........................................................35 ANNEX 4: OPERATIONAL RISK ASSESSMENT FRAMEWORK (ORAF) ....................49 ANNEX 5: IMPLEMENTATION SUPPORT STRATEGY ...................................................54 ANNEX 6: DRAFT IMPLEMENTATION ACTION PLAN ..................................................55 xiii I. STRATEGIC CONTEXT A. Country Context 1. Central African Republic (CAR) is one of the poorest nations in Africa. It is a landlocked country with a population of about 4.5 million and a per capita income of US$ 480 in 2012. It has high inequality, with a Gini co-efficient of 0.53. In 2010, CAR was ranked by the Human Development Index (HDI) at the 180th position out of 187 countries 1. The incidence of poverty remains high, with 62 percent of the population living below the poverty line, a percentage which increases to 70 percent in rural areas, where more than 40 percent of the population is also food insecure, and 11 percent severely insecure. Poverty and Human Development data projections are expected to further worsen as a result of the current crisis. 2. CAR has been experiencing upheaval since December 2012. A rebel coalition known as Séléka, which had initially threatened to take over the capital city, Bangui, signed a cease-fire and political agreement with the Government in January 2013 (the “Libreville 2” agreements). Séléka eventually carried out a coup in March 2013, which forced the then President to flee the country. Under the aegis of the Economic Community of Central African States (ECCAS), a transitional government was entrusted with restoring law and order and paving the way for democratic elections within 18 months. However, acts of brutality by various rebel groups and lack of Government control over armed elements led to clashes and violence in the country which have, since August 2013, led to the displacement of large numbers of the population, and a growing humanitarian crisis. 3. In the face of the deteriorating situation, the international community mobilized in the Fall of 2013, including through several UN Security Council consultations and meetings that culminated with Resolution 2127 of December 5, 2013. This resolution provided an umbrella for the intervention of French forces and the establishment of an AU-led military presence, the African-led International Support Mission to the Central African Republic (MISCA). As the unfolding of the transition in 2013 had resulted in a loss of legitimacy of the Séléka leadership and of the Transition Government, the January 10, 2014 ECCAS summit accepted the resignation of the Head of State of the Transition and of the Prime Minister, opening the way to a new political transition. The National Transition Council, the legislative body, elected a new Head of State, Ms. Samba-Panza, until then mayor of Bangui and a respected personality close to civil society. The appointment of the new Prime Minister and of an inclusive Government, on January 27-28, 2014, constituted a positive signal. These developments were welcomed by the international community, with: (i) donors meeting in Brussels on January 20, 2014 pledging about US$ 500 million to support recovery and transition in CAR; (ii) a new Security Council resolution on January 28, 2014, backing the transition, and authorizing the deployment of additional troops from European countries; (iii) consultations taking place on the margins of the AU summit in Addis-Ababa (January 30-31, 2014), leading inter alia to an additional US$ 100 million pledge by ECCAS countries; and (iv) on March 7, the Security Council discussing a report from the Secretary General that proposes the creation of a UN peace-keeping operation of 10,000 troops and 1,800 police personnel. 1 2013 report based on 2012 data. 1 4. The Bank responded actively to the developments in CAR, initially in a crisis management mode: (i) the Bank’s office was evacuated twice, on December 26, 2012 and March 25, 2013; it was reopened in early November, 2013 with limited staff presence; (ii) OP7.30 was triggered on March 25, 2013, and remains in effect, although a selective resumption of disbursements was authorized in November 2013 following an Assessment Mission undertaken in September 2013; (iii) in the meantime, active portfolio management continued, with selected disbursements authorized in exceptional cases (e.g. in order not to interrupt the fabrication of turbines under the Energy project), three project extensions granted in June 2013, and numerous implementation support missions with counterpart teams going to Yaoundé. 5. In January 2014, in light of new developments both in CAR and internationally, Bank management briefed the Executive Directors on a US$ 100 million emergency response for CAR comprising funds from the restructuring of the portfolio, the unallocated IDA16 balance, and expected frontloading of the IDA17 allocation in the first year of the replenishment period. The first component of the Bank response, the US$ 20 million Emergency Food Crisis Response and Agriculture Re-launch project, was approved by the Executive Directors on March 7, 2014. A Labor-intensive Public Work Operation and an Emergency Medical Response Operation, respectively the second and the third components of the Bank’s emergency response, are being delivered through the restructuring of existing projects. The proposed Emergency Public Services Response project would be the fourth component of the Bank’s emergency response , and the final operation under IDA 16. B. Long-term Drivers of Fragility2 6. Public institutions are weak and the presence of the State throughout the country has traditionally been very low in CAR.3 Pre-crisis CAR was stuck in a “fragility trap,” where “political instability and violence, insecure property rights and unenforceable contracts, and corruption conspire to create a slow-growth-poor-governance equilibrium trap.”4 Thus, major weaknesses in CAR’s institutional and legal setting contribute strongly to fragility in the country. In remote areas there has been practically no state presence at all and no delivery of public services (even when donor financed programs were available). Especially in the northeast where the recent rebellion movement started, the state is largely absent, with a large portion of territories (such as Vakaga and Haute Kotto) left to rebels and other armed groups. 7. Provision of basic public services has been insufficient and ineffective throughout the country. As pointed out by the IMF in 2004, “chronic weak revenue performance led to the accumulation of domestic wage and external debt arrears, as well as the degradation of basic social services.”5 Significant progress had been made in revenue collection and commitment controls as part of the package of reforms leading up to the HIPC completion point in 2009, as 2 This section is based upon “Central African Republic: A Fragility Literature Review” SDV/CCSD, February 2014, World Bank. 3 The Central African state was formed originally as a French colony that was administered in large parts by concession companies rather than by the French state, which meant state institutions were absent from the majority of the country. 4 Cf, Andrimihaja, et al (2011) p. 2. 5 Cf, Ghura, Dhaneshwar et al (2004), p. 4. 2 well as in the period of relative stability immediately following this milestone. Despite these advances, the vast majority of CAR’s population lacks access to basic infrastructure and the government has little means to fund public goods (such as security and justice) beyond basic services such as water, health and education. The state security sector has also been very weak and unable to cope with security threats. Due to the permanent fear of a coup, CAR’s military, the Forces Armées de Centrafrique (FACA) has been systematically weakened by successive governments. C. Situation of Urgent Needs of Assistance and Capacity Constraints 8. As a result of last year’s instability and violence, OCHA (the UN’s Office for Coordination of Humanitarian Affairs) estimates that about one million persons are internally displaced, including over 500,000 in the capital city of Bangui alone. About 2.6 million people are currently estimated to require humanitarian assistance and 1.3 million people are food insecure. The surge in violence in December 2013 occurred after months of steady deterioration in the political and security context in CAR that led to depressed economic activity, loss of administrative capacity, declining social service provision and protection incidents. The new wave of rebel clashes has intensified violence and killings with large numbers of civilians fleeing to safer areas in or outside the country. 9. While the primary focus in managing the current crisis has been on humanitarian response and expanding peacekeeping forces to stabilize Bangui and gradually restore peace and security to other locations, development partners have reached a consensus that the critical next steps will be restoring the basic functions of government. This also accords with the evidence reflected in the World Development Report of 2011 on Conflict Security and Development which placed emphasis on the early restoration of legitimate state structures as part of achieving peace and stability. An important part of this process is also to ensure that early signals of normalization are communicated to the population to re-establish legitimate institutions, particularly those associated with the provision of security and justice services as well as the creation of jobs. 10. The stabilization of Government finances as well as the payment of civil service salaries will be critical to the restoration of confidence in legitimate state structures. This is key to re-establish basic service delivery (particularly health and education) as well as core state functions (such as revenue collection and justice services). In turn, wage payments are a simple and effective way to contribute to the recovery of economic activity. Finally they are also a critical step in restarting public sector reform and addressing the underlying drivers of the crisis. 11. The Government had already accumulated five6 months of salary arrears as of March 2014, in addition to fifteen months of unpaid pensions and suppliers invoices. Revenue streams have slowed to a trickle; in the absence of minimum external support, it would take some time before revenues could again cover basic needs, especially given the economic collapse. In the scenario where the proposed International Monetary Fund (IMF), the World Bank, European Union, France, the African Development Bank (AfDB), the United Nations 6 Three months were accrued in 2013 and two months as of end of February in 2014. 3 Development Program (UNDP), Angola and the Republic of Congo7 financings are taken into account, the fiscal financing gap will be fully financed in 2014. 12. In this context, to complement other donor interventions, the proposed Central African Republic Emergency Public Services Response Project (P149884) will finance salaries for non-security sector staff and support a targeted technical assistance program that will focus on revenue collection, basic expenditure management and payroll clean-up. The project intends to cover all non-security civil servants’ salaries for a period of four months in order to restore core government functions and essential service delivery on an emergency basis. The widespread looting and population displacement caused by the crisis mean that payment of salaries is a necessary but not a sufficient condition for public services to resume. This is why this project will contribute to resuming core functions in targeted sectors, such as finance, health and education, which represent 64 per cent of non-security state employees. These are areas where the Bank has a comparative advantage; they are also critical to the early restoration of legitimate state structures. In addition, in these sectors payroll financing will be complemented by focused technical assistance provided through this project, as well as support to purchase equipment and restore facilities through complementary interventions. 13. Investment Project Financing has been identified as the appropriate instrument for the Bank to respond to CAR’s emergency needs at this time. It is a less risky option than budget support at this stage, and allows the provision of financing for recurrent costs as well as essential technical assistance. The Bank has started working with the IMF, AfDB, UNDP, EU and France to ensure a coordinated approach. This approach, which includes the establishment of a joint fiduciary framework, has been agreed with the Authorities. D. Economic and Sector Context 14. Economic context. Since 2005, political stability and steady reform implementation (including HIPC completion point in 2009, a series of DPOs and ECF-financed IMF program) had contributed to increased, stable growth. Albeit modest, the real increase in per capita income during that period suggests some progress towards poverty reduction: GDP per capita (in constant 2005 US$) increased from US$ 330 in 2003 to US$ 472 in 2012. This growth from basic reforms carried out in the period allowed government to: (i) clear salary arrears accumulated by the previous regime, (ii) clear US$32 million of arrears to the private sector in 2009 and 2012, (iii) increase investment to rehabilitate infrastructure and including power supply and the Bangui Garoua-Boulai transport corridor and, (iv) attract about US$ 208 million of FDI for the same period (2008-12). 15. The years leading to the 2013 crisis were characterized by a sound fiscal stance with the Government managing to cover all its recurrent expenditures with resources mobilized domestically (Figure 1). At less than 5 percent of GDP, the compensation of employees was fully covered by tax revenues averaging 11 percent during 2008-2012. The 2013 crisis derailed this positive trend with the gap between domestic revenues and recurrent expenditures going from a surplus of 1.3 percent of GDP to a deficit of 6.7 percent. With a conservative assumption 7 Angola and Republic of Congo have already disbursed in total US$ 18 million in grants. In addition, Angola has committed to providing an additional US$ 30 million in concessional loans. 4 of a slow recovery of economic activities, the gap would widen in 2014 as pro-poor expenditures are scaled up to contain the negative impact of the crisis on the most vulnerable. With economic growth reaching 5.3 percent in 2015, domestic revenues are projected to fully cover compensation of employees in 2015, but will not be able to cover all recurrent expenditures (Figure 1). The projected external resources (US$ 164 million) would fund the remaining gap (IMF estimates, February 2014). Continuing recovery in the economic activity should further enhance domestic revenues. Figure 1: Government Ability to Cover Recurrent Expenditures 14 12 10 % of GDP 8 6 4 2 0 2008 2009 2010 2011 2012 2013 2014 2015 Domestic Revenues Recurrent expenditures Source: World Bank Staff calculations based on IMF data 16. The sharp GDP drop in 2013 and an uncertain outlook might reverse the fiscal gains of the 2008-2012 period if the external shock created by the crisis is not quickly compensated by external financing. Economic activity contracted significantly in 2013, with a fall in GDP now estimated at 36 percent. The decline is the result of lower food production and extractive activities in mining and forestry, the paralysis of public works and construction, looting of stores and transportation problems associated with barriers along the Garoua-Boulai and Bangui corridor. The current crisis has also seriously compromised revenue collection and leakages of fiscal revenues due to the rebellion have strained Treasury finances. Total domestic revenues equivalent to US$ 86 million were collected in 2013, representing roughly 28 percent of the initial revenue forecast. Tight liquidity has generated an accumulation of arrears, including five months of civil servants’ salaries by March 2014, of which three months in 2013. The resumption of economic activities resulting from payment of salaries should further stimulate private sector growth, investments in infrastructure and agriculture, and revive mining, forestry and other economic activities. 17. Fiscal stress has crowded out social expenditure and CAR is not expected to meet any of the MDGs, though there had been some limited progress before the crisis. The fiscal deficit (on a cash basis) for 2013 was contained to 4 percent of GDP, in part because of a severe cut in capital expenditure and an arrears build-up (of 2.3 percent of GDP). Capital expenditures 5 attained a peak of 6.2 percent of GDP in 2012, but fell to 1.7 percent of GDP in 2013, of which nearly all (1.6 percent of GDP) was financed by donors. The fiscal balance after grants went from equilibrium in 2012 to a deficit of 6.3 percent of GDP in 2013, which was subsequently mostly covered by an exceptional US$ 50 million loan from Republic of Congo (2.7 percent of GDP). Table 1 presents the country’s fiscal situation. Table 1: Country fiscal situation 2011 2012 2013 2014 (% of GDP) Est. Est Proj. Proj . Real GDP Growth (%) 3.3 4.1 -36 1.5 Inflation (average %) 1.2 5.9 6.6 4.4 External current account balance (% of GDP) -7.6 -5.6 -10.4 -14.1 Gross official reserves (US$ million) 113.9 117.9 144.6 148.3 Gross official reserves (months of imports) 2.9 3.8 3.9 3.7 Nominal exchange rate (LC/US$) 471.9 510 493.9 Real effective exchange rate (% change per annum) -1.1 0.2 Total government revenue and grants 13.3 16.4 8.4 9.3 Domestic revenues 10.8 11.5 5.7 6.4 Tax revenues 8.4 9.9 5.2 5.4 Grants 2.5 4.9 2.7 2.9 Total government expenditure 15.7 16.3 14.7 17.6 Current expenditure 11.1 9.5 12.4 13.3 o/w Wages and salaries 4.4 4.6 7.1 7.1 Capital expenditure and net lending 4 6.2 1.7 3.6 Primary fiscal balance -1.3 0.5 -6.8 -7.6 Overall fiscal balance on payment order basis, incl. grants -2.4 0.0 -6.3 -8.3 Net change in Arrears (-= reduction) 0.2 -0.5 2.3 -2.0 Nominal GDP (Billions of CFA) 1,036 1,108 760 808 GDP per capita (US$) 494.9 480.0 333.8 Source: Central African Republic Authorities & IMF projections 18. The medium term economic outlook assumes an improving security situation and the progressive removal of constraints to private sector growth. Given uncertainties on the security side and its impact of the economy, a slow recovery is envisaged initially but it would gradually increase over the medium term. Growth is expected to be 1.5 percent in 2014 and to accelerate to 5.3 percent in 2015. The growth would be driven initially by agricultural production, timber, construction in public works and services, mainly telecoms. Favorable weather conditions and support to displaced households remain a necessary condition for growth. Many Muslims have fled the country and because many were traders and cattle breeders, this is expected to affect the speed of the recovery. Their return to CAR is a government priority and a critical factor for growth. Government also faces tensions coming from wage and pension arrears and insufficient humanitarian support. 6 19. Total domestic revenue is expected to grow slightly to 6.4 percent of GDP in 2014, insufficient to cover recurrent costs. Total projected revenues in 2014 are 9.3 percent of GDP, mainly thanks to grants from donors representing 2.9 percent of GDP (excluding program grants). The IMF projected a US$ 162.2 million financing gap before donors financing in the form of program grants, equivalent to 10 percent of GDP, based on February 2014 revenue and aid assumptions. This gap is now fully covered by supplementary donor contributions. The regular payment of salaries would directly benefit more than 30,000 civil servants, with the injection of this money into a stalled economy boosting demand, expanding trade and helping the economy recover, with benefits to groups beyond the direct recipients, including many of the poor. The domestic revenue is thus, expected to grow in 2015 (Figure 1) and improve the fiscal situation. 20. Public Financial Management (PFM) context. Before the crisis, CAR’s public administration and PFM system had made steady progress, starting from a low base. The Single Treasury Account had been put in place, and a Treasury committee chaired by the Head of State had been established to manage priorities on the spending side. The recourse to exceptional budget execution procedures, once highly prevalent, was put in check and decreased significantly in 2011. Payment of civil service salaries was shifted to secure wire transfers instead of cash payments. Monthly cash flow plans were produced, and regular banking reconciliation of the Treasury Single Account was undertaken by the Treasury and the Central Bank. An IT application (Ges’Co) was put in place to manage expenditures, and quarterly budget execution reports were produced eight weeks after the end of the period. Even though their usefulness was undermined somewhat by inaccurate data, especially as regards donor projects, they significantly contributed to improved fiscal management and transparency. The 2008 financial statements were produced for the first time and submitted to the Court of Accounts for audit in 2011. The General Finance Inspectorate has undertaken regular oversight missions across the Ministry of Finance and line ministries until the crisis (up to 67 missions a year); while its methods need to be modernized, it is composed of experienced senior civil servants and has basic functionality (internal oversight was scored C+ in the 2008 PEFA). In spite of its weak capacity, the Court of Account has produced and submitted to Parliament its first report on the 2008 budget execution in October 2011. 21. Despite this progress, some weaknesses remained or were exacerbated by the crisis. They included: (i) the recourse to exceptional procedures for the payment of government expenditures, which resurfaced during the crisis, leading to a large volume of extra-budgetary spending accompanied by an accumulation of domestic arrears; (ii) complexity of tax policy and inefficient tax collection; (iii) relatively low budget execution rates8 due to weaknesses in the budget preparation process and inefficiencies in the expenditure chain during execution; (iv) inadequacies in some features of the Government accounting IT application; (v) a growing number of agencies, funds, and earmarked treasury accounts (Comptes d’affectation spéciale) representing about 11 percent of the 2012 national budget and characterized by poor governance; (vi) the poor quality of annual financial statements; and (vii) ineffective external oversight. 8 As pointed out in the 2012 Public Expenditure Review, from 2008 to 2010 the average rate of the budget execution of goods and services was less than 50 percent. 7 22. In particular, the crisis has affected the functioning of the computerized budgeting and accounting system (Ges’Co), which was previously deployed in the Public Treasury and the Budget Directorates. As a result, budget preparation and execution processes, when utilized at all, are performed manually. The single treasury account arrangement has been weakened, which has exacerbated the stress on the Government’s cash flow. Annual payroll in 2014 (including the security sector) is about US$ 114.6 million 9 (US$ 9.5 million per month) and represents on average 46 percent of the government’s current expenditures from 2009 to 2013. The total number of State employees (30,75910) includes security and police who constitute 39.4 percent or 12,123 of personnel according to the latest available payroll records (September 2013). The proposed project will not finance salaries of these security and police personnel. Figure 2 presents public employment and distribution of payroll per sector. Figure 2: Public Sector Distribution of Payroll Rural Development (Agriculture) 3% Presidency 3% Other Government Defense administration 27% Justice 14% 3% Interior 6% Foreign Affairs 7% National education Public Health 22% 7% Finance and Budget 8% Source: Directorate of Budget, September 2013 payroll. 23. As already described, the crisis has seriously compromised revenue collection, specifically along the road corridor from Douala in Cameroon to Bangui. Likewise, there is very little technical capacity in revenue-generating directorates (such as the Directorate of Customs and the Directorate of Taxation). Against this background, international forces are reinforcing security throughout the main corridor. This could contribute to improve revenue collection, provided that these revenue-generating directorates are strengthened and equipped with the minimum material and equipment, and that economic activity picks-up following the stabilization of security. 24. Improving the validity and consistency of human resource and payroll records. A 2010 PEFA report rated controls over payroll as “D”11. The report identified several weaknesses in 9 Before tax. 10 The number includes security personnel and the remaining comprises civil servants, staff on term contracts, “hors statuts”, others. 11 “D” is the lowest score rating. 8 the reconciliation of human resources (HR) records and the payroll database. These issues remain relevant. HR records have been in place since May 2007, with UNDP assistance, and were the result of a census that identified approximately 1,000 ghost workers. Personnel records for public servants are not regularly updated, confirmed by the integration of new staff directly in the payroll system without prior incorporation into the HR database. This has resulted in a 16.9 per cent (actual payments) increase in total payroll between January and December 2013. Inconsistencies between the two sets of records give rise to the existence of a new category of personnel (“Hors Statuts”12 covering 604 persons), in addition to ghost workers. In 2009, the Government introduced direct transfer of the payroll to civil servants’ bank accounts (banking payroll13) and secure civil servant cards. In the absence of reliable real-time civil service records, however, this secure method of payment is not sufficient to ensure the integrity of the payment system, hence the need for a new update. Since 2009, no audit has been performed. The emergency nature of this project will require the adoption of simple but efficient processes, using traditional registration procedures. The operation will also pave the way for a biometric approach to be introduced in the medium term together with the consolidation of civil service and payroll records into a single database. 25. Public administration. The already weak capacity of the public administration has deteriorated further as a result of the crisis. The core ministries lack skilled staff. Office equipment and supplies have in many cases been looted, affecting public services. The population now largely depends on humanitarian assistance provided by UN agencies and Non- Government Organizations (NGOs). The stock of medical supplies in health centers is running out. The already limited education services in rural areas have been further hit. Many teachers have abandoned their jobs as they remain unpaid and many infrastructures have been partly damaged. In view of the need for resuming the provision of basic services for the population in this post-conflict environment, paying civil servants is therefore critical to securing their presence and the delivery of services and a step towards establishing legitimacy and authority of the Government. In some post-conflict situations, donors have supplemented government wages as a mean of getting minimum staff in place to perform government functions to create an immediate impact on social sectors. Building on this experience, the proposed project will be complemented by other Bank interventions in the health sector (Emergency Medical Response, US$ 15 million, through the restructuring of an existing project) and possibly in the education sector (Global Partnership for Education project under consideration), US$ 23 million. Both projects will focus on infrastructure rehabilitation and equipment in health centers and schools. Taken together, this package of interventions increases the likelihood that the payment of civil salaries will effectively translate into improved public service provision and, in turn, the reinforcement of peace and security. E. Higher-Level Objectives to Which the Project Contributes 26. This project will pay for four months of salaries of non-security sector staff and provide technical assistance to targeted departments in the ministries of Finance and Civil Service. 12 This category increased from 382 in September 2013 to 604 in December 2013 and includes appointments made for political reasons. 13 This was facilitated by the arrangement put in place with the 4 commercial banks established in CAR. Given their modest coverage appropriate and secure modalities were put in place between the banks and the Government to allow cash collection by the civil servants. 9 It will thus allow the re-establishment of an operational payroll and related financial management system. This will facilitate the resumption of core government functions and basic service delivery on an emergency basis. This is needed to prevent further deterioration of conditions in CAR, which could also potentially have considerable implications for the Central African sub-region. Emergency recovery interventions are needed to complement expanded peacekeeping. 27. The project will lay the groundwork for future operations supporting public financial management and public administration reforms in CAR, such as the State and Peace- building Fund (SPF) financed project that is being prepared concurrently. The proposed emergency project will build on and support: (i) the update of the national PFM strategy, the ‘Programme de Réforme Globale des Finances Publiques’ (PRGF) and, (ii) longer term civil service reform. 28. In addition, the proposed project is consistent with the Government emergency program (Feuille de Route) adopted in 2013 by the National Transitional Council (NTC) and linked to cross cutting themes related to the re-deployment of public administration and the improvement of public finances. The project would strengthen the Government capacity to either absorb budget support in the future, and to implement longer term development, as stabilization takes hold. II. PROJECT DEVELOPMENT OBJECTIVES A. PDO 29. The project development objective is to re-establish an operational government payroll and related financial management systems. In the context of this operation, the payroll system will be considered operational provided that (i) monthly salaries of eligible civil servants are processed in a timely manner including in particular education and health, and (ii) only individuals who (a) are validly on the civil service payroll, as evidenced by the payroll audit undertaken as part of this operation; and (b) have reported for duty, as evidenced by production of their presence certificate, will be considered “eligible civil servants”. Related financial management systems are defined as basic; (a) customs; (b) taxes; and (c) cash management systems needed to collect and manage domestic revenues. These will be considered operational provided that: (a) their core staff is in place; (b) essential equipment is available; and (c) key reports are produced on a regular basis. 30. Project beneficiaries. The direct project beneficiaries are the civil servants whose salaries would be paid under the project. Indirect beneficiaries would include children who would be able to go to school and patients who could be treated in government hospitals and clinics as well as other users of public services. Further, an increase in revenues resulting from a better functioning Ministry of Finance would benefit the public through improved service delivery in the above and other areas. B. PDO-Level Results Indicators 31. The PDO level results of the project would be measured using the following key indicators: 10 a) Civil servants paid in non-security sector (number) b) Improved effectiveness of payroll controls (PEFA assessment indicator 18) c) Supported directorates in the MoF that have reestablished the basic functions14 are defined as: (i) core staff is in place, (ii) essential equipment is available and, (iii) key reports are produced in respective directorates (number) d) Teachers who have resumed work in the three key districts where security has improved (percent) e) Health workers who have resumed work in the three key districts where security has improved (percent). 32. The key results indicators along with the intermediate project results are shown in Annex 1. III. PROJECT DESCRIPTION 33. The project has two components: (i) payment of current salaries; and (ii) technical assistance to core structures in the Ministries of Finance and Civil Service. To this end, in a sequenced manner, the project will: (i) update HR and payroll databases with the view to lay the ground for an improved civil servant’s management system, including the integration of the civil service files and payroll into a single computerized database; (ii) finance current salaries of civil servants upon production of presence certificate on the job; (iii) strengthen the revenue- generating Directorates as to enable the government to gain additional fiscal space; and (iv) re- establish basics control over the expenditure chain and cash management. 34. Proceeds of the project will not be used to pay salary arrears, pensions, military and other security and defense forces. This category will be covered by the Government’s own resources as well as by resources made available by other development partners. The project components are designed with a view to: (i) complementing each other; (ii) strengthening of the country’s public financial management system; and (iii) establishing synergies with support provided by other multilateral and bilateral partners. A. Project Components 35. Component 1: Payment of current salaries (US$ 26.8 million). This component will provide support to the Government to pay civil service salaries in civilian sectors (excluding the security forces and police). Payment of salary and pension arrears will be covered by Government resources when the fiscal space permits. This component includes two subcomponents: (a) update of the HR and payroll databases; and (b) payment of the current salaries to eligible civil servants. The payment of salaries will be made to staff if they have re- authenticated themselves as being validly on the payroll while continuing to update the payroll database and strengthening the system. This will be done by the production of presence certificate, “Attestation de présence” for each staff. These certificates aim to ascertain that the staff is still in the country and is available to resume work in its line ministry (particularly health, education and finance) either in Bangui or at identified locations depending on the security 14 Basic functions are defined as (i) core staff is in place, (ii) essential equipment is available and, (iii) key reports are produced in respective directorates. 11 situation. A process will be established to handle disputed cases, but these will not prevent the payment of staff validly on the payroll. To ensure success of the presence certificate procedure, a communication campaign will be conducted in the appropriate media. In order to speed up implementation, the payroll clean-up is being processed15 prior to Board approval with UNDP which has prior experience of the systems in CAR. Given the emergency, Government paid on March 2014 one month of salary, three months of pensions and two months of scholarship and intends to continue in the same vein as to calm the fragile situation using resources already disbursed by ECCAS (mainly from Angola and Republic of Congo). Based on the scenario whereby existing donor commitments would be honored (from ECCAS, IMF, WB, EU, UNDP, and France) the authorities should have enough resources, including the present operation, to cover civilian and military payroll during 2014. It is expected that the sound basic internal control procedures in the payroll process will encourage other donors to cover additional months of salaries and recurrent costs through budget and investment support in 2015, when domestic revenues would also pick-up. 36. Subcomponent 1.1: update of the HR and payroll databases (US$ 800,000). This subcomponent aims to update HR records and payroll databases. This will allow for: (i) elimination of ghost workers; and (ii) reclassification of retired civil servants in the appropriate pension database. In the next steps, the update will incorporate new civil servants, such as the primary teachers “vacataires” (previously financed by the Bank-funded education project under way before the crisis). The verification process will contribute to update wage arrears accumulated over years. The existing secure ID and the banking payroll initiated in 2009 will facilitate the updating of databases. This component will be implemented by UNDP which will assist government departments in the update of the databases with the view to lay the ground work for more ambitious civil service reforms and modernization of the systems. A clear communication strategy will also be formulated and rolled out to inform civil servants of the procedures and steps for updating the HR and payroll databases. A retroactive financing arrangement has been considered and agreed with the authorities in order to finance the UNDP technical assistance contract. To this end, UN standard template contract developed between the Bank and the UN will be used. 37. Subcomponent 1.2: payment of the salaries of eligible civil servants excluding defense and security forces (US$ 26 million). In addition to the payment of civil service salaries in civilian sectors, this subcomponent supports the definition of eligibility criteria as specified in the operational manual, and the payment procedures for resources to be channeled from the Central Bank to commercial banks after ex ante review of the Directorate of the Public Treasury and the Cash Management Committee. UNDP in collaboration with the relevant Directorates of the Ministry of Finance will assist in the payment process. The General Inspectorate of the Ministry of Finance, which has some experience and reasonable capacity, will verify the continued physical presence of staff in the workplace on a sample basis. With the resources allocated, the project would finance four months of civil servant salaries in non-security and defense sectors over the period of implementation. 38. Component 2: Technical assistance to core structures in the Ministries of Finance and Civil Service (US$ 3.2 million). This component will provide support to the Government to 15 The standard template for technical assistance contract with UN Agencies is being utilized. 12 reestablish minimum capacity for budget execution and control of the revenue generated by the Government’s various ministries, departments and agencies. It aims to equip core Ministry of Finance (MoF) and Ministry of Civil Service structures with a minimum capacity for a better revenue collection and treasury management, budget execution and transparency. The Bank will seek additional resources through Trust Fund to scale up the impact of these activities and to resume the PFM and civil service reforms agenda so as to enhance the sustainability of the operation and progressively move from emergency support towards the state building agenda. In addition, this component will complement Bank’s regional transport project which has a trade facilitation subcomponent supporting the Customs Directorate. 39. The second component includes three subcomponents: (a) technical assistance in a targeted number of MoF structures (Customs, Taxes, Treasury and Public Accounts, Budget and Information Systems, Payroll, General Inspectorate of Finance) and Civil Service Directorate in the Ministry of Civil Service; (b) equipment support for strengthening the institutional capacity of the Directorates of customs and taxes; and (c) support to the PFM reform unit. 40. Subcomponent 2.1: Technical assistance for Customs, Taxation, Treasury, Payroll, General Inspectorate of Finance and Civil Service (US$ 2 million). The purpose of this subcomponent is to have a targeted number of Directorates in the Ministry of Finance in good standing to undertake basic functions related to the effective and transparent management of public funds. This subcomponent will leverage reforms initiated as part of Bank’s previous operations in the areas of budget preparation, and reporting, and treasury management. The selection of the structures is made to complement the ongoing technical assistance from other donors (France, EU, and AfDB). The Bank focus would be on the revenue-generating Directorates and Public Treasury with a view to improving revenue mobilization, cash management and reinforcing budget preparation and execution procedures so as to restore budget discipline. Technical assistance provided to the HR Directorate will kick off the work towards sustainable Civil Service Reform. This subcomponent will be implemented over 18 months by a consulting firm and will include on the job training on new procedures, systems and techniques. 41. Subcomponent 2.2: Equipment for Customs, Taxation, Treasury, General Inspectorate of Finance, Civil Service (US$ 800,000). The purpose of this subcomponent is to equip the above- mentioned Directorates with IT equipment that will contribute to monitoring revenues. More specifically, the Ges’Co application software will be restored and upgraded with the objective of increasing transparency in public finances. In addition, the project will provide institutional support to CS REF so as to equip this entity with the expertise-appropriate skills needed to oversee the country’s economic and PFM programs. The sub-component will also initiate the strengthening of these directorates. 42. Subcomponent 2.3: Support to the PFM reform unit16, the Cellule de Suivi des Réformes Economiques et Financières (CS REF) and project operating costs (US$ 400,000). The purpose of this subcomponent is to provide institutional support to CS REF as to properly oversee the implementation of the government economic program and the joint fiduciary framework including the proposed project coordination. The audit of the project will also be financed under this component. 16 This is the entity in charge of coordinating economics and PFM reforms in CAR. 13 B. Project Financing 43. The project in the amount equivalent to US$ 30 million is structured as an Investment Project Financing (IPF) for an IDA Credit and IDA Grant in respectively the amounts of US$ 6.1 million and US$ 23.9 million, to be implemented over a period of nineteen months. Table 2: Project Cost and Financing Project cost IBRD or IDA Financing Project components financing (%) (US$ million) 1. Component 1 26.8 IDA 100% 2. Component 2 3.2 IDA 100% Total costs 30.0 IDA 100% Total financing required 30.0 IDA 100% Donor Support to meet Budget Gap 44. This operation was designed in close consultation with other key development partners (IMF, UNDP, AfDB, ECCAS, EU, and France). Macro-fiscal data gathered during the February 2014 IMF mission confirms that the combination of external resources (US$ 164 million) and domestic revenue collection should cover recurrent costs, including wages and salaries in the civilian and security sector. Nevertheless, the risk remains that the Government will not be able to collect sufficient revenues to continue to pay salaries on time, especially in later months of 2014 or in 2015. Should this risk materialize, a number of options could be considered such as reduction of government expenditure, requesting additional donor financing for investment and/or budget support if conditions are met. Coordination with other Bank projects and partners 45. As presented in table 3 below, the project will complement the other Bank operations under restructuring (in the areas of education, health, agriculture and infrastructure) which aim to reduce the causes of stress and fragility in CAR. 46. The Development partners committee set up in December 2010 is the main platform to coordinate donors’ financial and technical support. As for the financial support, IMF, France, AfDB and ECCAS are providing budget support while others might use a mix of budget support and investment project financing. Early disbursements in May 2014 by donors (including IMF, ECCAS, and France) will allow for civil servants to resume work and would help kick-start this operation because most of the presence certificates could be collected quickly. Overall, consultations among donors indicate that by end May, all large operations financing government operating costs would have been approved. 47. In addition to coordinated financing, donors have also put in a place coordinated arrangements to provide technical support as described in the table 3 below. This technical 14 assistance is concentrated on the MoF core functions (Treasury, Budget, customs, taxation payroll, general inspectorate of finance) to restore the basic PFM functions and to mitigate fiduciary risks. In addition to this project aiming to restore confidence in state institutions, the Bank is preparing an application to the State and Peacebuilding Fund to address other drivers of fragility including corruption, lack of justice, weak accountability, poor civil service performance, poor service delivery. 15 Table 3: Donors mapping (million US$) General Sector Donor Project Support support Scope and timeframe Comments Construction and rehabilitation of classrooms. Education 23 Improvement of the quality of the learning and teaching World Bank Global Partnership for Education Project environment. Under preparation Emergency health care. Health World Bank 15 Institutional support to the Ministry of Health. Project To be disbursed in 2014 and 2015 Improvement of revenue collection and budget preparation and SFP–PFM execution processes. SPF project will pursue activities under Component 2 of the World Bank Project Improvement of the presence of state and public administration proposed project. 5 To be disbursed in 2014 and 2015 Emergency 27 3 Payment of salaries to be disbursed in 2014 (27 million). World Bank Public Ser. Technical Assistance to the MoF. To be disbursed in 2014 and Resp. Project 2015 (3 million) Emergency 20 World Bank Agriculture Food and seeds distribution. To be disbursed in 2014 and 2015 Project Emergency 10 World Bank Infrastructure Labor intensive civil works. To be disbursed in 2014 and 2015 projects 12 Peacebuilding Emergency stop-gap measure to finance police + gendarmerie. to UNPBF Fund* be disbursed in 2014 and 2015 Budget support through RCF modality that will be disbursed in Budget 20 IMF May 2014. This budget support will open the door for a new support program with the Fund. Budget Budget support for US$16 million that will be disbursed not later Coordination with the project will be critical to ensuring support / than June 2014. France complementarity. Bank preference will go toward revenue- Technical 16 1 Technical Assistance to the Directorate of Public Accounting. generating Directorates. Assistance General support to be disbursed by end of 2014. Financing of Sectoral support includes health and education. To be disbursed EU recurrent in 2014 and 2015. cost* 39 131 30 Current costs to be disbursed in 2014. Republic of Congo and Budget ECCAS Gabon have already disbursed US$ 10 million each. Angola has support disbursed (US$ 10 million) Budget Budget support operation to be disbursed in 2014. Coordination with the project will be critical to ensure AfDB support / Technical Assistance to a number of Directorates on the complementarity. Bank preference will go for revenue- PFM TA 20 expenditures chain generating Directorates. Total 164 208 Source: Donors round table on PFM and Macroeconomic reengagement held as part of IMF mission in Yaoundé (February 26, 2014). 16 C. Lessons Learned and Reflected in the Project Design 48. Experience with Bank-financed project (Guinea Bissau Public Service Delivery Project P109722) in the payment of civil servant salaries indicated that supporting payment of wages to a single sector can cause problems if the government has insufficient resources to pay other civil servants. Discrimination can be detrimental to the social equilibrium in the short term as it can exacerbate fragility rather than prevent. As such, the project will also serve as a vehicle to convince other donors to bridge the gap on financing other recurrent costs. 49. Lessons from the Liberia Governance and Economic Management Assistance Program (GEMAP) show that, for a conflict country, it is critical to protect the revenue streams of key revenue-generating agencies and institutions as well as to secure revenues from customs duties, import levies, and taxes. This was done in the GEMAP through a variety of means, such as deploying international experts with binding co-signature and authority to improve financial management system practices in selected institutions and establishing escrow accounts for revenue generation. The project under the second component will deploy technical experts in the revenue generating directorates to strengthen their capacities to secure and reconcile the revenue collected by commercial banks. 50. Experience in the Democratic Republic of Congo reveals that outsourcing implementation to technical partners can be an effective transition strategy in fragile states. The outsourcing of key project activities to technical partners that can be mobilized quickly has contributed during the post-conflict period to achieving quick wins during implementation. However, this requires a clear exit strategy and the transfer of ownership to the government in the short run. The project will outsource the implementation of Component 2 and a subcomponent of Component 1 to UNDP and a well-recognized consulting firm that will work under the leadership of the technical directorates. 51. The experience and results gained from the PFM projects and analytical works in CAR (namely the Bank’s LICUS project in support of the PFM system, Bank’s DPO, PER in security sector) have been considered in the design of this project. This has led to (i) the selection of the most appropriate implementing unit and (ii) the identification of adequate mitigation measures. IV. IMPLEMENTATION A. Institutional and Implementation Arrangements 52. The Ministry of Finance will be responsible for overall project implementation and for meeting the project’s objectives in liaison with the Ministry of public service. CS REF will implement activities and coordinate with the Directorates from the Ministry of Finance and the Ministry of Public Service Reforms involved in the project. CS REF will also be in charge of fiduciary activities. Its current staffing includes: (i) a coordinator; (ii) a deputy coordinator; (iii) a financial management officer; and (iv) a procurement specialist. This team is well conversant with donors’ procedures (two World Bank projects have now closed with no major issues and one EU project is ongoing). The team will be complemented with consultants with technical and 17 operational skills. CS-REF will update the existing operational manual to incorporate the projects specificities (payment of salaries). The updated manual will define the eligibility criteria for salary payment to civil servants and would describe the procedures to handle disputed cases. CS REF would also be responsible for implementing a clear communications strategy to ensure beneficiary participation and have appropriate guidelines reflected in the updated manual. UNDP will be contracted to assist with the payroll clean-up, while an international consulting firm will be called upon to assist with the technical assistance component of the project. B. Results Monitoring and Evaluation 53. Progress in achieving the Project Development Objectives will be measured and monitored through the PDO and intermediate results described in Annex 1 under the leadership of the CS REF. Annex 1 provides details concerning the reference data, targets, and frequency of data collection, as well as source and methodology. The project activities will be included in the country economic program. As a result, the joint donor reviews of the country economic program will also serve as a vehicle to round out the monitoring and evaluation system in order to identify the problems and stumbling blocks that could interfere with achieving the development objectives. As coordinating entity, CS REF will be staffed to collect, assess reliability, and review the project’s results indicators data. C. Sustainability 54. The sustainability of project outcomes will depend largely on continued government commitment to implement security measures and to collect revenues and restore vital public services. To this end, the project includes technical assistance to strengthen capacity of relevant ministries and directorates in revenue mobilization and other areas. The international community’s strong commitment to avoiding the complete interruption of public services would also support sustainability through (i) payment of civil service salaries to help the restoration of confidence in legitimate state structures; (ii) supporting government reforms needed to collect enough tax revenues to cover its operating costs; (iii) with the participation of several donors to ensure the payment of salaries over a longer period. Sustainability of the operation is also subject to appropriate fiscal discipline which is monitored by IMF and other donors as part of the commitment agreed with the Government. This commitment will also lay the groundwork for macroeconomic stabilization program. The State may thus benefit from budget support in the future from its partners, which will help to strengthen the sustainability of this project. 18 V. KEY RISKS AND MITIGATION MEASURES A. Risk Rating Summary Table Preparation Risk Rating Stakeholder risk High Implementing agency risk - Capacity Substantial - Governance High Project risk - Design High - Social including safeguard and environmental Substantial - Program and donor Substantial - Delivery monitoring and sustainability Substantial Overall Implementation Risk High B. Overall Risk Rating Explanation 55. Overall risk is “High.” The following aspects were factored in to arrive at the high risk level: (i) an ongoing, unstable political-security situation; (ii) poor governance; (iii) the country’s weak overall fiscal position; and (iv) sustainability risks. 56. Project risks. The success of the project is dependent on having (i) a reliable payroll process with an updated HR database, and (ii) a functioning banking system in order to process the payment of salaries in a timely and transparent manner, with a view to reducing corruption and misappropriation. Critical risks apart from security issues are depicted as the following: (i) the government’s inability to collect additional resources to address the salaries financing gap and, (ii) shortfall of external disbursements. Mitigation measures 57. Mitigation of project risks. At the project level, the update of the HR and payroll databases will be a critical step to reduce fiduciary risk. Additionally, the Bank financial management and Controller’s (CTR) teams will assess, in conjunction with the Central Bank, the internal control environment of the commercial banks operating in the market, together with their geographical 19 coverage. In areas not covered by the formal banking system, alternative solutions such as mobile bank agencies supported by police forces will be explored17. Channeling the payments through commercial banks directly into the personal accounts of civil servants would help reduce corruption, misappropriation, and rent seeking. The UNDP partner to be recruited under the subcomponent will play a key fiduciary role in updating the HR and payroll databases and overseeing the communication sensitization strategy. Line ministries will also be empowered, to the extent possible, to demonstrate their ability to ensure the actual presence on site of the civil servants they employ. The risk related to the financial gap for the salaries will be mitigated by (i) the technical assistance provided in revenue-generating administrations, and, if necessary, (ii) support from the World Bank and other donors. VI. APPRAISAL SUMMARY A. Economic and Financial Analyses 58. The usual economic and financial analysis for this project is not carried out given the fragility in the country and the uncertainty of determining costs and benefits. However, the project implementation could lead to a number of benefits that could accrue to the public through a functioning state based on the considerations that: (i) the payment of salaries is critical to the restoration of confidence in legitimate state structures and would allow the State to provide basic services to populations including outside of Bangui as security is progressively back; (ii) the government will start implementing the reforms needed to collect enough tax revenues to cover its operating costs; (iii) the participation of several donors will ensure the payment of salaries over a longer period while the government is fully engaged in stabilizing the economy. 59. The project helps prevent services disruptions and contributes to increasing the aggregate demand. As a result, many civil servants are expected to return to work this year and public services would progressively resume their functions in meeting the basic needs of the population. In this context, the project will pay for 4 months of salary, equivalent to US$ 27.5 million and representing roughly a quarter of the total wages (7.1 percent of GDP) in 2014. The proceeds of the project represents 2 percent of GDP and will create a fiscal space that will help authorities to cover other recurrent costs including costs for the resumption of state services in areas out of Bangui. 60. The medium-term macroeconomic outlook assumes an improving security situation and that key obstacles to formal private sector growth are gradually removed. In the medium term, improved security and the return of IDPs and investment projects for infrastructures rehabilitation remain a condition to attain a level of growth at 3.4 percent on average for 2014- 2015. With improved security in the countryside, implementation of key projects including the IDA financed agricultural project will boost the production in the agricultural sector. In addition, donor-funded public investment is expected to remain important for economic growth and it is expected to increase as a percentage of GDP from 1.6 in 2013 to 4 in 2014-2015. Medium-term sources of growth besides agriculture are mining and forestry supported by FDI. 17 No project fund will be used to pay the services provided by the police forces. 20 61. A regular payment of salaries will directly benefit more than 30,000 households. This injection of the money into a stalled economy will expand trade, boost the aggregate demand and help the economy recovery with benefits also to the poor. Overall, the operation is likely to have positive poverty and social impacts. Thus, the resumption of economic activities resulting from payment of salaries should help in poverty reduction and enhancement of shared prosperity. It is important to note that more than a million people fled the country including traders and as a result, trade volumes have been drastically reduced including a decrease of 45.6 and 31.3 percent for exports and imports, respectively, in 2013. In the context of the operation with improvements in the security situation, as it is the case on the Garoua-Boulai-Bangui corridor, trade is expected to resume as IDPs return home. 62. Over the next 12 months Bank’s assessment is that the economy is stabilized and the government is able to fund wages and salaries thanks to a stream of domestic revenues and external financing in 2014 (Figure 3). With contributions from the EU and IDA earmarked to cover wages and salaries, the government is able to remove this constraint on its treasury. The AfDB and IMF contributions with budget support in this recovery effort would further assist the government stabilize the economy both in the short-term and pave the way for future budget support from donors. These actions would thus provide strong support to improvements in the CAR’s fiscal sustainability. Figure 3: Donor Contributions to the 2014 Financing Gap (In US$ million) AfDB, 20 IDA, 27 UN, 12 ECCAS, 30 IMF, 20 EU, 39 AFD, 16 Sources: C.A.R. Authorities and World Bank Staff data 63. Implementation of the project and the measures to improve security would allow the government to collect fiscal revenues from the trade, mining, and forestry sectors to cover current expenditures. On the basis that peace and security materialize, authorities will be able to collect 5.4 percent of the GDP of fiscal revenues in 2014 and register a primary deficit of 8.1 percent of GDP. The update of the payroll system will help to remove ghost workers and clarify the position of personnel in the category of “Hors statuts”. As a result and based on the assumption that at least 50 percent of “Hors statuts” are ghost workers (representing 302 persons), the government will be able to save 3 percent of the total annual wages in 2014. 21 64. Notwithstanding the current crisis in the Central African Republic, the transitional government has been able to avoid strikes by paying nine months of salary in 2013, thanks to a loan totaling US$ 50 million provided by the Republic of Congo and other contributions from member countries in the CEMAC region. Table 4: CAR – Estimated Key Fiscal Indicators 2013-2015 (in percent of GDP) 2013 2014 2015 Total revenues 8.4 9.3 12.6 Grants 2.7 2.9 3.6 Total expenditure 14.7 17.6 17.9 Current 12.4 13.3 11.2 Wages 7.1 7.1 6.0 Capital expenditure 1.7 3.6 6.0 Foreign financed 1.6 2.9 5.1 Overall budget balance Excluding Grants -9.0 -11.2 -8.9 Including Grants -6.3 -8.3 -5.3 Sources: CAR Authorities and IMF Staff estimates 65. The alternative of the central government’s inability to pay agents’ salaries in a timely manner, given the chronic financial crisis, could result in loss of confidence in the peace process. This would be seen in disputes with unions, strikes, and disruptions of public services mainly in the education and health sectors where civil servants are concentrated, all of which would, in turn, hamper the economic recovery. This catastrophic scenario will just accelerate the collapse of CAR. B. Technical Evaluation 66. The project is the response to the government’s urgent need to reestablish a visible functioning state while dealing with the challenges identified in a public financial management system with a focus on revenue collection and centralization into the Treasury’s single account. The project is based on a simple technical design, which takes into account the country’s weak capacity and the right balance between rapid results (payment of salaries for the restoration of public services) and medium-term objectives, so as to ensure sustainability. The technical design is also based on PEFA indicator 18 related to the effectiveness of payroll controls that assess: (i) the level of integration of personnel and payroll databases; (ii) the internal control of the changes in the databases; and (iii) the existence of payroll audits. 67. The project design includes a technical assistance contract with UNDP for the update of the HR and payroll databases and another contract with a consulting firm for the technical assistance in the Ministry of Finance (Customs, Taxes, and Treasury Directorates) and the Ministry of Public Service. 22 C. Financial Management 68. The CS REF, a unit within the Ministry of Finance, will be in charge of fiduciary project management. The CS REF will also coordinate the Directorates from the Ministry of Finance and the Ministry of Civil Service involved in the project. In line with the procedures described in paragraph 11 of the OP 10.00 para 5 on Investment Project Financing, a Financial Management (FM) assessment of CS REF was conducted by the World Bank’s FM team. 69. The objective of the assessment was to determine whether (i) CS REF has adequate financial management arrangements to ensure that the project funds will be used for its intended purposes in an efficient and economical way; (ii) the financial reports will be prepared in an accurate, reliable, and timely manner; and (iii) the project’s assets will be safeguarded. 70. CS REF is familiar with World Bank procedures, as this entity has managed to adequately execute and close two World Bank-funded projects. The entity is endowed with (i) financial staff with track records in World Bank procedures, (ii) an administrative and financial manual of procedures, and (iii) a computerized accounting system. The last audit report dated 2011 from the closed project concluded with an unqualified opinion on annual financial statements and did not reveal any significant weaknesses with respect to the internal control system. However, since the project will entail payment of salaries to around 19,054 civil servants, CS REF could be limited in terms of capacity. As result, in addition to the traditional FM mitigating measures described in Annex 3, the outsourcing the update of HR and payroll databases with UNDP given its comparative advantages is critical. Timely completion of the update of the HR and payroll databases is critical for the success of the operation. In order to prevent any delay, a retroactive financing arrangement has been considered and agreed with the authorities in order to finance the UNDP technical assistance contract. The project will finance an amount not to exceed US$ 12 million equivalent (SDR 7.8 million) for payments made prior to the date of the Financing Agreement for Eligible Expenditures under Category (1). These measures will be complemented with annual financial external audit and ex post verification to be performed by the General Inspectorate of Finance on the control of eligibility of a reasonable sample of salary payments. 71. The assessment concludes that the financial management system of CS REF is adequate if the mitigating measures described above and in Annex 3 are well implemented, and continuous monitoring and flexible adjustment of the planned financial management system is undertaken. 72. The overall FM risk is assessed as Substantial. Detailed financial management arrangements are described in Annex 3. D. Procurement 73. Procurement activities will be implemented by the CS REF, which has experience in the implementation of projects financed by the World Bank. The assessment of CS REF’s capacity for the purpose of the project found that: (a) the Procurement Specialist currently on board is qualified; (b) and the Procedural Manual needs to be updated. Mitigation action plans 23 have been developed for both entities (See details in annex 3). 74. The overall project procurement risk at the time of assessment is Moderate. The satisfactory implementation of the above action plans will reasonably bring this overall risk to Low. 75. Procurement Plan. A first draft Simplified Procurement Plan for project implementation has been elaborated. It provides the basis for the procurement methods. This procurement plan will be discussed and agreed upon by the Recipient and the project team at negotiations. It will be available in the project’s database and a summary will be disclosed on the Bank’s external website once the project is approved by the Board. The Procurement Plan will be updated in agreement with the Project team annually or as required to reflect the actual project implementation needs and improvement in institutional capacity. E. Social Impact (including safeguards) 76. The rapid response provided by the proposed project to the emergency situation precludes in-depth assessments of its social and safeguard impacts. In the short term, the payment of civil servant salaries supported by this project is expected to have a positive social impact. The updating of the payroll database supported by the project does not consider any downsizing but the elimination of illegal ghost workers and double-dippers. The change in status of these categories of civil servants who will stop receiving a salary and start drawing a government pension instead will reduce their disposable income. To avoid any misunderstanding from those who are expected to receive payment, the authorities will organize an in-depth communication campaign explaining the whole process and provide relevant information that will be needed from the civil servants, taking into consideration that some documents could be lost during the political crisis period. 77. Some of the civil servants will be delivering services (e.g. health and education) in areas where Indigenous Peoples (Baaka) are present. Therefore OP 4.10 (Indigenous Peoples) is triggered and an Indigenous Peoples Planning Framework (IPPF) will be prepared, consulted upon and disclosed during project implementation, drawing on frameworks prepared in the last several years for the Health System Support (P104525) and the Education for All-Fast Track Initiative (EFA-FTI) Catalytic Fund Preparation project (P133580). The Operations Manual will include guidance on implementing the policy in a manner that is culturally appropriate and which involves outreach to and free, prior and informed consultations with indigenous communities on services to their communities. F. Environmental Impact (including safeguards) 78. The activities supported by the proposed project are not likely to have any adverse environmental impacts. The project is therefore classified as Environmental Category C. No specific environmental safeguard instrument will be required. Consequently, the Bank’s policies in this area are not triggered. 24 ANNEX 1: RESULTS FRAMEWORK AND MONITORING Country: Central African Republic Project Name: EMERGENCY PUBLIC SERVICES RESPONSE PROJECT (P149884) Results Framework . Project Development Objectives PDO Statement The project development objective is to re-establish an operational government payroll and related financial management systems. These results are at Project Level Project Development Objective Indicators Data Responsibility Cumulative Target Values Source/ for Unit of End Methodolog Data Collection Indicator Name Core Baseline YR1 YR2 YR3 YR4 Frequency Measure Target y Direct project beneficiaries (of which female) Attendance Ministry of Number 0.00 18600.00 18600.00 18600.00 number of civil certificate Civil Service servants paid in non-security 25 sector Improved effectiveness of Assessment payroll controls Text D D+ D+ Annual of PEFA CS REF as measured by indicator PEFA PI-18 Number of supported directorates in Annual the MoF that Number 0.00 2.00 3.00 3.00 Annual CS REF reports have reestablished the basic functions Percentage of teachers who have resumed Ministry of work in the 3 Percentage 0.00 10.00 30.00 30.00 Annual Education CS REF / MOE key districts (MOE) where security has improved Percentage of health workers who have Ministry of resumed work in Percentage 0.00 10.00 30.00 30.00 Annual Education CS REF / MOH the 3 key (MOE) districts where security has 26 improved . Intermediate Results Indicators Data Responsibility Cumulative Target Values Source/ for Unit of End Methodolog Data Collection Indicator Name Core Baseline YR1 YR2 YR3 YR4 Frequency Measure Target y Lead time for Review of Directorate of processing civil Days 0.00 20.00 15.00 15.00 Monthly payroll Payroll servant salaries database Reconciled Review of personnel and the Directorate of Text No Yes Yes Yes Annual payroll personnel Payroll databases and payroll Number of State months of civil Operations servants salaries Number 0.00 4.00 0.00 4.00 Quarterly Financial CS REF in non-security Statement sectors paid (TOFE) Number of Review of Directorate of Number 0.00 1.00 2.00 2.00 Annual payroll audits audit report Payroll 27 Percentage of Minutes of domestic Treasury CS REF / revenues Percentage 0.00 30.00 50.00 50.00 Quarterly committee / Directorate of collected and Treasury Public Treasury recorded into Plan Ges’Co Percentage of staff from Ministry of Customs Finance, Directorate of Percentage 10.00 50.00 80.00 80.00 Annual Directorate Directorate Customs whom have of Customs resumed work Treasury Directorate has Annual produced cash Text No Yes Yes Yes Annual CS REF reports management plan Customs Directorate has produced the reconciled Annual Text No No Yes Yes Annual CS REF revenue Reports collected from the commercial banks Tax directorate Text No No Yes Yes Annual CS REF Annual has produced 28 the reconciled reports revenue collected from the commercial banks . 29 ANNEX 2: DETAILED PROJECT DESCRIPTION Central African Republic: Emergency Public Services Response Project Component 1: Payment of current salaries (US$ 26.8 million) 1. Objective of the component – This component will provide support to the Government to pay civil service salaries in civilian sectors (excluding the security forces and police). It is divided into two subcomponents: (a) update of the HR and payroll databases; (b) payment of the salaries of eligible civil servants. It is expected that the sound internal control procedures of the first subcomponent built into the payroll process will create traction allowing other donors to cover additional months of current salaries, arrears, and pensions. Subcomponent 1.1 – Update of the HR and payroll databases (US$ 800,000) 2. Objective of the subcomponent – Reconcile the HR and payroll databases to ensure payment of next months’ salaries, arrears, and pensions to relevant civil servants. In the long run, this subcomponent aims to master the fiscal impact of the payroll. 3. Current status – As per the PEFA indicator 18 rated D, the current status is characterized by: (i) the lack of unified HR and payroll databases; (ii) irregular updating of the databases in case of an event in the employee’s life; (iii) and the absence of audit of the payroll since 2009. 4. The HR file has been cleaned since May 2007 with UNDP support and comprised about 25,500 civil servants and military and police forces compared to 30,759 in 2013. This file managed by the National Office of Information System (Office National Informatique ONI) was the result of a census that identified approximately 1,000 ghost workers. Updating the personnel records is not done in a timely fashion, which contributes to reducing the reliability of public servants’ personnel records as confirmed by the integration of new staffs directly in the payroll system without prior incorporation into the HR file. Inconsistencies between the two files give rise to the existence of a new category of personnel (“Hors Statuts”18 equivalent to 604 persons) in addition to ghost workers. In 2009, the banking payroll and the secured civil servant cards were put in place. Since then, no thematic audit has been performed, whether to control the statutory position of departmental officials or to control their numbers. Following the 2009 reform, the salaries of civil servants are channeled through bank transfer into their individual bank accounts. In the absence of a reliable real-time civil servants file, this secure method of payment is not however sufficient, hence the need for a new update. A biometric census could have been the most appropriate way forward. However, this method is costly and involves a long process. The emergency nature of this project will lead to reliance on a most simple but efficient process. This will lay the ground for a more formal biometric census. 5. Activities – The activities planned as part of this subcomponent would be implemented with the support of a technical assistance from UNDP and are as follows: 18 This category increased from 382 in September 2013 to 604 in December 2013 and includes appointments made for political reason. 30 a) Update HR and payroll databases. b) Develop appropriate procedures, allowing a real-time update of HR and payroll databases in case of an event in the life of the employee. c) Strengthen the capacity of the Directorate of Payroll to perform a regular payroll audit. d) Deploy the communication campaign to support the operation. Subcomponent 1.2 – Payment of the salaries of eligible civil servants in the non-security sector, excluding the military and police (US$ 26 million) 6. Objective of the subcomponent – Pay four months of salaries in a timely manner to eligible civil servants in the non-security sector. This subcomponent will support the definition of eligibility criteria and the payment procedures that will be channeled from the Central Bank to the commercial banks using appropriate approaches (mobile bank agencies,) given the limited coverage of the banking network in the country. Payment of salary is subject to staffs’ re- authentication prior to their enrollment in the updated payroll system. This will be done by the production of one presence certificate, “Attestation de presence” for each staff when resuming work. These certificates aim to ascertain that the staff is still in the country and has ideally resumed work in its line ministry (particularly heath, education and finance…) either at Bangui or at identified locations depending on the security situation. The operation will start making payments to those who have been authenticated while continuing to update the payroll database and strengthening the system. Litigious cases are not going to stop payments to the regular staff, but will be handled by the administration and resolved disputes will be regularized. To ensure a success of the production of the presence certificate, a communication campaign will be conducted in the various media. In order to speed up implementation, the payroll clean-up is being processed19 prior to Board approval with UNDP which in 2007 conducted the first census after which the HR and payroll databases were developed. 7. Current status – Annual payroll (including in the security sector) is about US$ 114.6 million (US$ 9.5 million on a monthly basis) and represents on average 46 percent of the government’s recurrent costs in 2009–2013. The tight liquidity situation as a result of the crisis has led to an accumulation of arrears of unpaid civil servant salaries, including five months as of February 2014. This situation is creating a major disruption (absenteeism) in the provision of public services, due to weak motivation on the part of civil servants. In addition, it might be a source for the amplification of the social tensions. 8. Activities – The activities planned as part of this subcomponent will be implemented with the support of a technical assistance/consulting firm and are as follows: a) Develop appropriate procedures allowing the payment of salaries in a fair and transparent manner. This will include: (i) the identification of adapted measures (such as presence list signed by the line manager) that will help to ascertain the presence of the civil servant at his position during the month elapsed; (ii) the opening of bank accounts by the civil servants having not yet done so; (iii) the opening of an escrow account at the Central Bank 19 Under the standard template for technical assistance contract with UN Agencies. 31 that will receive the equivalent of four months of salaries for security, police, and gendarmerie forces to complement the Bank’s resources covering non-security sectors; (iv) and the definition of a processing lead time for the payment of these salaries;. Component 2: Technical assistance to core structures in the ministries of Finance and Public Service (US$ 3.2 million) 9. Objective of the component – This component will provide support to the Government to reestablish minimum capacity for budget execution and control of the revenue generated by the Government’s various ministries, departments and agencies. It aims to equip some core government directorates with a minimum capacity for a better revenues collection including treasury management, budget execution transparency through the re-setting of the computerized budgeting and accounting system. Activities under this component will serve as an initial platform for policy dialogue and future interventions to be pursued in the future SPF funded operation. The Bank is seeking additional resources through Trust Fund to scale up the impact of these activities and to resume the PFM and civil service reform reforms agenda as to enhance the sustainability of the operation. In addition, this component will complement Bank’s regional transport project which has a trade facilitation subcomponent supporting the Customs Directorate. 10. The component includes two subcomponents: (a) contractual Technical Assistance in a targeted number of Directorates (Customs, Taxes, Treasury and Public Accounts, Budget and Information Systems and, HR), and (b) strengthening the institutional capacity of the Directorates of customs and taxes. Since the customs and tax departments are equipped, the country will gradually collect more revenue to finance its current costs. Subcomponent 2.1 –Technical assistance and expert services for the Directorates of Customs, Taxation, Treasury, Payroll, General Inspectorate of Finance and Civil Service Directorate (US$ 2 million) 11. Objective of the subcomponent: – Provide expert services to targeted Directorates with a view to placing them in good standing to render public services. To this end, the subcomponent will leverage on reforms initiated as part of Bank previous operations in the areas of budget preparation, and reporting, and treasury management. The selection of these Directorates will be made to complement the ongoing technical assistance from other donors (France, EU, and AfDB). The World Bank’s preference will be on the revenue-generating Directorates and the Public Treasury to (i) reestablish the Treasury Single Account (TSA) arrangement, weakened during the crisis (ii) restart the production of adequate financial statements by the timely record of the transactions into the accounting books, (iii) implement procedures for an effective recovery of customs duties, and taxes and (iv) reinforce budget preparation and execution procedures so as to restore budget discipline. Technical assistance provided to the Civil Service Directorate will kick off the work towards sustainable Civil Service Reform. The technical assistance work program will be designed with the view to prepare an adequate exit strategy. It will include on the job training on new procedures, tools and techniques. In the short run, this subcomponent intends to rebuild capacity in these Directorates in order to restart revenue collection and thus to ensure sustainability in the financing of recurrent costs. 32 12. Current status – Before the crisis, the country Treasury was also fragmented, with several bank accounts opened by the ministries, the agencies, and special funds. These accounts represented about 11 percent of the 2012 budget. They are managed outside of the national budget through the annex budgets or dedicated treasury accounts. Recent financial audits performed as part of the last Bank budget support on the main agency (in charge of the regulation of the petroleum price) revealed poor governance, fraud issues, the existence of parallel bank accounts not included in the financial statements, and inefficiency of the business model (operating expenses represent 38 percent of the revenues collected). 13. The crisis has seriously compromised revenue collection. Leakage of fiscal revenues organized by the rebellion on the main corridor (Douala–Bangui) has placed great strain on the country’s Treasury. Likewise, there is no technical capacity at the revenue-generating directorates (such as the Directorate of Customs and the Directorate of Taxation). The TSA arrangement has also been weakened and the country’s cash flow situation is deteriorating. Against this background, security throughout the main corridor is being reinforced by the international forces. This could contribute to improving revenue collection and the country’s macro stability, provided that the revenue- generating Directorates are strengthened and equipped with minimum tools. 14. Activities – The activities that will be implemented over the course of 18 months by a consulting firm endowed with a pool of experts are as follows: a) Reestablish the Treasury Single Account arrangement along with the Treasury committee. b) Oversee the management of the activities of the Directorates of Customs and Taxation. c) Reinforce the General Inspectorate of Finance, the Directorate of Payroll and the Directorate of Civil Service. Subcomponent 2.2 – Equipment of the structures of Customs, Taxation, Treasury, Payroll, General Inspectorate of Finance (US$ 800,000) 15. Objective of the subcomponent – Equip the above-mentioned structures with IT equipment that will contribute to monitoring the revenues and the Treasury. More specifically, the Ges’Co application software will be restored with the objective of increasing transparency in public finances. Future developments of Ges’Co, such as modules on revenues and salaries, will be undertaken in the SPF project. 16. Current status – The IT equipment of the above-mentioned Directorates was looted during the crisis, which will affect their functioning when the motivation issue of the civil servants is addressed in the subcomponent 1.2. The crisis has also impacted the functioning of Ges’Co, which was previously deployed at the Directorate of Public Treasury and the Directorate of Budget. As a result, budget preparation and execution processes, when utilized, are performed manually. State accounting books are maintained in Excel. 17. Activities – The activities planned as part of this subcomponent are as follows: a) Provide IT equipment to the above-mentioned Directorates, 33 b) Restore Ges’Co. Subcomponent 2.3 – Support to CS REF and project operating costs (US$ 400,000) 18. Objective of the subcomponent – Provide institutional support to CS REF as to properly oversee the implementation of the government economic program and the join fiduciary framework including the proposed project coordination. The audit of the project will also be financed under this component. 19. Current status – With the increasing demand from the donors in the re engagement agenda, CS REF will be critical player. Meanwhile its limited technical staffing (all civil servants) could be an impediment for a proper management of all requests. In addition the coordination of the project will require additional financial and human resources. This is why in spite its knowledge of donor procedures, CS REF needs to be reinforced. This will include a merit-based pay upon completion of the project intermediate results. 20. Activities – The activities planned as part of this subcomponent are as follows: a) Provide IT equipment and technical experts to CS REF. b) Audit project transactions. 34 ANNEX 3: IMPLEMENTATION ARRANGEMENTS Central African Republic: Emergency Public Services Response Project Project Institutional and Implementation Arrangements 1. Overall implementation arrangements will follow the existing structure (CS REF), established before the crisis to monitor and manage the Economic and PFM reforms. By building on the existing structure and arrangements, such as CS REF, the project will link up with other ongoing economic and PFM reforms. Implementation will include the following structures: (i) Joint Government/Development Partners committee on PFM Reforms; (ii) CS REF; and (iii) Beneficiaries of the reforms (key Directorates). 2. Joint Government/Development Partners committee on PFM Reforms. This joint committee was established in 2010 and re-launched after the adoption of the PFM reform program, Programme de Réforme Globale des Finances Publiques (PRGF). It includes key stakeholders involved in PFM reforms. On the country side, it includes the Minister in charge of Finance (Chair), Minister in charge of Budget, and CS REF. On the donors’ side, the Joint Committee includes Development Partners involved in PFM reforms, including the World Bank, IMF, AfDB, and EU. This committee will function as the steering committee of the project and will meet every quarter to (i) discuss the strategic direction and orientation of PFM reforms; (ii) review the implementation progress of the PSRFP; and (iii) discuss any coordination issues in the funding of the reform program. These meetings will be open to all donors involved in PFM reforms. 3. CS REF. CS REF will be in charge of the fiduciary and technical coordination of the activities. CS REF will coordinate the Directorates from the Ministry of Finance, the ministries of Civil Service reforms, Health and Education key players in the project. CS REF will also be in charge of the fiduciary activities. Its current staffing includes (i) a coordinator, (ii) a deputy coordinator, (iii) a financial management officer, and (iii) a procurement specialist. This team is well conversant with donors’ procedures (two World Bank projects have now closed with no major issue and one EU project is ongoing). The team will be complemented with consultants having technical and operations skills. Financial management and disbursement arrangements Country Issues 4. The country fiduciary risk was substantial before the crisis and has been impacted by the delay in the implementation of critical PFM reforms agreed to with donors in 2012. The recent crisis increased the frequent recourse to extra budgetary procedures while affecting the collection of domestic revenues. The Treasury Single Account arrangement has been weakened and the country’s cash flow situation is deteriorating. The crisis has also impacted the computerized financial management system (IFMIS) deployed by the Directorate of Public Treasury (which is no longer integrated into the module set up at the Directorate of Budget). State accounting books are maintained in Excel. As a result of the above deterioration of the PFM situation, the country fiduciary risk is now High. 35 Risk Assessment and Mitigation 5. The overall FM risk is assessed as Substantial. The assessment proposes as mitigation measures: (i) the recruitment of a qualified firm to audit HR and payroll systems, and to oversee payment processes; (ii) the amendment of a simplified administrative and financial manual of procedures; (iii) the installation of a computerized accounting system; (iv) and the recruitment of an independent external auditor according to ToRs acceptable to the World Bank, including the control of eligibility of a reasonable sample of salary payments. Risk Risk Risk Mitigating Measures Risk after Remarks rating Incorporated into Project Design mitigation measures Country level H Ongoing donor mobilization on PFM H assistance may yield results if Weak capacity in Public political situation is stabilized. Financial Management worsened by current political crisis Implementation of the join donor/Government fiduciary framework will be critical. Entity level S Rely on CS REF endowed with S Preparation/Implementation dedicated fiduciary staff Ministry of Finances monitoring capacities Contract UNDP to support were affected negatively government for updating HR and by current political payroll databases, and oversee events and can lead to payment process with clear and weak oversight of project transparent methodology Project level H S Payment of ghost Perform a payroll audit salaries Product presence certificate Absenteeism INHERENT RISK S S Budgeting M Budget process will mainly rely on M Preparation (Completed) the updated payroll and HR databases Inaccurate budget figures due to unreliable forecast and databases Accounting S Rely on General Inspectorate of M Preparation/Implementation Finance, supported by international Delay in recording the consultants, to certify the list of 36 transactions as a result of payments long lead time to reconcile salary payments data with the update list of personnel Internal Controls / S S Internal audit Noncompliance of transactions with Update the existing administrative Preparation/Implementation financing agreement and financial manual of procedures with a detailed control procedures Simplified manual of for each transaction, mainly salary procedures not fully payments component adapted to current operation Ineligible expenditures Reconcile HR and payroll databases resulting in payment of ghost salaries and civil servants absent at work Rely on banking payroll arrangements to transfer salaries to civil servants Ex post audit of salaries payment lists by Inspector general of MoF, supported by international consultants Funds Flow S S Delay in the funds Open a Designated Account at the Preparation/Implementation release Central Bank (BEAC); IMF and World Bank Participation in Cash Delay in providing the Management Committee listing of salaries paid Open transaction accounts at commercial banks This transfer should be made from budget supports received Lack of funds to pay Government has indicated it will by other donors. Oversight of other civil servants not transfer into an escrow account an this account will be done as paid from IDA funds appropriate level of amount to cover part of the Cash Management salaries of personnel not eligible for Committee in which IMF, WB payment through the project. and the Central Bank is part. 37 Defense and security forces HR and payroll databases are separated from the civilians’ staff. Bank to provide non objection on the Salaries not paid to the list of civil servants to be paid. right beneficiaries Before the crisis most of the Rely on banking payroll civil servants usually withdraw arrangements to transfer salaries to their salaries from the civil servants commercial banks in Bangui. It is also worth mentioning that before the registration into the payroll data base the civil Product presence certificate servant has to open a bank account Risk of viability of Perform financial health check of the commercial banks commercial banks in conjunction hosting the civil servants’ with Central Bank before the bank accounts payment process. Ensure commercial banks are involved as key players in the communication campaign. Financial Reporting M M Delay in producing Upgrade the existing computerized Preparation/Implementation acceptable IFRs due to accounting system to produce non-adapted accounting project’s IFRs system Refresh training of CS REF fiduciary team on the use of computerized accounting system Auditing M M External financial auditor Recruit an independent external Implementation contract expired in 2011 auditor to perform annual financial and SAI is very weak and statement audit based on ToRs is unable to perform in a agreed with the World Bank and to timely and professional include a rigorous control of manner the audit of the eligibility of a reasonable sample of project salary payment CONTROL RISK M M Overall FM risk S S The overall residual risk rating is considered Substantial. 38 Strengths 6. CS REF has managed adequately to close Improving National Procurement System Project (P116151) and has gained some experience with World Bank-financed projects. The financial staff involved in the implementation of said project is still in place. A simplified manual of procedures is in place. Weaknesses and Action Plan to reinforce the fiduciary arrangements Significant weaknesses or Action Responsible Completion risks body Workload due to current Contract with UNDP to update the CS REF Ongoing project HR and payroll databases and oversee payment processes Manual of procedures Adopt the updated administrative CS REF 1 month after and financial manual of procedures effectiveness Current computerized Upgrade the existing computerized CS REF 1 month after accounting system not accounting system to one that can effectiveness adapted manage project funds Financial viability of the Perform financial health check of WB 1 month after commercial banks the commercial banks in effectiveness conjunction with Central Bank before the payment process. No auditing arrangements Recruit an independent external CS REF 4 months after auditor according to ToRs effectiveness acceptable to the World Bank, including a rigorous control of eligibility of a reasonable sample of salary payments 7. Staffing: CS REF will be in charge of the project’s fiduciary management. One Finance Officer familiar with World Bank procedures and who has been involved in the financial management of World Bank-financed projects will review FM transactions and records to ensure compliance with agreed procedures and grant agreement. The FM staff will ensure that the project’s FM transactions are in compliance with fiduciary requirements, and prepare Wit hdrawal Applications (WA) and financial reports. The financial staff will receive training on World Bank financial procedures at project launch. 39 8. Budgeting: Budget preparation will rely on updated data resulting from payroll and HR audit to be performed by a UNDP. Budget execution will be monitored and any variances will be identified in the quarterly Unaudited Interim Financial Reports (IFRs). Only budgeted expenditures will be committed and incurred so as to ensure that resources are used within the agreed upon allocations and for the intended purposes. 9. Accounting Policies and Procedures: A computerized accounting system will be used (accounting software multi project) to maintain the books and accounts of the project activities and ensure that the annual financial statements are produced in a timely manner in accordance with OHADA (Organisation pour l’Harmonisation du Droit des Affaires en Afrique) accounting principles, which are in line with the international accounting standards. The software will record the project’s transactions and generate accurate financial reports on time. 10. Internal Control and audit: Internal control will build on the proposed staffing arrangements and manual of procedures with a clear segregation of duties between different units respectively responsible for technical implementation, administration and finance, monitoring and evaluation, as well as information and communication. Furthermore, UNDP will be recruited to oversee the update HR and payroll data and the payment processes, including reconciling commercial banks’ data with a list of payments. Regular check of physical presence will be performed by the Inspector General of the MoF, supported by qualified international consultants, acceptable to IDA. 11. Funds Flow and Disbursement Arrangements: The funds flow will rely on country arrangements for the payment of the civil servants. The National Treasury authorizes the funds transfer from Central Bank to commercial banks, then to the individual accounts of the civil servants. For this operation, one segregated Designated Accounts (DA) denominated XAF will be opened at Central Bank for salaries payment. Transaction accounts will be opened in a commercial bank acceptable to the World Bank to receive deposits corresponding to monthly payroll. The DA will receive an initial deposit up to its ceiling amount. The ceiling will be variable and linked to the expected disbursement forecast established in the Annual Work Plan and will be replenished as needed Direct payments will be made to service providers if needed, as per disbursement letter. The WAs to replenish the DA will be signed by signatories appointed by the government of CAR. The government of CAR will open separately a dedicated or an escrow account at the Central Bank and will deposit funds in this account to pay security sector and police salaries. 40 Figure 4: Funds Flow Arrangement Chart 12. Disbursements by category: The table below sets out the expenditure categories to be financed out of the Credit and Grant proceeds. This table refers to the prevailing Country Financing Parameter for CAR in setting out the financing levels. Table 5: Disbursement Table Categories Amount of the Amount of the Percentage of Credit Allocated Grant Allocated Expenditures to be (expressed in US$) (expressed in Financed US$) (inclusive of Taxes) Salaries for Eligible Civil 6,100,000 23,900,000 100% Servants under part 1 (b), Goods, Operating Costs, Part 2 (c); non-consulting services and consultants’ services for the Project TOTAL AMOUNT 6,100,000 23,900,000 13. Retroactive financing. The project will finance an amount not to exceed US$ 12 million equivalent (SDR 7.8 million) for payments made prior to the date of the Financing Agreement for Eligible Expenditures under Category (1). 41 14. Financial Reporting and Monitoring: IFRs will be submitted to IDA within 45 days after the end of each calendar quarter. The format of the IFR will be agreed during negotiation. The IFR will comprise the sources and use of funds and the detailed expenditures by component. At the end of each fiscal year, the project will prepare annual financial statements. 15. Auditing: The annual financial statements prepared by CS REF, as well as its internal control system applied, will be audited annually. Supreme Audit Institution has a weak capacity and cannot perform the audit of the project in a timely and professional manner. As result, an external auditor will be recruited according to ToRs acceptable to IDA. The external auditor ToRs will include the control of eligibility of a reasonable sample of attendance certificates. Auditor intervention will complement the regular physical presence check performs by the General Inspection of the MOF, supported by international consultants. The auditor will provide one single opinion on the annual financial statements, in compliance with International Federation of Accountants (IFAC) Standards on Auditing. In addition to the audit reports, the external auditors will be expected to prepare a Management Letter providing observations, comments, and recommendations for improvements in accounting records, systems, controls, and compliance with financial covenants in the Financing agreement. The project will be required to produce, no later than six month after the fiscal year, the audited annual financial statements. In line with the access to information policy, project will comply with the Bank disclosure policy of audit reports (e.g. make publicly available, promptly after receipt of all final financial audit reports (including qualified audit reports) and place the information provided on its the official website within one month of the report being accepted as final by the team. 16. Dated covenants: The below mitigation measures are being proposed to ensure an appropriate functioning of the financial management arrangements of the project. (i) The amendment of the existing administrative and financial manual of procedures one month after effectiveness, (ii) The recruitment of an independent external auditor four months after effectiveness, (iii) The upgrade of a computerized accounting system three months after effectiveness. 17. Conclusions of the FM Assessment: The overall FM risk is considered Substantial. The proposed financial management arrangements for this project are considered adequate to meet the World Bank’s minimum fiduciary requirements under OP/BP10.00. The assessment recommends: (i) the recruitment of a qualified firm to audit HR and payroll systems and oversee payment processes; (ii) the amendment of a simplified administrative and financial manual of procedures; (iii) the installation of a computerized accounting system; (iv) and the recruitment of an independent external auditor according to ToRs acceptable to the Bank, including the control of eligibility of a reasonable sample of salaries payment. Procurement arrangements 18. Procurement Environment. The adoption of the new procurement code approved on June 6, 2008 has improved the legal and institutional frameworks of the procurement system. Procurement regulatory and prior review functions are carried out by adequate entities. No special exceptions, 42 permits or licenses need to be specified in the Financial Agreement, since the new procurement code allows IDA procedures to take precedence over any contrary provisions in local regulations. 19. Procurement Implementation Arrangement of the project. The Ministry of Finance will be in charge of implementing the project through the CS REF (Cellule de Suivi des Réformes Economiques et Financières). Procurement activities will be implemented by the CS REF, which has substantial experience in the implementation of projects financed by the World Bank. The CS REF will be responsible for the coordination and implementation of all procurement activities. Its current staffing includes a Procurement Specialist. This staff has adequate experience with the World Bank’s procurement procedures. 20. Procurement capacity assessment of the Implementation Arrangement. An assessment of the capacity of CS REF for the purpose of the project was carried, and the procurement risk for the implementation of this project is rated as Moderate, because: (a) the Procurement Specialist currently on board is qualified, but needs to be maintained or if need be, to be replaced with another qualified procurement specialist in case of his unavailability; (b) the Procedural Manual needs to be updated. 21. The procurement risk rating is moderate. To mitigate the above-mentioned procurement risks, an action plan has been agreed upon. Implementation and monitoring of the mitigation action plan in the table 6 below will reduce the procurement residual risk to Low. Table 6: Procurement Action Plan Action to be undertaken Timeframe Responsible body Elaboration and submission a procurement plan to the Discussed during CS REF World Bank negotiations, no objection from the Bank. Finalize and submit to World Bank for agreement, a - First draft available and CS REF satisfactory version of the operations manual comprising discussed during a section on procurement for use by the project negotiation, no objections from the Bank. - Adoption one month after project effectiveness Confirm in his current position the procurement Done during the CS REF specialist of the current World Bank project or if need negotiations. be, replace him with another qualified procurement specialist in case of his unavailability 22. Guidelines. Procurement for the proposed project will be carried out in accordance with the World Bank’s “Guidelines : Procurement of Goods, Works, and Non-Consulting Services under IBRD Loans and IDA Credits & Grants by World Bank Borrowers,” dated January 2011, and “Guidelines: Selection and Employment of Consultants under IBRD Loans and Credits & Grants by World Bank Borrowers,” dated January 2011, and the provisions stipulated in the Financing Agreement. Procurement (goods and non-consulting services) or Consultant selection methods, 43 prequalification, estimated costs, prior review requirements, and timeframe will be agreed between the Borrower and the World Bank in the procurement plan. The procurement plan will be updated at least annually, as required, to reflect the actual project implementation needs. As an emergency project, this project is entitled to the specificity and flexibility described in paragraph 11 of the OP 10.00 on Investment Project Financing. 23. Advertising. A comprehensive General Procurement Notice (GPN) will be prepared by the Borrower and published in the United Nations Development Business online (UNDB) online prior to Board Approval, to announce major consulting assignments and any international competitive bidding (ICB). The GPN shall include all ICB for goods and non-consulting services contracts and all large consulting contracts (i.e., those estimated to cost US$ 500,000 or more). In addition, a Specific Procurement Notice (SPN) is required for all works and goods to be procured under ICB in UNDB online. Request for Expressions of Interest (EOI) for consulting services expected to cost more than US$ 300,000 shall be advertised in UNDB online. An EOI is required in the national gazette, a national newspaper, or electronic portal of free access for all consulting firm services, regardless of the contract amount. In the case of National Competitive Bidding (NCB), a specific procurement notice will published in the national gazette, a national newspaper, or an electronic portal of free access. Contract awards will also be published in UNDB online, in accordance with the World Bank’s Procurement Guidelines (para. 2.60) and Consultants Guidelines (para. 2.31). 24. Requirements for National Competitive Bidding. Goods and non-consulting services contracts will use National Competitive Bidding (NCB) procurement methods in accordance with national procedures using Standard Bidding Documents acceptable to the IDA and subject to the additional requirements:  In accordance with paragraph 1.16 (e) of the Procurement Guidelines, each bidding document and contract financed out of the proceeds of the financing shall provide that (a) the bidders, suppliers, contractors and their subcontractors, agents, personnel, consultants, service providers, or suppliers shall permit the World Bank as Supervising Entity, at its request, to inspect all accounts, records and other documents relating to the submission of bids and contract performance, and to have said accounts and records audited by auditors appointed by the World Bank/Supervising Entity; and (b) the deliberate and material violation of such provision may amount to an obstructive practice as defined in paragraph 1.16 (a)(e) of the Procurement Guidelines:  Invitations to bid shall be advertised in national newspapers with wide circulation.  The bid evaluation, qualification of bidders and contract award criteria shall be clearly indicated in the bidding documents.  Bidders shall be given adequate response time (at least four weeks) to submit bids from the date of the invitation to bid or the date of availability of bidding documents, whichever is later.  Eligible bidders, including foreign bidders, shall be allowed to participate.  No domestic or CEMAC’s regional preference shall be given to domestic or regional contractors, domestically or regionally manufactured goods; and association with national or regional firm shall not be a condition for participation in a bidding process.  Bids are awarded to the substantially responsive and the lowest evaluated bidder proven this bidder is qualified. No scoring system shall be allowed for the evaluation of bids, and no “blanket” limitation to the number of lots which can be awarded to a bidder shall apply. 44  Qualification criteria shall only concern the bidder’s capability and resources to perform the contract taking into account objective and measurable factors. 25. Procurement Plan. A draft simplified procurement plan for project implementation providing the basis for the procurement methods has been elaborated. This plan covering project implementation was discussed, agreed upon, and finalized during negotiations. It will be available in the project’s database and a summary will be disclosed on the World Bank’s external website once the project is approved by the World Bank. The procurement plan will be updated in agreement with the Bank task team at least annually or as required to reflect the actual project implementation needs and improvements in institutional capacity. 26. Procurement of Civil works. No civil works are planed under this project. 27. Procurement of Goods and non-Consulting Services. Goods and non-consulting services under this project would include the acquisition of IT equipment, generators and vehicle. Taking into account (level of value added) manufactured/producers capacity in the country, procurement of goods will be bulked where feasible (similar nature and need at same time) into bid packages of at least US$ 500,000 in equivalent value, so that they can be procured through suitable methods to secure a competitive price. The procurement will be done using the World Bank’s SBD for all ICB. Goods estimated to cost the equivalent of US$ 500,000 and above per contract will be procured through ICB. 28. For any other goods contracts costing less than US$ 500,000 equivalent goods locally available at commercial price would be procured through National Competitive Bidding (NCB) procedures. Procurement methods will be used in accordance with national procedures using Standard Bidding Document acceptable to Word Bank and subject to the additional requirements set forth or referred to above in paragraph on Requirements for National Competitive Bidding. 29. Procurement of goods and non-consulting services, including those of readily available off-the- shelf as maintenance of the office electronic equipment and other services, such as printing and editing that cannot be grouped, or standard specification commodities for individual contracts of less than a US$ 150,000 equivalent, may be procured under shopping procedures as detailed in paragraph 3.5 of the Procurement Guidelines. 30. Based on country-specific needs and circumstances, shopping thresholds for the purchase of vehicles and fuel may be increased up to US$ 500,000, considering the major cars dealers and oil providers are consulted. 31. Direct Contracting shall also be used in accordance with the provisions of paragraphs 3.7 of the Procurement Guidelines, with World Bank’s prior agreement. 32. Selection of consultants. Consulting services will be used for the following activities: (i) update of the HR and payroll databases, (ii) technical assistance for the Directorates of Customs, Taxation, Treasury and HR, (iii) update of the Ges’Co application software, and (iv) the recruitment of an external financial auditor. Consultancy services will be selected using a request 45 for expressions of interest, short-lists, and the World Bank’s standard RFP, where required by the Bank’s guidelines. The consultancy services will be procured according to the most appropriate method among the following, which are allowed by Bank Guidelines and included in the approved procurement plan: (i) Quality- and Cost-Based Selection (QCBS); (ii) Quality-Based Selection (QBS); (iii) Selection under Fixed Budget (FBS); (iv) Least-Cost Selection (LCS), (v) Selection- Based Consultants’ Qualifications, (vi) and Selection of UN Agencies, Selection of Individual Consultants and Single Source Selection for Firms and Individual Consultants. Selection based on Consultants’ Qualifications (CQS) will be used for assignments that shall not exceed US$ 300,000. Single Source selection shall also be used in accordance with the provisions of paragraphs 3.9 to 3.13 of the Consultant Guidelines, with World Bank’s prior agreement. All terms of reference will be subject to World Bank Prior Review. 33. Assignments of Engineering Designs and Contract Supervision in Excess of US$ 200,000, and all other technical Assistance assignments above US$ 100,000, must be procured on the basis of international short-lists and in accordance with the provisions of the paragraph 2.6 of the consultants’ guidelines. 34. Consultants for services meeting the requirements of Section V of the consultant guidelines will be selected under the provisions for the Selection of Individual Consultants, through comparison of qualifications among candidates expressing interest in the assignment or approached directly. 35. Training, Workshops, Seminars, study tours and conferences. Participation in training sessions, workshops, seminars, conferences, and study tours will be subject to the approved annual programs. The latter will identify the general framework of training and similar activities for the year, including the nature of the training, study tours, workshops, numbers of participants, as well as estimated costs. 36. Operating costs. Operational costs, which will be financed by the project, would be procured using the project’s financial and administrative procedures included in the Project implementation manual previously agreed on by the World Bank. For purposes of efficiency, an operational furniture package will be procured competitively on the basis of 6 or 12 months’ need. For services to be financed by the project through operational costs, the project will proceed by service contracting for a defined period. 37. Publication of Results and Debriefing. Publication of results of the bidding process is required for all ICBs, Limited International Biddings (LIBs), and Direct Contracting. Publication should take place as soon as the no-objection is received, except for Direct Contracting, which may be done quarterly and in a simplified format. Publication of results for NCB and Shopping should follow the requirements of the procurement code of Cameroon. The disclosure of results is also required for selection of consultants. All consultants competing for the assignment should be informed of the result of the technical evaluation (number of points that each firm received) before the opening of the financial proposals, and at the end of the selection process the results should be published. The publication of results in the selection of consultants applies to all methods. For CQS and SSS, however, the publication may be done quarterly and in a simplified format. The 46 publication of results may be done through Client Connection. Losing bidders/consultants shall be debriefed on the reasons why they were not awarded the contract if they request explanation. 38. Fraud and Corruption. The procuring entity as well as Bidders / Suppliers / Contractors / Services Providers shall observe the highest standard of ethics during the procurement and execution of contracts financed under the program, in accordance with paragraphs 1.14 and 1.15 of the Procurement Guidelines and paragraphs 1.22 and 1.23 of the Consultants Guidelines. The 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, will apply to this project. 39. Frequency of Procurement Supervision. The capacity assessment of the implementing agency has recommended supervision missions to visit the field at least two times a year and a post review of procurement actions will be conducted on an annual basis. Summarized Procurement Plan 40. The main goods and non-consulting services to be procured in the project are listed in Table 7 below. Table 7: List of Goods and Non-Consulting Services Contract Packages to be Procured Ref. Description Estimated Procurement Domestic Review by World Comments/ No. Preference Bank Cost Method Completion date (yes/no) (Prior/Post) (US$) 1. IT equipment (printer, 855,000 ICB NO Prior September 2014 desktop, laptop, server…) 2. Generators 80,000 Shopping NO Post September 2014 3 Car 40,000 NCB NO Post September 2014 41. Prior review thresholds for Goods and Non-consultant services. Contracts estimated to cost above US$ 500,000 for goods per contract, the first NCB contracts for goods, eventually others as identified in the procurement plan and all Direct Contracting will be subject to prior review by the World Bank. 42. The main consulting assignments of the project are listed in the table 8 below. 47 Table 8: List of Consulting Assignments with Selection Methods and Time Schedule Ref. No. Description of Assignment Estimated Selection Review by Comments/ World Bank Cost Method Completion date (Prior / Post) (US$) 1. Technical Assistance on the 700,000 Single Source Prior December 2015 update of HR/Payroll databases Selection-UN Agency 2. Technical Assistance to the 1,593,400 Single Source Prior December 2015 Customs, Taxation, Treasury, Selection with General Inspector of Finance and a well- Civil Service Directorates qualified consulting firm 3 Technical Assistance on the re 118,900 Single Source Prior December 2015 setting up of the computerized Selection with accounting and budgeting system the developer 4 External audit 60,000 LCS Prior December 2015 43. Prior review thresholds for consultant services. Consultant services estimated to cost above US$ 200,000 for firms and US$ 100,000 for individuals per contract, and Single Source selection of consultants (firms and individuals) will be subject to prior review by the World Bank. Similarly, all audit contracts will be subject to prior review, as will be the first contracts to be awarded in accordance with each selection method of consulting firms and individual consultants, regardless of contract amount. Short Lists of Consultants for Assignments of Engineering Designs & Contract Supervisions estimated to cost less than US$ 200,000 and all other Consultancy Assignments whose estimated cost don’t exceed US$ 100,000 per contract may be composed entirely of national consultants in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines. 48 ANNEX 4: OPERATIONAL RISK ASSESSMENT FRAMEWORK (ORAF) Country: Central African Republic Project: EMERGENCY PUBLIC SERVICES RESPONSE PROJECT (P149884) Project Stakeholder Risks Stakeholder Risk Rating High Risk Description: Risk Management: The project will focus on non-security sectors. The lack of The project will cover salaries of all civil servants except the military, police, and additional resources to cover the military, police, and gendarmerie forces which will be financed by the government using domestic revenues gendarmerie forces’ salaries could lead to additional and budget support from other donors. An escrow account containing a balance tension. Another critical risk could be considered if the equivalent to 4 months of security sector salaries (US$ 11 million) will be opened at the project focuses on education and health workers, which Central Bank using funds from other sources to complement the project funds covering could lead to discrimination and also tension. also four months of non-security sector salaries (US$ 27 million). Resp: Status: Stage: Recurrent: Due Date: Frequency: Client In Progress Both CONTINUO US Implementing Agency (IA) Risks (including Fiduciary Risks) Capacity Rating Substantial Risk Description: Risk Management: CS REF’s knowledge in overall project management and The technical experts will support CS REF and Directorates involved in the project Bank policies and procedures has been strengthened under through close project monitoring. 49 LICUS project. However, management of the payment of Resp: Status: Stage: Recurrent: Due Date: Frequency: the salaries entails additional expertise, which does not exist at CS REF. This requires close guidance, monitoring, Both In Progress Both CONTINUO and incentives. US Governance Rating High Risk Description: Risk Management: The limited capacity in the context of high insecurity is The implementation of the joint donors/Government fiduciary framework will be key. hindering the governance system. The project will contract technical experts located in the key Directorates involved in the project to oversee the census process and ensure that the payment of salaries is Possible political pressures might lead to a non-transparent processed in a transparent manner. Ex post audit will be performed by the General update process. Inspectorate of Finance to ensure physical presence on a reasonable sample. Resp: Status: Stage: Recurrent: Due Date: Frequency: Client In Progress Both CONTINUO US Risk Management: The project will finance the update of the HR and payroll databases so as to have one reconciled list before initiating any payment. . The existence of a functioning banking system to process in a timely manner the salary payments will reduce corruption and misappropriation. This action will not be difficult to implement, since a banking payroll arrangement has been in place since 2009. The Bank fiduciary team will assess, in conjunction with the Central Bank, the internal control environment of the commercial banks operating in the market, together with their geographical coverage. In areas not covered by the formal banking system, alternative solutions such as bank mobile agencies supported by police forces will be explored. Resp: Status: Stage: Recurrent: Due Date: Frequency: 50 Both In Progress Both CONTINUO US Project Risks Design Rating High Risk Description: Risk Management: The exclusion of security sectors, pensions and arrears All parties are aware that Bank project funds cannot be used for military expenses. from the project scope might be an area of concern. Policy dialogue with other donors will continue to give adequate fiscal space to the government to cover security sector salaries, pensions, and arrears. Resp: Status: Stage: Recurrent: Due Date: Frequency: Both In Progress Both CONTINUO US Social and Environmental Rating Substantial Risk Description: Risk Management: Social The updating of the payroll database supported by the project does not consider any downsizing (but does provide for the elimination of illegal ghost workers and double- The updating of the payroll database supported by the dippers). project might affect ghost workers and workers eligible for pension. The change in status of these categories of civil servants who will stop receiving a salary and start drawing a government pension instead will reduce their An Indigenous Peoples Planning Framework (IPPF) will be prepared, consulted upon disposable income. Some of the civil servants will be and disclosed during project implementation, drawing on frameworks prepared in the delivering services (e.g. health and education) in areas last several years for the Health System Support and the Education for All-Fast Track where Indigenous Peoples (Baaka) are present. Therefore Initiative (EFA-FTI) Catalytic Fund Preparation projects. The Operations Manual will OP 4.10 (Indigenous Peoples) is triggered. include guidance on implementing the policy in a manner that is culturally appropriate and which involves outreach to and free, prior and informed consultations with 51 indigenous communities on services to their communities. Environmental Resp: Status: Stage: Recurrent: Due Date: Frequency: The project is categorized as EA Category C – No or minimal environmental impact. Both In Progress Both Program and Donor Rating Substantial Risk Description: Risk Management: Weak government leadership may result in fragmented Donor supports cover a wide range of activities. That is why their harmonization is donor activities in the reengagement agenda. This risk is critical to avoid duplication and increase cost-effectiveness that ultimately leads to increased by the various international actors in the greater impact. To this end, joint elaboration of the procedures for payment of the country. salaries will be critical to ensure alignment and coherence. The project intends to leverage any future collaboration or concerted planning: coordination of technical experts, and appropriate sequence for disbursement of budget supports. Resp: Status: Stage: Recurrent: Due Date: Frequency: Both In Progress Both CONTINUO US Delivery Monitoring and Sustainability Rating Substantial Risk Description: Risk Management: Oversight, monitoring, and evaluation capacity of The technical experts located in the key Directorates of the Ministry of Finance will play Directorates of the Ministry of Finance involved in the a key role in (i) the monitoring of the project results indicators and (ii) rebuilding the project is weak. The low revenue collection could capacity of these Directorates to collect more revenues. The project’s improve ments will compromise the sustainability of the project’s outcomes. create savings that government can use in other ways. Resp: Status: Stage: Recurrent: Due Date: Frequency: 52 Bank In Progress Implementation CONTINUO US Other (Optional) Rating Risk Description: Risk Management: Resp: Status: Stage: Recurrent: Due Date: Frequency: Other (Optional) Rating Risk Description: Risk Management: Resp: Status: Stage: Recurrent: Due Date: Frequency: Overall Risk Overall Implementation Risk: Rating High Risk Description: Overall implementation risk is High. 53 ANNEX 5: IMPLEMENTATION SUPPORT STRATEGY Strategy and Approach for Implementation Support 1. The strategy for supporting the implementation of the projects was tailored to the emergency nature of the project and implementation capacities of CS REF. The risks and challenges mentioned in the ORAF were also taken into account. Implementation Support Plan 2. The World Bank team will support implementation through the following activities:  Co task team arrangements between Financial Management and PREM Units to leverage both comparative skills to provide regular support to the CS REF on technical matters. The TTLs will also oversee the work program of the technical experts located in the core Directorates.  Implementation support team comprised legal and payroll/HRM experts and a communication specialist.  Fiduciary staff for implementing the project that will be strengthened to support financial management and procurement training.  Support for financial management and, to a lesser extent, for procurement. There will be close supervision of financial management to ensure that payments are made to the relevant civil servants using a risk-based analysis approach. Extensive samplings will be tested by the financial management team. Procurement supervision will consist of ex ante reviews of procurement activities of the key contract with the consulting firm to be recruited under subcomponent 2.1 and ex post review of IT equipment to be procured under subcomponent 2.2. Moreover, the progress of procurement based on the detailed procurement plan will be checked carefully. 3. To accelerate project readiness in view of implementation, an implementation action plan has been agreed upon with the recipient (see below). 54 ANNEX 6: DRAFT IMPLEMENTATION ACTION PLAN Draft Implementation Action Plan for the First Six Months after Project Approval Implementatio Activities Expected results Responsible actor n date or time after approval Elaboration of joint PFM reengagement Updated PFM reform plan WB/EU/IMF/AfDB Done agenda Work Plan, Budget, and Procurement WPB and PP validated WB/CS REF Done Plan (WPB & PP) ToR for update of the HR and payroll ToR WB/CS REF Done databases Contract a consultant to update the HR Contracts signed WB/UNDP Ongoing and payroll databases Contract a consulting firm in charge of providing technical experts to the core Contract signed WB/CS REF May, 1, 2014 Directorates Perform financial health check of the commercial banks in conjunction with Report disclosed WB/CS REF June 30, 2014 Central Bank before the payment process. First quarterly progress report Report disclosed WB/CS REF June 30, 2014 September 30, Second quarterly progress report Report disclosed WB/CS REF 2014 55