PROJECT INFORMATION DOCUMENT (PID) APPRAISAL STAGE Report No.: PIDA744 Public Disclosure Copy Project Name Kyrgyz Second Health and Social Protection Project (P126278) Region EUROPE AND CENTRAL ASIA Country Kyrgyz Republic Sector(s) Health (75%), Other social services (25%) Lending Instrument Sector Investment and Maintenance Loan Project ID P126278 Borrower(s) Ministry of Finance Implementing Agency Ministry of Health Environmental Category B-Partial Assessment Date PID Prepared/Updated 17-Jan-2013 Date PID Approved/Disclosed 01-Apr-2013 Estimated Date of Appraisal 08-Jan-2013 Completion Estimated Date of Board 02-May-2013 Approval Decision I. Project Context Public Disclosure Copy Country Context The Kyrgyz Republic is a landlocked mountainous country in Central Asia with a multi-ethnic population of 5.4 million. With an estimated GDP per capita of US$1070 in 2011, the Kyrgyz Republic is one of the poorest economies in the Europe and Central Asia region. According to the latest available official statistics, an estimated 32 percent of the population lived below the poverty line in 2009, while 3 percent lived in extreme poverty. The incidence of poverty in rural areas (37 percent) was far higher than in urban areas (22 percent). The 2010 crisis events led to a 1.4 percent fall in GDP and initial indications suggest a two percent increase in the poverty headcount during 2010. Since independence in 1991, the country has made a strong advance towards the creation of a liberal market economy with the aim of promoting sustained economic growth and fighting poverty, and has sought international integration through trade and investment, and membership of the World Trade Organization (WTO). It has met with some success in fostering open institutions, but has struggled to embed lasting democracy and civic freedom. Economic reforms resulted in an average annual growth of 5.4 percent over the five years to 2009 and a decline in poverty from 40 percent to 32 percent over 2006-2009 and extreme poverty from 9 percent to 3 percent over the same period. But improvements in governance have proved elusive: the country was ranked 164 out of 178 in Transparency International’s Corruption Perception Index, and Organization for Page 1 of 6 Security and Co-operation in Europe (OSCE) missions characterized elections until 2009 as falling short of international good practice. Public Disclosure Copy The first elected president of the Republic was forcibly removed from office in 2005 after nearly 15 years in power following a disputed re-election. In April 2010, anti-government political demonstrations took place against the authoritarian tendencies of his successor who had centralized power within the presidency. Protests were fuelled by a widespread belief that corruption, especially nepotism, and misuse of public assets had risen markedly. There was popular frustration with economic and social policy. These protests culminated in the removal of the president from office, and the formation of an interim government headed by a coalition of opposition political and civic leaders. A government took office following the presidential elections in October, 2011, but was dissolved in August 2012. A new government was formed in September. In June 2010, political and social tensions climaxed into violent clashes in the Osh and Jalalabad Oblasts, leading to hundreds of deaths and large-scale internal displacement. The event also resulted in large scale destruction of public and private property, especially housing. This event led to a weakening of confidence within the private sector, and to economic and fiscal pressures. Since the political transition and violent events, state authorities, with the support of national and international partners, have invested heavily in the recovery. The foundational causes of the June 2010 event lie in multiple, persistent stresses in society which are being addressed through efforts at social reconciliation, and equitable investment in critical sectors, including investment in social services which vary considerably in quality across the country. Since the transition to the parliamentary democracy, the government’s agenda includes a program of security, governance, anticorruption and, where feasible, ethnic reconciliation measures in order to secure a political consolidation. A Country Medium Term Development Strategy for 2012-14 has been adopted, which will be closely linked to the Medium-term Budget Framework. The major objectives of the strategy flow from the near-term priorities: ensuring growth averaging five Public Disclosure Copy percent per annum so as to re-establish fiscal and debt stability and fight poverty; social sector measures to build human capital; and investments in infrastructure to strengthen the supply base of the economy. II. Sectoral and Institutional Context Health Sector Since 1995, the Kyrgyz Republic has undertaken wide-ranging health financing and organizational reforms. The first health sector strategy was adopted in 1996 – Manas (1996-2006). The Manas program launched comprehensive structural changes of health care delivery, financing and stewardship. It included reforms of the health care delivery system with the aim of strengthening primary health care (PHC), developing family medicine, and restructuring the hospital sector. The Manas program also introduced fundamental changes to health financing. In 1997, mandatory health insurance was introduced with the aim of attracting additional sources of funding to the health sector and improving the equity, access and health financial protection of the population. The State Guaranteed Benefits Package (SGBP) was also introduced in 2001 to regulate the rights and obligations of Kyrgyz citizens and the Government with regard to provision of health services and establish a more predictable and transparent system. The SGBP provides free basic health services at the primary care level, and specialized outpatient and in-patient care against regulated co- payments. The SGBP exempts disadvantaged social categories and disease categories from co- Page 2 of 6 payment that are revised annually. The SGBP represents between 60 and 70 percent of total government health expenditures. The Mandatory Health Insurance Fund (MHIF), established to administer the mandatory health insurance system, is responsible for purchasing health services Public Disclosure Copy covered by the SGBP and acts as the single payer in the public health system. Improving the quality of care and accelerating health gain became the priorities of the second phase of health system reforms, which was launched in 2006. The Manas Taalimi program (2006-2011) aimed at solidifying the health financing reforms, increase the effectiveness of PHC, improve access to specialized care, improve the quality of health services, strengthen public health, and improve the quality of graduate, postgraduate and continuous education. The Manas Taalimi program was supported by a sector-wide approach (SWAp) program, financed by pooled budget funding from Joint Financiers (JFs) including the World Bank under the ongoing Health and Social Protection Project IDA Grant No.H197-KG, and parallel financing from other development partners (DPs). The Health and Social Protection Project 1 was the first large-scale SWAp to be implemented in one of the former Soviet Union countries. The outcome of the implementation of Manas Taalimi has been mixed. On the positive side, financial protection of the population from catastrophic health related expenditures shows significant improvements. Public expenditures for health, including aid funds, increased from 2.8 percent of GDP in 2006 to 3.3 percent in 2010. At the same time, private (out of pocket) expenditures declined from 56 percent of total expenditures for health in 2006 to 49 percent in 2010. The Government has followed an agreement under the SWAp that stipulates that health expenditures as a percentage of total government expenditure should increase incrementally by 0.6 percent each year starting in 2006, from the 2005 level of 10.3 percent. This trend was maintained during the five years of the SWAp and has reached a level of over 13 percent. A positive impact of the SWAp arrangements has been overall improvements in public finance management (PFM) for the entire health sector, despite some serious concerns flagged in audit reports. PFM in the health sector is rated much higher than in any other sector in the country. For example, no other sector has Public Disclosure Copy implemented the practice of internal and independent auditing of institutions. The health sector has been recognized by all JFs as far more advanced in public finance management reforms due to ongoing health financing reforms and fiduciary mitigation measures implemented in the context of the SWAp, Though the MOH capacity for implementation of the SWAp has been strengthened over the years through staff training in procurement, financial management, disbursements, planning, and budgeting, implementation of Manas Taalimi has suffered delays in p rocurement processes and payments under contracts due to lack of coordination among MOH departments. Further capacity building of MOH technical staff is needed in the development of technical specifications. Social Protection: After almost a decade of gains in living standards, poverty increased in the aftermath of the 2010 event. According to official estimates, the incidence of poverty increased between 2009 and 2011 after a substantial reduction during 2006-08. The share of the population living below the poverty line has been falling from 61 percent in 2006 to 32 percent in 2008. The reduction of poverty during this period was associated with steady growth in GDP, which averaged 6.6 percent and in remittances, which grew by 70 percent over 2006-09. In 2009, when the country suffered the impact of the financial crisis, the poverty rate stagnated, marking the end of the long declining trend in poverty. Since 2009 the poverty rates increased by 5 percentage points, reaching 36.8 percent in Page 3 of 6 2011. The unstable political and economic environment, food price pressures and slow growth in remittances contributed to the recent upward trend in poverty. The incidence of poverty is the highest in the rural areas (40 percent) and the lowest in urban Bishkek (18 percent). An estimated 5 Public Disclosure Copy percent of the population lives in extreme poverty and are unable to meet their basic food needs. Three-quarters of the poor and four-fifths of the extreme poor live in the rural areas. Inequality has risen in urban and rural areas as a result of internal and external shocks in 2010. Yet despite this recent reversal in the incomes of the lower income groups, non-income dimensions of poverty compare well to other low income countries due to the wide availability of basic social and infrastructure services. Poverty has a strong regional dimension. About three quarters of all poor live in rural areas reflecting the higher incidence of poverty and greater proportion of population residing in the rural sector. Overall poverty increased in all oblasts (provinces) except Bishkek and Issyk-Kul in 2010. Extreme (food) poverty changes exhibited a strong regional dimension: the proportion of the population unable to meets its caloric needs rose significantly in conflict-affected urban areas of Osh oblast and in rural areas of Jalal-Abad oblast, reaching 17.5 and 9.0 percent, respectively – well above the national average of 5 percent. This led to a concentration of 45 percent of all extremely poor households in these areas. A medium-term Social Protection Development Strategy for 2012-2014 has been developed and approved by the Government in 2011. The goal of the Strategy is to reduce poverty and improve the well-being of vulnerable groups in the population, such as families with children, the disabled, the elderly and other vulnerable groups. The main problems identified in the Strategy are the insufficient financial support for poor families due to low benefit values and low coverage (high exclusion error), the misalignment between pensions and social protection benefits and the lack of social services for vulnerable families and children, the disabled and the elderly. The Strategy foresees addressing identified problems and improving the safety net and delivery of services thereby improving the overall social protection of the Kyrgyz population in need. However, Public Disclosure Copy insufficient funds have been budgeted by the Government to implement all measures identified in the Strategy. The Strategy itself is fairly ambitious given the existing capacity and fiscal constraints and could easily be considered as a Strategy for a five- to seven-year horizon. III. Project Development Objectives The proposed PDO is to: (i) improve health outcomes in four health priority areas in support of the “Den Sooluk� National Health Reform Program 2012-2016; and (ii) enable the Government’s efforts to enhance effectiveness and targeting performance of social assistance and services. IV. Project Description Component Name Component 1 – Support for implementation of Den Sooluk program of reforms Component 2 – Strengthening the Policy and Administrative Capacity of the Ministry of Social Development (MSD) Component 3: Contingency Emergency Response V. Financing (in USD Million) For Loans/Credits/Others Amount BORROWER/RECIPIENT 1327.10 Page 4 of 6 International Development Association (IDA) 9.08 IDA Grant 7.43 Public Disclosure Copy Bilateral Agencies (unidentified) 26.10 Financing Gap 0.00 Total 1369.70 VI. Implementation Health Sector: Overall responsibility for program management and implementation for the Den Sooluk Program would lie with the MOH and its adjacent organizations at the national and regional levels. Four implementation levels are planned: (1) Government and Parliament for oversight; (2) MOH, MHIF, and MOF—stewardship and barrier removal; (3) MOH Departments, MHIF, with support from specialized institutions—technical coordination at program level and results reporting; and (4) all implementing institutions are responsible for implementing Annual Program of Work (APW) backstopped by Oblast Health Coordinators (who will also be supported by consultants). MOH would have a stewardship and supervisory role in relation to all health-related organizations regardless of ownership and administrative level in the country. The MHIF is a separate legal entity and is responsible for purchasing of health services covered by the State Guaranteed Package and the Outpatient Drug Benefit. While implementation arrangements have worked reasonably well under the original project, implementation of Den Sooluk will bring about additional implementation challenges, which will require institutional strengthening, supported under the area of health system strengthening of the Den Sooluk. MHIF will work alongside with MOH to contribute to achieving health sector reforms envisaged under DS. Social Protection: The MSD would have both the policy design and implementation oversight roles; it would also promote the new policies within the broader Government and reach out to the general public to gain support of the population. The newly created Public Coordination Council for the implementation of the Social Protection Development Strategy will play a role of independent Public Disclosure Copy oversight body to review implementation of the component and recommend strategic directions and actions as may be deemed necessary. VII. Safeguard Policies (including public consultation) Safeguard Policies Triggered by the Project Yes No Environmental Assessment OP/BP 4.01 ✖ Natural Habitats OP/BP 4.04 ✖ Forests OP/BP 4.36 ✖ Pest Management OP 4.09 ✖ Physical Cultural Resources OP/BP 4.11 ✖ Indigenous Peoples OP/BP 4.10 ✖ Involuntary Resettlement OP/BP 4.12 ✖ Safety of Dams OP/BP 4.37 ✖ Projects on International Waterways OP/BP 7.50 ✖ Projects in Disputed Areas OP/BP 7.60 ✖ VIII.Contact point World Bank Page 5 of 6 Contact: Nedim Jaganjac Title: Senior Health Specialist Tel: Public Disclosure Copy Email: njaganjac@worldbank.org Borrower/Client/Recipient Name: Ministry of Finance Contact: Mr. Mirlan Baigonchokov Title: Deputy Minister of Finance Tel: 996312664036 Email: m.baigonchokov@minfin.kg Implementing Agencies Name: Ministry of Health Contact: Center for Health Systems Development Title: Tel: 660521 Email: erkin@manas.elcat.kg IX. For more information contact: The InfoShop The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 458-4500 Fax: (202) 522-1500 Web: http://www.worldbank.org/infoshop Public Disclosure Copy Page 6 of 6