Document of The World Bank Report No: ICR00002965 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA-H5870, IDA-H7240, IDA-H8110) ON A PROGRAMMATIC SERIES OF THREE GRANTS IN THE AMOUNT OF SDR16.9 MILLION (US$25.4 MILLION EQUIVALENT) SDR6.4 MILLION (US$10 MILLION EQUIVALENT) SDR13.2 MILLION (US$20 MILLION EQUIVALENT) TO THE THE REPUBLIC OF TAJIKISTAN FOR THE PROGRAMMATIC DEVELOPMENT POLICY OPERATIONS 4-6 February 25, 2014 Poverty Reduction and Economic Management Central Asia Country Unit Europe and Central Asia Region CURRENCY EQUIVALENTS (Exchange Rate Effective February 25, 2014) Currency Unit = Tajikistan Somoni (TJS) TJS 1.00 = US$ 0.21 US$ 1.00 = TJS 4.8 FISCAL YEAR January-December ABBREVIATIONS AND ACRONYMS AAA Analytical and Advisory Activities LDP Letter of Development Policy BEEP Business Enabling Environment NBT National Bank of Tajikistan BT Barki Tajik PCF Per Capita Financing CPS Country Partnership Strategy PEFA Public Expenditure and Financial DFID Department for International Accountability Assessment Development (UK) PDO Program Development Objectives ECA Europe and Central Asia PDPG Programmatic Development Policy ECF Extended Credit Facility Grant FMIP Financial Management Improvement PHC Primary Health Care Plan PIP Public Investment Program FSAP Financial Sector Assessment Program PFM Public Financial Management GDP Gross Domestic Product PPP Public Private Partnership GFS Government Financial Statistics PSD Private Sector Development ICR Implementation Completion Report SOEs State-owned Enterprises IDA International Development Association SUE State Unitary Enterprise IFC International Finance Corporation TA Technical Assistance IFRS International Financial Reporting TALCO Tajik Aluminum Company Standards TJS Tajikistan Somoni IMF International Monetary Fund TTG Tajiktransgas US$ United States Dollar Vice President: Laura Tuck Country Director: Saroj K. Jha Sector Manager: Ivailo V. Izvorski Task Team Leader: Salman Zaidi, Marina Bakanova ICR Team Leader: Marina Bakanova TAJIKISTAN PROGRAMMATIC DEVELOPMENT POLICY GRANT 4-6 IMPLEMENTATIN COMPLETION AND RESULTS REPORT CONTENTS Data Sheet A. Basic Information B. Key Dates C. Ratings Summary D. Sector and Theme Codes E. Bank Staff F. Results Framework Analysis G. Ratings of Program Performance in ISRs H. Restructuring 1. Program Context, Development Objectives and Design ........................................................ 1 2. Key Factors Affecting Implementation and Outcomes .......................................................... 9 3. Assessment of Outcomes ...................................................................................................... 13 4. Assessment of Risk to Development Outcome .................................................................... 26 5. Assessment of Bank and Borrower Performance ................................................................. 27 6. Lessons Learned ................................................................................................................... 28 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners ....................... 29 Annex 1: Bank Lending and Implementation Support/Supervision Processes ............................. 30 Annex 2: List of Supporting Documents ....................................................................................... 34 Annex 3: Schematic Illustration of Tajikistan’s PDPG Series ...................................................... 35 Annex 4: Agroinvestbank: addressing issues emerging at the end of program implementation ... 38 Annex 5: Examples of AAA.......................................................................................................... 39 Annex 6: Summary of Borrower's ICR and/or Comments on Draft ICR ...................................... 40 MAP of Tajikistan ......................................................................................................................... 48 Tables Table 1: PDPG 4-6 Prior Actions and Status ................................................................................ 10 Table 2: Selected Economic Indicators, 2009-2014 ...................................................................... 15 Table 3: Outcome Indicators for the First Policy Area ................................................................. 16 Table 4: Outcome Indicators for the Second Policy Area ............................................................. 18 Table 5: Outcome Indicators for the third Policy Area ................................................................. 22 iii A. Basic Information Program 1 Country Tajikistan Program Name TAJIKISTAN PDPG 4 Program ID P117692 L/C/TF Number(s) IDA-H5870 ICR Date 12/12/2013 ICR Type Core ICR Lending Instrument DPL Borrower Original Total Commitment XDR 16.90M Disbursed Amount XDR 16.90M Implementing Agencies MINISTRY OF FINANCE Cofinanciers and Other External Partners Program 2 Tajikistan's Fifth Programmatic Country Tajikistan Program Name Development Policy Grant Program ID P120445 L/C/TF Number(s) IDA-H7240 ICR Date 12/12/2013 ICR Type Core ICR REPUBLIC OF Lending Instrument DPL Borrower TAJIKISTAN Original Total Commitment XDR 6.40M Disbursed Amount XDR 6.40M Implementing Agencies MINISTRY OF FINANCE Cofinanciers and Other External Partners Program 3 Country Tajikistan Program Name Tajikistan PDPG6 Program ID P126042 L/C/TF Number(s) IDA-H8110 ICR Date 12/12/2013 ICR Type Core ICR REPUBLIC OF Lending Instrument DPL Borrower TAJIKISTAN Original Total Commitment XDR 13.20M Disbursed Amount XDR 13.20M Implementing Agencies MINISTRY OF FINANCE Cofinanciers and Other External Partners iv B. Key Dates TAJIKISTAN PDPG 4 - P117692 Revised / Actual Process Date Process Original Date Date(s) Concept Review: 11/03/2009 Effectiveness: 07/27/2010 07/27/2010 Appraisal: 05/04/2010 Restructuring(s): Approval: 06/23/2010 Mid-term Review: Closing: 01/31/2011 01/31/2011 Tajikistan's Fifth Programmatic Development Policy Grant - P120445 Revised / Actual Process Date Process Original Date Date(s) Concept Review: 01/27/2011 Effectiveness: 07/26/2011 Appraisal: 04/13/2011 Restructuring(s): Approval: 06/07/2011 Mid-term Review: Closing: 01/31/2012 01/31/2012 Tajikistan PDPG6 - P126042 Revised / Actual Process Date Process Original Date Date(s) Concept Review: 01/18/2012 Effectiveness: 02/11/2013 02/11/2013 Appraisal: 09/17/2012 Restructuring(s): Approval: 10/31/2012 Mid-term Review: Closing: 05/31/2013 05/31/2013 C. Ratings Summary C.1 Performance Rating by ICR Overall Program Rating Outcomes Satisfactory Risk to Development Outcome Substantial Bank Performance Satisfactory Borrower Performance Moderately Satisfactory v C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Overall Program Rating Bank Ratings Borrower Ratings Quality at Entry Satisfactory Government: Moderately Satisfactory Implementing Quality of Supervision: Satisfactory Satisfactory Agency/Agencies: Overall Bank Overall Borrower Satisfactory Moderately Satisfactory Performance Performance C.3 Quality at Entry and Implementation Performance Indicators TAJIKISTAN PDPG 4 - P117692 Implementation QAG Assessments Indicators Rating: Performance (if any) Potential Problem Quality at Entry Program at any time No None (QEA) (Yes/No): Problem Program at any Quality of No None time (Yes/No): Supervision (QSA) DO rating before Closing/Inactive status Tajikistan's Fifth Programmatic Development Policy Grant - P120445 Implementation QAG Assessments Indicators Rating: Performance (if any) Potential Problem Quality at Entry Program at any time No None (QEA) (Yes/No): Problem Program at any Quality of No None time (Yes/No): Supervision (QSA) DO rating before Satisfactory Closing/Inactive status Tajikistan PDPG6 - P126042 Implementation QAG Assessments Indicators Rating: Performance (if any) Potential Problem Quality at Entry Program at any time No None (QEA) (Yes/No): Problem Program at any Quality of No None time (Yes/No): Supervision (QSA) DO rating before Satisfactory Closing/Inactive status vi D. Sector and Theme Codes TAJIKISTAN PDPG 4 - P117692 Original Actual Sector Code (as percent of total Bank financing) Aviation 11 11 General agriculture, fishing and forestry sector 22 22 General finance sector 33 33 Other social services 23 23 Primary education 11 11 Theme Code (as percent of total Bank financing) Public expenditure, financial management and 34 34 procurement Regulation and competition policy 44 44 Rural policies and institutions 22 22 Tajikistan's Fifth Programmatic Development Policy Grant - P120445 Original Actual Sector Code (as percent of total Bank financing) Aviation 24 24 General agriculture, fishing and forestry sector 25 25 General finance sector 14 14 Primary education 25 25 Public administration- Information and communications 12 12 Theme Code (as percent of total Bank financing) Macroeconomic management 30 30 Other economic management 50 50 Public expenditure, financial management and 20 20 procurement vii Tajikistan PDPG6 - P126042 Original Actual Sector Code (as percent of total Bank financing) Compulsory health finance 11 11 Energy efficiency in Heat and Power 17 17 General agriculture, fishing and forestry sector 11 11 General industry and trade sector 11 11 General public administration sector 50 50 Theme Code (as percent of total Bank financing) Administrative and civil service reform 22 22 Health system performance 11 11 Other Private Sector Development 11 11 Other rural development 11 11 Public expenditure, financial management and 45 45 procurement E. Bank Staff TAJIKISTAN PDPG 4 - P117692 Positions At ICR At Approval Vice President: Laura Tuck Philippe H. Le Houerou Country Director: Saroj Kumar Jha Motoo Konishi Sector Manager: Ivailo V. Izvorski Kazi Mahbub-Al Matin Task Team Leader: Marina Bakanova Roy S. Canagarajah ICR Team Leader: Marina Bakanova ICR Primary Author: Marina Bakanova Tajikistan's Fifth Programmatic Development Policy Grant - P120445 Positions At ICR At Approval Vice President: Laura Tuck Philippe H. Le Houerou Country Director: Saroj Kumar Jha Motoo Konishi Sector Manager: Ivailo V. Izvorski Kazi Mahbub-Al Matin Task Team Leader: Marina Bakanova Salman Zaidi ICR Team Leader: Marina Bakanova ICR Primary Author: Marina Bakanova viii Tajikistan PDPG6 - P126042 Positions At ICR At Approval Vice President: Laura Tuck Philippe H. Le Houerou Country Director: Saroj Kumar Jha Saroj Kumar Jha Sector Manager: Ivailo V. Izvorski Ivailo V. Izvorski Task Team Leader: Marina Bakanova Salman Zaidi ICR Team Leader: Marina Bakanova ICR Primary Author: Marina Bakanova F. Results Framework Analysis Program Development Objectives (from Program Document) The development objectives of PDPG 4–6 are to protect basic services within a sustainable fiscal framework, and to lay the foundation for post-crisis recovery and growth. Revised Program Development Objectives (as approved by original approving authority) n/a (a) PDO Indicator(s) TAJIKISTAN PDPG 4 - P117692 Original Target Formally Actual Value Baseline Values (from Revised Achieved at Indicator Value approval Target Completion or documents) Values Target Years Utilization of primary health centers in selected rayons is maintained at no less Indicator 1: than 2008 levels. primary health center Nurek: 1.3; Sughd: 4.0; Value visit rate: Nurek: 1.3; Spitamen 1.9; Khatlon: 1.4 Sughd:4.3; (quantitative or Spitamen 1.9; Sarband: Sarband: 2.9 visits visits per Khatlon: 3.06 visits Qualitative) 2.9 visits per capita per capita capita Date achieved 12/31/2008 12/31/2012 05/06/2011 12/31/2012 Comments (incl. % Met achievement) Indicator 2: Efficiency of expenditure on education improves. Proportion of Student to teaching load schools' Proportion of Value ratio increases budgets schools' budgets (quantitative or Proportion of schools' allocated to 89% allocated to Qualitative) budgets allocated to wages: no wages:75-85% wages:75% higher than 80% Date achieved 12/31/2008 11/30/2012 04/06/2011 12/31/2012 Comments Not met. (incl. % Baseline value was revised. Proportion of schools' budget allocated to wages achievement) 92% in 2007. ix The cost and time of starting a business and dealing with construction permits Indicator 3: declines. Value Fewer number of (quantitative or 250 days n/a 228 days days Qualitative) Date achieved 12/31/2008 12/31/2012 12/31/2012 Comments (incl. % Met achievement) Access to formal financial services increases (accounts in banks and Indicator 4: microfinance organizations rise). 210,378 bank accounts 250,000 bank Value (2008) accounts, 1,000 250,000 bank 1,039,663 bank (quantitative or 381 microfinance microfinance accounts accounts Qualitative) accounts (2009) accounts Date achieved 12/31/2008 12/31/2012 09/30/2012 12/31/2012 Comments (incl. % Met achievement) Indicator 5: Access to Tajikistan by air improves. No. of No. of international international No. of international Value flights:175; flights:250; flights: 8451. No. (quantitative or n/a No. of passengers:1.35 No. of of passengers:1.96 Qualitative) million passengers:1.8 million million Date achieved 12/31/2008 12/31/2012 12/31/2012 Comments Met (incl. % Revised baseline: No. of international flights 5164. No. of passengers: 1.075 achievement) million. Farmers gain control over farm management (as measured by the proportion of Indicator 6: farmers who perceive that they can take independent production and marketing decisions). The proportion of For crops other than The proportion of farmers who cotton 69-76 farmers who perceive perceive that they Value percent (depending that they can take can take (quantitative or n/a on survey independent production independent Qualitative) question); for and marketing production and cotton farmers: 56- decisions: 35% marketing 57 percent decisions: 75% Date achieved 12/31/2008 12/31/2012 12/31/2011 Comments Not met but substantial progress made. Alternative information suggests that (incl. % over 90 percent of farmers responded positively to the question on the freedom achievement) to farm in 2013. x Indicator 7: Effectiveness of the government in Tajikistan improves. Tajikistan's score in the Value Global Competitiveness The indicator (quantitative or 4.5 3.8 Index of the World was dropped Qualitative) Economic Forum: 3.7 Date achieved 12/31/2008 12/31/2012 04/06/2011 12/31/2012 Comments (incl. % Indicator was dropped. achievement) Indicator 8: Transparency of budget formation and execution improved. Budget Budget implementation Budget implementation implementation report based on new report based on old report based on administrative Value classification. new classification. classification. (quantitative or Consolidated budget Consolidated n/a Consolidated Qualitative) execution reports not budget execution budget execution posted on government reports posted on reports posted on website Ministry of Ministry of Finance Finance website website Date achieved 12/31/2008 12/31/2012 12/31/2012 Comments Met. Transition to new Unified Chart of Accounts is completed from 2014 (incl. % budget. achievement) Tajikistan's Fifth Programmatic Development Policy Grant - P120445 Original Target Formally Actual Value Baseline Values (from Revised Achieved at Indicator Value approval Target Completion or documents) Values Target Years Utilization of primary health centers in selected rayons is maintained at no less Indicator 1: than 2008 levels. Public funding of Public funding of Public funding of PHC PHC as % of total PHC as % of total as % of total health health budget health budget Value budget Sughd: 30%; Sughd: 40%; (quantitative or Sughd: 16.2%; Khatlon: Khatlon: 33%. n/a Khatlon: 41.7%. Qualitative) 22.6%. PHC visits per PHC visits per PHC visits per capita: capita: capita: Sughd:4.0; Khatlon:1.4 Sughd:4.0; Sughd:4.3; Khatlon:1.4 Khatlon:3.06 Date achieved 12/31/2008 12/31/2012 12/31/2012 Comments (incl. % Met achievement) xi Indicator 2: Efficiency of expenditure for education improves Value Proportion of schools' Not higher than (quantitative or budget allocated to n/a 89% 80% in 2011/2012 Qualitative) wages: 92% Date achieved 12/31/2007 12/31/2012 12/30/2012 Comments Not met. The target was achieved in 2010 (77%) but was not sustained. (incl. % Adjustment in PCF formula from 2014 is expected to restore the progress. achievement) The cost and time of starting a business and dealing with construction permits Indicator 3: declines. Value Fewer number of (quantitative or 250 days n/a 228 days days Qualitative) Date achieved 12/31/2008 12/31/2012 12/31/2012 Comments (incl. % Met achievement) Indicator 4: Farmers gain control over farm management. The proportion of For crops other than The proportion of farmers who cotton 69-76 farmers who perceive perceive that they Value percent (depending that they can take can take (quantitative or n/a on survey independent production independent Qualitative) question); for and marketing production and cotton farmers: 56- decisions: 35% marketing 57 percent decisions: 75% Date achieved 12/31/2008 12/31/2012 12/31/2011 Comments Not met but substantial progress made. Alternative information suggests that (incl. % over 90 percent of farmers responded positively to the question on the freedom achievement) to farm in 2013. Access to formal financial services increases (accounts in banks and Indicator 5: microfinance organizations rise). 250,000 bank Value 210,378 bank accounts, accounts, 1,000 250,000 bank 1,039,663 bank (quantitative or 381 microfinance microfinance accounts accounts Qualitative) accounts accounts Date achieved 12/31/2008 12/31/2012 09/30/2012 12/31/2012 Comments (incl. % Met achievement) Indicator 6: Access to Tajikistan by air improves. No. of flights No. of flights serving No. of international Value serving Tajikistan: Tajikistan:101; flights: 8451; (quantitative or 150; No. of n/a No. of passengers: No. of passengers: Qualitative) passengers: 1.5 790,000 1,959,654 million Date achieved 12/31/2008 12/31/2012 12/31/2012 Comments Met. Revised baseline: No. of international flights 5164. No. of passengers: xii (incl. % 1.075 million achievement) Indicator 7: Effectiveness of the government in Tajikistan improves. Ratio of applicants for Ratio of applicants Value civil service jobs to for civil service (quantitative or n/a 1.14 published vacancies: jobs to published Qualitative) 1.25 vacancies: 1.7 Date achieved 12/31/2010 12/31/2012 12/31/2012 Comments (incl. % Not met. achievement) Indicator 8: Transparency of budget formation and execution improved. Budget Budget implementation Budget implementation implementation report based on new report based on old report based on administrative Value classification. new classification. classification. (quantitative or Consolidated budget Consolidated n/a Consolidated Qualitative) execution reports not budget execution budget execution posted on government reports posted on reports posted on website Ministry of Ministry of Finance Finance website website Date achieved 12/31/2008 12/31/2012 12/31/2012 Comments Met. Transition to new Unified Chart of Accounts is completed from 2014 (incl. % budget. achievement) Tajikistan PDPG6 - P126042 Original Target Formally Actual Value Baseline Values (from Revised Achieved at Indicator Value approval Target Completion or documents) Values Target Years Indicator 1: PHC funding as a share of regional health budget increases/maintained Public funding of Public funding of Public funding of PHC PHC as percent of PHC as percent of as percent of total total health budget total health budget Value health budget Sughd: 30%; Sughd: 40%; (quantitative or Sughd: 16.2%; Khatlon: Khatlon: 33%. n/a Khatlon: 41.7%. Qualitative) 22.6%. PHC visits per PHC visits per PHC visits per capita: capita: capita: Sughd:4.0; Khatlon:1.4 Sughd:4.0; Sughd:4.3; Khatlon:1.4 Khatlon:3.06 Date achieved 12/31/2008 12/31/2012 12/31/2012 Comments (incl. % Met achievement) xiii Efficiency of expenditure on education improves (as measured by the Indicator 2: proportion of schools' budget not allocated to wages). Value 20 percent or (quantitative or 8% n/a 11% higher Qualitative) Date achieved 12/31/2007 12/31/2012 12/31/2012 Comments Not met. The target was achieved in 2010 (23%) but was not sustained. (incl. % Adjustment in PCF formula from 2014 is expected to restore the progress. achievement) Indicator 3: Improved targeting mechanism is available for channeling social assistance. Targeted Value Efficient targeting Improved targeting mechanism has (quantitative or mechanism does not mechanism is n/a been developed, Qualitative) exist available and is being piloted and tested. Date achieved 12/31/2009 12/31/2012 12/31/2012 Comments (incl. % Met achievement) Indicator 4: Total cost of acquiring permits is reduced. Value (quantitative or 1,588 somoni 1,300 somoni n/a n/a Qualitative) Date achieved 12/31/2008 12/31/2012 12/31/2012 Comments Available information suggests about continued progress in this area. The total (incl. % number of permits was cut by 86%. An estimated compliance costs savings are achievement) about $14 million per annum. Indicator 5: Cost and time of dealing with construction permits declines. Value Fewer number of (quantitative or 225 days n/a 228 days days Qualitative) Date achieved 12/31/2008 12/31/2012 12/31/2012 Comments (incl. % Met achievement) Farmers gain control over farm management (as measured by the proportion Indicator 6: who perceived that they can take independent production and marketing decisions). For crops other than cotton 69-76 Value percent (depending (quantitative or 35% 75% n/a on survey Qualitative) question); for cotton farmers: 56- 57 percent Date achieved 12/31/2008 12/31/2012 12/31/2012 xiv Comments Not met but substantial progress made. Alternative information suggests that (incl. % over 90 percent of farmers responded positively to the question on the freedom achievement) to farm in 2013. Access to formal financial services increases; financial system becomes deeper Indicator 7: and more efficient. 1,039,663 bank 250,000 bank 210,378 bank accounts; accounts; accounts; Private sector credit: private sector increase in private Value 14% of GDP, deposit credit: 12.3% of sector/GDP and in (quantitative or base: 11% of GDP; GDP, deposit base: deposit base; Qualitative) Interest rate spread in 13.6% of GDP; interest rate spread somoni: 18%, in US$: interest rate spread falls to 14% in 17%. 10.2% in somoni somoni and in US$ and 10.47 in US$ Date achieved 12/31/2008 12/31/2012 12/31/2012 Comments (incl. % Partially met. All targets except for private sector to GDP ratio are met. achievement) Indicator 8: Access to Tajikistan by air increases (i.e. number of flights, passengers, etc.). No. of international No. of international Value flights: 5164; flights: 8451; (quantitative or Increase n/a No. of passengers: No. of passengers: Qualitative) 1,075,077 1,959,654 Date achieved 12/31/2008 12/31/2012 12/31/2012 Comments (incl. % Met. achievement) The attractiveness of the civil service as an employer improves (measured by Indicator 9: the ratio of applicants to published vacancies). Value (quantitative or 1.25 1.7 n/a 1.14 Qualitative) Date achieved 12/31/2010 12/31/2012 12/31/2012 Comments (incl. % Not met achievement) xv The regulatory environment improves, as evidenced by an increase in the share of firms saying "licenses and permits are not a problem in doing business" Indicator 10: and/or reduction in reported management time spent dealing with public officials. 50 percent or more 44 percent of firms say report "licenses "licenses and permits and permits are not are not a problem in a problem in doing Value doing business". 14 business". Lower (quantitative or n/a n/a percent of all firms' share of all firms' Qualitative) management reportedly management spent dealing with reportedly spent public officials. dealing with public officials. Date achieved 12/31/2008 12/31/2012 12/31/2012 Comments New BEEPS data are not available yet. Regulatory environment improved as a (incl. % result in drastic reduction in the number of permits. achievement) Indicator 11: Transparency of budget formation and execution improved. Budget Budget implementation Budget implementation implementation report based on new report based on old report based on administrative Value classification. new classification. classification. (quantitative or Consolidated budget Consolidated n/a Consolidated Qualitative) execution reports not budget execution budget execution posted on government reports posted on reports posted on website Ministry of Ministry of Finance Finance website website Date achieved 12/31/2008 12/31/2012 12/31/2012 Comments Met. Transition to new Unified Chart of Accounts is completed from 2014 (incl. % budget. achievement) Financial viability of Barki Tajik and Tajiktransgas increases (measured by Indicator 12: increase in cash collection as ratio of total billed consumption). Value Barki Tajik: 74%; Barki Tajik: 87.2%; (quantitative or Tajiktransgas: close to Increase/maintain n/a Tajiktransgas:100% Qualitative) 100% Date achieved 12/31/2008 12/31/2012 12/31/2012 Comments (incl. % Met achievement) xvi Transparency of Energy SOEs is increased (measured by entity audits being Indicator 13: conducted based on IFRS). Unqualified audit 2011 and 2012 BT report of Barki and TTG entity Conversion of Barki Value Tajik and audit reports based Tajik and Tajiktransgas (quantitative or Tajiktransgas n/a on IFRS were annual accounts to Qualitative) submitted to completed and IFRS is in progress World Bank as per submitted to the IFRS for 2011 World Bank Date achieved 12/31/2010 12/31/2012 12/31/2012 Comments (incl. % Met achievement) (b) Intermediate Outcome Indicator(s) TAJIKISTAN PDPG 4 - P117692 Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years Indicator 1: n/a Value (quantitative or Qualitative) Date achieved Comments (incl. % achievement) Tajikistan's Fifth Programmatic Development Policy Grant - P120445 Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years Indicator 1: n/a Value (quantitative or Qualitative) Date achieved Comments (incl. % achievement) xvii Tajikistan PDPG6 - P126042 Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years Indicator 1: n/a Value (quantitative or Qualitative) Date achieved Comments (incl. % achievement) G. Ratings of Program Performance in ISRs TAJIKISTAN PDPG 4 - P117692 Actual Date ISR No. DO IP Disbursements Archived (USD millions) 1 07/18/2011 Satisfactory Satisfactory 25.55 Tajikistan's Fifth Programmatic Development Policy Grant - P120445 Actual Date ISR No. DO IP Disbursements Archived (USD millions) 1 09/19/2011 Satisfactory Satisfactory 10.06 Tajikistan PDPG6 - P126042 Actual Date ISR No. DO IP Disbursements Archived (USD millions) 1 02/13/2013 Satisfactory Moderately Satisfactory 19.93 H. Restructuring (if any) xviii 1. Program Context, Development Objectives and Design 1.1 Context at Appraisal 1. Tajikistan is a small landlocked country vulnerable to natural disasters and the influence of external economic conditions. Located in the heart of Central Asia, it is blessed with abundant water resources, contributing to its specialization in cotton production. Inexpensive hydropower, in turn, led to its other specialization: processing of aluminum. Shortly after its independence in 1991, the country descended into a civil war that lasted until mid-1997 and brought widespread physical damage and loss of life. The country is susceptible to natural disasters and is regularly affected by floods, landslides, earthquakes, and droughts. Only 7 percent of its total land area is arable; high mountain ranges make communication between different parts of the country difficult, especially in winter. These factors combine to make Tajikistan one of the world’s poorest countries, with a gross national income per capita of US$880 in 2012. Limited employment opportunities at home have led 40 percent of the working age population to seek better jobs in Russia. Remittances – over 90 percent of which are coming from Russia – accounted for over 48 percent of GDP in 2013, the highest ratio in the world. 2. Despite these difficult initial conditions, the economy grew rapidly in the aftermath of the civil war. Following the civil war, the government opened up trade, established a central bank and a commercial banking system, negotiated visa-free access for workers to go to Russia and removed taxes on inflows of remittances. Private businesses and households were given a bigger role than before as small- and medium-sized enterprises were privatized, and land reform provided more land for private farms and households. Strong economic growth, which averaged 8 percent per annum during 1998-2008, was made possible by five favorable factors: the peace agreement that permitted businesses and households to return to normal economic activity; the dividend from the government’s success in stabilizing the economy; the growing global and regional economy that led to increased aluminum and cotton exports as well as rising inflows of remittances; increased development assistance, including from the international financial institutions; and reforms that permitted businesses and households to take advantage of emerging opportunities.1 3. The 2009 global economic crisis adversely impacted Tajikistan through a sharp fall in remittances and decline in exports of cotton and aluminum. Inflows of remittances, which had grown fivefold in 2004-2008 to close to 45 percent of GDP in 2008, declined by more than 30 percent, while the dollar value of exports dropped by almost 13 percent due to lower international prices of cotton and aluminum. According to the 2010 Life in Transition Survey (LITS), 58 percent of households in Tajikistan reported they had been adversely affected by the crisis. The financial sector was also adversely affected by the growth slowdown, with non-performing loans in the banking sector rising to record levels. The disruption of cargo deliveries due to the border closures with Uzbekistan added to the economic and financial difficulties. As a result of the crisis, the government budget experienced substantial revenue shortfall, resulting in pressures on public spending in education, health, and social protection. 4. The government responded to these unfavorable developments by allowing for more exchange rate flexibility, increasing public spending under its anti-crisis action plan to 1 World Bank (2011). Republic of Tajikistan. Country Economic Memorandum. Tajikistan’s Quest for Growth: Stimulating Private Investment, Report No.54677-TJ, January 2011. 1 protect critical expenditures, and by continuing reforms. The government sought support from development partners to mitigate the crisis, and substantial support was provided, inter alia, by the World Bank Group, the International Monetary Fund (IMF), the European Union (EU), and the Asian Development Bank (ADB). The appropriate policy response and robust external support helped limit the slowdown in economic growth to 3.9 percent in 2009 from 7.9 percent in 2008. 5. The main objectives of the Tajikistan Programmatic Development Policy Grant (PDPG) 4–6 series were to protect basic services within a sustainable fiscal framework and to lay the foundation for post-crisis recovery and growth. The series combined actions to mitigate the impact of the economic crisis and to continue with structural reforms. Given high degree of uncertainly during the preparation of the series about the global environment and the path of Tajikistan’s recovery, the flexibility was deliberately embedded into the series . PDPG 4-6 were built on the previous series (PDPG1-3) completed in 2009, which supported the government program of reforms aimed at increasing the competitiveness of the private sector, strengthening public sector management, and improving the delivery of services. 2 The PDPG4-6 aimed at sustaining gains from the reforms supported under the PDPG1-3 in the context of less benign external environment and, to promote the further reforms in the areas critical for the long-term growth and poverty reduction. 6. As the series advanced, the focus of the second and the third operations was increasingly concentrated on the binding constraints to growth. These constraints, identified in the 2011 Country Economic Memorandum, included: (i) weak macroeconomic management; (ii) poor institutional environment for private investors, characterized by overly complex and non-transparent regulations; (iii) high cost and unreliable energy services; (iv) expensive transportation services for accessing domestic and external markets; (v) restrictions on freedom of farmers what to produce and where to market it, preventing a transfer of resources to more profitable activities; and (vi) weak human capital. 7. When PDPG4, the first operation in the series, was appraised in May 2010, Tajikistan’s economy was showing initial signs of recovery from the impact of the global economic crisis. The economy grew 6.8 percent during January-March 2010 from a year earlier on the back of recovering remittances and industrial production. However, Tajikistan remained highly vulnerable to external shocks and the medium-term fiscal outlook was assessed to be challenging. In this context, PDPG4 provided SDR 16.9 million in budget support, including SDR 5.7 million in Pilot Crisis Response Window resources. PDPG4 supported the ring-fencing of expenditures for health, education, and social protection services at no less than 2009 levels. PDPG4 also supported the reform program aimed at increasing competitiveness of the private sector, at strengthening public sector management, and at improving the delivery of services. 8. When the second operation in the series – PDPG5 – was appraised in May 2011, the recovery was underway but the economy remained fragile and future growth required reforms aimed at increasing efficiency and private investment. The economy grew at 6.5 percent in 2010 on the back of higher growth in hydroelectric power production, construction, manufacturing, and agriculture. As exports and remittances rose from their depressed levels, growth in 2011 rebounded to 7.4 percent. PDPG5 moved to post-crisis reforms and supported actions in support of the investment climate, the financial sector, and agriculture aimed at 2 Details of the reform program and its outcomes are presented in World Bank, 2010, Programmatic Development Policy Operations 1–3 Implementation Completion and Results Report, March 23, 2010, Report No. ICR00001279. 2 enhancing transparency and predictability of private property rights for investors. In addition, it supported actions to strengthen public financial management and financial performance of energy SOEs. PDPG5 also supported government reforms to increase the efficiency of public services delivery and improved access to services. 9. When the third operation in the series –PDPG6 – was appraised in September 2012 – the economy had recovered after the 2009 crisis with growth projected at 7.5 percent in 2012 as a whole. Accordingly, the focus of the PDPG series further shifted to actions supporting post-crisis recovery and sustained growth. PDPG6 supported continued implementation of health and education financing reforms and ongoing efforts to improve targeting effectiveness of social assistance. To help spur private sector-led growth, the government submitted a new law on public private partnerships to Parliament in August 2012, continued expedited issuance of land-use certificates to farmers, introduced a new salary grid in all central government entities, approved the chart of accounts for public institutions, and prepared the 2012 budget based on the new budget classification. A new law on public administration was approved by Parliament in May 2012. The government also conducted an energy efficiency audit of TALCO, the country’s large aluminum smelter, to identify options for reducing its energy use. 1.2 Original Program Development Objectives (PDO) and Key Indicators 10. The original program development objectives of PDPG 4–6 were to protect basic services within a sustainable fiscal framework, and to lay the foundation for post-crisis recovery and growth. The three main policy areas supported by the series were to: (i) protect the delivery of basic services within a sustainable fiscal framework; (ii) improve the environment for private sector development; and (iii) strengthen government effectiveness. Actions under the first pillar designed to protect the delivery of basic services include maintaining or increasing budget allocations for health, education, and social protection services, as well as the implementation of per capita financing (PCF) reforms in the education and health and the development of a pilot scheme for better targeting of social assistance. Actions under the second pillar designed to improve private sector development include reduced coverage of permits and passage of a law codifying the reduction, financial sector strengthening by implementing high-priority recommendations of the financial sector assessment program (FSAP), adoption of an aviation sector policy to liberalize the air transport sector, and accelerated issuance of land-use certificates to farmers to strengthen property rights and boost investments in farm improvements. Actions under the third pillar designed to strengthen government effectiveness include improved public financial management through establishing a supreme audit institution, implementation by Barki Tajik (BT) and Tajiktransgas (TTG) of financial management improvement plans, introduction of a new salary grid, and enactment of a law on public administration. 11. The key outcome indicators as approved were the following:3 (i) Utilization of primary health centers in selected rayons is maintained at no less than 2008 levels (measured by primary health center visit rates). (ii) Efficiency of expenditure for education improves (measured by increasing student to teaching load ratio and by maintenance of proportion of schools’ budget allocated to wages). 3 As presented in the Program Summary of PDPG4. 3 (iii) The cost and time of starting a business and of dealing with construction permits declines. (iv) Access to formal financial services increases (accounts in banks and microfinance organizations rise). (v) Access to Tajikistan by air improves (measured by number of flights and by number of passengers). (vi) Farmers gain control over farm management (as indicated by the proportion of farmers who perceive that they can take independent production and marketing decisions). (vii) Effectiveness of the government in Tajikistan improves (measured by Tajikistan’s score in the annual Global Competitiveness Index of the World Economic Forum). (viii) Transparency of budget formation and execution improved (budget reports produced based on new classification; consolidated budget execution reports are posted on the government website). 1.3 Revised PDO and Key Indicators, and Reasons/Justification 12. In the course of the PDPG4-6 series, the program development objectives did not change. The three policy areas remained relevant throughout the three operations, although some adjustments were made within the policy areas 2 and 3, reflecting the shift in focus from measures to mitigate the impact of the global crisis to actions supporting post-crisis recovery and sustained growth through private sector development and increasing government effectiveness. The adjustments reflected the changed global and domestic environment, the new opportunities for opening a dialogue in critical for future growth areas as well as the pace of the provision of technical assistance (including from other development partners) and government’s absorptive capacity and ability to carry out the reforms. (i) Under the PDPG5, the changes were as follows: Under streamlining business regulations, the prior actions for the PDPG5 remained unchanged but the triggers for the PDPG6 were revised to support preparation of the Public Private Partnership (PPP) law and amendments to the Customs Code to simplify trade procedures. An initial trigger – the government undertaking a regulatory impact analysis of key laws applicable to the private sector – was appropriately dropped as too complex given the low level of government capacity. Under strengthening of the financial sector, submission of a draft law on Anti-Money laundering and Countering Financing of Terrorism – a part of the post-FSAP action plan – was added as a new prior action to support Tajikistan’s high-level political commitment to work with FATF and EAG to address its strategic AML/CTF deficiencies. An issuance and enforcement of the remedial action framework was moved to the next operation as required more time to complete the task and technical assistance that was expected to be approved and provided in time sufficient for the preparation of the framework. Under the modernizing aviation policy, envisaged further actions were dropped (for PDPG5 and for the subsequent PDPG6), as it was identified that the further improvements in the sector will require investments for impact. Under the promoting transparent PFM, approval of the chart of accounts was moved to the next operation as the implementation entailed a substantial amount of work, including training. Under the enhancing transparency of energy SOEs, due to slower than envisaged progress in the introduction of IFRS at BT, the prior action was modified to complete the implementation of 4 FMIP by end-2011. At the same time, a new trigger was added for PDPG6 aimed at improving efficiency of energy use, namely, completion of an audit of TALCO’s energy use to identify options for increasing its efficiency. (ii) Under the PDPG6, the changes were as follows: Under streamlining business regulations, the envisaged prior action – submission of the Customs Code to the Parliament – was dropped; the draft Code was submitted to the Parliament (which would imply fulfilling the prior action), but the proposal was returned to the government for modification. Under strengthening of financial sector, measures to strengthen financial sector, envisaged earlier as prior actions for PDPG6 (preparation an improved remedial action framework for banks; a contingency planning framework; and strengthening the legal and institutional environment for secured transactions), were dropped, given the complexity of the issues, more time needed for technical assistance to implement the actions supported by Financial Reform and Strengthening Initiative (FIRST). Under the promoting transparent public finance management, the formulation of the prior action related to the establishment of an independent audit body and making it fully functional was enhanced to make more explicit what should be done, namely, passing presidential decree approving the staffing of the Accounts Chamber, appointment of core personnel (Chairman, Deputy Chairman), and, securing premises. Under the enhancing transparency of energy SOEs, the prior action formulation was revised to take into account that although BT and TTG completed about three-quarters of FMIP, remaining work will require additional time. 13. Under the PDPG6, the monitoring framework was streamlined, including by increasing the number of key outcome indicators from 8 to 13 and by refining the formulation and way of measurement of some indicators to show more clearly the flow of prior actions into results. New indicators were added to measure the progress achieved under PDPG4 and PDPG5, including under maintaining adequate social protection system (policy area 1), and under the enhancing transparency of energy state-owned enterprises (policy area 3). In addition, some initially approved indicators were revised to better capture the progress given the availability of the information at the moment of the preparation of the last operation in the series. 14. Key outcome indicators (as revised or amended under the PDPG6): (i) PHC funding as a share of regional health budget is maintained or increased. The formulation of this indicator was slightly revised – from “rayon” to “region” health budgets as reforms were expanded from selected rayons to two regions (Sughd and Khatlon). (ii) Efficiency of expenditure on education improves (as measured by the proportion of schools’ budget not allocated to wages). Here the reference to student-teacher ratio was dropped; the share of non-wage budget was proposed as an indicator of efficiency (instead of “wage” budget). (iii) Improved targeting mechanism is available for channeling social assistance. This is the new indicator, measuring progress under the protecting deliveries of social services (policy area 1). (iv) Total cost of acquiring permits is reduced. This is the new indicator aiming to track the progress in streamlining business regulations. The information was expected to come from the IFC SME surveys for Tajikistan. 5 (v) Cost and time of dealing with construction permits declines. No change as compared to original design. (vi) Farmers gain control over farm management (as measured by the proportion who perceive that they can take independent production and marketing decisions). No change as compared to original design. (vii) Access to formal financial services increases; financial system becomes deeper and more efficient. The indicator was revised to include in addition to the measure of increased access to financial services (number of bank accounts), the measure financial sector deepening (increase in private sector deposit and credit base as percent of GDP) and the measure of efficiency (reduction in interest rate spread between lending and deposit rates). (viii) Access to Tajikistan increases (as measured by the number of flights and passengers). No change as compared to original design. (ix) The attractiveness of the civil service as an employer improves (measured by the ratio of applicants to published vacancies). This is a new indicator under the strengthening capacity of government institutions. (x) The regulatory environment improves, as evidenced by an increase in the share of firms for which "licenses and permits are not a problem in doing business" and there is a reduction in reported management time spent dealing with public officials. This is the indicator aimed to measure increased efficiency of government institutions, replacing the one based on change in Tajikistan’s score in the annual Global Competitiveness Index of the World Economic Forum. (xi) Transparency of budget formation and execution improved. No change as compared to original design. (xii) The financial viability of BT and TTG increases (measured by increase in cash collection as a ratio of total billed consumption). New indicator, measuring the progress towards enhancing transparency of energy state-owned enterprises. (xiii) Transparency of Energy SOEs is increased (measured by entity audits being conducted based on IFRS). New indicator, measuring the progress towards enhancing transparency of energy state-owned enterprises. 1.4 Original Policy Areas Supported by the Program: 15. The program was divided into three areas, each with several areas of focus. Policy area 1: Protecting Delivery of Basic Services within a Sustainable Fiscal Framework a. Protecting the gains in access to health services 16. The PDPG 4-6 series supported protection of health expenditures during the crisis and reforms to improve the efficiency of public spending on health. Public spending on health (excluding the PIP) rose from 5.1 percent of state expenditures in 2005 to 6.9 percent in 2008 but fell to 6.1 percent in 2009. Under PDPG4, the government committed to maintain the budget share allocated to health services in 2010 at least at the 2009 level. The focus of the subsequent operations shifted from protecting health expenditures to improving their efficiency. PDPG5 supported the adoption by the government of the health sector master plan to guide more efficient planning of the health sector delivery system. PDPG6 focused on implementation of the health financing reform and supported as a prior action the utilization by two new districts of a per- capita formula in allocating 100 percent of primary healthcare resources. 6 b. Protecting the gains in access to education 17. The PDPG 4-6 series supported protection of education expenditures during the crisis and reforms to improve the efficiency of public spending on education. Education accounted for 17.8 percent of the state budget in 2009 and it was expected to marginally increase in 2010. Under the first programmatic series, the government gradually rolled out the PCF scheme. The PDPG 4-6 supported the expansion and full implementation of PCF, including a review of and revision of legislation to ensure that there is a legal base in place to accommodate national implementation of per capita financing in general education. c. Maintaining an adequate social protection system 18. The PDPG 4-6 series supported protection of social protection expenditures during the crisis and reforms to improve targeting mechanism. Spending on various social protection schemes (excluding PIP, but including pensions) accounted for 20 percent of total state budget in 2009. Although the pro-poor targeting of social assistance schemes improved between 2003 and 2009, the system suffered from inefficiencies and inclusion errors (e.g. as suggested by the 2009 LSMS, only 23 percent of total social assistance was delivered to the poorest quintile of population and about 30 percent of social assistance leaked to the richest 40 percent of population). PDPG 4-6 supported the introduction of the improved targeting mechanism for social assistance on a pilot basis in two rayons. Policy area 2: Improving the Environment for Private Sector Development a. Reducing the burden of regulations on business 19. The PDPG 4-6 supported reforms aimed at reducing the regulatory burden on businesses. The PDPG4 supported implementation of guillotine process to eliminate the unnecessary permits, removing disincentive to enterprise growth, as well as implementation of specific measures aimed at reducing the time and costs of obtaining construction permits. PDPG5 supported the preparation and passage of the new Permits Law, codifying the decision of the permits commission and regulating the introduction of the new permits. The trigger for the PDPG6 was completion of the regulatory impact analysis of key laws applicable to private sector. PDPG5-6 also supported strengthening the one-stop-shop, in partnership with the EU. b. Strengthening the financial sector 20. The PDPG 4-6 supported reforms laid out in the Government’s financial sector strategy and the action plan to implement recommendations of 2008 FSAP. PDPG 4 supported the implementation of key first-year legal and regulatory actions, including submission to parliament for approval of a revised banking law and of amendments to NBT law. The triggers for PDPG 5 were measures to support implementation of key elements of the second year of the financial sector action plan: (a) submission of the revised deposit insurance law to parliament, and (b) issuance and enforcement of a regulation on a process for a prompt remedial action framework for commercial banks. The triggers for PDPG 6 were measures to support implementation of key elements of the third year of the financial sector action plan, including: (a) strengthening consumer protection regulation and supervision of banks, and (b) strengthening the legal and institutional environment for secured transactions. 7 c. Modernizing aviation services 21. The PDPG 4-6 supported adoption and implementation of the national aviation policy. The policy explicitly (a) allows progressively increased access to international airlines in terms of routes and frequency capacity; (b) removes any restrictions on air cargo in terms of aircraft types, size, frequency, uplift or discharge (as long as technically feasible); (c) ensures equal treatment at the airports for all carriers in terms of pricing, fueling, and other services; and (d) improves air safety through adequate funding and strengthened licensing certification, monitoring compliance and inspection. The triggers for PDPG5 and PDPG6 were key measures of a time-bound action plan to implement the aviation policy, including actions to strengthen the technical regulation and accident and incident investigation functions, to reform institutions, and improve operations of both of the airports and of air traffic control service. d. Reforming agriculture institutions 22. The PDPG 4-6 supported several measures to improve the incentive framework for rural growth and deepening reforms of agricultural institutions. It supported the issuance of debt-write-off certificates to all eligible farmers, acceleration of farmland restructuring as reflected through issuance of land use certificates to family farms in accordance with agreed standards and targets. Securing famers’ rights to land is essential for the improvement of incentives to invest in agriculture, strengthening of the rule of law, deepening of the financial system ((land can be used as collateral for loans), raising productivity of agriculture (while lowering its risk through diversification), and for poverty reduction. Policy area 3: Strengthening Government Effectiveness a. Strengthening capacity of government institutions 23. The PDPG 4-6 supported implementation of public sector reforms initiated by the PDPG1-3 and Public Sector Reform Project. This includes the introduction of a new civil service salary grid, linking compensation to levels of responsibility, experience, the introduction in the civil service of the performance appraisal system, and, enactment of a law on public administration, which clarifies the functions of the executive and assigns the development of sectoral policies to the ministries and implementation and regulatory functions to the agencies. b. Promoting transparent public financial management 24. The PDPG 4-6 supported implementation of public financial management reforms initiated by the PDPG1-3 and Public Sector Reform Project. This includes the introduction of the new budget classification and chart of accounts, enactment of the legislation on and setting up of the external audit, strengthening the scrutiny of the parliamentary review of the proposed budget (including through the established permanent budget committee secretariat), and improving access of public to budget reports. c. Enhancing transparency of state-owned enterprises 25. The PDPG 4-6 supported measures to improve transparency and governance of state- owned energy utilities. This includes support to continued implementation of the financial management improvement program at the two energy utilities (BT and TTGs), such as migration to an international financial reporting system and publishing the financial reports prepared in compliance with IFRS and audited in accordance with International Standards on Audit. 8 1.5 Revised Policy Areas 26. There were no changes to the policy areas supported by PDPG4-6. 1.6 Other Significant Changes 27. There were no other significant changes in the design, scope and scale, implementation arrangements and schedule or funding allocations. 2. Key Factors Affecting Implementation and Outcomes 2.1 Program Performance 28. The series were delivered in a timely manner and responded well to the government needs in light of the crisis and thereafter. The time between the Concept Note review and appraisal for PDPG4 was 6 months, for PDPG5 – less than 3 months and for PDPG6 – 8 months. PDPG4 had eight prior actions across policy areas 1 and 2; PDPG 5 and PDPG6 had nine prior actions each with focus of actions being shifting to increased government effectiveness (policy area 3) and addressing the most difficult and delayed reform areas, such as budget transparency and transparency of SOEs. These changes also reflected the changed dynamics of the reform process, when any further progress in private sector development has become increasingly dependent on public sector efficiency and transparency. The schematic illustration of PDPG4-6 series as delivered is presented in Table A3.1 in Annex 3. 29. There were some variations between the initially proposed triggers and the actual prior actions for subsequent operations. The triggers were adjusted to make the program more manageable and focused on government priorities, taking into account capacity constraints and political economy considerations. The team was seeking for opportunities to launch the dialogue in the areas deemed the most difficult and, where possible, used the momentum to get a traction. At the same time, the team demonstrated enough flexibility in the areas that needed more time to see the results, while continuing to maintain the dialogue in these areas through not only policy- based budget support but also through analytical and advisory services. In the case of PDPG5, the original design included 11 triggers. 9 triggers became prior actions, one was moved to the next operation and one was dropped. Out of 9 prior actions, 7 were implemented as envisaged in the original design of the series and 2 were modified. Changes in prior actions and the reasons behind these changes are described in section 1.3 and also summarized in Table A3.2 in Annex 3. In the case of PDPG6, the original design included 12 proposed actions. Under the revised design – under the PDPG5 – 10 triggers were proposed for PDPG6 to increase the focus of the operation on growth-enhancing reforms, to strengthen the policy response by the Government to emerging opportunities (e.g. energy efficiency audit of TALCO, adoption of PPP law) and to postpone implementation of some of the originally proposed reforms in light of weak government capacity. Out of the proposed 10 triggers, 9 became prior actions and one was moved to the next DPO series. Out of 9 prior actions, 6 were implemented as envisaged under PDPG5 and 3 were modified. Changes in prior actions and the reasons behind these changes are described in section 1.3 and also summarized in Table A3.3 in Annex 3. 9 Table 1: PDPG 4-6 Prior Actions and Status First Operation in a Programmatic Series (PDPG4) Policy Area 1: Protecting Delivery of Basic Services within a Sustainable Fiscal Framework Status The Recipient has maintained in the 2010 budget an allocation for health care at no less than Fulfilled 2009 levels of 6.1 percent of the state budget as stated in the Budget Law Number 1456 dated November 11, 2009. The Recipient has maintained in the 2010 budget an allocation for education at no less than 2009 Fulfilled levels of 17.8 percent of the state budget as stated in the Budget Law, Number 1456, dated November 11, 2009. The Recipient has maintained in the 2010 budget allocation for social protection at no less than Fulfilled 2009 levels of 20 percent of the state budget as stated in the Budget Law, Number 1456, dated November 11, 2009. Policy Area 2: Improving the Environment for Private Sector Development The Recipient issued instructions Number 633 of March 7, 2009, Number 305 of May 28, 2009, Fulfilled Number 3 of March 1, 2010, and Number 4258 of April 23, 2010, approving the list of the ninety-one (91) permits retained by the Recipient’s Permits Commission, while the rest are revoked. The Recipient through Decree of the National Bank, Number 110, dated April 26, 2010, Fulfilled approved the financial sector development strategy and action plan, in addition to: (a) Submitting to Parliament for approval a draft Banking Law, Number 524, dated May 19, 2009, including submitting to Parliament amendments to the Law on the National Bank, Number 383, dated December 14, 1996; and (b) Issuing revised versions of key regulations and instructions in line with new Banking Law instructions, namely, Number 524, dated May 19, 2009, and amending the Law on the National Bank related to Government instruction Number 548, dated August 25, 2009. The Recipient has adopted a resolution dated May 3, 2010 Number 229 setting forth an aviation Fulfilled sector policy aimed at liberalizing Tajikistan’s aviation market. The Recipient has issued land use certificates in accordance with the agreed standards and targets Fulfilled as set forth in the Decree, Number 374, dated July 2, 2009. The Recipient has completed the issuance of six thousand nine hundred and thirty (6,930) debt Fulfilled write-off certificates for the value of US$423,600,000 for farmers under the tripartite Kredit Invest credit scheme by the end of December 2009, as set forth in the letter from the National Bank of Tajikistan, Number 02t-07/18125, dated April 30, 2010, and specified in the Government the Decree Number 663, dated May 30, 2009. Second Operation in a Programmatic Series (PDPG5) Policy Area 1: Protecting Delivery of Basic Services within a Sustainable Fiscal Framework The Recipient, through Government Resolution Number 169, dated April 1, 2011, has adopted a Fulfilled health sector master plan consistent with the Recipient’s National Health Sector Strategy. A draft Law on Public Finances to accommodate implementation of per capita financing Fulfilled requirements in general education at the national level has been submitted to the Parliament pursuant to the Government Resolution Number 100, dated March 3, 2011. The Recipient, through the Government Resolution Number 586, dated October 30, 2010, Fulfilled provided the basis for the introduction of a pilot scheme in at least two (2) rayons for improved targeting of social assistance. Policy Area 2: Improving the Environment for Private Sector Development The Recipient has submitted to the Parliament a new draft Permits Law, Government Resolution Fulfilled Number 159, dated April 1, 2011, to introduce new procedures for issuing permits and to codify the decision and recommendations made by the Government Commission for Permits Review. The Recipient has issued forty thousand three hundred and thirty-two (40,332) land use Fulfilled certificates in accordance with the agreed standards and targets as set forth in Decree Number 374, dated July 2, 2009. The Recipient has submitted to the Parliament: (i) a revised Deposit Insurance Law, Presidential Fulfilled Resolution Number 2.1/1-8, dated April 4, 2011; and (ii) the Recipient enacted the Law on Anti- Money Laundering and Countering Financing of Terrorism, Number 684, dated March 25, 2011. 10 Policy Area 3: Strengthening Government Effectiveness The Recipient, through the Presidential Decree Number 1018, dated February 18, 2011, Fulfilled introduced a new performance appraisal system for public administration employees. The Recipient has submitted to the Parliament a draft External Audit Law (Law on Chamber of Fulfilled Accounts), Presidential Resolution Number 23.4/1-7, dated April 7, 2011. The Recipient has caused Barki Tajik and Tajiktransgas to introduce IFRS in the calendar year Fulfilled 2011 and to prepare an action plan for Barki Tajik to complete implementation of FMIP (including migration to IFRS) in accordance with the principles and procedures agreed upon with the Association. Third Operation in a Programmatic Series (PDPG6) Policy Area 1: Protecting Delivery of Basic Services within a Sustainable Fiscal Framework The Recipient, through Government Resolution No. 536 dated November 2, 2011, has provided Fulfilled the basis for the introduction of a per-capita formula in allocating primary healthcare resources in two new districts. Policy Area 2: Improving the Environment for Private Sector Development The Recipient, through Government Resolution No. 422 dated August 29, 2012, has submitted to Fulfilled Parliament the Law on Public Private Partnerships. The Recipient has: (a) issued sixty-seven thousand five hundred seventy-four (67,574) land use Fulfilled certificates in accordance with the standards and targets set forth in Presidential Decree No. 374 dated July 2, 2009, and (b) adopted, through Government Resolution No. 383 dated August 1, 2012, the “Program of Reform of Agriculture of the Republic of Tajikistan for 2012 -2020" and an action plan for its realization. Policy Area 3: Strengthening Government Effectiveness The Recipient, through Presidential Decree No. 1126 dated August 2, 2011, has established a Fulfilled new salary grid for all central government entities to increase salaries of government sector employees and bring them closer in line with other comparator countries. The Recipient submitted to Parliament the Public Administration Law, which was passed by Fulfilled Parliament on December 21, 2011 and signed by the President on April 16, 2012 (Law No. 828), and which clarifies the functions of the executive and assigns the development of sectoral policies to ministries and implementation and regulatory functions to agencies and services. The Recipient has (a) approved the staffing of the Accounts Chamber and designated a source of Fulfilled funding for the Accounts Chamber from the state budget through Presidential Decree No. 1173 of December 12, 2011, (b) appointed the Chairman and the Deputy Chairman of the Accounts Chamber through Presidential Letters No. 23.5/I-19 and No.23.5/I-20, both dated August 6, 2012 and subsequently confirmed by Parliament in September 2012, (c) established the levels of salaries for the staff employed by the Accounts Chamber through Presidential Decree No. 1258 of March 30, 2012, and (d) secured premises for the offices of the Accounts Chamber. The Recipient has (a) adopted the Unified Chart of Accounts, through Internal Ministerial Decree Fulfilled No. 40 dated June 13, 2012 and (b) issued the state budget using the new administrative budget classification system, through the Law of the Republic of Tajikistan on the State Budget for 2012, No. 766 dated November 8, 2011. The Recipient has ensured that Barki Tajik and Tajiktransgas have (a) substantially completed Fulfilled their Financial Management Improvement Plans, (b) published their 2010 financial reports prepared in compliance with the International Financial Reporting System and audited in accordance with International Standards on Audit, and (c) commissioned a new billing system to improve collection of billed energy. The Recipient has completed an energy efficiency audit of SUE TALCO on August 24, 2012 to Fulfilled identify options for increasing energy efficiency. 11 2.2 Major Factors Affecting Implementation 30. The flexibility embedded in the program design allowed to focus on the areas of strategic importance. The PDPG team identified the program matrix through extensive consultations with the government, with the Bank sector specialists, and with other development partners. The actual reform program supported by the series reflected both the opportunities for change and the country capacity to design and implement reforms, so that the revisions to the initial design during the time of PDPG5 and PDPG6 were well justified. Despite the revisions, the focus on the three main policy areas was maintained. 31. Evolving energy sector reform dialogue has had a strong impact on the program implementation. Through support from the World Bank’s Energy Loss Reduction Project, the government reform effort in the energy sector focused on improving commercial performance and financial transparency of the energy utilities Barki Tajik (BT) and Tajiktransgas (TTG). Both companies moved from the old practices of normative-consumption based billing to ones based on actual metered billing, and are implementing comprehensive Financial Management Improvement Programs (FMIP). PDPG5 and PDPG6 supported these important reforms. Moreover, through the PDPG6, the Bank supported an energy efficiency audit of TALCO to help identify priority options for reducing its energy use, and plans to prepare a follow-up action plan to implement the recommendation of the efficiency audit – the area, where sector policy dialogue was stymied by the lack of information and hard data on concrete steps that could be taken and electricity savings potentially realized. This work has being carried out in close collaboration with the Public Expenditure Review (PER), and Institutional and Governance Review (IGR) teams, and has potentially very high payoffs, as even modest improvements in TALCO’s energy efficiency (e.g. 10 percent reduction in energy consumption) would help significantly improve access to scarce electricity for other domestic consumers (both households and businesses). The agreement with the Bank on Rogun’s assessment studies and related monitoring also provided an additional platform for discussion of the most critical reforms in energy sector and their fiscal and social implications. 32. The design of PDPG4-6 took into account the experience from the implementation of the previous series. Experience with PDPG1-3 has shown that PDPG implementation was most successful in areas that benefited from strong government ownership, complementary technical assistance, efficient coordination among WB/IFC/IMF and with the Development Coordination Council and, long-term engagement on the part of the World Bank Group. 33. Agroinvestbank crisis affected adversely the planned schedule of the delivery of PDPG6 and declaration of grant’s effectiveness. Directed lending practice has contributed to the deterioration of the loan portfolio of the largest commercial bank (Agroinvestbank – AIB), which was effectively driven into bankruptcy and was bail out at a cost of 2 percent of GDP in 2012. As the problem emerged, the Bank and the IMF intensified the dialogue with the authorities and provided additional technical assistance to sort through restructuring options, while seeking to maintain the soundness of the rest of financial system. However, the resolution of this complex problem, involving strong vested interests, required time to build commitment and capacity to implement the plan. An inclusion of the high-level commitment to find a credible, equitable and long-lasting solution for AIB in the Letter of Development Policy (LDP) and delaying the declaration of effectiveness helped to strengthen the position of the reform-minded part of the Government, continue the dialogue in this important area and be prepared to more decisive actions as soon as the situation is ripe. Annex 4 describes the AIB crisis and its impact on the PDPG6 implementation in more detail. 12 2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization 34. Design. The three program documents included a policy matrix clearly setting out prior actions for the current operation, triggers for the subsequent operation, and expected results. The outcome indicators were refined after the approval of the second operation to reflect the changes in the program and to specify the measurement. Due to the low quality and availability of official statistics very few data required to track the progress come from publicly-available sources of information; substantial amount of data were supposed to come from surveys or be provided by the counterparts upon a special request. This created certain difficulties in monitoring results, especially in cases, where new surveys were not conducted at all, conducted with significant delays and/or with revised questions. 35. Implementation. The Bank team closely monitored actions and reviewed progress with implementation of the program using the policy matrix. Aide-memoires and implementation status reports (ISRs) from PDPG4-6 missions reported on progress, challenges, and agreed measures for moving forward. Sector specialists carried on the dialogue with the authorities in their respective areas, and informed the PDPG team on progress with implementation and outcomes. 36. Utilization. The Government and Bank teams used monitoring information to identify areas of particular challenge and to develop measures to address them. This includes an additional technical assistance (e.g. financial sector), moving some measures to the consequent operation/series to allow enough time to build capacity (e.g. introduction of unified chart of accounts) and to implement the measure in a complete and adequate manner (e.g. implementation of FSIP by energy utilities). The team used the window of opportunity to unlock the dialogue on TALCO. It also made all efforts to address new issues arising at the end of the program implementation (e.g. insolvency of the AIB). 2.4 Expected Next Phase/Follow-up Operation 37. The Government requested continued budget support from the Bank in the context of the new Country Partnership Strategy (CPS). The Bank in principle agreed to assist the government with a proposed new series of two development policy operations, tentatively scheduled for FY15-16. The design of the new series will take into account the lessons learnt from PDPG4-6. The new DPO series will be linked to the proposed pillars of the new CPS for FY15-18 – private sector development, social inclusion, and regional connectivity – and to the achievement of twin goals of reducing poverty and boosting shared prosperity. 3. Assessment of Outcomes 3.1 Relevance of Objectives, Design and Implementation Overall Rating: Satisfactory 38. The PDPG4-6 was central to the Country Assistance Strategy (CAS) for FY10-FY13. The CAS FY10-13 supported two main objectives: (i) to mitigate the negative impact of the crisis on poverty and vulnerability, and (ii) pave the way for post-crisis recovery and sustained growth. PDPG 4-6 supported both of these objectives. PDPG4 was also consistent with the Pilot Crisis Response Window’s objective of protecting core spending in countries affected by global financial crisis. PDPG4-6 served as the primary vehicle for engaging in policy dialogue with the 13 government and for discussions with other development partners on how best to align support for the Government’s program. 39. A new CPS for FY15-18 is expected to be prepared by May 2014. The overarching theme of the CPS will be expanding economic opportunities for all and, especially, for the most disadvantaged groups through a mix of advisory, financial, and technical activities and services in three broad areas of engagement. It will be based on the three pillars (private sector led growth, social inclusion and regional connectivity). PDPG4-6 pillars and selected policy areas remain highly relevant in the context of the new CPS. 40. The main objective of PDPG4-6 and the pillars were highly relevant to the government’s own development strategy. In February 2010 the government formally approved its Third Poverty Reduction Strategy (PRS 3) for 2010–2012. The overarching PRS3 objective was to promote sustainable strong economic growth and to improve the population’s living standards, especially of vulnerable groups. The new Tajikistan’s medium-term Living Standards Improvement Strategy (LSIS) for 2013-15 focuses on sustainable economic development and improving access to social services for all. PDPG4-6 pillars and selected policy areas remain highly relevant in the context of the new government’s medium-term development strategy. 41. The design and implementation arrangements for PDPG4-6 were also adequate. The design was based on prior AAA (by the Bank or other development partners) and existing government strategies, while implementing arrangements benefited from previous experience with PDPG1-3. Implementation arrangements where relevant. The Minister of Finance was responsible for the overall implementation of the program and for coordinating implementation of specific reforms by line ministries (health, education, social protection, agriculture, energy, transport) and other government agencies. An additional support was provided by the Executive Office of the President, because of its role in coordinating policy within government. 3.2 Achievement of Program Development Objectives Overall Rating: Satisfactory 42. On overall achievement of objectives, performance of PDPG4-6 series was satisfactory. The satisfactory rating takes into account the completion of all prior actions for all the three operations, progress on all but one outcome indicators under policy area 1 and, while uneven but still, significant progress under policy areas 2 and 3. With the support of the program, the fiscal framework stabilized, while the delivery of essential social services has been maintained, assisting to preserve human capital during an economic slowdown. The program facilitated reforms, addressing the key constraints to long-term growth, thereby contributing to quick recovery aftermath 2009 crisis and laying the foundation for future growth. At the same time, the structural reform agenda remains large. Initiated and supported by the program reforms need to be further deepened and widened to ensure sustainability and quality of future growth. Recent Macroeconomic and Fiscal Trends 43. Economic growth in Tajikistan rebounded strongly from a recent low of 3.9 percent in 2009 to over 7 percent a year on average during 2010-13. Economic activity in the post- crisis period has been spurred by a pickup in remittance inflows, which rebounded sharply since 2009 to a record high of over 48 percent of GDP in 2013. Larger inflows of remittances fueled domestic demand and on the production side strong growth in services, which accounted for more than one-third of growth in 2012 and 2013. Twelve-month inflation was contained at single digit 14 levels, declining from 9.8 percent in December 2009 to 3.7 percent in December 2013. After widening to 5 percent of GDP in 2011, the current account deficit narrowed to 1.9 percent of GDP in 2012 but is estimated to have widened again in 2013 to about 3 percent of GDP due to moderated external demand and adverse terms of trade developments. 44. The overall fiscal stance improved notably in the post-crisis period. The fiscal balance shifted from a deficit of 5.4 percent of GDP in 2009 to a surplus of 0.1 percent in 2012 on the back of higher revenues and lower expenditures. The latter largely reflected a decline in externally financed capital spending under the Public Investment Program, which is being phased out gradually. The general government budget was concluded with a deficit of 1.3 percent of GDP in 2013, largely due to increased spending under donor-financed projects, especially in transport, construction and energy, and a sharp decline in receipts from extra-budgetary funds. Table 2: Selected Economic Indicators, 2009-2013 (in percent of GDP, unless otherwise indicated) 2009 2010 2011 2012 2013e National accounts and prices Atlas GNI per capita (U.S. dollars) 750 810 870 880 970 Real GDP growth (percent change) 3.9 6.5 7.4 7.5 7.4 CPI inflation, Dec/Dec (percent) 5.0 9.8 9.3 6.4 3.7 External accounts Current account balance -5.9 -1.2 -4.7 -1.9 -2.9 Balance on goods & services -39.3 -37.3 -49.3 -47.2 -48.4 Net workers’ remittances 32.6 37.6 43.6 44.2 46.1 Fiscal accounts General government revenue and grants 23.4 23.2 24.9 25.2 25.5 Government expenditure and net lending 28.8 26.9 27.3 25.1 26.8 Overall fiscal balance (incl. PIP) -5.4 -3.7 -2.5 0.1 -1.3 External Public Debt (stock) 35.8 34.4 32.6 28.6 25.4 Sources: World Development Indicators, Statistical Agency of Tajikistan, National Bank of Tajikistan, and Ministry of Finance of Tajikistan; estimates of the World Bank and the International Monetary Fund. e-estimate. Policy Area 1: Protecting Delivery of Basic Services within a Sustainable Fiscal Framework Rating: Satisfactory 45. On the first policy area under the PDPG series, performance was satisfactory. Expenditures for health, education and social protection (as a share of the total budget and as a share of GDP) had been maintained at the 2008 level and substantial progress was achieved in reforms aimed at increasing efficiency of public spending. All but one outcome indicators were met (Table 3). 15 Table 3: Outcome Indicators for the First Policy Area Baseline Target Actual Indicator Comments (2008) (2011/2012) (2011/2012) (a) Protecting delivery of health services Public funding of PHC progressively Sughd 16.2% Sughd 30% Sughd 40.0%, Met increases / is maintained (measured by Khatlon Khatlon 33% Khatlon 41.7% overall PHC expenditures as a share of 22.6% total regional health budget). PHC visits per capita per year in Khatlon Sughd 4.0 Sughd 4.0 Sughd 4.3 Met and Sughd maintained. Khatlon 1.4 Khatlon 1.4 Khatlon 3.06 (b) Protecting delivery of education services Efficiency of expenditure on education 8% 20% or higher 11% Not met but improves (measured by the proportion of substantial schools’ budgets not allocated to wages). progress achieved. (c) Protecting delivery of social protection services Improved targeting mechanism is Efficient Improved Targeted Met available for channeling social assistance. targeting targeting mechanism has mechanism mechanism is been developed, does not available in and is being piloted exist 2013 and tested (a) Protecting the delivery of health services 46. Recent reforms have addressed issues contributing to poor health system performance by prioritizing PHC and reform of the payment systems. Public expenditures on health in relation to GDP in Tajikistan are among the lowest in ECA and the limited resources had been used inefficiently, with the health system focused largely on curative in-patient services, with poorly paid providers that are not held accountable for results, under-funded PHC, wide disparities in PHC spending across rayons, and large out-of-pocket expenditures. Through PDPG support, the government raised PHC worker salaries, increased public spending on health (to at least 6 percent of government expenditures in 2009-2012), adopted a Health Sector Master Plan in 2010, and started implementing and expanding per capita PHC financing and case-based financing of hospital services in two oblasts (Sughd and Khatlon). As a result, the PHC started receiving priority financing (as evidence by the increased share of PHC expenditures in total health outlays) and the utilization of healthcare services was maintained and somewhat improved (as evidenced by the increased number of PHC visits per capita per year). 47. The sustainability of the results is supported by the continued expansion of full PCF and efforts to improve the financing mechanism based on a comprehensive use of population-based resource allocation in Sughd oblast. The new financing mechanism, the introduction of which on a pilot basis was supported by PDPG4-6 series, is expected to produce a number of positive effects, including: (i) improved equity in the allocation of public health funds; (ii) enabling the introduction of more efficient provider payment methods; and (iii) reducing fragmentation in health financing, and improving coordination between rayon, oblast and republican administration that fund overlapping health care networks. (b) Protecting delivery of education services 48. The PDPG 4-6 series supported protection of education expenditures during the crisis and reforms to improve the efficiency of public spending on education. Public spending on education rose steadily from 2.3 percent of GDP in 2000 to 4.2 percent in 2009 and this level has 16 been maintained since then. This is still below the ECA average (4.8 percent of GDP) but just about the average among the countries at a similar level of economic development and demographic compositions. Whereas in 2009/2010 only 82 percent of all general secondary schools had a PCF-compliant budget, the proportion of schools with PCF budget increased to 95 already in 2010/2011. 49. The introduction of the PCF has led to a number of positive outcomes. They include: more equitable and efficient distribution of resources, increased budget autonomy at school level, and greater transparency and community involvement in school planning and budgeting. Efficiency of public spending on education increased as suggested by the increased nationwide average student teacher ratio (STR) from 17.0 to 18.0 between 2007/08 and 2011/12. The share of wage expenditures in local governments’ education expenditures fell from 92 percent in 2008 to 89 percent in 2012, freeing resources for improving the quality of education. Yet, the share of non-wage expenditures is below the target set forth in the PDPG4-6 monitoring framework. The target was met by 2010, when non-wage expenditures accounted for 23 percent of total school budgets. However, increases in teachers’ salaries during the last 2 years, not accompanied by the adequate adjustments in the PCF formula, have resulted in crowding out of non-wage expenditures. To address the problem (that could have been further aggravated due to the recent increase in public sector wages by 30 percent), the required adjustments were introduced to PCF formula from 2014. (c) Protecting delivery of social protection services 50. The PDPG 4-6 series supported protection of social protection expenditures during the crisis and reforms to improve targeting mechanism. The Government spent 0.2 percent of GDP on social assistance in 2009; this made the social assistance program among the smallest when compared to similar countries in ECA. The Government maintained social assistance expenditures in 2010-2012 at no less than 2009 level. Importantly, new improved targeting of social assistance, based on proxy-means testing (PMT) methodology was piloted in 2011 in two rayons. 51. The pilot social assistance program achieved better targeting rates than the standard social assistance programs. The coverage rate of the standard social assistance programs was 19 percent compared with a coverage rate of 22 percent for the pilot. Moreover, the poorest quintile receives only 23 percent of the benefits from the standard programs but the poorest quintile receives 68 percent of the benefits from the pilot program. The program thus represents an improvement in terms of poverty-targeting. Based on preliminary positive results of the pilot, it was expanded to 10 districts in 2013, planned to be further expanded to 25 districts in 2014 before the national-wide roll out. Policy Area 2: Improving the Environment for Private Sector Development Rating: Moderately Satisfactory. 52. On the second policy area under the PDPG series, performance was moderately satisfactory. All outcome indicators had been fully or partially met (Table 4). Important progress was achieved in reforming agricultural institutions, streamlining business regulations and reforming aviation. Despite the fact that all outcome indicators for strengthening financial sector are met (in full or partially), it remains weak and vulnerable. This, together with the absence of sizable progress in implementing commitment provided in the LDP in relation to the resolution of the AIB and halting directed lending, as critical for sustained growth and development of 17 financial sector and economy, as a whole, lead to the less than satisfactory rating for the whole policy area. Table 4: Outcome Indicators for the Second Policy Area Baseline Target Actual Indicator Comments (2008) (2012) (2012) (a) Streamlining business regulations Total cost (direct and 1,588 somoni 1,300 somoni The number of permits Information on indirect) of acquiring permits was reduced from 607 to target value is not reduced. 85 (or by 86%). An available. The estimated compliance information costs savings for the available suggests private sector are about about substantial US$14 million per annum progress made. Cost and time of dealing 250 days Fewer 228 days Met with construction permits number of declines days (b) Reforming agricultural institutions Farmers gain control over 35 percent 75 percent 2011 Rural Vulnerability Not met but farm management (as Study Results: substantial measured by the proportion For Crops Other than progress made. of farmers who perceive that Cotton: Alternative they can take independent 45 percent strongly agree information (from production and marketing (+24 percent agree FPA for Cotton decisions). somewhat) that “In most Sector Recovery respects, farmers in this Project) indicates a region truly can use the substantial land as they wish progress between 42 percent strongly agree 2011 and 2013, (+28 percent agree with over 90 somewhat) that “In most percent of farmers respects, farmers in this responded region are free to choose positively to the how much land to allocate question on the to different crops freedom to farm. 48 percent strongly agree (+28 percent agree somewhat) that “In most respects, farmers in this region can market their produce in any way they choose For Cotton Farmers: 33 percent strongly agree (+23 percent agree somewhat) that “Farmers are free to choose where to gin their cotton 33 percent strongly agree (+24 percent agree somewhat) that “Farmers are free to choose any financing method they wish 18 Baseline Target Actual Indicator Comments (2008) (2012) (2012) (c) Strengthening the financial sector Access to formal financial 210,378 bank 250,000 bank 1,039,663 bank accounts Met services increases (number accounts accounts (end-June 2013) of bank accounts rises). Financial system becomes Private sector Increase Private sector credit: 12.3 Partially Met deeper (increase in private credit:14 percent of GDP; sector credit and deposits). percent of Deposit base: 13.6 of GDP; deposit GDP base: 11.0 (2012) percent of GDP Financial system becomes 18 percent in 14 percent in 10.2 percent in somoni Met more efficient (interest rate somoni and somoni and and 10.47 percent in spread between lending rate 17 percent in in US dollars foreign exchange and average deposit rate US dollars. falls). (d) Modernizing aviation services Access to Tajikistan The number Increase Number of international Met increases (Number of flights, of flights is 8451 and passengers, etc). international number of passengers is flights (incl. 1.96 million Russia and the rest of the CIS) is 5164 and the number of passengers 1.08 million (a) Streamlining business regulations 53. PDPG 4-6 series has provided a multi-year framework for policy dialogue to support reforms to improve business environment, including the establishment of one-stop shops to enable enterpreneurs to receive information, forms, and other services needed to start a business, including consolidated registration with the Tax Authority, Statistical Committee, and with the Social Insurance and Pension Agency. However, despite recent progress in reducing the burden of doing business, Tajikistan remains a relatively unattractive country for investment with significant under-exploited economic diversification potential. In Doing Business (DB) 2014 Tajikistan ranked 143d globally on the ease doing business. 54. The regulatory environment improved and the costs of acquiring permits were reduced as a result of the new Permits Law in 2011. The Law was drafted with a regulatory guillotine approach that led to a reduction in the number of the permits from 607 to 85, or by 86 percent. The impact of this reform on compliance cost savings to the private sector was evaluated by the IFC through a Standard Cost Model analysis (SCM) approach to amount to about US$14 million annually. This number reflects the elimination of hundreds of permits as well as the reduction in cost of several others. Another target – the reduction in the number of days needed to obtain construction permit – was achieved. However, it takes more time and resources to obtain a construction permit in Tajikistan than in most countries in the world. The DB 2014 ranks Tajikistan 184th out of 189 countries in dealing with construction permits. 19 55. The enactment of the PPP law provided the legal basis for attracting investment in key sectors such as energy, infrastructure, transport, and potentially health. The new PPP law outlines a transparent tendering process for PPP projects and addresses dispute resolution and such issues as non-solicited bids. Implementing the law will require amendments to existing legislation, extensive training for government officials, and the formation of a PPP Center to lead tendering on specific projects. The government has expressed interest in identifying some projects to use as pilots of the new law. (b) Reforming agricultural institutions 56. The main objectives of PDPG4-6 were to improve farmers’ property rights and access to farm inputs to help raise agricultural productivity. Through PDPG4 support, the government undertook several measures to reduce farmers’ debt and improve the agricultural financial system, issuing 6,390 debt write-off certificates to farmers as part of the cotton debt resolution. PDPG5 supported the strengthening of criteria for site selection for on-farm irrigation investment. PDPG 4-6 supported the accelerated issuance of land use certificates to family farms to empower farmers and promote farmland restructuring. PDPG6 also supported measures to improve an enabling environment for agriculture, including the implementation of an improved irrigation investment framework and reform of policies designed to improve farmer access to inputs. 57. Available information suggests that these reforms had been critical for increasing agricultural productivity and poverty reduction. Production of cotton and other crops started to increase after agricultural reform and debt relief, and after farmers obtained the freedom to farm any selection of agricultural products. Just from 2009 to 2012, the production of cotton in the country is up by 41percent, the land allocated to cotton up by 18 percent, and cotton yields increased by 18 percent.4 The results of the quantitative survey of 1,800 farmers in 18 rayons, supplemented by in-depth interviews, focus groups and case studies in eight rayons, conducted for 2011 Rural Vulnerability Study (RVS) show: (i) significant shift in perceptions regarding rural life compared to 10-15 years ago; (ii) key role household plots and family farms played in increased agricultural productivity to to their higher propensity to invest in farm improvement; (iii) positive impact of issuance of land certificate on “freedom to farm” (more than half of surveyed farmers strongly agreed that they make farming decisions independently as compared to slightly more than a quarter in 2007). 58. Recent data suggest there has been a sharp positive shift in the farmers’ perceptions in respect to “freedom to farm” between 2011 and 2013. 5 According to the Final Project Assessment (FSA) for the Tajikistan Cotton Recovery Project, one of the major changes between 2011 and 2013 is the understanding of farmers that they can farm freely. In the survey years, farmers were asked about whether they agree or disagree with the statement: "In general, farmers can use the land as their choice." For cotton farmers, in 2013, almost 92 percent indicated that they are free to choose how much land to allocate to cotton as compared to 43 percent in 2011. For non-cotton farmers, in 2013, 94 percent of respondents indicated that they can truly use the land as they wish (crop choice) as compared to 65 percent in 2011. Although the data are not directly compatible with the results of 2011 RVS (and the baseline), they do indicate a laudable progress in this most critical policy area. 4 World Bank (2013). ICR on Tajikistan Cotton Sector Recovery Project. Report No: ICR00002755. September 25, 2013. 5 Ditto. 20 59. A new Government program for reform of agriculture for 2012-2020 includes the measures for widening and deepening the reforms supported under the PDPG4-6 series. The Action Plan includes measures aimed at reforming policies for better farmer access to inputs, improving access to irrigation, and ensuring sustainable use and improved management of natural resources. The new Land Code, approved in August 2012, provides for land use rights to be life- long, inheritable, marketable and exchangeable—all essential preconditions for small farms and rural households to make their own production decisions, as well as to stimulate private sector. Effective implementation of the Land Code will require continued issuance of land use certificates, definition of land valuation methods, further improvements to the mortgage law, and strengthening of the unified registration and cadaster land market systems. (c) Strengthening the financial sector 60. PDPG 4-6 supported the implementation of high-priority recommendations of the 2008 Financial Sector Assessment Program (FSAP), addressing weaknesses in the legal framework. PDPG4 supported submission to the parliament of a revised banking law and of amendments of NBT law, and the issuance by the NBT of revised versions of key regulations and instructions in line with amended laws. PDPG5 supported the passage by the parliament of a revised deposit insurance law and the law “On Anti-Money Laundering and Countering Financing of Terrorism” (AML/CFT). Since February 2013, Tajikistan has taken further steps towards improving its AML/CFT regime, including by enacting amendments to the criminal code improving the criminalization of money laundering and terrorist financing. 61. Indicators of access to finance, financial sector depth and efficiency improved. Access to financial services is improved as suggested by the increased number of banks’ accounts. Another indicator of access to financial services – number of branches per 100,000 adults in commercial banks – shows that in 2012 this ration in Tajikistan (7) was higher than the median for low income countries (4) but significantly lower than regional average (20). Deposit base widened and interest rate spreads narrowed even further than targeted. 62. Notwithstanding the importance of these actions, and the fact that all outcome indicators for this area either fully or partially met, financial sector remains weak and highly vulnerable. Interest rates remain high, while financial intermediation remains limited. High interest rates are often cited as the major reason for SMEs not applying for a loan. Private sector credit to GDP ratio is very low and decreased as compared to baseline. Financial intermediation is low for several reasons, including weaknesses in the infrastructure for banking, inefficiencies of financial service providers, risk aversion by financial service providers, and a lack of bankable projects. The share of non-performing loans (NPLs) to gross loans of banks remain high and on rise (21.2 percent in September 2013 as compared to 18.2 at end-2012). Governance issues and enforcement of prudential regulations in the banking sector remain a concern. The health of financial sector is undermined by the directed lending, which distorts the market, misallocates credit, and undermines confidence and the credit culture. Low confidence in the banking system impedes the channeling of remittances into investments. (d) Modernizing aviation services 63. Tajikistan’s regional connectivity has improved since 2008, but there is a considerable scope for further improvement to help enhance the country trade and tourism potential. With PDPG support, the government approved the National Aviation Policy in 2010, and issued the “Government Policy Strategy for Development of Civil Aviation of the Republic of Tajikistan”. The Bank conducted a situational review in 2011 to measure available international travel options in terms of routes, frequencies, and airlines (competition) and to 21 contrast these findings against connectivity levels two years earlier and assess the effect of reforms. The market analysis examined annual available capacity at Dushanbe and Khujand airports (which account for over 90 percent of international travel) and showed that between 2009 and 2011, Tajikistan became better connected to regional and international countries, as measured by the increased number of flights and passengers. The new dataset, provided by the Ministry of Transport, allows for comparisons between 2008 and 2012-2013 and supports the conclusion of the market analysis of 2011. The Bank and the IFC are continuing with the policy dialogue in this area, supporting it with upcoming IFC investment operations. Policy Area 3: Strengthening Government Effectiveness Rating: Satisfactory 64. Under the third policy area of the PDPG series, performance was satisfactory. All but one outcome indicators were met (Table 5). The progress on some indicators cannot be assessed by the indicators originally intended (from BEEPS) because BEEPs has now been delayed for 2 years. As a result, the assessment of the progress has to be made based on other information. Table 5: Outcome Indicators for the third Policy Area Baseline Target Actual Comments (2008) (2012) (2012) (a) Strengthening capacity of government institutions The attractiveness of the 1.25 (2010) 1.70 1.14 Not met. civil service as an employer improves (measured by the ratio of applicants to published vacancies). The regulatory environment 44 percent of firms 50 percent or BEEPS 2012 data Available improves, as evidenced by say “licenses and more report are not available information an increase in the share of permits are not a “licenses and (expected to be suggests firms saying "licenses and problem in doing permits are not a available in improvements permits are not a problem inbusiness.” 14 problem in doing January 2014). in regulatory doing business" and/or percent of all business.” Lower environment reduction in reported firms’ share of firms’ due to drastic management time spent management time management time reduction in reportedly spent dealing with public officials. reportedly spent the number of Source: BEEPS. dealing with public dealing with permits. officials. public officials. (b) Promoting transparent public financial management Transparency of budget Budget Budget Budget Met. formation and execution implementation implementation implementation improved. report based on old report based on report based on budget new budget new classification. classification. administrative Consolidated Consolidated budget budget execution budget execution classification. reports not posted reports posted on Consolidated on government Finance Ministry budget execution website. website reports posted on Finance Ministry website. 22 Baseline Target Actual Comments (2008) (2012) (2012) (c) Enhancing transparency of energy state-owned enterprises Financial viability of Barki- Barki Tajik: 74 Increase/maintain Barki Tajik: 87.2 Met. Tajik and Tajiktransgas percent; percent; increases (measured by Tajiktransgas: Tajiktransgas:100 increase in cash collection as close to 100 percent a ratio of total billed percent consumption). Transparency of Energy Conversion of BT Unqualified audit 2011 and 2012 Met. SOEs is increased (measured and TTG annual reports of BT and audits of BT and by entity audits being accounts to IFRS TTG submitted to TTG entities conducted based on IFRSs) is in progress World Bank as based on IFRSs (2010) per IFRS for 2011 were completed and submitted to World Bank (a) Strengthening capacity of government institutions 65. The implementation of the government’s Public Sector Reform Strategy, supported by the PDPG series, brought somewhat mixed results. A new law on public administration as well as the development and initial implementation in 2012 of a new performance-based salary grid for all central government employees have contributed to improved transparency of remuneration by eliminating all previous salary increments and ad hoc bonuses and increasing the salaries of young professionals whose recruitment and retention had become problematic. The rollout of the wage and public administration reform measures had been intrinsically related to reforms in health and education sector described earlier. However, there is no real competition in civil service yet: the ratio of applicants to published vacancies fell from 1.25 in 2010 to 1.09 in 2012, at large, due to staff downsizing policy. There is no new BEEPS data to access the improvement in regulatory environment due to strengthened government capacity; alternative information suggests that the regulatory environment for business improved but still remains difficult (see paragraphs 49 and 50 above). (b) Promoting transparent public financial management 66. Supported by the PDPG series and on-going PFM dialogue, transparency and accountability of public finance management improved. The government approved unified chart of accounts (UCOA) for public institutions, prepared the 2012 state budget based on new administrative budget classification. GFSM 2001-based economic and functional segments, has been introduced for budget execution from January 1st, 2014, in conjunction with the new UCOA. It is a massive preparatory effort, with more than 6,800 budget organizations (BOs) involved in the training and subsequent implementation. UCOA integrates budget and financial accounting, which provides consistency on those types of accounting. The first 10 accounting standards based on international public sector accounting standards (IPSAS) are to be introduced from 2014. A new Treasury organizational structure has been approved and is being implemented from January 1st 2014 to support implementation of the UCOA and the accounting reform. The budget is published in a timely manner and available to the public. In addition, quarterly, bi-annual, and annual reports are produced and published on the website of the Ministry of Finance. The independent external audit body (Chamber of Accounts) had been established and became operational. In addition, with support of the ongoing PFM Modernization Project, the government has embarked on further reforms to strengthen public financial management in partnership with other development partners active in this area (IMF, EC, DFID, 23 ADB, and USAID). The 2012 PEFA assessment has revealed an overall improvement across most Performance Indicators as compared to 2007 PEFA, while helped to identify the areas where the further work is needed. (c) Enhancing transparency of energy state-owned enterprises 67. Supported by the PDPG series and on-going energy sector dialogue, government efforts to improve the operational and financial management and transparency of the main energy utilities recorded some advances but the overall progress has been mixed. Introduction of metering of electricity and gas consumption contributed to improved billing and collection and to reduction in financial and technical losses. Owing to tariffs increases and high economic growth, quasi-fiscal deficit6 in power sector was reduced from over 4 percent of GDP in 2008 to about 1 percent in 2011. However, the further progress in tariffs adjustment has been stalled since then and other imbalances (such as inter-enterprise arrears) are on rise. Preparation of audited financial reports in compliance with IFRS also contributed to increased transparency of main energy SOEs. By now, both 2011 and 2012 audit reports per IFRSs for BT and TTG entities were prepared and submitted to the Bank (see Table 5). Furthermore, the SOE Monitoring Department (SOEMD) within the Ministry of Finance started to prepare and publish on the Ministry of Finance website the annual report on fiscal risks from largest SOEs7, which is an important step towards greater transparency. 68. The government completed an energy efficiency audit of TALCO in August 2012 to identify options for increasing energy efficiency (prior action for PDPG6). By adding this important trigger, the Bank team for the first time started addressing the reform area that has been considered the most difficult and not feasible to address in the first PDPG series and at the time of the design and approval of the first operation in the second series (PDPG4-6). This unlocked the dialogue on TALCO as the entity consuming 40 percent of energy produced in the country at privileged tariffs and its deepening to the issues of TALCO’s relations with BT and with the budget and, in general, to fiscal implications of SOEs and SOEs governance in Tajikistan. 69. An action plan to implement the recommendation of energy audit of TALCO is under implementation. The government expressed its commitment to implement recommendations of the energy audit through adopting a time-bound action plan by end-2012 in the LDP. Albeit with delay, the Resolution approving the Action Plan for 2013-2018 was approved on January 31, 2013. The Action Plan is being under the implementation, the initial report was shared with the Bank in October 2013 and the revised report was received by the Bank at end-January 2014 and is being reviewed by the energy team. 3.3 Justification of Overall Outcome Rating Rating: Satisfactory 70. The PDOs set at the time of approval of the first operation in the series, still remain highly relevant. The overall PDPG4-6 series achieved satisfactory progress in the areas targeted. The program was largely implemented as planned and the foreseen program outcomes were 6 Quasi fiscal deficit in power sector is defined as imbalances between revenues and expenditures of the sector due to below cost-recovery tariffs, high transmission and distribution losses and poor collections of billed energy. 7 http://minfin.tj/index.php?do=static&page=bua. 24 achieved. High relevance and satisfactory achievement of objectives justifies the overall outcome rating of satisfactory for the operation. 3.4 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development 71. The series are expected to have positive poverty, gender and social impact. However, lack of up to date poverty data – the latest TLSS data available are of 2009 – does not allow providing any quantitative estimates of such impacts and, thus, substantiate the qualitative assessment below. 72. A key objective of the PDPG series was to protect delivery of basic services (health, education, and social protection) and support implementation of reforms designed to ensure more equitable resource allocation across regions. Introduction of partial capitation in PHC and greater emphasis on maternal and child care have had a positive equity and gender impacts. The social assistance pilot supported by the series has helped the government design and eventually scale-up an improved social assistance program nationwide. 73. Other program-supported measures were also expected to have pro-poor impacts. According to official statistics, agriculture still accounts for about half of total employment. Strengthening farmers’ rights to land and improving access to inputs has led to greater agricultural profitability, reduced production risk, and lower rural poverty. Promoting greater freedom to farm and choice of which crops to grow has had both positive gender and poverty reduction impacts. The new PPP law is expected to help spurring private investment and growth. 74. More reliable energy services have helped promote growth—essential for poverty reduction. Improved billing and collection in the energy has helped establish a more equitable system, with electricity tariffs in Tajikistan continuing to be quite low in relation to other comparator countries. An improved incentive framework for service providers was expected to have a positive impact on public service delivery. Citizen satisfaction with service delivery in Tajikistan, though low compared to other ECA countries, has improved in recent years. 75. An important objective of the program was to strengthen national monitoring systems to track poverty and human development outcomes. With the support of a multi-year trust fund financed by DFID, the World Bank has substantially increased technical assistance provided to the government. The World Bank poverty team is being working with the national statistical agency on the update and improvement of poverty methodology. The proposed Household Budget Survey (HBS) poverty monitoring methodology will represent a historical break in the poverty series, and no distributional analysis on the change of poverty will be possible given this change. The preliminary calculations suggest that poverty in 2012/3 was approximately 36 percent using a revised national poverty line. Although not directly comparable with the previous methodology, simulations do support that the period between 2009 and 20012/3 also showed a continuous monetary poverty reduction. (b) Institutional Change/Strengthening 76. Technical assistance activities under the umbrella of PDPG series have had a substantial impact on institutional development. PDPG4-6 supported several reforms aimed at institutional strengthening across the three operations and the three policy areas. The Bank (including IFC) has provided technical assistance in key areas, such as social protection, financial 25 sector, public finance management, private sector development (see also Annex 5). In addition, several Bank investment projects or donor supported programs are helping with institutional capacity in policy areas, covered by the series. Furthermore, the PDPG series have contributed to the institutional strengthening through offering an organizing framework for coordination among various Ministries and agencies involved in the reform agenda. (c) Other Unintended Outcomes and Impacts 77. PDPG4-6 provided continuity by supporting relevant and necessary structural reforms. The series supported the quick recovery after the crisis through financial support and technical assistance. PDPG4-6 laid the groundwork for the next DPO program and further Bank and IFC interventions in selected areas. 3.5 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops Not applicable. 4. Assessment of Risk to Development Outcome Rating: Substantial Actual Risks Description, incl. risk mitigation measures Risk rating Macro Major external risks stem from high dependence on remittances and imports, narrow H economic export base and low external and fiscal buffers (foreign currency reserves amount to only risks 1.5 months of imports of goods and services). Domestic policy risks stem from quasi- fiscal activities of state-owned enterprises and public financial institutions. The macroeconomic and structural policy dialogue under the PDPG 4-6 and other World Bank activities was aimed at reducing these risks, but progress has been uneven to date with some signs of reversals being observed (especially related to the directed lending via commercial banks). Government The Government commitment to the overall reform agenda is uneven and inconsistent. M commitment Although reforms are continued, the overall pace of reforms has slowed in part as a result to the overall of the global economic and financial crisis. Moreover, after “the low hanging fruits” have reform been picked up, further reforms need to be anchored into a stronger political consensus agenda and governance framework that is yet to be fully built. The WTO accession and post- accession adjustment could potentially provide such an anchor. Government Tajikistan remains among the least reformed transition economies with substantial M capacity to outstanding reform agenda and relatively low government capacity. However, intensive implement investments by the Bank and other development partners in capacity and institutional reforms building and, importantly, better coordination in the assistance provided have been helping to overcome these constraints. Sustainability of reforms in PDPG4-6 policy areas Policy area 1 The reforms supported by the PDPG4-6 are not likely to be reversed. Bank and other L development partners continue to assist the government in developing the capacity it needs to maintain and build on the achievements. Policy area 2 The government committed to the further reforms to improve the environment for private S sector development, including in agriculture. However, financial sector weaknesses and continued recourse to directed lending undermines progress in this area. As the reform progress is too dependent from vested interests, the risk of sustained progress is high. On the upside, implementation of commitments under the WTO could provide an anchor for many reforms aimed at improvement of investment climate and competitiveness of Tajikistan economy. Policy area 3 The risk to public sector and public financial management reforms is moderate as they are S anchored in the government’s strategy till 2018 and supported by the continued assistance 26 Actual Risks Description, incl. risk mitigation measures Risk rating by the Bank and other development partners. In the field of enhancing transparency of energy state-owned enterprises, the counter pressures for reform remain high and the progress is likely to remain slow. Continuous strong political commitment and support from development partners (incl. through policy-based financing) will be required to maintain the gains and ensure the further progress. H- high, S- substantial, M- moderate. 5. Assessment of Bank and Borrower Performance 5.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: Satisfactory 78. The Bank’s performance in ensuring quality at entry was satisfactory and was aided by several factors. These included the lessons learned from the previous series, strong analytical underpinnings, continuous policy dialogue and technical assistance. The work was also well coordinated within the World Bank Group’s (including IFC) multi-sectoral team, with the IMF and other development partners. The Bank team managed to flexibly adjust the program to changing government priorities and constraints without compromising the program development objectives and deliver the series in a timely manner. (b) Quality of Supervision Rating: Satisfactory 79. Supervision was embedded in the preparation of each operation of the programmatic series, which was approved based on the fulfillment of all prior actions. The groundwork for each of the subsequent operation entailed continuous dialogue with policy-makers and technical staff on progress towards agreed triggers. The dialogue with the government was supported by technical assistance activities directly or indirectly supported by PDPG series. The team also regularly discussed aspects of the reform program with other development partners to ensure that all are working towards a common goal. (c) Justification of Rating for Overall Bank Performance Rating: Satisfactory 80. The Bank’s overall performance was satisfactory. The Bank responded to the government’s request to support its two-pronged strategy to mitigate the impact of the global crisis and to pave the way for post-crisis recovery and sustained growth and poverty reduction by the new programmatic development operation. The Bank maintained a close dialogue with authorities and development partners throughout the nearly three years of implementation. 5.2 Borrower Performance (a) Government Performance Rating: Moderately Satisfactory 27 81. The government performance was moderately satisfactory. The government’s commitment to the overall reform program as laid out in the policy matrix for PDPG4-6 was strong but uneven across the reform areas, which caused delays in implementation of some triggers and subsequent modification of the prior actions (e.g. public sector reform, transparency of energy utilities). However, all prior actions for each operation had been met by the time of appraisal. Government’s performance is rated less than satisfactory because of slippages in the implementation of two important measures spelled out in the LDP for PDPG6 related to: (i) issuance of a resolution adopting a time-bound plan to implement recommendations of an energy efficiency audit of TALCO, and (ii) finding a credible, equitable, and lasting solution for the AIB. These slippages, especially the latter, caused delay in the declaration of the grant effectiveness. While the first measure was completed, the second remains still to be done after the initial first steps during December 2012-February 2013 with the support from the ongoing financial sector dialogue. (b) Implementing Agency or Agencies Performance Rating: Satisfactory 82. The Ministry of Finance was also responsible for the overall implementation of the series and for coordinating actions among other concerned ministries, agencies and departments. An additional help was provided by the State Advisor to the President for Economic Policy. The Executive Office of the President took responsibility for implementing the public sector reforms, while other agencies and line ministries involved (NBT, agriculture, energy, transportation, health, education and labor) were accountable for implementing the reforms under their responsibility. The State Committee for Investments and Property management was responsible for overseeing policy actions related to streamlining business regulations. Top officials of the Ministry of Finance and of the Executive Office of the President generally provided the required leadership to motivate and guide the sector ministries and agencies in designing and implementing reforms. (c) Justification of Rating for Overall Borrower Performance Rating: Moderately Satisfactory 83. The overall performance of the borrower was moderately satisfactory. The borrower demonstrated its commitment to the program from the identification to the completion of the policy actions. It facilitated the adoption of key policies, legislation and regulations, and promoted their implementation. However, the government failed to achieve any meaningful progress in respect to the AIB resolution to date, as committed to in the LDP. 6. Lessons Learned 84. DPO is an important instrument to facilitate dialogue on structural reforms in combination with macro advice, technical assistance, and investments provided by complementary sector specific operations. DPOs in Tajikistan support a broad reform agenda, reinforcing and complementing investment operations and TA activities. Moreover, DPOs have facilitated the creation of a platform for various parts of the Government to talk and to coordinate with each other, which is being critical for building consensus on the reform agenda and its’ implementation. However, realism is required of what can be accomplished within the large agenda in a relatively short period of time. The most progress was achieved in the areas where there was a consensus on the need of the reform, either built during the previous budget support series or in the process of on-going policy dialogue, analytical work and technical assistance (e.g. 28 reforms of social sectors financing mechanisms, agricultural institutions, public finance management). In other reform areas (e.g. strengthening government capacity, improving transparency of SOEs and building financial institutions) achieving meaningful results takes time and continued dialogue and capacity-building efforts. Future DPO operations should be more focused and avoid duplication of specific agreements achieved under investment operations and related supervision and TA. This will help to avoid overloading of DPO agenda and to concentrate on areas, where the benefits of complementarity are the largest. 85. Providing continuous support for implementation of the reform agenda is essential in an environment of low government capacity. Passage of legislation and adoption of strategies are just first steps that, unless followed upon through support for implementation and monitoring, may not be pursued by the government and will have little impact in Tajikistan. For example, the development and adoption of the Law on Permits was an integral part of PDPG5, but there is still a big outstanding agenda on implementation, and the IFC’s technical assistance supports the implementation of the Law. Similarly, the Law on Chamber of Accounts was submitted to the Parliament under the PDPG5, PDPG6 supported concrete steps towards making the Chamber of Accounts operational and yet, further follow-up and technical assistance is required to sustain this difficult reform. 86. Ensuring availability of information on a regular basis is important for monitoring progress towards the program objectives. Reliance on surveys with periodicity of three years or more (e.g. BEEPS) creates problem of tracking the progress towards the targeted outcomes and take corrective actions as needed. Ideally, the indicators should be available through the public domain (i.e. websites of National Statistical Agency, Ministry of Finance, Central Bank and other government agencies). As this is not possible in case of Tajikistan (and, likely in case of most low income countries), the list of clearly defined indicators (including information required for monitoring of the adequacy of the macro-framework) with the frequency of their reporting should be agreed with the Borrower as a part of the negotiation package for each operation. 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/Implementing agencies The Borrower contribution to and comments on the draft of the ICR are provided in Annex 6. (b) Cofinanciers (c) Other partners and stakeholders (e.g. NGOs/private sector/civil society) 29 Annex 1: Bank Lending and Implementation Support/Supervision Processes (a) Task Team members P117692 - Tajikistan PDPG4 Responsibility/ Names Title Unit Specialty Lending Private sector Andrea Mario Dall'Olio Lead Economist AFTFE development Bobojon Yatimov Sr. Rural Development Specialist ECSAR Agriculture Financial sector Brett Coleman Sr Financial Sector Spec. ECSF1 development Senior Private Sector Development Private sector Hannah R. Messerli AFTFE Specialist development Public sector Hassan Aliev Public Sector Specialist ECSP4 reform Jessica Mott Land reform Financial John Otieno Ogallo Sr Financial Management Specialist ECSO3 management Julyan Watts Consultant ECSPE External Audit Kenneth K. Mwenda Program Manager HRDVA Lawyer Menahem Prywes Senior Economist ECSH3 Social protection Pia Helen Schneider Lead Evaluation Officer IEGPS Health Senior Operations Officer Operations Saodat Bazarova ECSH2 Education Officer Macroeconomic Shuhrat Mirzoev Consultant ECSP4 dialogue Sodiyk Khaitov Consultant ECSPE Energy Task Team Sudharshan Canagarajah Operations Adviser AFTDE Leader Sudhee Sen Gupta Consultant ECSPE Aviation sector Public sector Svetlana Proskurovska Senior Public Sector Specialist LCSPS reform Takhmina Jumaeva Program Assistant MEGES Macroeconomic Utkir Umarov Results Measurement Specialist CDIAS dialogue Program design Wendy S. Ayres Consultant AFTU1 and M&E Private sector Wendy Werner Manager CEAIC development Zakia Nekaien-Nowrouz Program Assistant ECSP1 Supervision Sudharshan Canagarah Operations Adviser AFTDE Task team leader Macroeconomic Utkir Umarov Results Measurement Specialist CDIAS dialogue Program design Wendy S. Ayres Consultant AFTU1 and M&E 30 P120445 - Tajikistan PDPG5 Responsibility/ Names Title Unit Specialty Lending Private sector Andrea Mario Dall'Olio Lead Economist AFTFE development Bobojon Yatimov Sr. Rural Development Specialist ECSAR Agriculture Financial sector Brett Coleman Sr Financial Sector Spec. ECSF1 development Private sector Christopher David Miller Operations Officer CEUIC development Public sector Clelia Rontoyanni Special Assistant to Vice President ECAVP reform Senior Private Sector Development Private sector Hannah R. Messerli AFTFE Specialist development Public sector Hassan Aliev Public Sector Specialist ECSP4 reform Imtiaz Hizkil Sr. Power Engineer ECSEG Energy Jessica Mott Land reform Financial John Otieno Ogallo Sr Financial Management Specialist ECSO3 management Joost de Laat Program Manager HDNCE Social protection Menahem Prywes Senior Economist ECSH3 Social protection Pia Helen Schneider Lead Evaluation Officer IEGPS M&E Nicolas Ahouissoussi Sr. Agriculture Economist ECSSD Agriculture Peter Goodman Sr. Agriculture Specialist ECSAR Agriculture Private sector Raha Shahidsaless Private Sector Development Specialist LCSPF development Salman Zaidi Lead Economist SASEP Task team leader Senior Operations Officer Operations Saodat Bazarova ECSH2 Education Officer Sarvinoz Barfieva Consultant ECSH1 Health Sunil Kumar Khosla Lead Energy Specialist ECSEG Energy Public sector Svetlana Proskurovska Senior Public Sector Specialist LCSPS reform Takhmina Jumaeva Program Assistant MEGES Debt Tihomir Stucka Sr. Economist CFPIR sustainability Private sector Wendy Werner Manager CEAIC development Wezi Msisha Sr. Health Specialist ECSHD Health Yuling Zhou Lead Procurement Specialist EASR2 Procurement Zakia Nekaien-Nowrouz Program Assistant ECSP1 Macroeconomic Zuhro Qurbonova Consultant ECSP1 dialogue 31 Supervision Salman Zaidi Lead Economist SASEP Task team leader Macroeconomic Zuhro Qurbonova Consultant ECSP1 dialogue P126042 - Tajikistan PDPG6 Responsibility/ Names Title Unit Specialty Lending Alisher Rajabov Economist, Poverty ECSP3 Poverty Antonio Giuffrida Sr. Economist, Health ECSH1 Health Bobojon Yatimov Sr. Rural Development Specialist ECSAR Agriculture Financial sector Brett Coleman Sr. Financial Sector Spec. ECSF1 development Private sector Christopher David Miller Operations Officer CEUIC development Dilshod Karimova Procurement Analyst ECSO2 Procurement Faridun Sanginov Consultant ECSUW Farzona Mukhitdinova Operations Analyst ECSAR Agriculture Public sector Hassan Aliev Public Sector Specialist ECSP4 reform Imtiaz Hizkil Sr. Power Engineer ECSEG Energy Jessica Mott Land reform Financial John Otieno Ogallo Sr. Financial Management Specialist ECSO3 management Private sector Karen Grigorian Sr. Operations Officer OPSRE development Private sector Madina Nurmatova Operations Officer CEUIC development Malcolm Childress Sr. Land Administration Specialist ECSEN Agriculture Poverty and Maria Davalos Economist ECSP3 gender Task team leader Marina Bakanova Sr. Country Economist ECSP1 (from December 2013) Overall supervision and Marsha McGraw Olive Country Manager ECCTJ dialogue with top authorities Menahem Prywes Senior Economist ECSH3 Social Protection Nagaraju Duthaluri Lead Procurement Specialist ECSO2 Procurement Private sector Raha Shahidsaless Private Sector Development Specialist LCSPF development Task team leader Salman Zaidi Lead Economist SASEP (before December 2013) Saodat Bazarova Senior Operations Officer Operations ECSH2 Education 32 Officer Sarvinoz Barfieva Consultant ECSH1 Health Financial Shodi Nazarov Financial Management Analyst ECSO3 management Sunil Kumar Khosla Lead Energy Specialist ECSEG Energy Takhmina Jumaeva Program Assistant MEGES Tojinisso Khomidova Program Assistant ECCTJ Victor Sulla Sr. Economist AFTP1 Poverty Wezi Marianne Msisha Senior Health Specialist ECSH1 Health Zakia Nekaien-Nowrouz Program Assistant ECSP1 Macroeconomic Zuhro Qurbonova Consultant ECSP1 dialogue Supervision Task team leader Salman Zaidi Lead Economist SASEP (before December 2013) Task team leader Marina Bakanova Sr. Country Economist ECSP1 (from December 2013) Macroeconomic Zuhro Qurbonova Consultant ECSP1 dialogue (b) Staff Time and Cost P117692 - Tajikistan PDPG4 Staff Time and Cost (Bank Budget Only) Stage USD Thousands (including No. of staff weeks travel and consultant costs) Lending 35.47 169,583.15 Supervision 00 00 Total: 35.47 169,583.15 P120445 - Tajikistan PDPG5 Staff Time and Cost (Bank Budget Only) Stage USD Thousands (including No. of staff weeks travel and consultant costs) Lending 35.71 102,922.71 Supervision 8.47 44,966.78 Total: 44.18 147,889.47 P126042 - Tajikistan PDPG6 Staff Time and Cost (Bank Budget Only) Stage USD Thousands (including No. of staff weeks travel and consultant costs) Lending 72.20 164,034.73 Supervision 6.65 17,007.65 Total: 78.85 181,042.38 33 Annex 2: List of Supporting Documents 1. Program Documents: Report No. 50251-TJ, Report No.59123-TJ, Report No.72812-TJ. 2. Country Partnership Strategy for the Republic of Tajikistan, FY10-13, Report No.50759- TJ. 3. Progress Report on the Country Partnership Strategy for the Republic of Tajikistan, FY10-13, Report No. 72959-TJ. 4. Implementation Completion and Results Report on PDPG1-3. 5. Implementation Status and Results Reports for PDPG4, PDPG5 and PDPG6. 6. Aide Memoires and back-to-office reports from PDPG4-6 missions. 7. Tajikistan: Policy Notes on Public Expenditures, Report No.77607-TJ. 8. Tajikistan: Public Expenditure and Financial Accountability Assessment (PEFA), 2012. 9. Implementation Completion and Results Report on Tajikistan Cotton Recovery Project. 10. Implementation Completion and Results Report on Tajikistan Public Sector Reform Project. 11. IMF Republic of Tajikistan: Sixth Review under the Three-Year Arrangement Under the Extended Credit Facility, IMF Country Report No. 12/110, May 2012. 34 Annex 3: PDPG 4-6 original design and implementation. Table A3.1: Schematic Illustration of Tajikistan’s PDPG Series PDPG4 PDPG5 PDPG6 Protecting delivery of basic services within a sustainable fiscal framework Health 1 1 1 Education 1 1 Social Protection 1 1 Improving the environment for private sector development Streamlining business regulations 1 1 1 Reforming agricultural institutions 2 1 1 Strengthening the financial sector 1 1 Modernizing aviation services 1 Strengthening government effectiveness Strengthening capacity of government institutions 1 2 Promoting transparent public financial management 1 2 Enhancing transparency of energy state-owned enterprises 1 2 Total Prior Actions 8 9 9 Source: PDPG4-6 program documents. Table A3.2: Changes in PDPG5 Prior Actions Envisaged Earlier Under PDPG4 PDPG5 Prior Action Reason for change Comments Original design (indicative Submission of draft law on “Anti- Preparation of AML/CFT law has trigger): The government (i) Money Laundering and Countering been one of the key submits revised deposit insurance Financing of Terrorism” added as a recommendations of 2008 FSAP law to Parliament, and (ii) issues new prior action to PDPG5. and an integral part of the Action and enforces a regulation on a Remedial action framework moved Plan to Implement FSAP process for a prompt remedial to PDPG6; as per the findings of recommendations. The IMF action framework for commercial the vulnerability assessment included in its program banks. recently carried out by the World complementary actions to submit a Prior action: The government Bank, several more months work is revised legal framework for bank submits (i) revised deposit needed to complete this task. insolvency to Parliament and insurance law, and (ii) law on require banks to submit action plans “Anti-Money Laundering and to NBT explaining how they will Countering Financing of restore their financial health. terrorism” to Parliament. Original design (indicative Good progress achieved at The modification reflected the trigger): Barki Tajik and Tajiktransgas. However, while slower than expected path of the Tajiktransgas complete the Barki Tajik has introduced IFRS at implementation of these reforms. implementation of the (FMIP) headquarters and in some regional (including migration to IFRS) in offices, FMIP implementation has line with the agreement specified been slower than earlier envisaged. in the Energy Loss Reduction Barki Tajik has agreed on an action Project (ELRP) and the January plan for completion of FMIP 2006 memorandum of implementation before end-2011. understanding. The target for PDPG6 remains Prior action: Barki Tajik and unchanged, namely that Barki Tajik Tajiktransgas adopt action plans and Tajiktransgas publish financial for completing by December 2011 reports in compliance with IFRS implementation of FMIP and audited in accordance with (including migration to IFRS) in ISA. line with the agreement specified in the ELRP and the January 2006 memorandum of understanding. 35 Original design (indicative Compared to what was envisaged The adjustment was made to trigger): The government earlier, considerable additional realistically reflect capacity approves chart of accounts for work is entailed in approval and constraints and provide enough time public institutions. implementation of the Unified for proper training and Chart of Accounts (UCOA), implementation of related reforms Moved to PDPG6 including integration with (i.e. Treasury modernization). Government Finance Statistics (GFS) 2001, introducing UCOA into an automated treasury system for budget implementation, and training of about 6,000 accountants to use the UCOA. Govt. approval of UCOA is still expected to take place before PDPG6 approval though use of the UCOA for budget though use of the UCOA for budget execution and reporting will not take place until 2013. Original design (indicative Aviation sector was an important Furthermore, as the number of prior trigger): Government issues a focus area for PDPG1-3 to actions is limited, and as government order, satisfactory to restructure aviation for greater improvements in public finance IDA, assigning technical transparency and accountability, as management and transparency of regulation function to an well as for increasing air-transport energy SOEs became increasingly autonomous body, independent access for passengers and cargo in a critical areas for growth, to get from any form of policy making land-locked country, and was more leverage on the on-going influence, and assigning the retained in PDPG4-6 mainly for the dialogue under the AAA and functions of investigation of new aviation sector policy which projects, the decision was taken that accident and incidents to a new was envisaged under the earlier critical reforms in this area need to body with complete independence series but implemented under be supported by the PDPG. from the technical regulator or the PDPG4. Further improvements in Ministry of Transport and the sector will require investments Communications. for impact and thus no further prior actions are envisaged in PDPG5 Dropped and PDPG6. Source: Adapted from PDPG5 program document. 36 Table A3.3: Changes in PDPG6 Prior Actions Envisioned under PDPG5 PDPG6 Prior Action Reason for change Comments Indicative trigger: The government Delayed approval of the technical All these three actions have been (i) prepares an improved prompt assistance needed to implement completed with the support by the remedial action framework for these actions by the Financial FIRST and the follow up assistance banks; (ii) prepares a contingency Reform and Strengthening is being provided under the on-going planning framework, and (iii) Initiative (FIRST). World Bank TA and project. strengthens the legal and institutional environment for secured transactions. Moved to the next DPO series Indicative trigger: The government Customs code amendments The amendments to the Customs submits to Parliament (i) a public- submitted to Parliament earlier Code to simplify trade procedures private-partnership law, (ii) this year (fulfilling the envisaged had been passed by the parliament in amendments to the Customs Code to prior action), but proposal was December 2012. Parliament to simplify trade returned to govt. for modification. procedures. Government is committed to Prior action: The government resubmit amendments to simplify submits to Parliament a public- trade procedures as per World private-partnership law. Bank recommendations. Indicative trigger: The government Revised formulation makes more This is the example of a streamlined implements the action plan aimed at explicit what is intended when and sharpened formulation to avoid making fully functional an stating that the government should misinterpretation and make sure that independent external audit body. make the external audit body the external audit body became Prior action: The government (i) “fully functional”. operational. passes a Presidential Decree approving the staffing of the Accounts Chamber, (ii) appoints its core personnel (Chairman, Deputy Chairman), and (iii) secures premises for the institution. Indicative trigger: Barki Tajik and BT and TTG have completed Reformulations: Tajiktransgas (i) complete FMIP about three-quarters of FMIP In (i) - to accommodate additional implementation, and publish completion work, and in particular time needed for full completion of financial reports prepared in have completed the important the initially formulated indicative compliance with IFRS and audited in transition of preparing IFRS- trigger while assuring that the accordance with International compliant financial statements. process is fully on track and is being Standards on Audit, and (ii) improve Remaining work, which includes supported by the adequate TA; collection of billed energy. fixed asset valuation, improved In (ii) – to sharpen the formulation Prior action: Barki Tajik and revenue management, and by inclusion of the way to improve Tajiktransgas (i) substantially automation of accounts in collection of billed energy. complete FMIP implementation, and remaining 6 offices is expected to publish 2010 financial reports be completed by end-2012. BT has prepared in compliance with IFRS completed the audit of its 2011 and audited in accordance with financial statement prepared in International Standards on Audit, and compliance with IFRS.A new (ii) commission a billing system to billing system has been installed, improve collection of billed energy. and data from the old billing system is being transferred to it. Source: Adapted from PDPG6 program document. 37 Annex 4: Agroinvestbank: addressing issues emerging at the end of program implementation The practice of directed lending has contributed to the deterioration of the loan portfolio of the largest commercial bank (Agroinvestbank – AIB), which was effectively driven into bankruptcy and was bail out at a cost of 2 percent of GDP in 2012. As the problem emerged, the Bank and the IMF intensified the dialogue with the authorities and provided additional technical assistance to sort through restructuring options, while seeking to maintain the soundness of the rest of financial system. As the discussions and technical assistance had been still on-going during the time of the preparation and appraisal of the last operation in the series, an inclusion of any prior actions in the program was deemed as a premature. To get a traction the team agreed with the authorities that their commitments to halt directed lending and find a credible, equitable, and lasting solution for the AIB will be reflected in the Letter of Development Policy for PDPG6 and that the Bank will continue providing technical assistance as needed in this area. The draft action plan for the AIB resolution was presented to the Bank in December 2012 but was not accepted by the Bank as a satisfactory. The Bank team continued consultations with the authorities and took a dual track approach, allowing to declare the grant effective (first track) and remain engaged in a constructive way on the structural issue of banking insolvency and its implications for development outcomes (second track). The Bank was holding back the declaration of effectiveness of the PDPG6 before the receipt of evidences of move from intentions to some concrete actions, such as appointment of government representative to the AIB board, creation of a loan workout unit to collect bad loans, and, preparation of a collection schedule for the bad loans. Once the evidences were provided about initial actions, the Bank agreed to disburse the grant (first track) but urged the Government to move more decisively in the AIB resolution, and, continued the dialogue through the technical assistance (second track). The Bank made it clear that sizable progress in the AIB resolution would be a pre-requisite for a formal discussion about new budget support series and that the directed lending should be ceased immediately. 38 Annex 5: Examples of AAA PDPG-Supported Policy ESW or TA Area Programmatic Public Expenditure Protecting delivery of basic Delivery of Social Services to the Poorest Households. services within a Feasibility Study for Results-Based Financing in the Health Sector. sustainable fiscal Assessment of Multi-sectoral Constraints to Child Health. framework Ongoing Health, Education, and Social Protection Policy Dialogue. Country Economic Memorandum. Improving the environment Assessment of Implementation of Inspections and Licensing Reforms. for private sector Banking Sector Vulnerability Assessment development Doing Business Reforms Technical Assistance and PSD Dialogue. IFC Investment Climate Advisory Services Ongoing Macro-Economic Monitoring, Agriculture, & Financial Sector Policy Dialogue. Institutional and Governance Review. Strengthening government Policy Note on Medium-Term Pay Reform in Public Sector. effectiveness Public Expenditure and Financial Accountability Assessment. Ongoing Public Sector Reform and Energy Sector Policy Dialogue. 39 Annex 6: Summary of Borrower's ICR and/or Comments on Draft ICR “6th”of December, 2013 To: Marsha M. Olive Country Manager World Bank Tajikistan Country Office Republic of Tajikistan Dear Ms. Marsha Olive, The Ministry of Finance of RT expresses its gratitude to you for continuous assistance and support provided in structured reforms in the Republic of Tajikistan. In response to your letter, dated on 31st of October 2013, concerning assistance in the preparation of Progress Report and results of Programmatic Development Policy Grant (PDPG 4-6) Program, we present information about the implementation of this grant (attached). The Ministry of Finance of the Republic of Tajikistan would like to avail itself of the opportunity to extend to the World Bank renewed assurances of its highest consideration. Sincerely, _________________________ Mr. Abdusalom Kurbanov Minister of Finance of the Republic of Tajikistan 40 Annex 1. Summary of the results 1. Programmatic Development Policy Grant (PDPG) Program implementation (4-6) In the framework of Country Assistance Strategy (CAS) of the World Bank to Tajikistan, the Government of RT has closely cooperated with the World Bank to implement reforms in the context of Programmatic Development Policy Grant (PDPG) Program. A series of three PDPG Programs (4-6) supported two-pronged strategy of the Government of the Republic of Tajikistan to mitigate the impact of the global crisis in 2009 and to establish the ground for post-crisis recovery and sustainable economic growth and poverty reduction. The Government of RT was committed to reforms, agreed under PDPG, which was confirmed by successful implementation of activities of all three tranches of the program. The Government of the Republic of Tajikistan agrees with the World Bank and believes that all tasks, set forth in PDPG 4-6, have been fulfilled. As a result, significant results have been achieved as described below. Thus, significant results have been achieved, as described below. 2. The main results of the reforms Activities of the Government of Tajikistan, supported by the Programmatic grant 4-6, were aimed at: (i) ensuring the provision of services within the sustainable fiscal framework; (ii) improving the environment for private sector development; (iii) strengthening effective governance. Actions under the first section were directed at supporting or increasing budgetary allocations for health, education and social protection, and the implementation of reforms in the area of per capita financing in education and health sectors. Actions under the second section included a reduction in issuing permits and adoption of the law providing permits reduction, introduction of a new law governing public-private partnerships, strengthening the financial sector through the implementation of priority recommendations of financial sector assessment programs, adopting a policy of market liberalization for air transportation sector , as well as accelerated issuance of land use certificates for farmers aimed at strengthening property rights and increasing investments in agricultural development. Actions under the third section, included support for increasing effectiveness of public finance management by creating a supreme audit institution and implementation of plans for the improvement of financial management in Barki Tojik and Tajiktransgas, implementation of the new tariff system and the law on public administration . Ensuring the provision of services based on the sustainable fiscal framework It should be noted that the Government of RT Plan on fiscal management, against the background of demonetization of TJS and increase of the support from development partners, have contributed to mitigation of the consequences of crisis. Within the framework of fiscal management plan, approved in response to the crisis, the Government of the Republic of Tajikistan revised the state budget for 2009, taking into account the lack of funds. The Government of RT increased public spending for social sector (education, health and social protection) and expanded employment opportunities through the implementation of such social programs as paid public works and measures to promote entrepreneurship. As for the social spending, in 2010 and 2012 the structure of budget allocations for health, education and social protection was similar to 2009 spending in relation to the total spending. The first step in the reform was made by the Government to launch pilot program on allocation of single direct welfare benefits to 20% of the poorest households in January 2011. Comprehensive evaluation showed that the above mentioned pilot project proved to be more 41 successful than the regular government social assistance programs. Based on the foregoing, the Republic of Tajikistan Government Resolution № 661, dated on November 20, 2012, “On the extension of pilot implementation of targeted social assistance to needy families and individuals” and from 1st of January 2013 to 31st of December 2014, the Government of RT expanded the scope of the pilot project from 2 to 10 districts. Education - Based on the Republic of Tajikistan Government Resolution, as of November 1, 2007, # 505, phased introduction of per capita financing of schools across the country was completed in 2010; EMIS -2 design was considered and recommendations were adopted; National Testing Center piloted the general university entrance exams and evaluation was standardized; also a curriculum for life skills training for migrant workers was developed. Based on the ability of the State budget spending in the education sector increases annually, in 2010 allocations for this purpose amounted to 1068, 3 million Somoni, 4.4% of GDP and 15.8 % of the total State budget, in 2011 – 1363, 3 million Somoni or 4.5% of GDP and 15.9 % of total State Budget and in 2012 – 1607, 8 million Somoni or 4.5% of GDP and 15.5 % of the total State Budget for 2012. In the current year wages of workers of preschool and general education level increased by 30% and other education personnel by 20% from September 1, 2013, according to № 1493 Decree of the President of the Republic of Tajikistan, dated on 14th of August, 2013. The Ministry of Education of the Republic of Tajikistan has a chance, within this increase, to reform remuneration of education sector personnel. Healthcare – based on Presidential Decree # 536, as of November 2, 2012, a basis has been provided for the introduction of per capita financing formula during the allocation of budgetary resources for primary health care. According to the Republic of Tajikistan Government Resolution “On approving Health Care Sector Financing Strategy of the Republic of Tajikistan for 2005-2015”, № 171, as of May 10, 2005, # 237/49 Regulation “On piloting per capita financing in primary health care facilities, including all line items of expenditures” was adopted, at the level of primary health care facilities, jointly by the Ministry of Health of the Republic of Tajikistan and the Ministry of Finance of the Republic of Tajikistan on April 25, 2013, which was introduced in Sughd Oblast on 1st of July 2013. Per capita funding in primary health care was introduced in 42 districts and 2 Oblasts, with the exception of protected line items and 302 doctors and 923 health workers were trained in family medicine. “State guarantees program on health care service provision to population in the pilot areas of the Republic of Tajikistan” was approved based on the Republic of Tajikistan Government Resolution № 579, as of December 3, 2011. Health sector rationalization strategy was approved for 2010-2020, which aims at improving the quality, equal access and efficiency of health care system, in particular, an increase in public funding for primary health care. Improving the environment for private sector development Creating a more favorable investment climate and private sector development is a priority for the country's development. In some areas a considerable progress was made - implementation of major reforms in agriculture and the ongoing efforts to rebuild and modernize energy and transport infrastructure should be noted. Tajikistan took active measures to promote private sector. For example, since 2008 Government has simplified the procedure for starting a business by abolishing unnecessary procedures, reducing the requirements for minimum capital and creating a single point for business registration. In addition, in the area of licensing and construction, the Republic of 42 Tajikistan Government adopted a series of amendments to simplify the procedure for issuing licenses for the construction, and also introduced a legislation that foresees the establishment of a “single window” for construction companies. The rate of income tax for legal entities was reduced from 25% to 15 %, the cost and number of procedures, required to start a business and obtain permit for construction, were significantly reduced. The Government has reduced the list of permits and passed a law that provides a reduction of this list. As a result of amendments to the Law “On the registration of business”, the number procedures and days, required to start a business, has been reduced from 13 to 5 days, and from 62 to 24 days, respectively; the number of procedures, required to obtain construction permit has been reduced from 32 to 26 days, and also a system of companies registration through the single window was introduced. The number of entrepreneurial permits has been reduced from 609 to 85. The Customs Code was amended with the purpose to reduce the number of documents, required for trade operations. New laws to protect the rights of investors, including the Law on investment agreements, have been adopted. In addition, the new Tax Code reduced the time and the tax burden for small and medium enterprises. The new Tax Code was prepared with assistance from the International Monetary Fund and the World Bank Group. The key changes are: the abolition of the retail sales tax, road users tax phasing out by 2017; and increasing VAT minimum registration amount and bringing it in line with the upper threshold for the simplified taxation system; the introduction of a single declaration on income tax and social tax, as well as simplification of tax procedures and reporting, for example, shift from monthly to quarterly reports concerning certain types of taxes. Tajikistan became the second state in Central Asia that received a pass to the WTO (after Kyrgyzstan that joined the WTO in 1998). Moreover, the Government of RT, in collaboration with the World Bank Group, has begun work on the reform of the mining sector; the Board of the International Extractive Industries Transparency Initiative (EITI) approved application of Tajikistan and gave country EITI candidate status at the meeting in Oslo in February 2013. With the support of IFC and the World Bank, the Government of Tajikistan has developed a new law on “Public-Private Partnership”, which was adopted in early 2013 and is designed to stimulate the flow of investment in infrastructure and social services. As a result of these reforms, Tajikistan steadily improves its position in the ranking of the World Bank “Doing Business” Reports, and for the past five years, it was among the top ten countries, more than once that have achieved the best results in improving the business environment. In addition to the aforementioned WTO accession, on November 12, 2012 Tajikistan became the 147th member of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, known as the “New York Convention”. Accession of Tajikistan to the New York Convention was a priority issue for foreign investors. In agriculture, farmers' debts have been written off in the cotton sector, farmers were given more than sixty seven thousand (67,000) land certificates in accordance with agreed standards and objectives, set forth in the Decree № 374, as of July 2, 2012 and the Government of RT Resolution “On reform program in agriculture of the Republic of Tajikistan for 2010-2012”, № 383, as of 1st of August 2012, was issued. Changes in laws and regulations related to the operation of the central bank, banking sector, deposit insurance and bank liquidation were made in accordance with the Action Plan in the financial sector. In addition a number of amendments were made to the laws “On the National Bank”, “On Banking activity”, “On deposit insurance”, “On Commercial Banks”, “On Payment Systems”, “Bankruptcy” and relevant regulations, with a view of streamlining terms of procedures, provided by the law, which helped to enhance protection of the rights of minority 43 shareholders in the event of their independent company asset management and to reduce the tax rate on business income. New laws providing for the establishment of a credit bureau were adopted. The law “On Combating Legalization (money laundering) of proceeds, received through crime and terrorist financing” was endorsed. Strengthening the effectiveness of management It should be noted that one of the obvious achievements of the reform process was the adoption of the law on state administration bodies, which created a legal framework for further development of the entire public administration system; in particular three-tier management principles have been formalized. In April 2011, a single treasury account was introduced at the national level; it is planned to be implemented at provincial and district level in 2013-2014 year. Steering Council of the Republic of Tajikistan to deal with issues of public finance management was established in September 2008 by Decree of the President of RT and approved Treasury Modernization Program for 2011-2016 and Accounting Reform Strategy in the public sector for 2011-2018. In September 2011, a new system of remuneration of civil servants was introduced in the entire system of civil service, including local state government and administration bodies. As a result of the reform all nontransparent salary increments have been abolished, wages are now close to market prices, salaries for similar jobs have been streamlined in all government bodies, and the wage system has become more consistent. There is on-going consistent implementation of the medium-term expenditures program, which initially covered only the social sector (education, health, social protection of the population), and since 2011 additional sector have been included. Another achievement is the introduction of administrative budget classification in 2010 at the republican level, and in 2012, it was introduced at the local level. In 2012 unified chart of accounts, based on the GFS 2001, was approved with the budget classification and it is planned to introduce it at the national level from 1st of January 2014. In parallel with the support of the major development partners work has been done to improve other components of public financial management reform, in particular a lot of attention was paid to accounting and internal audit system development. Successful implementation of the above initiatives has led to the need to review the legal framework for public finance management, respectively, in 2011 a new Law “On Public Finance of the Republic of Tajikistan” was adopted, which recognized the new requirements for the financial management system and ensured flexibility of financial system to support reforms in other sectors. Independent external audit body was created under the Parliament of RT in order to improve control over the efficient use of budgetary funds. In 2011 parliamentary hearings on the formulation and execution of the budget were held. Also, a special secretariat was created under the Parliament of RT to strengthen the capacity of the Committee on Economy and Finance with regard to participation in the budget process. The Ministry of Finance is implementing key reforms in public finance management, in particular Treasury modernization program, accounting system reform strategy for the public sector, human resources reform strategy, personnel training strategy that advances the key reforms in the public finance management. Activities that the Ministry of Finance of RT has already completed to improve planning and execution of the state budget are the following: 44 1. In the period from 2009 to 2010, taking into account implementation of administrative classifications and sources of funding classification, improvement of information systems planning and execution of the budget have been completed; 2. In 2010, communication channel has been established between the MoF of RT and financial bodies of Tajikistan (FBT); 3. In the period from 2010 to 2011 years implementation of existing information systems of planning and execution of the state budget has been completed in all financial bodies of Tajikistan (FBT) ; 4. In the period from 2010 to 2011 years FBT personnel training on how to work with existing information systems of planning and execution of the state budget has been completed; 5. In 2011, interim ICT infrastructure modernization has been completed at the MoF of RT; 6. In 2012, communication channel has been established between the MoF of RT, TC of RT and CC of RT to automate the process of transferring funds, accounting and reporting on the revenues to the state budget; 7. MoF of RT official website upgrading is on-going. This work is planned to be completed in late 2013; 8. In 2012 single treasury account has been created for the republican budget followed up with full-fledged STA. 9. In 2012, Intergovernmental fiscal operations support center has been set up (IFOSC); 10. From 2012 to 2013 intermediate improvement of information systems planning and execution of the state budget was implemented. These improvements should support the expected improvement of the system of planning and execution of the state budget and considering WEB solution, it should allow to involve all government agencies in the electronic process of planning and execution of the state budget. Approved documents designed to improve planning and execution of the state budget 1. PFM strategy - approved by the Decree of the President of RT, # 639, dated on March 20, 2009. 2. Updated Action Plan for PFM Strategy Implementation - approved by PFM Board on August 26, 2011. 3. Five-year Treasury development strategic plan - approved by PFM Council on August 26, 2011. 4. Strategy of improving accounting system of the public sector in Tajikistan - approved by PFM Council on August 26, 2011. 5. The Republic of Tajikistan Ministry of Finance Strategy on training (capacity building) - approved by PFM Council on August 26, 2011. 6. Investment plan on improving tax administration - approved by PFM Council on August 26, 2011. 7. Public Finance Law, approved in 2011. 8. Tariff scale was introduced in the period from 2010 to 2012. 9. In 2010 departmental classification was approved and implemented. 45 10. In 2012 new economic and functional classification, consistent with GFS 2001, was approved. 2014 budget was prepared and approved based on new budget classification. 11. In 2012, unified chart of account was approved and it supported the use of IPSAS standards. As part of the implementation of Public Administration Reform Strategy, implementation of the Public Sector Reform Project of the Executive Office of the President of the Republic of Tajikistan, funded by the World Bank, was completed and during the project implementation positive results have been achieved. In the course of this project important tasks have been fulfilled with the aim of improving public administration system, optimizing government functions at the central level, improving the legal framework of civil service, as well as pilot projects have been implemented in two inspections (SES and Fire Department) in order to upgrade their legislative framework. All this has significantly improved the management system, ensured the effectiveness of activities between the state executive bodies and gave direction to create a new system of policy coordination. The Republic of Tajikistan Government has adopted a policy of air travel market liberalizing. In June 2011, “Law on Chamber of Accounts” was adopted in order to establish independent Supreme Audit Institution. Independent external audit body was created in 2012. Barki Tojik and Tajiktransgas made progress in implementing plans to improve financial management and to encourage more efficient use of energy. On behalf of Barki Tojik (BT) 165,000 meters have been installed in Dushanbe and the volume of transfers increased by 50%, and several distribution networks have been rehabilitated. BT and Tajiktransgas implement plans to improve financial management. BT and Tajiktransgas (a) implemented Plans on improving financial management, (b) published financial statements, which were prepared in accordance with IFRS and audited in accordance with international auditing standards, and (c) put into operation a new billing system in order to increase collection for the electricity consumption. In the area of accountability and transparency, TALCO energy efficiency evaluation, the largest state-owned enterprise, has been completed. On December 19, 2012, Prime Minister of RT approved Action plan for restructuring OJSC “Agroinvestbank”. Based on the Regulation of the Minister of Finance of the Republic of Tajikistan, a working group has been established to analyze financial status of “Agroinvetbank”, given the balance, credit agreements, powers and responsibilities of the Supervisory Board and the Executive bodies of the Bank, as well as other issues that come up as a result of the Republic of Tajikistan Government Resolution # 178, as of April 30, 2012. 46 Non-official translation Ministry of Finance Republic of Tajikistan Date: February 25, 2014 No. # 2-3-19/351 To: Marsha M. Olive Country Manager World Bank Tajikistan Country Office Republic of Tajikistan Dear Ms. Marsha M. Olive, The Ministry of Finance of the Republic of Tajikistan expresses appreciation to you and the World Bank management, represented by you, for the continued assistance and support extended to the Republic of Tajikistan in economic reforms. Having reviewed the final version of the report on the completion and results of the Programmatic Development Policy Grant (PDPG4-6), we appreciated the positive evaluation. And, in general, we support this report, which demonstrates our commitment to continue such initiatives. However, it is worth noting that the content, outlined in paragraph 44, is not clear, which is likely due to incorrect translation from English language. Therefore, we would like to ask you to revise the content of the given paragraph in the Russian version of the document. In addition, concerning the issue of directed lending, we believe it is necessary to take the words “based on government's decision” out of paragraph 4. “Risk assessment for the development results”, “Macroeconomic risks” and the first paragraph of Annex 4 of the given report, since so far there were no any documents found that confirmed government’s influence over the commercial banks in the provision of directed loans. In conclusion, the Ministry of Finance of the Republic of Tajikistan would like to avail itself of the opportunity to extend to the World Bank renewed assurances of its highest consideration. Sincerely, Shavkat Sohibov Deputy Minister of Finance Of the Republic of Tajikistan 47 68°E 70°E Rayons KAZAKHSTAN 1 2 Tursunzoda Shahrinav 20 21 Murghob Nosir Khusrav 39 Kulob 40 Baljuvon 41 Hamadoni TAJ IK ISTAN 3 Rudaki 22 Shahrituz 42 Shurobod CITIES AND TOWNS 4 Hissor 23 Qabodiyon 43 Khovaling AUTONOMOUS OBLAST CENTER* 5 Varzob 24 Jilikul 44 Muminobod 6 Fayzobod 25 Khuroson 45 Pandjakent OBLAST CENTERS To 7 Vahdat 26 Qumsangir 46 Ayni Tashkent NATIONAL CAPITAL TAJIKISTAN 8 Roghun 27 Bokhtar 47 Shahriston 9 Nurobod 28 Rumi 48 Zafarobod MAIN ROADS To 57 Andijon 10 Rasht 29 Jomi 49 Istaravshan RAILROADS Fergana 11 Tojikobod 30 Vakshs 50 Ghonchi To Valley Dary UZBEKISTAN JAMOAT (SUB-DISTRICT) BOUNDARIES a 12 Tavildara 31 Yovon 51 Spitamen Tashkent Taboshar r 52 Sy To 13 Jirgatol 32 Sarband 52 Mastchoh Andijon RAYON (DISTRICT) BOUNDARIES 55 14 Darvoz 33 Panj 53 Jabor Rasulov Kayrakkum 15 Vanj 34 Danghara 54 Kuhistoni Mastchoh AUTONOMOUS OBLAST BOUNDARY* Khodjand Reservoir Konibodom 16 Ishkoshim 35 Farkhor 55 Ghafurov Chkolovsk 56 OBLAST BOUNDARIES 17 Roshtqala 36 Norak 56 Konibodom To 48 51 53 58 18 Rushon 37 Vose 57 Asht INTERNATIONAL BOUNDARIES 40°N Bukhoro 49 19 Shughnon 38 Temurmalik Isfara 58 °N 40 Ura- To * Area with no oblast-level administrative divisions, SOGD Tyube Kyzyl-Kiya 72°E where rayons are under direct republic jurisdiction. To REGION 50 KY RGY Z REP. Bukhoro 47 74°E To To Sary-Tash Osh 0 20 40 60 80 Kilometers an Pendzhikent Zeravsh Ayni 54 45 ge 46 i- Ran Jirgatal' 13 Pik Lenin 0 20 40 60 Miles Ala (7134 m ) 10 Tr ans Rasht Pik Imeni Lake 11 Ismail Samani Karakul' (7495 m ) Komsomolabad 5 7 9 12 Region under 4 8 direct Republic Obigarm GHORNO- 1 DUSHANBE 14 subordination 2 6 BADAKHSHAN Rangkul' 40 Kalaikhum Pik Revolution Nurek 43 Vanj 15 (6,974 m) A.O. CHI N A UZ B E K IS TAN 36 P ng Rukhch 20 3 a ta Murgab Murgab r 31 m Ba j Pan 44 25 38 i Lake Sarezskoye 38°N 38°N 34 18 r 29 Kulyab 39 s 32 42 Ak 27 Kurgan- 37 su To Tyube Alichur Qarshi 41 24 30 Moskovskiy 22 19 Garavuti 35 Pamir 28 Khorog 23 KHATLON Shahrtuz 26 33 REGION h Pyanj Vakhs 21 Andarob Pik Karl Marx (6723 m ) 17 Vrang nj To Pa Baghlan 16 IBRD 33493R1 Ishkashim AF GHA NISTA N This map was produced by the Map Design Unit of The World Bank. MARCH 2013 The boundaries, colors, denominations and any other information PAKISTAN shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any 68°E 70°E 72°E endorsement or acceptance of such boundaries.