Document of The World Bank FOR OFFICIAL USE ONLY Report No. 71440-PG INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT AND INTERNATIONAL DEVELOPMENT ASSOCIATION AND INTERNATIONAL FINANCE CORPORATION AND MULTILATERAL INVESTMENT GUARANTEE AGENCY COUNTRY PARTNERSHIP STRATEGY FOR THE INDEPENDENT STATE OF PAPUA NEW GUINEA FOR THE PERIOD FY2013 - 2016 November 8, 2012 Timor-Leste, Papua New Guinea, and Pacific Islands Country Management Unit East Asia and Pacific Region The International Finance Corporation East Asia and Pacific Region Multilateral Investment Guarantee Agency This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. Last Country Assistance Strategy: November 20, 2007 (Report No. 41571-PG) CURRENCY EQUIVALENT (as of September 30, 2012) Currency Unit: Papua New Guinea Kina (PGK) US$1.00 = PGK 2.04 ABBREVIATIONS AND ACRONYMS AAA Analytical and Advisory Activities JSDF Japan Social Development Fund ABG Autonomous Bougainville Government LNG Liquefied Natural Gas ADB Asian Development Bank M&E Monitoring and Evaluation APL Adaptable Program Loan MDGs Millennium Development Goals ASTAE Asia Alternative Energy Program MDTF Multi Donor Trust Fund BPNG Bank of Papua New Guinea MIGA Multilateral Investment Guarantee Agency BSP Bank of South Pacific MOA Memorandum of Agreement CAS Country Assistance Strategy MRA Minerals Resource Authority CAS-CR Country Assistance Strategy Completion MSME Micro Small and Medium Enterprise Report CAS-PR Country Assistance Strategy Progress MTDP Medium Term Development Plan Report CCA-DRR Climate Change Adaptation Disaster Risk MTDS Medium Term Development Strategy Reduction CDD Community Driven Development NPL Non-Performing Loan CPI Consumer Price Index NSO National Statistics Office CGA Country Gender Assessment ODA Official Development Assistance CMCA Community Mine Continuation Agreements PEFA Public Expenditure Framework Assessment CPIA Country Policy and Institutional PER Public Expenditure Review Assessment CPS Country Partnership Strategy PFM Public Financial Management DMPGM Department of Minerals Policy & Geo- PGK Papua New Guinea Kina hazards Management DPE Department of Petroleum and Energy PNG Papua New Guinea DSP Development Strategic Plan PPAP Productive Partnership in Agriculture Project EITI Extractive Industries Transparency PPP Public Private Partnership Initiative ESW Economic and Sector Work READ Reading Education Project FAST Farmer and SME Training RMRP Road Maintenance and Rehabilitation Project FDI Foreign Direct Investment RSDLG Rural Service Delivery & Local Governance FODE Flexible Open Distance Education RSF Risk Sharing Facility FSAP Financial Sector Assessment Program SADP Smallholder Agriculture Development Project GBV Gender Based Violence SDR Special Drawing Rights GDP Gross Domestic Product SME Small and Medium Enterprise GEF Global Environmental Facility SWF Sovereign Wealth Fund GoPNG Government of Papua New Guinea TA Technical Assistance HIES Housing Income and Expenditure Survey TF Trust Fund IBRD International Bank for Reconstruction & UN United Nations Development ICT Information and Communication US United States Technologies IDA International Development Association UYEP Urban Youth Employment Project IDF Institutional Development Fund WBG World Bank Group IFC International Finance Corporation WDR World Development Report IMF International Monetary Fund WSP Water and Sanitation Project IPA Investment Promotion Authority IDA/IBRD IFC MIGA Vice President: Pamela Cox Karin Finkelston Michel Wormser Country Director: Ulrich Zachau Sergio Pimenta Kevin Lu Country Manager/TTL: Laura E. Bailey Gavin Murray/Carolyn Blacklock Paul Barbour FY2013 – 2016 COUNTRY PARTNERSHIP STRATEGY INDEPENDENT STATE OF PAPUA NEW GUINEA TABLE OF CONTENTS EXECUTIVE SUMMARY .................................................................................................................... i I. INTRODUCTION AND RATIONALE ................................................................................... 1 II. COUNTRY CONTEXT AND DEVELOPMENT CHALLENGES ......................................... 2 Economic Prospects, Scenarios, and Risks ............................................................................... 3 Supporting Private Sector Dynamism and Structural Transformation ...................................... 5 Fighting Poverty and Transforming National Wealth into Household and Individual Wellbeing .................................................................................................................................. 7 Confronting the Constraints of Crime and Violence, Institutional Fragility, and Corruption... 8 Government of Papua New Guinea’s Development Strategy ................................................. 10 Donor Engagement .................................................................................................................. 11 III. WORLD BANK GROUP ENGAGEMENT ........................................................................... 12 Deepening the World Bank Group Re-Engagement in Papua New Guinea ........................... 12 Prioritizing Gender Equality as Smart Economics .................................................................. 13 Leveraging the World Bank Group Comparative Advantage to Benefit Papua New Guinea 14 Implementation: Selectivity, Deep WBG Integration, and Accountability ............................. 18 Financing Resources and Terms.............................................................................................. 19 IV. RISKS ...................................................................................................................................... 22 V. ATTACHMENTS ................................................................................................................... 25 Boxes Box 1: The Paradox of Wealth without Development - Preliminary HIES Findings on Poverty ........ 7 Box 2: Drivers of Resilience or Fragility: Socio-Political Dynamics in PNG..................................... 9 Box 3: Results of the 2011-12 PNG CGA ......................................................................................... 11 Tables Table 1: Key Economic Indicators and Projections under Alternative Scenarios ................................. 4 Table 2: Proposed IDA, IBRD, and Trust Fund Operations (FY13 – FY16) ...................................... 20 Table 3: Potential IFC Advisory Services Operations (FY13 – FY16) ............................................... 21 Table 4: Source and Use of Trust Funds ............................................................................................. 21 Table 5: Indicative Analytical Work and Technical Assistance FY13 – FY16 .................................. 22 Table 6: Country and Implementation Risks to WBG Program in Papua New Guinea ..................... 24 iii Figures Figure 1: Revenue and Expenditure Prospects and Gaps ...................................................................... 5 Figure 2: Net foreign direct investment ................................................................................................. 6 Figure 3: Output growth......................................................................................................................... 6 Figure 4: PNG’s population and age structure ....................................................................................... 8 Figure 5: World Bank Group Commitments to PNG FY01–FY12 ..................................................... 12 Figure 6: Strategic Pillars of World Bank Group Support to PNG ...................................................... 14 Attachments Papua New Guinea CPS FY2013 – 2016 Results Matrix .................................................................... 25 Papua New Guinea CAS Completion Report FY08-FY11 .................................................................. 31 Papua New Guinea Medium-Term Macroeconomic Projections ........................................................ 67 Gender Dimensions of PNG’s Development Challenges .................................................................... 71 Understanding Socio-Political Dynamics and the Drivers of Violence and Fragility ......................... 76 Risk Review for WBG Papua New Guinea CPS, and Retrospective Assessment of 2008 CAS ........ 85 Prospects for Papua New Guinea Use of WBG Financial Products for IBRD Clients........................ 90 Development Partners’ Matrix of Activity and Focus Areas in Papua New Guinea ........................... 91 Mapping CPS to WBG Global Strategies and Priorities...................................................................... 93 Annexes Key Economic and Program Indicators - Change from Last CAS ...................................................... 96 Papua New Guinea: At A Glance ........................................................................................................ 97 Papua New Guinea: Selected Indicators of Bank Portfolio Performance and Management ............. 100 Papua New Guinea: Indicative IDA/IBRD Financing Program ........................................................ 101 Papua New Guinea: IFC Investment Operations Program ................................................................ 102 Papua New Guinea: Key Ongoing and Indicative Nonlending Services ........................................... 103 Papua New Guinea: Social Indicators................................................................................................ 104 Papua New Guinea: Key Economic Indicators .................................................................................. 105 Papua New Guinea: Key Exposure Indicators ................................................................................... 109 Papua New Guinea: IFC Committed and Disbursed Outstanding Investment Portfolio ................... 110 Papua New Guinea: Operations Portfolio (IBRD/IDA and Grants) .................................................. 111 Papua New Guinea: Major Trust Funds............................................................................................. 112 Papua New Guinea: Map IBRD 39489 .............................................................................................. 113 iv EXECUTIVE SUMMARY Papua New Guinea (PNG) is an ethnically and socially diverse young nation of seven million people speaking over 840 languages. PNG is rich in natural resources, but is subject to extreme weather events and natural disasters. The economy is dominated by agriculture and the oil/minerals sectors. PNG has enjoyed markedly improved economic fortunes since the mid-2000s. The global commodity price boom and stronger macroeconomic management helped the country avoid a repeat of the declining real incomes and macroeconomic volatility of the last 10 years. Revenues from new oil/gas/mining projects are expected to begin flowing late this decade, and new investments in the country’s productive capacity will be a central driver of growth, jobs, and opportunities for poverty reduction. However, the deteriorating global outlook led to marked reversals in the prices of PNG’s exports in mid-2012, and government revenues are expected to stagnate in the near term. These economic pressures will occur against a background of a population growing at 2¾ percent each year, and citizens expecting government to distribute benefits from PNG’s recent prosperity. PNG is poised on the brink of a challenging period of both opportunity and risk. Efforts to build prosperity, and to reduce inequality and poverty, are severely constrained by challenges in governance, fragile institutions, and by crime and violence. An empirical analysis of the socioeconomic costs of crime and violence is currently being undertaken to better inform potential interventions that would aim to reduce costs to business and provide safe access to markets and services for women as well as men. Similarly, reforming and strengthening public financial management systems including public procurement will be key to addressing the persistence of both poor governance and poor service delivery in the country. The government’s development vision is “to reform and align institutions and systems to make Papua New Guinea become a smart, wise, fair, healthy and happy society� through effective service delivery, human resource development, wealth creation and sustainable development of the existing vast natural resources. Like many minerals-rich developing countries, PNG struggles to transform increasing national revenues and per capita Gross Domestic Product into measurable improvements in household incomes and livelihoods or individual well-being, and newly available data show that the poverty headcount has not changed significantly over the last 15 years, in spite of growing minerals revenues. As PNG’s population continues to grow, the “youth bulge� becomes more pronounced, putting continued pressure on public service delivery, and exacerbating the challenge of youth unemployment. An important part of the World Bank Group (WBG) commitment comes in the form of International Development Association (IDA) and International Bank for Reconstruction and Development (IBRD) resources to improve the quality of productive sector and infrastructure investments and the effectiveness of public service delivery, and in the form of International Finance Corporation (IFC) capital to accelerate diversification and job creation. WBG resources in PNG are increasingly focused through our core portfolio on investments in sectors where global experience demonstrates strong linkages with reducing poverty and increasing prosperity, such as road access, agriculture, and renewable energy; in some of our ‘core areas’ we lead the sector, and in some we complement much larger donors. In addition, WBG plays a niche role in social sectors including education, health, and social protection, through carefully defined analytical work that catalyzes innovation and leverages program financing from larger partners and Government. Much of this niche work is financed ‘trilaterally’ with a larger donor and Government. i Gender issues will be “front and center� throughout the WBG program. Gender inequality is a significant development challenge in PNG; indeed, the government’s Medium-Term Development Plan recognizes gender inequality, including gender-based violence, as a “threat to future development�. Women have substantially poorer access to health care services, and lower levels of education and literacy pose barriers to their equal participation in economic activity and political life. Most women lack access to credit, banking and markets. Gender-based violence is reportedly very high, and women’s access to justice and legal protection is low. This strategy benefitted from the recent multi-stakeholder Country Gender Assessment, facilitated by the Bank, and data and analyses supported by many partners and PNG government agencies. The first pillar of WBG’s Country Partnership Strategy (CPS) in PNG will focus on providing increased access to inclusive physical and financial infrastructure in ways that benefit women and girls as well as men and boys. The second pillar will contribute to improvements in the quality of life and the livelihoods of women and girls as well as men and boys. The third pillar will sustain support to the prudent and increasingly inclusive management of revenues and benefit streams at national and community levels. The core program includes IDA/IBRD investments in agriculture, transport infrastructure, telecommunications, with energy chosen as a selectively targeted “growth sector�, and IFC investments in private sector and financial sector development. The program will include a selective program of analytical and capacity-building activities in economic policy reform and extractives sector governance, and a niche role in health, education, and social protection, using WBG global expertise to support policy dialogue and influence key partners. In implementing the expanded portfolio and building on these investments with future interventions, WBG will leverage the lessons learned during the concurrent Bank re-engagement and IFC expansion from 2007-2011, offering an integrated WBG approach to both strategy and program with joined-up processes, joint analytics, and carefully selected joint operations. Learning from the lack of progress on institutional governance and anticorruption work in the previous Country Assistance Strategy, the WBG will proactively seek to tap into the increased momentum for public finance and procurement reform. Both inside projects, and through small pilot efforts, the WBG will capitalize on the enabling environment provided by a vibrant media and increased use of technology for social accountability to provide support to the stronger and more cohesive multi-stakeholder coalition demanding reform. PNG’s strong economic performance and prudent macro-fiscal management over the last decade has brought the country back into actual “Blend� status. After nine years of relying only on IDA financing, an IBRD creditworthiness assessment confirmed the availability of additional resources beyond the current IBRD portfolio. IDA resources will focus on core investments in agriculture, transport infrastructure, while IBRD resources will include catalytic financing for high-return inclusive infrastructure such as renewable energy, including through guarantees to leverage co- financing from other sources. Multilateral Investment Guarantee Agency has been a successful partner in PNG in the past, and can provide support and incentives for foreign investors. While the approach to risk in this CPS reflects a more nuanced and granular understanding of risks that developed through the intensive process of re-engaging and rebuilding the portfolio, risks to the effective implementation of the expanded portfolio, and to the proposed deepening of WBG engagement in PNG, are high. The CPS aims to mitigate the range of risks – reputational, fiduciary, operational – more systematically by proactively evaluating risks throughout the CPS period, building on successful interventions and investments, and identifying institutional champions. ii I. INTRODUCTION AND RATIONALE 1. Papua New Guinea (PNG) is an ethnically and socially diverse young nation of seven million people, with over 840 languages and a rich endowment of natural resources, poised on the brink of a challenging period of opportunity and risk. PNG is rich in natural resources, including forests, fisheries, oil/minerals and land, but is subject to extreme weather events and natural disasters. The economy is dominated by a labor-intensive agricultural sector and a capital-intensive oil and minerals sector. The formal sector consists of enclave extractive industries, cash crop production, a small import-substituting manufacturing sector, and a growing services and retail sector, while the informal sector is largely subsistence agriculture and petty trade. 2. PNG’s economy is dualistic along several dimensions: there is a sharp rural-urban divide, the extractives economy dominates the small non-minerals formal sector, and the contribution and productivity of women is sharply constrained compared to men. PNG allocates similar shares of resources to public service delivery as other countries near its income level, measured (for example) by public spending on education in 2008/9 as percent of total government expenditure, but these are less effectively transformed into quality outcomes, measured (for example) by the literacy rate of youths aged 15-24 during the same period. 3. Efforts to build prosperity, and to reduce inequality and poverty, are severely constrained by challenges in governance and by crime and violence. PNG faces the challenge of not only maintaining a stable macro-fiscal stance through the next four years, but also improving governance and leveraging better service delivery outcomes from constant (rather than growing) budgets. National authorities, communities, businesses and civil society seek to cooperatively address the challenges posed by crime and violence and fragile, low-capacity public institutions undermined by corruption, so that PNG will have a platform for more inclusive and sustainable improvements in livelihoods and household well-being, thus reducing inequality and increasing prosperity. 4. The World Bank Group (WBG) is building upon the recently expanded portfolio of Bank and International Finance Corporation (IFC) investments to scale up financial and analytical support to PNG as the country moves towards middle-income status through an important period of challenge, change and growth. For the first time since 2002, the Bank will be providing International Bank for Reconstruction and Development (IBRD) loans to PNG’s government to complement the continuation of International Development Association (IDA) concessional credits, in recognition of the Government of Papua New Guinea (GoPNG’s) continuing prudent management of debt and macro-fiscal policy leading to a the country’s gross public debt being reduced by 66% between 2002 and 2012. IDA and IBRD assistance will be programmed in support of the government’s efforts to improve the quality of investments and the efficiency and effectiveness of public service delivery. 5. Reflecting a strengthened relationship with national authorities, civil society and the private sector, as well as with development partners beyond traditional “donors�, a diverse range of WBG resources and competences will be deployed through an intensively integrated Bank-IFC joint approach. The combined resources of the WBG available for PNG – even after the significant expansion of the last three years which saw a doubling of the total WBG portfolio – are a small fraction of total Overseas Development Assistance available to the national authorities. Strategically selective choices will be essential. 1 II. COUNTRY CONTEXT AND DEVELOPMENT CHALLENGES 6. PNG has enjoyed markedly improved economic fortunes since the mid-2000s. The global commodity price boom and stronger macroeconomic management helped the country avoid a repeat of the declining real incomes and macroeconomic volatility of the preceding 10 years. The global downturn of 2009 had only a mild impact on PNG’s economy, which expanded by 5.5 percent, outperforming its regional peers and most other developing economies. This follows several years of six to seven percent annual Gross Domestic Product (GDP) growth. While sharply higher global commodity prices have strongly supported incomes (average export prices doubled between 2005 and 2008, and were still about fifty percent higher in mid 2012), the non-minerals sector has led this resurgence, benefiting from private investment in future minerals production capacity as well as in the newly liberalized telecommunications and aviation sectors, for example. Even after several years’ of broader growth, PNG’s economy remains dominated by two sectors: (i) the agricultural sector, which engages most of the labor force; and (ii) minerals and energy extraction, which earns the largest share of export receipts. 7. Stronger fiscal management has done much to transform windfall gains from higher commodity prices into sustained macroeconomic growth. The Fiscal Responsibility Act 2006 channeled “additional� government mineral receipts associated with the rise in global commodity prices into various onshore trust funds, and into paying down more expensive external loans and unfunded public employee superannuation liabilities. By 2012 gross public debt neared 25 percent of GDP, down from about 70 percent in 2002. The improvement in official public debts may overstate the strength of the government’s balance sheet, as it still holds contingent and other liabilities estimated at an additional 20 percent of GDP. 8. With growth in demand outpacing that of productive capacity, inflationary pressures built and became increasingly domestically-focused. PNG’s consumers were buffeted by the global energy and food price rises of 2007 and 2008, which lifted year-on-year urban average inflation above 13 percent and urban food price inflation to above 20 percent. The subsequent retreat in global prices slowed local price growth, but only to around five percent year on year. As domestic demand pressures built through 2011, reported inflation approached 10 percent, with the actual rate likely to be considerably higher given measurement and coverage flaws with the official Consumer Price Index (CPI). The extension of the government’s tuition-fee-free education subsidy and the strength in the Papua New Guinea Kina (PGK) subtracted from inflation through the first part of 2012. 9. PNG’s financial sector has been insulated from the instability in global finance since 2007 and is characterized by conservative lending practices. Non-Performing Loan (NPL) levels have been low and stable, and capital reserves high. Credit growth has been modest relative to nominal GDP growth. The country experienced a structural excess of liquidity in the banking system, especially as foreign exchange reserves accumulated quickly in 2010 and 2011, and this reduces Bank of Papua New Guinea (BPNG’s) ability to conduct monetary policy. Nonetheless, the central bank tightened the stance of monetary policy through 2011 and early 2012 as inflationary pressures built, raising the overnight interest rate and banks’ official reserve requirements, and allowing an historically unprecedented 27 percent appreciation in the United States (US) Dollar US$/PGK exchange rate (between mid 2010 and mid 2012). However market interest rates have been stable or fallen, limiting the impact on borrowing costs. 2 10. Just as importantly, many Papua New Guineans have been finding new jobs, which are developing their skills and deepening their engagement with the cash economy. Formal employment has grown by an annual average near six percent in the five years to 2012 according to BPNG’s survey, a significant improvement from earlier trends. In 2014 and 2015, the start of gas production will raise the level of measured GDP by as much as one-quarter. But the shift from construction to full operation will also cut the workforce of the PNG-LNG project to around 800, an order of magnitude smaller than during construction. Instead, Papua New Guineans will need to look to the pipeline of new projects, and the emerging group of PNG-owned and - managed enterprises, for employment opportunities. Various major long-term infrastructure investments are being discussed, including a possible multi-billion dollar investment in the Highlands Highway, and development of PNG’s large renewable energy potential. Efforts are also being made to make new investments more attractive by improving the efficiency with which business and government operate. PNG improved its ranking in the 2012 Doing Business survey by four positions to 101 out of 183 economies, which reflects various incremental reforms. Economic Prospects, Scenarios, and Risks 11. PNG’s economic outlook remains solid, with a stream of new investments in the country’s productive capacity as a central driver of growth, jobs, and opportunities for poverty reduction, amid evidence of increasing diversification in the non-minerals sectors. PNG’s non- mineral economy is likely to moderate through to 2015 from the very strong growth rates of recent years (from 8.4 percent average annual growth in the five years to 2011 to annual growth around five percent), as construction of the Liquefied Natural Gas (LNG) plant winds down, and the retreat in cash crop and other commodity prices combines with the stronger PGK to cut real incomes. Aggregate GDP will expand by approximately 25 percent in late 2014 and 2015 as the LNG project moves to full production. Supply bottlenecks are likely to remain a significant issue into mid-2013 months, but less so than in the previous period, as new capacity becomes available. 12. In considering PNG’s longer-term economic prospects, it is worthwhile to reflect on the different experiences of PNG during resource booms, with the goal of ensuring that this time PNG is able to sustain strong growth into the long-term and achieve its development objectives of middle-income status. Over the past several years, GoPNG has taken a more prudent approach to managing public finances and, at least up to up to 2010, has allowed the exchange rate to move with market pressures; the result has been less volatile growth. (Especially since 2010, BPNG has been acting as a counterparty to large foreign exchange transactions to reduce volatility in the relatively thin exchange rate market, although it has also been leaning against the Kina’s appreciation, by allowing its foreign exchange reserves to rise from US$1.9 billion in March 2009 to peak US$4.3 billion in January 2012.) Maintaining prudent policy will be essential to ensuring that recent gains in national income are sustained and deepened in coming years. 13. However, significant concerns remain around both external and domestic developments; the deteriorating and more uncertain global outlook led to marked reversals in the prices of PNG’s exports in mid 2012, and declines may be substantial. (Table 1 presents the implications of potential down-side scenarios, with details in Attachment C.) This decline in local incomes from exports is coinciding with ongoing large inflows of Foreign Direct Investment (FDI) and the central bank’s concern over already-high inflationary pressures, both of which reduce the scope for an offsetting depreciation of the PGK exchange rate. 3 Table 1: Key Economic Indicators and Projections under Alternative Scenarios PAPUA NEW GUINEA MEDIUM-TERM 2011e 2012f 2013f 2014f 2015f ECONOMIC SCENARIOS BASELINE PROJECTIONS Real GDP (% change y-o-y) 9.0 7.5 4.0 7.5 20.0 Real non-mineral GDP (% change y-o-y) 10.8 7.2 3.9 4.7 6.2 Formal employment (% change y-o-y) 6.5 6.0 2.0 -3.0 0.0 External: Trade balance (millions US$) 861 1,325 1,998 2,792 8,053 Exports of goods (% change y-o-y) 20.6 10.5 2.0 10.0 50.0 Imports of goods (% change y-o-y) 45.2 4.5 -8.0 0.0 -15.0 Current account balance (% GDP) -35.0 -30.0 -20.0 -13.0 9.0 Net foreign direct investment (millions US$) 1750 1200 1000 1800 400 Fiscal: Government revenues & grants (% GDP) 29.8 27.5 26.8 24.3 19.0 Government expenditures (% GDP) 29.4 30.0 28.8 25.8 19.6 Government balance (% GDP) 0.4 -2.5 -2.0 -1.5 -0.6 Memo items: Nominal GDP (billions US$) 12.7 15.4 16.1 18.2 25.0 Export prices (US$, index, 2000=100) 463 470 468 462 458 PGK/US$ (eop) 2.15 2.06 2.10 1.97 2.15 SHARPER EXTERNAL DOWNTURN Real GDP (% change y-o-y) 9.0 7.5 4.0 6.0 18.0 Real non-mineral GDP (% change y-o-y) 10.8 7.2 3.9 4.0 4.0 Formal employment (% change y-o-y) 5.6 3.7 2.0 2.1 2.1 External: Trade balance (millions US$) 861 864 316 1,295 5,487 Exports of goods (% change y-o-y) 20.6 4.0 -14.5 6.1 51.0 Imports of goods (% change y-o-y) 45.2 4.5 -8.0 -10.0 -15.0 Net foreign direct investment (millions US$) 1750 1200 1000 800 200 Fiscal: Government revenues & grants (% GDP) 29.8 27.5 26.8 24.3 19.0 Government expenditures (% GDP) 29.4 31.8 31.5 28.7 25.1 Government balance (% GDP) 0.4 -4.4 -4.7 -4.4 -6.1 Memo items: Nominal GDP (millions US$) 12.7 13.9 13.5 13.8 16.8 Export prices (US$, index, 2000=100) 463 440 365 347 347 PGK/US$ (eop) 2.15 2.15 2.30 2.50 2.50 DOMESTICALLY-GENERATED ECONOMIC DISRUPTION Real GDP (% change y-o-y) 9.0 7.5 4.0 5.5 17.0 Real non-mineral GDP (% change y-o-y) 10.8 7.2 3.5 3.0 2.5 Formal employment (% change y-o-y) 5.6 3.7 1.8 1.6 1.3 External: Trade balance (millions US$) 861 1,325 2,127 3,503 8,657 Exports of goods (% change y-o-y) 20.6 10.5 2.0 10.0 50.0 Imports of goods (% change y-o-y) 45.2 4.5 -10.0 -10.0 -15.0 Net foreign direct investment (millions US$) 1750 1200 800 600 0 Fiscal: Government revenues & grants (% GDP) 29.8 27.5 26.8 24.3 19.0 Government expenditures (% GDP) 29.4 31.4 27.4 25.1 21.7 Government balance (% GDP) 0.4 -3.9 -0.6 -0.8 -2.7 Memo items: Nominal GDP (billions US$) 12.7 14.5 13.7 14.3 16.2 Export prices (US$, index, 2000=100) 463 470 468 462 458 PGK/US$ (eop) 2.15 2.10 2.60 2.75 3.00 Sources: National data sources, IM F, World Bank DECPG data and projections, and World Bank staff estimates and projections. e = estimate f = forecast Notes: In the alternative scenarios, government expenditure is assumed to remain at baseline absolute values and revenues to remain at the baseline share of nominal GDP. 4 14. The scenario that shows slower revenue growth would make even the government’s current prudent spending projections unsustainable without a marked improvement in revenue collection. Sharper declines in global commodity prices, tightening in global financing conditions, and PNG’s costs remaining relatively high in US$ terms would make it less likely for potential resource projects to reach final investment approval, with flow-on implications for long-term fiscal revenues and shorter-term demand in the non-mineral sector. Meanwhile supply constraints, particularly for skilled labor and where land is an important input, are likely to keep inflationary pressures high. Alternatively, domestic social and institutional disruption may weaken the domestic investment climate. While this scenario is likely to see less compression in government revenues, at least in the shorter-term, it would slow growth in the non-resource economy and in formal employment, potentially generating further social pressures. 15. Before the revenues from the LNG plant and the potential additional projects start flowing, late this decade, government revenues are expected to stagnate, pressuring spending and fiscal space. Even if spending over the coming years only keeps pace with inflation (i.e. is constant in real terms, growing by about half the rate between 2008 and 2012), the budget deficit is likely to average 2.0 percent of GDP between 2013 and 2015. If real spending per capita is held constant at 2012 levels, after allowing for very modest growth in 2013 to fund election commitments, the budget deficit is projected to average at least 3.0 percent of GDP between 2013 and 2015. (Figure 1). These revenue pressures will occur against a background of rising costs of skilled employees and of materials, a population growing by 2¾ percent each year, and the community expecting a new government to distribute the benefits of PNG’s recent prosperity. Figure 1: Revenue and Expenditure Prospects and Gaps PGK 15 PGK Balance (right axis) bn bn Balance, alternative expenditure scenario (right axis) Expenditure (left axis) 12 Alternative expenditure scenario* (left axis) 1.5 Revenues (left axis) 9 0.8 6 0.0 3 -0.7 0 -1.5 2010 2011e 2012f 2013f 2014f 2015f Source: Actual and baseline projections of revenues, expenditure and GDP from 2012 IMF Article IV staff projections. Note: *Alternative scenario is for stronger expenditure, assuming real per capita spending expands modestly in 2013-2015 and then is constant in real per capita terms to 2017; assumes that additional expenditure does not affect the revenue profile. Supporting Private Sector Dynamism and Structural Transformation 16. The investment boom funded by FDI has raised output, including in sectors unrelated to natural resources (such as telecommunications and services), amid signs of landowner companies capitalized by individual extractive projects maturing into larger, commercially- 5 managed and sustainable businesses. This is the third commodity boom since World War II, and is characterized by some similarities to previous cycles, including concern about food security and nonrenewable resource depletion, but also by important differences: this boom is more broadly-based across energy, metals, and agricultural exports, it is lasting longer, and it is being managed more prudently and strategically. Figure 2: Net foreign direct investment Figure 3: Output growth % 30 USD % m 2100 25 2000-05 1800 20 2006-11 1500 15 10 1200 5 900 0 600 -5 300 0 -300 2001 2003 2005 2007 2009 2011 Sources: International Monetary Fund (IMF), BPNG, Treasury, National Statistics Office (NSO) 17. Targeted, effective regulatory reform and the opening up of markets to FDI has generated visible benefits, and the IFC estimates there is further scope for new entrants in key sectors including in Information and Communication Technology (ICT) and renewable energy. PNG currently has one of the lowest rates of access to electricity in the world, but with a combination of policy reform, systematic planning from GoPNG and partners, and new investment, PNG can leverage on and off-grid solutions that will reduce burdens on the urban and rural poor and help support small businesses. Favorable conditions exist in other sectors (including most infrastructure and key social services) for greater private sector investment tied to increased service delivery and quality. Government has indicated a desire to continue State-Owned Enterprise (SOE) reform and leverage more diversified private sector investment. 18. PNG is fortunate to have a robust, well-regulated and rapidly developing financial services sector, providing a base for aggressive efforts to expand financial inclusion to the rural and urban poor. Key IFC investments and technical assistance to the retail and commercial Bank of South Pacific (BSP) and microfinance provider PNG Microfinance Ltd. has been fundamental in increasing access to financial services, although much more will be needed to reach the estimated 85 percent of the population currently without access. Linking financial services with telecommunications allows payment systems to facilitate domestic remittances that reduce the risk of carrying funds associated with crime, fraud and violence, decrease the amount of time spent collecting and sending money in a country with poor transport links, and cut costs and increase speed of payments. Innovations are underway and showing impact, with attention now turning to focus on equity and consumer protection. 19. A continued favorable environment for FDI in both minerals and non-minerals sectors can contribute more significantly than in the past to job creation as the economy diversifies, although PNG will still remain a largely rural, informal economy where access to land for food production for home consumption provides a buffer against extreme poverty. The challenge is to balance jobs growth with “good jobs� (i.e. expanding the opportunities for all) including through 6 access to formal sector jobs for women and youth newly entering the labor force, and through changing both private sector choices (e.g. up-skilling of PNG employees and explicit transition plans that reduce the reliance on expatriate staff) and public sector policies. Small businesses’ formalization and growth is also impeded by the high compliance costs and limited understanding of the current tax system, a challenge being addressed through various nascent reforms, ranging from better audit approaches for small businesses to reform of tax rates applied to Small and Medium Enterprises (SMEs). Fighting Poverty and Transforming National Wealth into Household and Individual Wellbeing 20. Like many minerals-rich developing countries, PNG struggles to transform economic growth and increasing national revenues into widespread improvements in household incomes and livelihoods or individual well-being. PNG’s growth surge in the early 1990’s coincided with important gains in human development, but these stagnated over the following decade. Maternal mortality rates fell from 340 to 300 per 100,000 live births, and the primary school enrollment rate rose from 65 percent to 72 percent, with greater gains for female enrollment (fewer data are available for recent years). But the early 1990s growth episode was partially reversed over the following decade. Real GDP per capita fell almost one-quarter, when public finances were often on a weak footing, impacting on delivery of services and maintenance of PNG’s public infrastructure. External imbalances led to the PKG being floated at sharply lower exchange rates in 1994, causing a sharp rise in consumer prices. 21. Preliminary findings from the 2009-2010 Household Income and Expenditure Survey (HIES), summarized in Box 1, confirm quantitatively what many PNG stakeholders have noted: the benefits of faster growth and higher revenues have not translated into benefits for wide sections of the population. The proportion of the PNG population who live in households where the real value of consumption per adult equivalent is below the poverty line is 39.9 percent. Box 1: The Paradox of Wealth without Development - Preliminary HIES Findings on Poverty In spite of rich endowments of natural resources, and increasingly effective efforts to prudently manage the incoming revenues generated by their export, PNG’s development outcomes remain mixed. Traditional coping mechanisms, including rural household access to land for home food production and strong support through reciprocal exchange in wantok networks, ensure low risk of “food poverty�. However, the 2009-2010 HIES confirms that many households in PNG suffer a lack of access to basic services (health care, education, and clean water), a lack of opportunity to participate fully in an increasingly monetized society, and a resultant lack of adequate cash to meet basic household needs and customary household obligations. The challenge is most acute in urban areas such as National Capital District (where the two traditional coping mechanisms are less accessible). Overall, two-thirds of the struggling households in PNG are concentrated in the Highlands and rural Momase. In PNG, where a large share of household consumption is self-produced, cash incomes are used for essential non- food items (school fees, kerosene, and garden tools), to improve diet quality by allowing consumption of purchased protein and energy-dense staples, and to provide insurance for periods of agricultural stress. However, the HIES shows us that all modalities of earning cash are not ‘equal’ in terms of support to households: when data are analyzed by removing household heads with no economic activity, those working for cash as wage or salary earners or in formal businesses, and those working on own-account (either as semi-subsistence agriculturalists or making or selling items for sale in informal businesses), it emerges that the big economic divide in PNG is between those households with access to formal sector incomes and those without. PNG is not on-track to meet the Millennium Development Goals (MGD’s) (details are in Annex 2 of Attachment I). The emerging focus of the post-MDG Sustainable Development Goals will support an increased focus on equity and sustainability, both of which are critical for PNG, but it remains true that the core goals of 2015 will not be met. 7 22. Poverty rates appear to have changed very little over the last 16 years. Comparing the 2009-2010 HIES with the results of the last national survey, in 1996, and mindful of differences in data collection, it is apparent that for all PNG, and for each region except the national capital of Port Moresby, the situation is stagnant. In the capital, the headcount does appear to have risen, from 31 percent in 1996 to 43 percent in 2009/10 but the change is only on the borderline of conventional statistical significance. The HIES does not show a systematically higher incidence of poverty amongst female-headed households, but there is a clear statistical relationship between the incidence of poverty and the education of household heads – even though just one-quarter of the population live in households headed by an unschooled person, they comprise between 35-43 percent of the poor. Similarly, the poverty rate for people living in households where the head is (self-reportedly) illiterate is 50 percent, compared with just 33 percent for people whose household head is literate. As Box 1 shows, this failure to transform wealth into wellbeing is stubbornly unaffected even by the recent better-managed revenue boom in PNG. 23. As PNG’s population continues to grow, the ‘youth bulge’ becomes more pronounced as lagging health services fail to deliver a longer, healthier lifespan. This will put continued pressure on public service delivery, and will exacerbate the gap between educational outcomes and skills demanded in the market, leaving an increasing number of young men and women without livelihoods and jobs. An increased focus on family planning, and better modeling of population growth in service delivery planning, will be important. Figure 4: PNG’s population and age structure 8 m. 3.2 % Islands 7 Southern 2.8 Average annual 100% Momase growth (RHS) 6 2.4 Highlands 80% 5 2.0 60% 50 and over 4 1.6 40% 15-49 3 1.2 20% under 14 2 0.8 0% 1 0.4 2000 2010 0 0.0 Census HIES 1980 1990 2000 2011 Source: GoPNG National Statistics Office, Census and HIES data (April 2012) Confronting the Constraints of Crime and Violence, Institutional Fragility, and Corruption 24. Reports in national and international media, and anecdotal evidence from communities and business, indicate that the prevalence of crime and violence is high in PNG, and presents an important obstacle to long-term development. At the same time, PNG scholars and stakeholders acknowledge that conflict is part and parcel of social life, and that managed conflict has been central to the maintenance of social cohesion and social capital within and among PNG communities. While traditional systems of managing disputes historically were effective in maintaining social order, the course of economic and social evolution in PNG has generated disputes that are less amenable to management by traditional means. 8 25. The widespread prevalence of high levels of crime and violence have been attributed to a wide range of explanations, but an empirical analysis of the socioeconomic costs of crime and violence is only now being undertaken. New internal and external stresses are also rendering traditional systems of conflict management incapable of controlling the steady increase in violence and crime which harms individuals and businesses, reduces the scope of community activity, hampers access to markets and services, and prevents more effective nation-building. 26. The violent conflict in PNG’s eastern-most island province of Bougainville during the period 1988 to 1997 illustrates the intersection of many of the dynamics identified in Box 2. The conflict was complex, with drivers that included a perceived lack of transparency in the agreements made between the national government and the operator of the massive copper mine that dominated the economy. Dissatisfaction with benefit-sharing agreements between the large copper mine and local communities included the belief that the benefits of the mine were going disproportionately to mainland PNG, that migrants were benefiting from the mine more than landowners, and that communities in other parts of the island were excluded from benefits. Box 2: Drivers of Resilience or Fragility: Socio-Political Dynamics in PNG The challenge posed by crime and violence, and by institutional fragility, can be understood as the “cost� to PNG’s society and economy of not successfully addressing the mis-match between exposure to internal and external stresses and the social capacity to manage these stresses. Ongoing analytical work on crime and violence in PNG point to six key areas where the drivers of fragility are most clearly manifested: - PNG is socially fragmented with little common identity or vision. - Extreme power imbalances between men and women in PNG – often enforced with violence – threaten social cohesion and the overall economic progress of the country. - Competition for land is increasing with economic shifts, creating divisions among clans, within clans, and within families that can easily lead to violence. - Public sector positions are captured by narrow interests along family, clan and ethnic lines. - Intergenerational conflict is growing, as the gap between the values of older and younger generations widens. - PNG’s institutions – both customary and formal – are struggling to effectively manage the stresses that have arisen from social and economic changes. More details on the dynamics of socio-political and institutional fragility in PNG are available in Attachment D. 27. Of concern alongside the damaging and distorting effects of crime and violence are the persistent challenges of corruption and the fragility of key institutions. The volatile economic history of the young nation has taken its toll on the quality of public and civic institutions, with gains made immediately after Independence, but later giving way during the periods of fiscal crisis and political instability to eroding capacity and morale in some parts of the public sector and a lack of confidence and trust between citizens and the state. Concerns about corruption and poor governance persist, and political interference with civil servants and bureaucracies is reportedly high. Measures from perception surveys such as Transparency International's Corruption Perception Index show PNG ranking very low (154 out of 183 countries), with persistent evidence that citizens remain mistrustful of their government (65% of respondents in a 2010 survey found the government's efforts to fight corruption to be ineffective). The creation of a national multi-agency Task Force Sweep in 2011 that links together bodies with powers of reporting, investigation, and prosecution has generated attention and resulted in high-profile cases being launched, but a sustained effort is needed for many years. 9 28. Reforming and strengthening Public Financial Management (PFM) systems, including public procurement, is key to addressing the persistence of both poor governance and poor service delivery in the country. Announcements by the new government in 2012 included a willingness to reactivate the stalled reform agenda, but a carefully coordinated program of technical support and sustained government appetite for reforms will be required to generate real change. 29. PNG provides a moderate level of transparency and access to information on key government resource management processes such as budget formulation and budget outcomes, but there is little transparency on the complex mechanics of budget execution, and little rigor on routine monitoring of inputs and outputs of key government programs. With the growing evidence of an increase in demand for good governance and a range of stakeholders demanding more transparent processes, there is emerging interest in leveraging ICT for accountability. Several GoPNG agencies are partnering to use mobile connectivity to monitor delivery of education and health while pilots are also being considered to empower communities and households to hold service providers accountable for key elements of social service delivery (presence of teachers, physical state of repair of aid posts). Government of Papua New Guinea’s Development Strategy 30. GoPNG’s development vision is “to reform and align institutions and systems to make PNG become a smart, wise, fair, healthy and happy society� through effective service delivery, human resource development, wealth creation and sustainable development of natural resources. The government’s Vision 2050, the PNG Development Strategic Plan 2010-2030 (DSP), and the Medium Term Development Plan 2011-2015 (MTDP) form the base of the WBG strategy. The theme running through the MTDP is “building foundations for prosperity�. The MTDP prioritizes four key policy objectives: (i) sustain prudent fiscal and macro management; (ii) nurture development of entrepreneurial culture and vibrant business environment; (iii) reverse the regressive conditions of human development; and (iv) support the seven identified MTDP “key enablers�, including transport infrastructure, key utilities (energy and communications), primary and secondary education, higher and technical education, health, unlocking land for development, and law and order. 31. In September 2012 the newly elected government announced the “Alotau Accord Platform for Action�, and signaled their intention to add an eighth MTDP enabler focusing on “investing in a sustainable economy� with investments in renewable energy. In their detailed statement they announced the intention to revisit the MTDP to make it more selective, fully costed, and aligned to the annual budget cycle. The government also reinforced the desire for partners to be complementary in programming and work deeply in existing areas where programs show results. 32. The DSP sets an ambitious goal on gender equality; all stakeholders acknowledged the significant barriers currently in place. The country’s own development strategies and plans emphasize that every person, irrespective of gender, needs the opportunity to reach their potential – because in this way, the whole country will benefit – and yet gender disparity is widespread, from education, employment, and political representation to mortality and cultural norms. Box 3 outlines some key priorities identified in the 2011 multi-stakeholder PNG Country Gender Assessment (CGA). 10 Box 3: Results of the 2011-12 PNG CGA In a highly participatory and consultative process involving a wide range of stakeholders representing some four dozen institutions and agencies, the 2011-12 PNG CGA provided a snapshot of the gender dimensions of the nation’s development challenges, focusing on access to resources (through education, health, employment, and entrepreneurship), access to rights (through legal and social empowerment, and freedom from violence) and access to voice (through participation in decision-making). Of the more than 40 “potential actions� identified by the CGA multi-stakeholder team, the following were those where quick action was judged to be most important for PNG: − Support more extensive training and enabling support for Village Court Magistrates, many of whom are now women, on Gender Based Violence (GBV) and intimate partner violence, and link this to mediation − Build on the electoral success of three women MPs in 2012 to explore legal provisions for mandatory support for women in political parties’ slates of candidates, and to expand advocacy efforts that support women in office − Provide high-visibility support to collection and use nationally-representative data on gender-based violence − Solicit donor support for numeracy and financial literacy, and prioritize IFC support to “Finance Alliance for Sustainable Trade� (FAST) program that provides basic financial literacy to women farmers − Use the reviews of oil/gas/mining laws and policies to provide for mandatory participation by women in negotiations; disseminate guidance on dedicated benefits streams based on the Ok Tedi experience. − Consider either a Public Services Department circular or an amendment of the relevant Act such that all lists of candidates Ministers submit to the Public Services Commission should include at least one female candidate − Mobilize senior leaders to ensure that maternal and child health services are officially exempt from fees, and that survivors of domestic violence are officially exempt from higher fees charged on “tribal violence� injuries Donor Engagement 33. PNG, like many Pacific countries, receives generous international development assistance but the government is actively seeking to transition to “more trade than aid�. Net flows to PNG in recent years have reached slightly over US$910m per annum, close to 10 percent of GDP or $130 per capita. (See Attachment H for Donor Mapping.) The government’s capacity to coordinate development partners is evolving, with technical support from partners, but a more strategic focus on monitoring and reporting is needed to leverage impact. 34. WBG support is complementary to the sizeable resources provided by key partners. Australia is Papua New Guinea’s largest partner, providing annual assistance close to A$500m focused on primary health, education, transport infrastructure, and law and justice, with a whole-of- government program supporting public financial management and improved national statistics. The Asian Development Bank (ADB) program focuses on infrastructure (transport, power, water/sanitation), state enterprise reform, trade and PFM, microfinance, and health. 35. WBG is committed to global and regional initiatives on aid effectiveness and harmonization, including those localized in the PNG government’s 2008 Kavieng Declaration, and will work closely with clients and partners to improve development effectiveness. While WBG has scaled up, the value of our engagement is defined by the extent to which the WBG can “bundle� its expertise and financing, collaborate with other development partners to transfer global knowledge, build capacity in public and private sectors, and encourage changes to reverse the stagnant human development indicators. 11 III. WORLD BANK GROUP ENGAGEMENT Deepening the World Bank Group Re-Engagement in Papua New Guinea 36. WBG has dramatically scaled up its engagement in PNG, and is committed to continuing this support as part of a renewed longer-term commitment. An important part of the WBG commitment comes in the form of IDA and IBRD assistance to improve the quality of investments and the efficiency and effectiveness of public service delivery, and in the form of IFC investment capital to accelerate diversification and job creation: this is our core role. Of growing importance, however, is the WBG role in catalyzing innovations and pilots for a “triple bottom line� approach to sustainability (incorporating economic, social, and environmental considerations), and in leveraging financing and influencing programming of a diverse range of partners: this is our niche role. Figure 5: World Bank Group Commitments to PNG FY01–FY12 PNG Commitments 300.0 25.3 250.0 119.7 200.0 105.7 3.0 150.0 IFC $ US Million 247.5 WB 100.0 197.0 40 1.4 170.2 146.8 121.8 121.8 50.0 106.5 99.6 99.6 102.6 82.3 72.3 0.0 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 Source: World Bank and IFC data 37. The Country Assistance Strategy Completion Report (CAS-CR), (in Attachment B) rated the performance of the 2008-2011 program as moderately unsatisfactory. While the CAS- CR notes that the 2008-2011 program was overly ambitious in relation to WBG’s budgetary and lending resources, the CAS period did develop a very satisfactory re-engagement which has built a solid base for achieving development impact. From an implementation perspective, the portfolio performance has been slowly improving. The disbursement ratio at the end of FY12 was 10 percent, below the regional average of 18 percent and slightly lower than the FY 2011 rate of 12 percent. This result stems mostly from the entry of five new projects with partners having little IDA experience. One problem project is being restructured, and two potential problem projects have additional supervision resources and implementation support. 38. The CAS-CR identified the following key lessons with implications for the design and implementation of the new Country Partnership Strategy (CPS): • Be more modest in the selection of results, focusing on outcomes expected from projects either already active or having a high level of readiness for implementation. • Avoid loss of momentum by minimizing effectiveness conditions and advancing project readiness during final stages of appraisal and in the ‘waiting period’ before Board approval. • Sustain support to key sectors and institutions delivering visible services, to balance the largely ‘invisible’ gains in policy dialogue, particularly when public expectations are high. • Use a creative approach to sector engagement, including a range of instruments that can be adjusted to adapt to the varying speeds of client engagement. To build stakeholder consensus, 12 smaller interventions such as study tours and workshops can maintain engagement until the timing is right to proceed with scaled up activity, especially in weaker partner institutions. • Quality consultation and documentation are key to safeguarding PNG’s complex social traditions and ethnic diversity. Translate summaries of key documents into Tok Pisin and other local languages that project-affected people may need, and disseminate. Properly record consultation location, participation, topics discussed, complaints, and resolutions agreed. • Use communications as a strategic development dynamic, rather than for information dissemination or remediation. Engage routinely with stakeholders during project design and implementation, and once decisions are made on whether or not to make changes, actively communicate decisions to the groups consulted, and document that “feedback loop�. • Ensure that appropriate community representatives are involved in consultations, including local government and traditional leaders, and make special efforts to reach youth and women. 39. In preparing this strategy, the WBG team engaged with a wide range of stakeholders through two separate rounds of consultations from late 2011 through mid-2012. Discussions with GoPNG policymakers, current implementing agencies, private sector, civil society (including faith- based institutions and academia) and development partners offered views on how past experience should shape the WBG engagement, with strong messages: • Where the WBG is already significantly involved, or leading, identify key areas for change and mobilize broad stakeholder will from GoPNG champions and non-governmental groups. • Ensure a good fit with GoPNG goals, using the WBG’s global technical experience base to support the ones where WBG ‘additionality’ drives more inclusive and equitable change. • Benefit from newly-built implementation capacity by building on projects in existing sectors and agencies and ‘going deeper’ in the core portfolio. • Play a targeted ‘niche role’ through carefully defined highly leveraged analytical work in high- profile sectors like health and education where other donors lead with large grant resources, to deploy WBG’s analytical advantage and global technical reach. • Encourage areas where Bank-IFC synergy can be demonstrated, such as agriculture, telecommunications, financial services, business enabling environment, and energy. Prioritizing Gender Equality as Smart Economics 40. Gender issues will be “front and center� throughout the WBG program. Gender inequality is a significant development challenge in PNG; indeed, the MTDP recognizes gender inequality, including GBV, as a “threat to future development�. Women have substantially poorer access to health care services, and lower levels of educational attainment and literacy pose barriers to their equal participation in economic activity and political life. Most women lack access to credit, banking and markets. GBV is reportedly very high, and women’s access to justice and legal protection is low. The DSP in Section 6.3 says “all citizens, irrespective of gender, will have equal opportunity to participate in and benefit from the development of the country�. 41. To support the government goals in Vision 2050 and the DSP, and to help advance the specific strategies for gender equality in the MTDP, the WBG will focus on leveling the playing field between men and women. The WBG efforts will prioritize interventions that address development obstacles identified as significant barriers to women’s equitable economic participation, and seek out activities and project design elements that deliver a disproportionately positive impact on women and girls. The MTDP baseline and targets for gender are limited, and because there is 13 inadequate resourcing and experience in GoPNG agencies to effectively mainstream gender, the WBG will monitor results carefully, and will convene a Portfolio Gender Review mid-way through the CPS period, to feed into the CPS Progress Report. The IFC will emphasize economic empowerment of women by piloting an innovative focus on gender in commerce. Leveraging the World Bank Group Comparative Advantage to Benefit Papua New Guinea 42. Our engagement in PNG reflects the government’s development priorities, consistent with the unifying themes of WBG global strategic directions, and will encompass: • A core portfolio of IDA/IBRD investments in agriculture, transport, telecommunications, and renewable energy, with significant Additional Financing for IDA, energy as the ‘growth sector’, and IFC investments in private sector and financial sector development; • A selective program of analytical and capacity-building activities as a core contribution in economic policy reform and extractives sector governance, and a niche role in health, education, and social protection, using our analytical work and global expertise for ‘best fit’ to support a more evidence-based policy dialogue, to leverage financing of key partners, and to influence their choices in program design; and • A substantial IFC program to promote inclusiveness and support growth by tripling access to finance, investing in mid-sized companies, tripling access to electricity, accelerating women in business, and formalizing agribusiness. Figure 6: Strategic Pillars of World Bank Group Support to PNG Pillar 1: Increased and more gender-equitable access Pillar 2 : Gender-equitable improvements in lives and Pillar 3 : Increasingly prudent management of revenues and to inclusive physical and financial infrastructure livelihoods benefits road transport agriculture and agribusiness governance and PFM reform CORE telecommunications market chain infrastructure macro-fiscal policy financial services youth employment minerals sector governance (including gender equity in benefit-sharing) energy business enabling environment water and sanitation (policy) education (quality pilots, sector expenditure analytics) data analysis (including PERs and poverty monitoring) NICHE health and HIV-AIDS (evidence base, analytics) community-driven development and block grants (pilots) 43. World Bank engagement in the Autonomous Region of Bougainville is consistent with the joint priorities outlined in the peace agreement and has been guided by the national Government’s views on where WBG expertise might be most usefully deployed in support of the reconstruction and reconciliation efforts. As of mid-2012, three Bank projects were active in the province, covering mining sector governance, agriculture, and gender-targeted community development. As the date of a referendum regarding the level of autonomy for Bougainville draws closer (required between 2015 and 2020), discussions between GoPNG and Autonomous Bougainville Government (ABG) have signaled a need for more intensive revitalization of the non- mining economy; WBG is prepared to deepen engagement in Bougainville by expansion of the core national portfolio, such as transport rehabilitation, telecommunications, and community infrastructure. Pillar 1: Increased and more gender-equitable access to inclusive physical and financial infrastructure 44. The first pillar of WBG’s partnership in PNG will focus on providing increased access to inclusive physical and financial infrastructure in ways that benefit women and girls as well as 14 men and boys. With a rapidly increasing population placing heavier demands on physical infrastructure that is not being well-maintained, and with expectations of tangible benefits flowing ‘automatically’ from minerals project revenues, there are overwhelmingly large and unprioritized demands for investment in physical infrastructure, and significant gaps remaining in terms of financial inclusion. The WBG will focus support on areas where global evidence shows direct links between infrastructure access and reduced poverty, and where there is a disproportionately positive impact on rural households and on women and girls. 45. One of the highest priorities shared by all PNG stakeholders is to improve the conditions of priority national roads and key provincial roads through rehabilitation, upgrading, and maintenance. Given the country’s vulnerability to extreme weather events and natural disasters, and the disproportionate burden that falls on the rural and urban poor from those events, an increased focus on “climate proofing� infrastructure is also a priority. WBG financial support will focus on rehabilitation of key national routes in designated provinces; complementary work will include piloting of gender-sensitive transport design elements, capacity building for medium-size local contractors, institutional support for relevant agencies to build capacity for “climate-proof� works design and maintenance, and policy dialogue with Government on mechanisms for more robust, consistent, and operational recurrent budget financing for routine road maintenance. 46. PNG has experienced deregulation in the telecoms sector that allowed sharp increases in private investment, a rapid expansion of coverage and a dramatic drop in prices. The very first World Bank loan to the then-Territory of Papua and New Guinea, through Australia immediately before Independence, established the first national telephone network. Thirty-five years later, and the inclusive and democratizing dynamic created has been welcomed by government and citizens alike – as the lead partner in this sector, WBG will support increased coverage of rural areas by mobile networks and/or broadband, enabling increased use of ICT for transparency and accountability in monitoring basic service delivery. 47. PNG’s financial services sector is more robust and well-regulated than many countries of similar age and income, but the dualistic economy has offered incentives to banks to serve elite and corporate clients more effectively and more creatively than the rest of the population. Private sector interest in expanding financial services into new markets, and strong leadership and vision from key national authorities, have led to a strong push to see financial services expand microfinance and SME banking services, encouraging rural outreach by financial services. As in telecommunications, the WBG leads partner support to this sector, and catalytic investments by IFC and the Bank will increase access to credit for SMEs in PNG, increase the number of women with bank accounts, and increase access by men and women to financial institutions in rural areas (through either branches or mobile networks). 48. PNG is blessed with a wide range and vast potential for a more diverse and ‘green’ network of power supply and generation, and yet access to electricity remains below 11 percent nationwide. This hinders economic activities, access to school and health services, and exacerbating already severe personal security problems. Global evidence shows clear linkages between improved access to electricity and reductions in poverty, and the new GoPNG priority on increasing electricity generation through renewable energy provides an opening to expand on workshops and knowledge exchange provided in 2011-2012 to build GoPNG’s capacity to deliver that access in pro-poor and ‘green’ ways. WBG technical assistance and advisory services will support an updated and modern policy and strategic framework, facilitating investments by the government, WBG, and/or others that contribute to an increased access to electricity. 15 49. One of the most dangerous dynamics driven by the steadily increasing population in PNG is the deterioration of antiquated and traditional systems for access to proper and safe water supply and sanitation systems. While for many years this area was an ‘orphan’ sector with little policy attention or funding, stakeholders have recently mobilized increased attention and now seek to allocate resources to sanitation and clean water services. The WBG is supporting the scoping studies and workshops needed to build both the evidence base and the stakeholder consensus around both urban and rural water and sanitation priorities. Pending the results of preliminary work, investments could include a focus on water and sanitation as an enabler of public health, with a focus on piloting proven solutions to extend services to low income urban communities. 50. Existing interventions that form the base for CPS Pillar 1 include projects in roads transport, communications, and IFC and IDA investments in access to finance including the Risk Share Facility (RSF). Possible new activities may include additional financing for road transport and communications. At GoPNG’s request, use of a multi-tranche instrument such as an Adaptable Program Loan (APL), will be explored. A small IDA credit for energy sector strategy development, carried over from the previous CAS period, will both fill gaps in the national policy and strategy framework for renewable energy, and open possibilities for use of IDA credits or partial risk guarantees, IBRD loans, and/or IFC financing of private participation in renewable energy Private Public Partnership (PPP). Support for delivery of a national water and sanitation policy will make way for other resources in water and sanitation. An intensification of the Bougainville program could include additional financing for roads and communications projects. Indicative analytical work to support CPS Pillar 1 can be seen in Table 5. Pillar 2: Gender-equitable improvements in lives and livelihoods 51. The second pillar of WBG’s partnership in PNG will contribute to improvements in the quality of life and the livelihoods of women and girls as well as men and boys. To take better advantage of the livelihood opportunities offered by a growing and more diversified economy, and to begin to redress the stagnation in health and education status that is preventing Papua New Guineans from enjoying a better quality of life, attention must be paid to improving the quality and efficiency of basic service delivery in a gender-equitable way. The WBG will focus support on productive sectors where we lead, and will complement the lead of other partners by providing niche interventions in health and education, and in social protection. 52. For the 85 percent of the country’s population who derive their livelihoods from rural areas, future prosperity will require an improved enabling environment serving the agriculture sector, with a focus on improved productivity, including of key cash crops. This will need to be supported by improved agricultural infrastructure including feeder roads, technology, and other supply chain improvements. The country is largely food-secure, and a priority must be placed on maintaining this. Given the rich biodiversity of the country, and the persistent challenge of weather change and disasters, climate change research supporting a climate-resilient agriculture sector is needed. WBG interventions will support expanded yields and profitability of smallholders growing cash crops, productivity gains for rural households growing food crops, improved sustainability and resilience to price and weather volatility, and improved market chain infrastructure. 53. PNG is a young country with a young population, many struggling to find educational and livelihoods opportunities. Developing programs to nurture and develop youth as agents of change and to increase opportunities for youth engagement in formal employment is a GoPNG priority. WBG projects will provide youth in urban areas with ‘second chance education’ programs 16 for completion of secondary school, with access to improved training and job opportunities, and with targeted monitoring of and support for female participation in the wage labor market. 54. For investments by national government and key bilateral partners in access to education to produce improved educational outcomes, attention is needed on quality. Building on the 2012 “fee-free education� initiative, attention must turn to quality inputs (educational infrastructure and materials, classroom resources, teacher training) and on understanding key dimensions of sectoral public expenditure dynamics in education. The Bank will focus its ‘niche’ contribution in education to deliver better reading support in early grades and improved reading results for both girls and boys, and on an improved evidence base on education sector expenditures. 55. The Bank will assist in multi-partner efforts to strengthen systems for HIV-AIDS and health programming, data collection and analysis, through a program of health sector analytical work will contribute to strengthened partnership and coordination with health sector stakeholders. Bank-supported health and HIV-AIDS work will bring global expertise to provide a national evidence base for improved investments by GoPNG and other partners, in such as way as to encourage PNG research institutions in building strategic alliances with international institutions. 56. Working cooperatively with multiple stakeholders, the IFC will support public-private mechanisms that facilitate business and investment while removing impediments and inefficiencies in regulation and reducing business costs. In both advisory work and investments, the IFC and the Bank will support efforts to increase women’s access to economic opportunities and awareness of economic rights. More efficient opening, operation, and closing of businesses in PNG will be achieved by leveraging technology for business licensing processes, and reduced barriers will allow more women-owned businesses ‘graduate� to formal registered status. 57. Existing interventions that form the base for CPS Pillar 2 include: (i) Bank investments in smallholder productivity and IFC investments in coffee; (ii) IFC investment in manufacturing enterprises and Bank project in urban youth training and employment; and (iii) Bank projects in second chance education for school drop-outs and in quality enhancements for primary reading. Potential activities to build upon that base could include additional IDA financing for agriculture and youth projects, and potential IFC investments in agribusiness, manufacturing, and financial services. An intensification of the Bougainville program could include agriculture and urban youth. Potential areas for exploration include IFC investment in affordable housing, market chain infrastructure, and an agribusiness investment fund. Indicative analytical work to support Pillar 2 can be seen in Table 5. Pillar 3: Increasingly prudent management of revenues and benefits 58. The third pillar of WBG’s partnership in PNG will sustain support to the prudent and increasingly inclusive management of revenues and benefit streams at national and community levels. Building on the significant and stable gains made over the last decade on macroeconomic and exchange rate policy, on fiscal policy and debt management, and on the innovations emerging from both the private sector and government authorities on structuring, using, and monitoring benefits streams from extractives projects, the WBG will intensify support in minerals revenue management, support extractives industries transparency, deepen engagement on quality of public expenditures and public finance management (including procurement), and leverage pilots in gender-equitable community development and benefits management. 59. Continued improvements in the national authorities’ ability to oversee the minerals sector are an essential building block in the Government’s stated goals of improving the 17 capacity of key agencies by upgrading regulatory and policy frameworks and building staff skills. To help the state to play a more dynamic role in ensuring equitable distribution of benefits to landowners and broader community, and oversee sustainable investment of revenues to benefit current and future generations, the Bank will continue to support better governance in and accountability for oil, gas, and mining sector, with an focus on changes that will facilitate more equitable involvement of both women and men in community benefits. Building upon this platform of Bank work, an increasing IFC focus will be on support to improved sustainability through attention to environmental and social performance standards by extractives companies. 60. Many stakeholders agree on the need for government to strengthen its partnership with private sector and community based stakeholders for development, but there has been limited progress in actually piloting new mechanisms and tracking results. PNG’s development discourse has dwelled on reasons why service delivery has stagnated, and on theoretical options for structural and policy change, but experience with pilots has been limited. The Bank will deploy its vast global experience in Community-Driven Development (CDD), using block grants and community council capacity building to promote transparent accounting for money and results. 61. New momentum is building for governance reform focused on strengthened budgeting and PFM for effective service delivery, with GoPNG setting itself the target of getting Public Expenditure Framework Assessment (PEFA) scores of A or B. Stated priorities include enforcing accountability and transparency initiatives, and while there was little momentum for these reforms during the last CAS period key reform champions are now mobilizing a renewed consensus on procurement and PFM reform. If requested, the Bank will provide technical assistance and policy advisory support for those reforms, and it will continue to support fiscal and debt sustainability frameworks and the Sovereign Wealth Fund (SWF). 62. Niche support will be provided to data analysis. The primary partnership supporting the critical improvements needed in national statistics is between Australia and PNG, with auxiliary support from the Secretariat of the Pacific Community. The Bank will be working in poverty monitoring and analysis build effective coordination between NSO and agencies that use data. In focusing selectively on high-quality data analysis, the Bank program will contribute to an expanded policy debate about topics such as inequality, inclusion, and vulnerability, and if momentum builds for a multi-sector Public Expenditure Review (PER), or a health sector PER, the Bank will engage. 63. Existing interventions that form the base for CPS Pillar 3 include mining technical assistance and oil/gas registry projects, women in mining and petroleum initiatives, and technical assistance for Extractive Industries Transparency Initiative (EITI) candidacy, while ongoing pilots in three provinces will leverage the Bank’s global experience in community driven development. Possible new activities could include: an EITI MDTF grant, expanded CDD activities beyond the pilot provinces, new IFC work with resource companies on environmental and social sustainability programs, and support to public financial management and procurement reform. Indicative analytical work to support CPS Pillar 3 can be seen in Table 5. Implementation: Selectivity, Deep WBG Integration, and Accountability 64. In bringing the newly expanded portfolio to full implementation, and building upon these investments with future interventions, the WBG will be selective. The re-engagement process has underlined the importance of staying in our core sectors and building long-term relationships with key partners rather than fragmenting the portfolio. A CPS costing exercise has been done, to ensure adequate support to the pipeline described here, which confirms the program is not 18 unrealistic. Our niche engagements will focus on bringing the WBG global reach and technical expertise to other partners, to leverage a more inclusive, sustainable, and ‘greener’ approach with ‘traditional’ bilateral donors as well as new partners such as PNG Sustainable Development Program Ltd., whose long-term fund currently holds in excess of US$1.2 billion. 65. WBG will deepen our integration: The concurrent Bank re-engagement and IFC expansion in PNG from 2007 through 2011 has built a deeply integrated WBG approach to both strategy and program, where Bank and IFC teams routinely comment at concept-stage meetings, initiate sector- driven brainstorming in key areas, deliver joint operations (SME RSF), collaborate on analytical products (Agriculture Sector Update), and convene joint teams on energy and/or telecommunications. 66. A multi-faceted approach will be taken to accountability, governance, and anti- corruption. Learning from the lack of progress on institutional governance and anticorruption work in the previous CAS, the WBG will proactively seek to tap into the increased momentum for reform amongst champions. Both inside our projects, and through small pilot efforts, the WBG will capitalize on the enabling environment provided by a vibrant and free media and increased use of ICT for social accountability to provide support to the stronger and more cohesive PNG coalition demanding reform (business associations, students, trade associations, key civil servants). New work with GoPNG on procurement and PFM reforms will be linked into these demand-side mechanisms. 67. Anticipated outcomes from the WBG program are set out in the results matrix in Attachment A. This will be revised during implementation, and updated in a CPS Progress Report, with reporting of results consistent with the GoPNG’s MTDP and with the commitments made during the IDA16 replenishment. Financing Resources and Terms 68. The financing envelope for this CPS, which includes both IDA and IBRD, donor trust funds and co-financing, and IFC investment capital, will be deployed in a flexible and selective manner driven by evidence of continued GoPNG macro-fiscal discipline and a prudent debt strategy, and higher quality pro-poor expenditures. The CPS period (FY13-16) spans across two IDA replenishment periods (IDA16, covering FY12-14, and IDA17, covering FY15-17). The indicative IDA16 allocation 1 is Special Drawing Rights (SDR) 95.3 million, which provides access to approximately US$140 million (at current SDR exchange rates) for IDA operations committed by 30 June, 2014. The PNG IDA allocation for FY15-16 will be determined based on country performance increases, as reflected in CPIA and IDA portfolio performance in achieving results, and improved performance could lead to higher IDA resource allocations in the future. As a “Blend� country, PNG receives the majority of its IDA assistance on concessional blend credits; in addition, a small portion (about 3%) is available as hard term credits. 2 1 IDA envelope is based on available resource from the IDA16 replenishment, and it is updated annually based on country allocation parameters. The allocation is firm only for the current fiscal year and indicative for the outer years, and the amount may vary depending on: (i) total IDA resources available, (ii) the country’s performance rating, GNI per capita, and population; (iii) the performance, other allocation parameters and IDA assistance terms for other IDA borrowers; and (iv) the number of IDA-eligible countries. 2 IDA financing terms are updated annually and generally remain stable during a replenishment period. In FY13, the terms of blend credits are the following: a 25-year maturity, a 5-year grace period, and a 1.25 percent interest charge; the hard term credits have the same maturity and grace period and carry a fixed interest rate of 1.5 percent, which is less concessional than blend credits but still more favorable than IBRD financing with equivalent maturity. Hard term credits are only available to blend countries. 19 69. IDA will closely work with the authorities to deliver its assistance flexibly. Given the capacity constraints of implementing partners, the client preference for continued Bank selectivity, and the short time horizon for IDA16, the target is for 70 percent of those concessional resources to be channeled through additional financing to existing operations or repeater projects with the same agencies. In addition, the Bank will also work with the authorities to fully explore the flexibility in IDA financing, including the Immediate Response Mechanism that allows the inclusion of emergency related contingent components in selected investment operations, to support rapid response in eligible crisis and emergency situations when needed. Furthermore, in case of severe economic shocks and natural disasters, PNG could potentially access the IDA Crisis Response Window. 3 70. Papua New Guinea’s strong economic performance and prudent macro-fiscal management over the last decade has brought them back into actual “Blend� status. After nine years of IDA-only financing, an IBRD creditworthiness assessment undertaken by the World Bank in mid-2011 confirmed availability of a commensurate amount of additional resources beyond the current IBRD portfolio (approximately US$119 million outstanding as of 31 August, 2012). Various options for combining loans and guarantees will be explored, with indicative IBRD lending over the CPS period currently envisioned at about US$140 million. The actual level of IBRD lending would depend on government demand and how PNG's performance evolves in the CPS period, as well as on IBRD’s lending capacity and demand from other borrowers. Indicative financing is set out in Table 2. Table 2: Proposed IDA, IBRD, and Trust Fund Operations (FY13 – FY16) 4 AF=Additional Financing Indicative Cofinanced/ Year IDA IBRD US$m Trust Fund IDA-16 Period Energy Sector Development & Strategy TA FY13 7.3 √ 1.0 GEF AF Transport Infrastructure FY14 55.0 √ √ AF Agriculture FY14 20.0 √ AF Communications FY14 20.0 √ AF Rural Service Delivery (CDD) FY14 25.0 √ 10.0 AUS√ Pilot urban water supply for slum communities FY14 5.0 √ 5.0 AUS√ Governance TA (PFM and Procurement Reform) FY14 8.0 √ √ IDA-17 Period Renewable Energy Investments FY15 40.0 √ Infrastructure Investments or Guarantees FY15 138.0 √ AF Urban Youth Employment Project (UYEP) FY15 15.0 √ TA for Sovereign Wealth Fund management FY15 20.0 √ Transport Project FY16 30.0 √ CCA-DRR grants (tied to IDA credits) FY15-16 5.0 √ 71. IDA resources will focus on core portfolio investments in agriculture, transport and community infrastructure, and communications, with IBRD focused on high-return inclusive infrastructure. The joint IMF-World Bank debt sustainability analysis in April 2012 concluded that maintenance of the current debt levels could henceforth be characterized as a “low� risk of debt distress. The provision of IDA credits plus modest IBRD loans is consequently consistent with IDA’s debt sustainability framework and with the 2012 DSA, although plans would be revisited if a significant increase in loans is agreed by GoPNG with regional export-import banks. 3 For details of the eligibility criteria, see Annex 3 of IDA (2011) “Additions to IDA Resources: Sixteenth Replenishment,� available at http://siteresources.worldbank.org/IDA/Resources/IDA16_Report-English-Final.pdf. 4 The indicative IDA pipeline, particularly the IDA17 pipeline, is subject to revision depending on IDA availability. 20 72. IFC’s current investment portfolio is US$260m, and will be complemented by an expected US$10m in advisory services through ongoing or new programs. A robust pipeline of potential new IFC investments signals an average of $50m per year over this CPS with opportunities in agribusiness, renewable energy, market chain infrastructure, manufacturing, services, and mining/oil/gas. Advisory resources will include areas shown in Table 3. Table 3: Potential IFC Advisory Services Operations (FY13 – FY16) Year Indicative Amount Credit and Data Bureau Strengthening 2012 - 2014 200,000 Payment Systems 2012 - 2014 100,000 BSP Rural Banking expansion 2012- 2014 775,000 PNG Microfinance Ltd 2013 - 2015 1,170,000 Oceanic Communications Ltd 2012 - 2014 1,200,000 Landowner Companies – multi-faceted 2013 - 2015 750,000 Health and PPPs 2013 - 2015 900,000 Sub-National Doing Business support 2013 - 2015 1,200,000 Trade Logistics 2013 - 2015 900,000 Women’s Economic Empowerment 2012 - 2015 1,200,000 SME Tax Simplification 2012 - 2014 1,100,000 Corporate Governance 2012 - 2014 1,000,000 Business Edge/Farmer Training 2012 - 2015 1,138,000 Access to Renewable Energy 2012 - 2015 1,100,000 Strategic Community Investment 2013 - 2015 1,100,000 73. The CPS resource envelope will also include limited use of multi-donor and bilateral trust funds and grant resources from global programs, fully integrated in the CPS: Linked to current or Building Evidence Table 4: Source and Use of Trust Funds new WBG Operation Base for Partners Bilateral resources from Australia through Pacific Facility 3-4 support analytical work on gender, socio-economic costs of crime and violence, multi-year program on √ √ health and HIV/AIDS, and possibly pilot programs in water and sanitation. √ √ The Justice for the Poor program addresses the political economy of benefits sharing in extractives economy (including gender), and costs of crime and violence. √ Grants from the (Global Partnership for Education Catalytic Fund) will continue as the primary source of Bank support to improved quality in primary education. √ The Japan Social Development Fund (JSDF) may support a second phase of work with women in mining and petroleum communities. √ The Korean Trust Fund supported the development of the pilot Urban Youth Employment Project and may support an expansion of CDD work. √ The State and Peacebuilding Fund supports the CDD block grants program in post- conflict Bougainville, and could support more work in this post-conflict area. The Global Facility for Disaster Risk Reduction, together with linked funds from the Japan Policy and Human Resource Development Fund, are supporting climate √ √ change adaptation, community resilience, and disaster risk reduction Multiple sources of grant financing will support work on renewable energy and ‘greening’ initiatives: the Global Environment Fund (GEF), Energy Sector √ √ Management Assistance Program, and Asia Alternative Energy Program (ASTAE) √ The global multi-donor Water and Sanitation Program (WSP) is financing scoping activities to define investments in water and sanitation as an enabler of health. Two private sector foundations (the Esso Highlands Program and the PNG Sustainable Development Program Ltd.) provide grants for community-based youth, √ √ CDD, and gender initiatives in extractives-rich provinces. 21 74. Multilateral Investment Guarantee Agency (MIGA) has been a successful partner in PNG in the past, and can provide support and incentives for foreign investors looking at entering the PNG market including those served by the IFC. Through its Political Risk Insurance product, MIGA offers reassurance for investors concerned about political interventions or disruptions which might affect their returns. With uncertainty in the political, economic or regulatory environment, these guarantees offer protection for investors unsure about counterparty risk with the Government or about how more conventional political disruptions and civil disturbances might cause physical damage or disrupt their operations. 75. A selective program of World Bank Group analytical work is proposed in sectors where the Bank has acknowledged global expertise, and where significant investments are coming from other partners. An indicative analytical and TA program is set out below. Table 5: Indicative Analytical Work and Technical Assistance FY13 – FY16 − Support to SWF development − TA for Third Party Access Code, and Electrification Roll Out Plan − Education Public Expenditure Review − HIES Analysis, Poverty Monitoring, and Household Welfare Assessment FY13 − HIV-AIDS Integrated Bio-Behavioral Survey − TA for Social Protection Task Force − Agriculture Sector Update − Early Grade Reading Assessment − Health Financing Review − Country Procurement Assessment Report − TA on SME tax policy simplification (joint with IFC) FY14 − TA for Debt Management − Education Sector PER (continues) − Programmatic AAA for Health (multiple outputs, continues in FY15) − Portfolio Gender Review − Multi-Sectoral PER or Health Sector PER − South-South Capacity Building: Finance & Safeguards for Renewable Energy FY15 - 16 − Gender Dimensions in Rural Electrification − Civil Society Budget Literacy Training − TA for SWF Asset Management − TA for Project Appraisal IV. RISKS 76. Risks to the effective implementation of the expanded portfolio, and this proposed deepening of Bank Group engagement in Papua New Guinea are high. The CPS addresses these high risks systematically. Our historical treatment of risks in PNG has clustered consistently around five areas that cover both country risks and implementation risks: price and policy volatility, market uncertainty, or major economic shocks (either external or internal); sociopolitical turbulence, leading in extreme cases to civil unrest and violence; policy and governance gaps (including fiduciary failure and corruption); institutional inertia or inadequate capacity; disaster risk, and impacts of climate change and extreme weather. (See Attachment F for a summary of the risk review done in early stages of CPS discussions). 22 77. Although the risk categories have not changed much over the last decade, the relative intensity of specific risks, and the identification of mitigation actions and strategies, has evolved considerably. (See Table A in Attachment F for a visual summary of the evolution of the treatment of risk in the last three Bank strategy documents for Papua New Guinea). This evolving risk profile acknowledges a change in the underlying risks or the PNG institutions and mechanisms that mitigate them, and a more informed and granular understanding of risks, including seeing the risks that are wholly within the WBG sphere of control, whose mitigation requires a proactive use of the evolving WBG guidance on situations of fragility and conflict. 78. A retrospective validation of the risk assessment in the WBG 2008-2011 CAS was done to underpin a more holistic and realistic approach in the new strategy. Table B in Attachment F offers an outline of how each of the risks identified in the CAS were seen to manifest, or not, during the program period, as well as a summary of actions that were, or were not, used to mitigate those risks, and their success. Processes such as the investigation and resolution of the Smallholder Agriculture Development Project (SADP) Inspection Panel case, and the global WBG consultations to develop a framework and strategy for the oil palm sector, have also provided significant learning for the WBG program in PNG. Through these discussions the team has avoided treating the CPS as a tabula rasa of risk, instead using a structured discussion to learn systematically from the past. 79. Maintaining an accurate understanding of risk and an appropriately calibrated mitigation strategy can best be done by making specific proactive changes in the way the WBG team operates. First, continue the multidisciplinary investigation of the different dimensions of country risk by building on the analytical work done in the lead-up to this CPS (which included political economy analysis and socioeconomic fragility analysis done by teams including anthropologists, political scientists, sociologists, economists, and institutional and legal specialists) by embedding these analyses in the Analytic and Advisory Activities (AAA) program. Second, facilitate an iterative discussion to re-assess and revalidate the risk profile of the portfolio by using tools (like the Operational Risk Assessment Framework, external Peer Reviewer comments, and specific agenda questions) at the pre-concept stage, so the risk profile is actively updated. Third, include an “institutional champion and reform� filter at the pre-concept stage (see below). 80. Given the difficulties of sustaining reform momentum in PNG, both additional financing and new activities will be implemented in a sequenced way and linked to areas where there is clear reform momentum and multiple champions. Decisions on additional financing to ongoing operations, and on new investments in the second part of the CPS period, will be dependent on experience with initial interventions and an assessment of how to best support reform efforts by the government. The government’s expressed strong support for the program outlined in this CPS must be translated into active ownership and a willingness of key GoPNG leaders to drive reform in key sectors like agriculture. 81. To operationalize this principle, pre-concept stage discussions will include an “institutional champion and reform filter�. The team will candidly map the dynamics that will most influence: (i) initial support during design; (ii) momentum during appraisal and launch; and (iii) advocacy and trouble-shooting during implementation. Continued strong interest from the private sector in IFC services, and a consensus across national stakeholders that the WBG approach adds value, will be critical in ensuring effective implementation across the program. 23 83. Table 6 outlines the results of the risk review and outlines the primary mitigation measures. Table 6: Country and Implementation Risks to WBG Program in Papua New Guinea Potential Risks Mitigation Measures Political conflict may reverse policy gains, Support multi-stakeholder “demand pull� for require ‘lowest common denominator’ PFM transparency; use CDD pilots to model Country Risks compromises, and obstruct governance accountability; support EITI submission / are persistent reform. candidacy with Trust Funds (TFs). across all efforts Continued global weaknesses, and volatile Use recent experience to discuss risks (2012 in a country commodity prices, may trigger a decline in revenue gap shows dangers of overoptimistic (economic risks, economic performance or an abandonment forecast prices); broker dialogue with Asian political risks, of fiscal discipline. Middle Income Countries (MICs) about risks. credit risks, Continued unemployment and frustration Support more informed debate about costs of etc.), and may with failure to meet hyped expectations may crime and violence; prioritize implementation be some lead to increased violence and criminal support to Urban Youth Employment Project combination of activity (especially in urban youth) and (UYEP) to model an effective approach to legacy and deteriorating social stability. youth disenfranchisement; support expansion negative synergy of alternative dispute resolution tools. (risks that Drastic change in oil/gas/mining Close dialogue with new government; surface in one legal/regulatory regime support for multi-stakeholder debate sector increase leveraging the value GoPNG places on its perception of position with foreign investors. risks in another) Natural disasters or climate-related impacts Leverage more grant resources for disaster on pests or rainfall may cause economic or risk reduction in core sectors of agriculture social disruption. and infrastructure. Reversals on key debt management and Multi-faceted engagement with acyclical fiscal policies, or deviations from policymakers, MPs, public on risks of current SWF plan, create a gap between cyclical spending; move quickly w/ PFM and GoPNG and partners (risky if large new procurement TA if reform opens (be willing Implementation loans are seen as solution to revenue to expand use of TFs for PFM and Risks including shortfalls in 2013-2015). procurement if GoPNG is reluctant to use Institutional IDA for a TA operation. Risks (weak WBG engagement is too fragmented, short- Emphasize additional financing and repeater capacity or lived or small-scale to leverage institutional projects, mobilize grants for complementary systems in change and improve service delivery in long actions in same sectors; use institutional implementing term. champion filter to prioritize investments. partner agency) Lack of progress in establishing credible Advocate for better governance; offer to and Fiduciary accountability institutions and strengthened work closely with GoPNG institutions Risks (potential governance leads to continued or increasing created if/when new anti-corruption for corruption or incidence of corruption and further legislation is passed. Use ICT in Bank financial deterioration in citizen trust in reform operations and pilot community projects to malfeasance, efforts. promote transparency and accountability. inefficient Continued inertia on PFM and procurement Jointly with partners, intensify dialogue to procurement, or reform slows or stalls progress of prepare reform agenda for PFM and poor handling of implementation of key MTDP programs or procurement changes supporting service environmental undermines delivery of CPS interventions. delivery. Leverage bilateral and TF and social resources for reform-focused TA. safeguard Efforts to expand information-sharing Use key sectoral groups to increase effective issues) mechanisms into more strategic coordination coordination at that level (Bank co-chairs between government and development energy sectoral group); identify key aid partners may not be successful. effectiveness actions if/when GoPNG becomes more proactive. 24 Attachment A V. ATTACHMENTS Papua New Guinea CPS FY2013 – 2016 Results Matrix Medium-term Country Issues and Obstacles CAS Outcomes Milestones WBG Instruments Goals Expected (FY13 – FY16) Development Strategic Plan 2010-2030 Section 6.3 says “all citizens, irrespective of gender, will have equal opportunity to participate in and benefit from the development of the country�; specific gender equality actions are listed in pages 111-113. Pillar 1: Increased and more gender-equitable access to inclusive physical and financial infrastructure Relevant goals in Road maintenance, • More and safer roads, − Increased number of private Ongoing Financing MTDP which preserves critical benefitting women and girls contractors doing works for − Roads-2 (IDA) access to markets and as well as men and boys, GoPNG benefitting from − CCA-DRR grant for services is under- measured by project training Transport pg 48 “improved funded and government − Additional roads rehabbed in − One or more gender-targeted − Rural conditions of priority institutions’ ability to target provinces (baseline is pilot (women-led community Communications national roads (rehab, resource it strategically 0, target is 150km) (IDA) maintenance, gender-focused upgrade, maintain) and and with good − Number of gender pilots − Digicel (IFC) consultations, etc.) at DoW pg 109-111 “climate technical oversight has underway in Department of − SME Access to proofing infrastructure� been eroded. − Natural disaster risks Finance RSF (IDA- Works (DoW) roads incorporated into design and IFC) portfolio (baseline is 0, target is 1) maintenance of roads − BSP (IFC) pg 56 “continue reform Dramatic private • Increased coverage of − Universal Access subsidies − Pacific MicroFinance to the ICT policy sector-led expansion in Ltd (IFC) targeted underserved rural finance new telecoms framework� and “ utilize coverage has hit a areas by mobile networks investment in under-served PPP to provide plateau, policy and Indicative Financing and/or broadband (baseline rural districts of at least two (telecommunications) regulatory framework − Energy Sector is 2%, target is 14%) [sex- provinces services where otherwise has scope for continued Strategy Development disaggregated data will be − At least five pilots underway commercially unviable� modernization, and TA collected and incorporated using ICT to monitor or − Addl Financing for opportunities for use of into the CASPR] support service delivery Roads (Transport ICT for better • Increased use of ICT for sponsored by development Infrastructure) development outcomes transparency/accountability partners (incl WBG) in at − Addl Financing for pg 83 “expand remain unexploited through at least one pilot least three sectors Rural Comms microfinance and SME approved for scale-up in − Renewable Energy banking services� and pg monitoring service delivery (IDA/IBRD and/or 14 “encourage rural (baseline is 0, target is 1) IFC) 25 Medium-term Country Issues and Obstacles CAS Outcomes Milestones WBG Instruments Goals Expected (FY13 – FY16) Development Strategic Plan 2010-2030 Section 6.3 says “all citizens, irrespective of gender, will have equal opportunity to participate in and benefit from the development of the country�; specific gender equality actions are listed in pages 111-113. outreach by financial PNG’s financial sector • 550mPGK increase in credit − 20% increase in SME services� is well-supervised and provided to SMEs in PNG lending by Bank South more sophisticated than (some institutions do not Pacific (PGK volume) Ongoing and in other countries at its share data, measurement − One more pre-cleared Indicative AAA stage of development, limited to project banks) − Bank financial institution joins but it does not yet • 20% increase in number of Risk Share Facility − SME Survey serve the “bottom and formal sector SMEs − Financial Competency middle� of the market − Outreach to/ training for Survey and Financial registered (baseline data to well enough. Access minimum of 100 women Literacy Forum be generated by SME – RSF for women both as Survey in early 2013, which SME owners − TA for Third Party entrepreneurs and includes an SME “count� − National Forum showcases Access Code for household managers is using IPA data) financial literacy obstacles Transmission/ Distribution Networks particularly poor. • Increased number of women and generates funding for Innovative ways of women-focused financial − TA for Electrification with access to financial reaching rural literacy Roll Out Plan institutions in rural areas, customers, and better − Gender Dimensions in either branches or mobile more targeted outreach Rural Electrification networks (baseline data TBD to SMEs, is needed. − IFC pg 58-59 “increase from BSP data shared under − Access to renewable electricity generation SME RSF project; target is energy TA utilizing hydropower 10% increase) − TA for National (and other renewables)� Gaps in policy and • Larger renewable energy − GoPNG rural electrification Broadband and “export clean regulatory frameworks contribution to increased strategy in place − BSP Rural Banking electricity to neighboring inhibit appropriate access to electricity through − GoPNG policy and third- − Digicel Solar countries� exploitation of PNG’s renewable PPP (baseline is party access code expands vast renewable 12.4% of households with electricity transmission and resources, and GoPNG access to electricity, 215MW distribution networks technical capacity is of national supply comes weak although political from renewables; target is − GoPNG takes one medium- will is very strong. 20% HH with access and to-large renewable energy 330MW from renewables) PPP to financial close 26 Medium-term Country Issues and Obstacles CAS Outcomes Milestones WBG Instruments Goals Expected (FY13 – FY16) Development Strategic Plan 2010-2030 Section 6.3 says “all citizens, irrespective of gender, will have equal opportunity to participate in and benefit from the development of the country�; specific gender equality actions are listed in pages 111-113. Pillar 2: Gender-equitable improvements in lives and livelihoods Relevant goals in Agriculture sector • Improvements in yields of − 190 km of roads upgraded in Ongoing Financing MTDP supports the majority smallholder coffee, cocoa the SADP project areas − SADP (IDA) of PNG households but and oil palm farmers − Implementation of at least − PPAP (IDA) pg 70 “efficient institutions serving is suffering from − Increase in average oil palm 35 Productive Partnerships − ECOM Coffee (IFC) agriculture sector; outdated structures and yields from 21 tons/hectare for coffee and cocoa − KK Kingston (IFC) lack of attention to the to 24 in project areas − Kongo Coffee (IFC) improved cash crop − Targeted outreach to women production; improve elements that can − Increase in average cocoa − CCA-DRM grant for increase productivity coffee/cocoa farmers Agriculture agricultural yields from 300kg/ha to 600 and maintain already- for project participants − New research available on − (UYEP) infrastructure including strong food security: − Increase in average coffee climate change and disaster − FODE Second Chance feeder roads as key links better institutional yields from 500kg/ha to 800 risks in agriculture sector Education in the supply chain� support including • Improved smallholder − Gender-disaggregated − READ-PNG proactive efforts to sustainability and resilience monitoring of agriculture Indicative Financing improve resilience to to price and weather project results − Addl Financing for climate change volatility Agriculture impacts, more − 24,000 cocoa and coffee − Addl Financing for productive farming farmers adopt improved Urban Youth practices, better market farming practices Potential IFC access infrastructure, − 1,500 oil palm growers investments in and more targeted trained in sustainable − agribusiness, financial pg 109-111 “climate support to women production practices services, change research farmers whose work [Sex-disaggregated data will manufacturing supporting climate- produces most of be collected and incorporated family consumption Ongoing and resilient agricultural into the CAS Progress Report and a significant share Indicative AAA sector� (CAS-PR)] of cash crops. Bank • Increased support to women − Agriculture Sector farmers measured by Update number of partnerships with − Disaster Risk their explicit participation Management Program (baseline is 0, target is 20 TA out of 35) 27 Medium-term Country Issues and Obstacles CAS Outcomes Milestones WBG Instruments Goals Expected (FY13 – FY16) Development Strategic Plan 2010-2030 Section 6.3 says “all citizens, irrespective of gender, will have equal opportunity to participate in and benefit from the development of the country�; specific gender equality actions are listed in pages 111-113. Eroded technical and • Youth in urban areas have − 30 private sector employers − Agriculture Sector vocational training more access to improved in Port Moresby have new Update TA pg 94 “increase institutions, and training & job opportunities source for trained workers − Education PER programs to nurture and disconnects between − At least 300,000 labor-days − 9,000 youth beneficiaries − HIES Poverty develop youth as agents skills outcomes from done by beneficiaries have and use new bank Analysis of change and increase education and labor ( baseline is 0 ) accounts and are trained to − HIV-AIDS IBBS opportunities for youth market needs, mean − At least 50% of On-the-Job use mobile phones for − Programmatic AAA engagement informal many urban youth are beneficiaries enjoy 20% personal financial tracking Health Sector employment� (includes health disconnected from the increase in incomes economy and feel (baseline being established financing review, isolated from society. by Intake Surveys) private sector assessment) (All data are sex- − Early Grade Reading disaggregated and a minimum Assessment of 30% of labor-days and increased income will be IFC young women. Current youth − Investment Climate programs generate benefits for TA groups with less than 10% − Alternative Dispute young women beneficiaries.) Resolution TA Relevant policy and • More efficient opening/ − IPA outreach and website − Health and PPPs pg 14 “ensure processes regulatory changes operation/ closing of enhanced − Landowner that facilitate business & have not yet reached businesses in PNG, − On-line business registration Companies analysis investment� pg 86 the critical mass measured by shorter # of active − Trade Logistics “remove efficiencies in needed to significantly days in Doing Business − Sub-National Doing regulation, ensure low reduce the cost of (baseline in 2012 is 51; − Improved outreach to women Business Report business costs� doing business. target for 2016 is 45 ) business owners − SME tax policy • 10% increase in annual simplification pg 96 “increase women’s Without a “leap number of women-owned − Scoping study on access to economic ahead�, SMEs will fail businesses who “graduate� affordable housing opportunities and to exploit opportunities to formal status with − Women’s economic awareness of economic linked to extractives. registered businesses empowerment TA rights� (Baseline data to be 28 Medium-term Country Issues and Obstacles CAS Outcomes Milestones WBG Instruments Goals Expected (FY13 – FY16) Development Strategic Plan 2010-2030 Section 6.3 says “all citizens, irrespective of gender, will have equal opportunity to participate in and benefit from the development of the country�; specific gender equality actions are listed in pages 111-113. Some obstacles are generated by SME Survey − Business Edge particularly prominent sex-disaggregated “count� Women Farmers’ for women business using IPA data in early Training (FAST) owners. 2013; IFC program with IPA will use IPA’s data to track.) Pillar 3: Increasingly prudent management of revenues and benefits Relevant goals in Difficulty translating • Better governance and − Updated and revised mining Ongoing Financing MTDP national wealth into accountability in oil/gas/ sector policy framework − Mining TA 2 individual well-being, mining revenues measured − Policy initiatives on − Oil/Gas Registry TA pg 79 “improved and delivering by status in EITI process women’s participation in (IDF) capacity of Minerals benefits equitably at (baseline is no formal extractives Memorandum of − Women in Mining & Resource Authority the community level. commitment, step 0; target is Agreement (MOAs) Oil (MRA) and Department Key causes include candidate status, step 2) − EITI MDTF grant − Cabinet approves PNG − Incl Devt in of Minerals Policy and outdated policy • More equal involvement of Geo-hazards frameworks, un- joining EITI , and multi- Bougainville women in community Management (DMPGM), transparent processes stakeholder group working − Rural Service Delivery benefits from oil/gas/ regulatory and policy in revenue reporting, to EITI Candidate Status (CDD pilot) mining, measured by rights frameworks reviewed� and non-inclusive for women in project pg 77 “ensure equitable practices for benefits agreements (baseline is 1, Indicative Financing distribution of benefits to management. target is 3) − Expanded RSDLG landowners and broader “On paper� processes • Inclusive bottom-up planning − Extractives industry − TA for PFM and/or community� for decentralized in three provinces promotes foundation co-finances pilot Procurement Reform planning and funding increases local decision community development exist for community making measured by block grant project with Ongoing and Indicative infrastructure, but in increase in % of households GoPNG AAA practice few funds who participate in allocation − At least two rounds of Bank pg 114 “strengthen − Economic Monitoring partnership with private flow and capacity of and use of $$ through local community block grants in district and local councils (baseline is 0; − Support to SWF sector and community two provinces, with active governments is weak. target is 70% of households − Sub-national Political based stakeholders for participation by community Economy Analysis development� The limited existing in target districts, and 40% in delivering infrastructure participation is not of adult women) − TA for Social sub-projects Protection gender-equitable. 29 Medium-term Country Issues and Obstacles CAS Outcomes Milestones WBG Instruments Goals Expected (FY13 – FY16) Development Strategic Plan 2010-2030 Section 6.3 says “all citizens, irrespective of gender, will have equal opportunity to participate in and benefit from the development of the country�; specific gender equality actions are listed in pages 111-113. Continued macro- • Expanded outreach to civil − new debt and fiscal − Education Sector PER fiscal discipline will society and communities on strategies announced that − Multi-Sectoral PER or be challenged by the SWF measured by forums continue prudent acyclical Health PER transitional dip in and public campaigns policy & expenditure rules − CSO Budget Literacy revenues 2013-2015. (baseline = 4, target = 8) Training Prudent macro-fiscal − Proactive public dialogue on − TA for Debt pg 77 “seek sustainable choices include regulatory/ institutional Management investment of revenues complex topics like provisions for SWF − TA for Project to benefit current and the SWF, hard for the compared with international Appraisal future generations� pg public to understand. good practice and SWF Law − Country Procurement 114 “strengthen & Capacity to reliably • Increased capacity for and use − Results of Household Assessment Report enforce accountability generate, share, and of updated survey data, Income and Expenditure and transparency use statistics for poverty monitoring and Survey, HIES Poverty IFC initiatives� policy decisions and analysis of expenditures in Profile, Education PER, − Strategic Community program design is transparent public debate Social Protection modeling, Investment TA low, and historically measured by number of NEC and Health Financing − Credit Bureau and little data is in the (Cabinet) submissions using Review fed into GoPNG Payments Systems public domain. new data analyses (baseline = policy and budget planning − Community revenue 0, target = 3) processes management TA pg 117 “improve Support from primary − Corporate governance availability of national donor partner on TA (landowner statistics and ensure statistics has not companies) effective coordination resulted yet in needed between National cross-agency linkages Statistics Office (NSO) between NSO and the and agencies that use line agencies. statistics� Cabinet (NEC) debates would benefit from being more empirically supported. 30 Attachment B Papua New Guinea CAS Completion Report FY08-FY11 Date of CAS Board Discussion: November 20, 2007 Date of CAS Progress Report: March 30, 2010 Report No. 53727-PG Period Covered by the CAS Completion Report: July 2008 – April 2012 Date of CAS Completion Report: 30 May 2012 I. INTRODUCTION 1. This report is a self-evaluation of the Country Assistance Strategy for the Independent State of Papua New Guinea for the period FY08 to FY11 (Report No. 41571-PG) by the Country Team. Consultations were conducted with different stakeholder groups including: government counterparts, development partners, civil society and the private sector. The report considers two main dimensions of the CAS: the extent to which the program outlined in the results matrix was achieved, and the World Bank Group’s performance in designing and managing CAS implementation. The primary purpose of the report is to extract lessons which can be applied to the design of the next country strategy for Papua New Guinea. The main reference points for this evaluation are the Adjusted CAS Outcomes presented on page six of the CAS Progress Report, dated March 30, 2010 (Report No. 53727-PG). 2. The FY08-FY11 CAS followed a period from June 2002 to March 2007 when there was no new lending. This break in lending followed the deterioration of Bank-government relations sparked by the suspension of disbursements for the Forestry and Conservation Project in 2003 due to noncompliance with legal covenants, and with the country’s own legislation regarding the award of forestry concessions. Under an Interim Strategy Note (ISN) produced in 2005, the Bank focused on two objectives: (i) promoting development dialogue; and (ii) building the foundations for improved governance through a robust set of analytical activities. While the analytical work generated during the ISN period in areas such as telecommunications and energy provided a promising platform for reigniting the lending program, there were only two active IDA/IBRD projects and one small IFC investment at the start of the new CAS period. II. ECONOMIC AND SOCIAL CONTEXT IN THE CAS PERIOD 3. PNG has enjoyed markedly improved economic fortunes since the mid-2000s. The global commodity price boom and stronger macroeconomic management underlie much of the reversal from the declining real incomes and macroeconomic volatility of the preceding 10 years. The global downturn of 2009 had only a mild impact on PNG’s economy, which expanded by 5.5 percent, outperforming most other developing economies and its regional peers. This follows several years of 6 to 7 percent annual GDP growth. While sharply higher global commodity prices have strongly supported incomes (average export prices doubled between 2005 and 2008, and were still two-thirds higher in late 2011), the non-minerals sector has led this resurgence, benefiting from private investment in future minerals production capacity as well as in the newly liberalized telecommunications and aviation sectors, for example. 4. Stronger fiscal management has done much to transform windfall gains from higher commodity prices into sustained macroeconomic growth. The Fiscal Responsibility Act 2006 placed ‘excess’ government mineral receipts associated with the rise in global commodity prices into various onshore trust funds and into paying down more expensive external loans and the government’s unfunded superannuation liabilities. By late 2011 gross public debt was expected to 31 near 20 percent of GDP, from about 70 percent in 2002. These accumulated surpluses then funded a fiscal impulse of as much as 13 percent of GDP in 2009-10 to counter the growth slowdown – more than permitted under the medium term fiscal strategy but with a less-than-proportionate impact on growth. 5. With growth in demand outpacing that of productive capacity, inflationary pressures built and became increasingly domestically-focused. PNG’s consumers were buffeted by the global energy and food price rises of 2007 and 2008, which lifted year-on-year urban average inflation above 13 percent and urban food price inflation to above 20 percent. The subsequent retreat in global prices slowed local price growth, but only to around 5 percent year on year. As domestic demand pressures built through 2011, reported inflation approached 10 percent, with the actual rate likely to be considerably higher given measurement and coverage flaws with the official CPI. 6. PNG’s financial sector, and the central bank’s restrained behavior, have been sources of strength for the economy. PNG’s banks were detached from the instability elsewhere and characterized by conservative lending practices creating excess short-term liquidity. NPL levels have been low and stable and capital reserves high. Credit growth has been modest relative to nominal GDP growth. The country experiences a structural excess of liquidity in the banking system, and this reduces BPNG’s ability to conduct monetary policy. Nonetheless, the central bank tightened the stance of monetary policy through calendar 2011 as inflationary pressures built, raising the overnight interest rate and banks’ official reserve requirements, and allowing a historically unprecedented 20 percent appreciation in the USD/PGK exchange rate (between November 2010 and 2011). However market interest rates have been stable or fallen, limiting the impact on borrowing costs. 7. Overall, the World Bank assesses PNG to have graduated from ‘fragile state’ status in 2009, as indicated by the CPIA assessment. Improved macroeconomic management has been the key driver of this progress. Nonetheless significant institutional weaknesses continue to limit the capacity of government to apply effectively its growing financial resources to achieve its development objectives, with a ranking stalled just above CPIA 3.2 for three years. III. PNG’S OVERALL PROGRESS IN ACHIEVING DEVELOPMENT OUTCOMES 8. PNG’s Medium Term Development Strategy for 2005 to 2010 (MTDS) was the main government document guiding preparation of the CAS. The MTDS promotes three strategic priorities: good governance, including public sector reform and enhanced political stability; export- driven economic growth, focusing on sectors where PNG has a comparative advantage, such as agriculture, forestry, fisheries, and tourism, supported by mining, oil, and gas; and rural development, poverty reduction, and empowerment through human resource development. 9. Considering the global Millennium Development Goal (MDG) targets overly ambitious and unrealistic for PNG, the government developed its own national MDG targets and indicators, and incorporated these into the MTDS. The GoPNG 2009-10 national report on progress towards achieving the MDGs presented showed disappointing results (see Annex B for a summary of progress). It appears “very unlikely� that PNG will achieve 5 out of 8 MTDS targets, and “likely� that it will achieve targets related to poverty reduction and child mortality, targets which are set at a considerably lower level than the global MDG targets. 10. Few Papua New Guineans experienced improvements in their living standards alongside the country’s strengthening macroeconomic conditions, and women’s conditions 32 remained especially poor. The lack of progress in health conditions has been most notable. Progress in improving maternal mortality, HIV-infection rates and access to clean drinking water has disappointed over the past decade. Progress in improving access to education (in particular in reducing the gap between boys’ and girls’ enrollment) has been better, but PNG remains off-track for achieving universal primary completion by 2015. In 2009, the Department of Education calculated a national net enrollment rate in 2009 for grades 1-6 of only about 45 percent and a gross enrollment rate of about 78 percent, although there is significant regional variation and anecdotes suggest significant improvements in 2010 and 2011 as school tuition fees were eliminated. Progress in reducing poverty is unclear. Simulations of the poverty rate based on aggregate GDP and price data suggest a declining share of population living below basic means lines, however much of the aggregate economic growth has been highly concentrated (both geographically and among particular groups), and anecdotes suggest very poor living conditions persist in large areas of the country. Finally, crime and violence rates especially in urban areas and parts of the Highlands remain high, affecting both livelihoods (especially of women) and the cost of doing business. IV. ASSESSMENT OF PROGRESS AND ACHIEVEMENTS OF CAS OUTCOMES Assessment Summary 11. The overall program performance rating for PNG CAS from FY08 to FY11 is Moderately Unsatisfactory. The re-engagement underpinned by the CAS generated significant momentum in both dialogue and programming; however, as Table 1 shows, most outcomes for both CAS pillars were either Not Achieved or only Partially Achieved. In cases where significant progress was made on intermediate indicators, performance was considered to be Partially Achieved. It should be noted that significant progress on the complete list of potential outcomes included in the CAS would have required resources far beyond those envisioned in the CAS envelope; this CAS supported a re-engagement in which a broad range of possible activities was put forth with the expectation that client demand would determine which ones were taken up through the improved policy dialogue that had been built with the Government. 12. Indeed, the CAS document acknowledged that the program described was “more of a menu of valid assistance activities than a literal roadmap� and that it was “ambitious in relation to the Bank Group’s budgetary and lending resources.� If the subset of CAS interventions that were taken up are considered as a whole, the CAS period did see a very satisfactory re-engagement which has built a solid base for achieving development impact. Table 1: Summary of Pillar Outcomes and Status CAS Pillar/Outcome Status Pillar I: Promoting and maintaining sound economic and natural resource management GoPNG shows continued awareness of the importance of maintaining fiscal Achieved discipline and a stable macro-economic environment Expanded and strengthened multi-stakeholder mechanisms to review overall Not achieved policymaking and extractive industries Increased public availability of accessible information to support monitoring of Not achieved government performance Strengthened institutional structures in mining sector, emphasizing transparent Partially achieved 33 Table 1: Summary of Pillar Outcomes and Status CAS Pillar/Outcome Status management and resource distribution Program in place to leverage extractive industry and enclave project revenues Partially achieved for broader SME employment Strategic framework for disaster risk management and climate change Partially achieved adaptation/mitigation adopted by GoPNG, investment supported by partners Pillar II: Improving livelihoods and service delivery, especially for the rural poor Stronger business enabling environment, with improved financial infrastructure Partially achieved Greater number of public-private partnerships in infrastructure Not achieved Sustainable increases in commercial agriculture production & artisanal & small- Not achieved scale mining (ASM) Models for improved local service delivery tested through partnerships between Not achieved government and civil society, and within and across communities Improved condition of roads/ bridges in selected provinces Achieved Strategic energy sector planning launched to provide framework for investment Partially achieved in lower-carbon and lower-cost electricity in rural centers and urban concentrations Expanded access to affordable, reliable telecoms in rural areas & outside Port Partially achieved Moresby Increased resources supporting higher primary school participation and grade Achieved retention Improved evidence base for heath sector policies and plans Partially achieved More effective national HIV/AIDS response through evidence-based policy and Not achieved interventions 13. The following paragraphs identify the strengths and weaknesses of the CAS program and provide more detail on this mixed performance. 14. The CAS period began with only two active projects, and the clustering of the delivery of new projects at the end of the CAS period did not allow sufficient time for outcomes to emerge. Of the nine IDA credits active at the end of FY11, four of them were approved in FY11 and two in the last quarter of FY10. The two projects approved at the end of FY10 suffered significant delays in effectiveness which meant that activities only began in early FY12. The pace of three new project approvals per year envisioned in the CAS proved to be too rapid for a re-engaging client; accelerating the lending program from two to nine projects put significant stress on the capacity of government to design and process new projects with the result of long delays for even simple actions such as preparation of legal opinions. 34 15. Greater emphasis on lending operations compared to analytical work meant that policy and technical assistance outcomes were a small share of the overall body of WBG interventions, although the positive impact of Bank Group analytical interventions was quite notable. IFC advisory services to the Investment Promotion Authority (IPA) have had a measurable impact on the speed and ease with which business can be registered. Economic advice on managing natural resource revenues and linkages to other emerging economies’ approaches to sovereign wealth funds (SWFs) provided a strong point of departure in the design of a PNG’s SWF laws. And the evolution of the overall telecommunications sector, including the design of the National ICT Policy and the Universal Access Fund, was influenced by the Bank’s Rural Telecom Options Study. 16. The absence of a supportive environment for public-private partnerships was an obstacle to IFC and IDA investments, but new opportunities for expanding access to finance and mobile telephony were seized by IFC. Rather than investing in restructuring state-owned enterprises in sectors such as energy and telecommunications, IFC made a catalytic investment in a new private sector operator, Digicel, which contributed to a rapid expansion in the mobile telephony market. This effort was complemented by Bank policy advice on the regulatory environment. Lack of government consensus on public and private roles in the energy sector slowed progress in Bank engagement until the very end of the CAS period, with significant momentum building from November 2011 onwards and good prospects for transformative WBG involvement in the new CPS period. 17. Effective government champions did not emerge in several sectors where significant activity was expected, so movement has been slow. The CAS anticipated investments in energy and rural development, and a major commitment to EITI. While none of these interventions came to full fruition, some significant advances were made during the CAS period. In each of these cases, the primary counterparts responsible for these areas took much longer than expected to forge sufficient consensus for activities to move forward. In the case of energy, the complexity of stakeholders involved in deciding on the roles of public and private sector meant that consensus was only reached in late 2011 with the approval of the new Electricity Industry Policy. In the case of EITI, patient and modest investments in capacity and South-South learning reached a critical mass in February 2012 with formation of the multi-stakeholder group and increased momentum building towards a Cabinet submission in the second half of 2012. 18. It has taken time and significant effort to rebuild the institutional knowledge to operate efficiently in PNG after a period of limited project activity. The processing of projects suffered from various bureaucratic hurdles moving from preparation through to implementation, including delays in: preparing and signing Subsidiary Agreements; establishing trust instruments and associated designated accounts; processing withdrawal requests through a centralized unit in the Department of Treasury; etc. With experience, ways to navigate through these procedures have been identified and applied, but the impact on the speed of implementation was significant, particularly for the two projects approved in FY08 and the two approved in FY10. CAS Pillar I: Promoting and maintaining sound economic and natural resource management 19. The first pillar of the CAS aimed to consolidate improvements in economic growth and fiscal policy while increasing transparency and accountability in the management of public finances and natural resources. 35 20. Pillar achievements as compared to CAS goals. Out of six outcomes, one was fully achieved and three partly achieved. Strategic advice, contributed at a time of strong economic performance, led to improvements in debt management and fiscal management, and around future natural resource revenues. Dropping the planned project on public sector oversight left EITI as the only channel for strengthening mechanisms of transparency and accountability, and government engagement with civil society. EITI was slow to progress, but significant actions were taken in late 2011 and early 2012, and a formal Government decision is expected in the second-half of 2012. Two projects that will contribute to goals related to this pillar are picking up pace in implementation; the Mining TA project faced delays in effectiveness but is now on-track, and the SME Access to Finance was approved late in the CAS period but is accelerating. Analytical work on climate change and disaster risk management has fed national strategy development and new grant-funded activity, but the grant projects have only recently launched. Bank assistance 21. At the time of the CAS Progress Report, two of the six original outcomes were dropped: “improved oversight of the public sector, including by the Ombudsman Commission and Auditor General� and “improved effectiveness and transparency in budget preparation, execution and reporting.� In an effort to improve the likelihood of delivering an impact on governance, the Bank program shifted towards a more focused approach aimed at supporting improved government accountability and transparency in extractive industries, in particular, in mining. One new outcome was added to take advantage of opportunities created by massive new investments in oil/gas/mining, seeking to translate the medium-term expansion in construction and related activities into new and more sustainable SMEs. 22. The CAS period began without any active lending projects under this pillar, and added two new projects, one of which was not included in the Proposed CAS Program (SME Access to Finance). Two projects were dropped (Oversight and Accountability and Gas Field Development). Table 2 presents lending projects, analytical and technical assistance activities that were both planned and delivered. Table 2: Bank Assistance under Pillar 1 Ongoing Actual Planned Actual Economic and Planned Lending at lending Lending not Sector Work (ESW)/TA ESW/TA not start of delivered and recipient-executed delivered CAS grants {None} • Small and • Strengthening • Managing Volatility • Country Medium Institutions of Economic Note Economic Enterprise Oversight and • Household Income and Memorandum Access to Accountability Expenditure Survey • Public Finance • Disaster Risk Expenditure (FY11) • Gas Field Management and Climate Review in Development Change Adaptation in Education • Second Mining Agriculture and Transport • Strengthening Sector TA Sectors Oil-Gas Sector (FY08) • Financial Competency Governance Study • Pacific 36 Table 2: Bank Assistance under Pillar 1 Ongoing Actual Planned Actual Economic and Planned Lending at lending Lending not Sector Work (ESW)/TA ESW/TA not start of delivered and recipient-executed delivered CAS grants • Debt Management Alliance for Performance Assessment Sustainability • Financial Sector • REDD Assessment Program Baseline and • Study tour to Chile on Strategy Sovereign Wealth Fund • REDD • Political Economy Stocktaking Analysis of Local • Public Finance Development Planning, Review Resource Allocation, and • Conservation benefit Sharing Initiatives • EITI MDTF Technical Stocktaking Assistance Grant • Public • Climate Change Strategic Expenditure Framework Tracking • Climate Change Survey Stocktaking • Reducing the Risks of Disasters and Climate Variability: Papua New Guinea Country Assessment Outcome I.1: GoPNG shows continued awareness of the importance of maintaining fiscal discipline and a stable macroeconomic environment 23. An historical reversal in external conditions, along with stable well-managed macroeconomic policy and the continued benefits of reforms early in the decade, all buoyed PNG’s economy. Bank engagement in this area built over the CAS period, providing both public interventions and more discreet commentary on developments and policy decisions. Engagement has been deepest around managing volatile natural resource revenues, through analytical work and by connecting PNG’s authorities to relevant policy makers in other emerging economies that offer insight into the design and development of sovereign wealth funds (including Mongolia, Chile, Timor-Leste, and others). The Bank has taken a leading role in the execution and analysis of a household income and expenditure survey, PNG’s first comprehensive effort in 13 years to measure living standards, health outcomes and update key macroeconomic indicators such as the Consumer Price Index and National Accounts consumption measures. The Bank led a Financial Sector Assessment Program (FSAP) mission in 2010 that assessed the potential for risks in the financial sector for the larger economy, and followed that with a range of targeted interventions. The Bank has provided GoPNG’s debt management team ongoing support, with a DeMPA leading to training and skill-building programs, and is in discussions on a more robust program for the new CPS period. 37 Outcome I.2: Expanded and strengthened multi-stakeholder mechanisms to review overall policymaking and extractive industries 24. This outcome was adjusted in the CAS-PR to focus specifically on extractive industries rather than public spending as a whole. This shift came in light of the limited Government interest in follow-up on the Public Expenditure and Revenue Review (PERR), and the absence of appetite for a Public Expenditure Tracking Survey (PETS). The outcome specified in the CAS-PR focuses on EITI progress, namely the formation of multi-stakeholder structures to join and a cabinet decision to implement EITI. While modest progress was made with formation of a State Working Group on EITI, culminating in Government inviting industry and civil society to join the dialogue in early 2012, the cabinet decision is not expected until later in 2012. Outcome I.3: Increased public availability of accessible information to support monitoring of government performance 25. Despite strong support outside of government, the flagship project planned to deliver on this outcome, the Strengthening Institutions of Oversight and Accountability project, never came to fruition due to a lack of support within the Cabinet. In the absence of the project, little remained in the Bank’s work program to influence public availability of information to assess government performance, except for EITI. As progress builds on EITI, early discussions are underway on a proposed capacity building program for government and civil society on EITI audits, with additional opportunities being explored for broader civil society involvement. Outcome I.4: Strengthened institutional structures in the mining sector, emphasizing transparent management and resource distribution 26. Building on the first Mining Sector Institutional Strengthening Technical Assistance Project (MSISTAP I) which closed in May 2006, the second Mining TA project will strengthen sector governance and improving outcomes from social expenditures for mining communities. The Mineral Resource Authority has engaged in staff training and capacity building, and the Bougainville Department of Mining is operational and working on the “draw-down of powers� from national government. Progress has been made on tax and geotechnical capacity fronts, among other areas, although movement was limited until late 2011 due to significant delays and a lack of proactivity in MRA dialogue with other stakeholders such as IRC. 27. Engagement in the oil and gas sector has been modest and slow to translate into a concrete activity; gas development risk-sharing with ADB envisioned in the CAS never came to fruition, but the Bank has mobilized IDC grant resources to support GoPNG in developing a registry of oil and gas licenses, following on similar Bank work in the mining sector. 38 Box 1: Learning from World Bank Work in Mining to Model a Multi-Stakeholder, Multi-Sectoral Approach to Gender Issues Bank experience in mining sector governance provides a model for integrating analytical and trust-funded work into IDA credits to build a platform for broader dialogue and more robust commitment to gender mainstreaming across the portfolio. A 2006 JSDF grant to work with women’s associations grew out of diagnostics in mainstream IDA work in mining sector governance from 2000-2005, and in turn the lessons of the grant program implementation were fed into design of the follow-on IDA credit (2009-2013). The key features were: • Ensure the locus of intervention is culturally appropriate: Support the economic and social empowerment of women for collective action through capacity building with women’s associations (PNG society built on collective customary systems) • Customize the interventions based on self-diagnosis and community demands: each community’s women’s association(s) defines their needs, and program helps meet them • Anchor program in authoritative institutions who already possess entrée to formal power structures: design of grant proposal supported under first IDA credit through GoPNG Dept of Mining; JSDF grant implemented by PNG Chamber of Mines and Petroleum; lessons learned from JSDF implementation built into new IDA credit • Use close ties to government (through IDA credit) and industry (through Chamber of Mines) to nurture relationships between women’s association leaders, mining/oil companies (community relations, gender desk) and government policy makers • Identify allies and male champions of change, and use those relationships to lobby successfully for formal systematic recognition of women and children’s issues in benefits-sharing and community investment programs; women’s representatives participate in discussions previously dominated by men in industry and government • Embed innovations into systems: the 10 percent set-aside for women and children in the 2009 re-negotiation of the Ok Tedi Community Mine Continuation Agreement has inspired specific proposals being considered in the 2010 Mining Policy Review. This multi-stakeholder engagement not only allowed for a more nuanced IDA credit design; it also broke down some of the embedded barriers to creative discussions on surmounting barriers to gender equality and women’s economic empowerment, which in turn laid the foundation for a participatory multi-stakeholder Country Gender Assessment. The CGA, which is being finalized in mid-2012, is unique in PNG experience for being genuinely participatory (with civil society and private sector actors involved actively in contributing to chapters of the draft CGA) and in being led by Government and facilitated by, not driven by, development partners (the ADB and World Bank with support from UN and Australia). Building upon early momentum from the CGA multi-stakeholder process, the Bank has deepened networking on gender issues by ‘brokering’ connections between academia, civil society, and donors through the Gender Research Fair sponsored annually. Outcome I.5: Program in place to leverage extractive industry and enclave project revenues for broader SME employment 28. This outcome was added at the time of the CAS-PR to enable the Bank and IFC to respond to the opportunities for new business activity and employment generated by the massive increases in oil/gas and mining investment. The rapid preparation, approval and launch of this innovative Bank- IFC risk sharing facility is a noteworthy accomplishment in and of itself. Since this project was only approved in Q4 of FY11, only modest results will be delivered within this CAS period: one of the two target financial institutions is active already in the RSF, loans began being issued in February 2012, and the targeted outreach to women begins in mid-2012. Outcome I.6: Strategic framework for disaster risk management and climate change adaptation and mitigation adopted by GoPNG, and investment program supported by partners 39 29. A process for preparing a National Strategy for Climate Compatible Development was launched in 2010 with analytical contributions from the Bank. Unfortunately, the Bank’s analytical work lost momentum as it was completed at a time of controversy, when the government’s lead climate change agency was abolished following the firing of its Director on charges related to the fraudulent sale of carbon credits. Other bogus carbon finance deals were being negotiated with uninformed landowners which further undermined any movement toward operationalizing carbon finance schemes such as the REDD program, which was identified as a potential activity in the CAS. 30. Climate change adaptation became the focus of Bank interventions, conceptually linking up with the disaster risk management agenda in the Pacific which was funded primarily through grants from the Global Facility for Disaster Reduction and Recovery, and the Japan Policy and Human Resources Development technical Assistance Program. With the new Office of Climate Change and Development (OCCD) as the coordinating partner, a program of mainstreaming DRM/CCA strategies into two sectors where the Bank is most active, transport and agriculture, began at the end of the CAS cycle and was welcomed by Government as the most appropriate role for the Bank at this time. Support to the government also includes a national DRM/CCA Specialist placed in the OCCD since June 2011. CAS Pillar II: Improving Livelihoods and Service Delivery, Especially for the Rural Poor 31. The second pillar of the CAS aimed to encourage broad-based economic growth and wider participation in economic development through expanded opportunities for income generation and improved services. 32. Pillar achievements as compared to CAS goals. Out of ten outcomes, one was achieved and three were partially achieved. The long-running RMRP project reached its established targets, and is in the process of transitioning to RMRP II, applying the successful delivery model of the first phase and investigating potential design enhancements to be informed by ongoing research on the gendered impacts of road projects. Analytical work and policy advice in the areas of business registration, access to finance, telecommunications and health have produced the most tangible results, although much of these activities have yet to realize their full potential. Investment projects in the agriculture sector (focusing on oil palm, cocoa and coffee) faced significant implementation delays but are now accelerating, and plans for investments in community-driven service delivery and analytical work on HIV-AIDS are both underway as the CAS period draws to a close. Support to the education sector has taken a different direction than envisioned in the CAS, but funding has surpassed expectations and strategic policy advice has played an instrumental role in major policy change. Government support for the increased Bank engagement was further enhanced by the request late in the CAS period for the Bank to lead a Sectoral Public Expenditure Review in education, which is ongoing. Bank assistance 33. At the time of the CAS Progress Report, ten of the eleven outcomes remained relevant, and only one outcome was dropped, “improve potential in niche industries, including tourism.� Adjustments were made to some of the outcomes to better reflect the state of Bank interventions at the time, and to capture more relevant outcomes. 40 34. The CAS period began with two active lending projects, and added six new projects, one of which was not included in the Proposed CAS Program (Productive Partnerships in Agriculture), and one of which was substantially different than originally envisioned (Education). Table 3 shows lending and analytical assistance (both planned and delivered). Table 3: Bank Assistance under Pillar 2 Ongoing Actual Lending and Planned Lending Actual ESW/TA Planned Lending at Grants not delivered and recipient- ESW/TA not start of CAS executed grants delivered • Roads • PNG Smallholder • Rural Service • READ- PNG • National Maintenance Agriculture Delivery and • Inclusive Infrastructur and Development Local Development in e Rehabilitatio Project (FY08) Governance Post- Conflict • Review of n Project • Rural Project Bougainville Local • Second Communications • Provincial • HIV/AIDS Service Gazelle Project (FY10) Reconstruction population Bio- Delivery Restoration • Productive and behavioral Models Project Partnerships in Development Survey • Sources of Agriculture (FY10) • Programmatic • Early Grade Rural • Roads Maintenance Support to Basic Reading Growth and and Rehabilitation Education Assessments Livelihoods II • Energy Sector (EGRA) • Strategic (FY11) Strategy • TA to the Aviation and • Urban Youth Development GoPNG Social Airports Employment (neg Q4 FY12) Protection Developmen Project (FY11) Taskforce t (with IFC) • Flexible Open • Health Human Distance Education Resources (FY11) Review • READ-PNG grant (FY11) • Inclusive Development in Bougainville grant (FY11) Outcome II.1: Stronger business enabling environment, with improved financial infrastructure 35. The 2010 Financial Sector Assessment Program, or FSAP, served as the baseline for WBG support to an increasingly robust, well-supervised, and inclusive financial services sector in PNG. Details on FSAP follow-on activities, and number of which are funded through the global multi-donor trust fund FIRST which supports financial sector regulatory strengthening and FSAP follow-up, may be found in Box 2. 41 Box 2: Broad WBG Support for a Vibrant Financial Services Sector The financial services sector in PNG is more sophisticated and effective than in many countries of similar age and income level, but there are still significant challenges in terms of financial inclusion, a need for more robust supervision and regulation adapted to new global industry developments, and better service across the full range of banking customers especially the large proportion of ‘unbanked� PNG citizens living in rural areas. Support and technical assistance, including work following on from the 2010 FSAP, includes: • World Bank support is being provided to the Bank of PNG and the Institute of National Affairs to conduct a Financial Competency Survey, using resources from the Russia-sponsored Financial Literacy Program Trust Fund, which will provide valuable “action-able� information to allow better design and implementation of financial inclusion programs. • IFC support to the Bank of Papua New Guinea has helped to shape the National Payment System Act and Vision, while also procuring a new system for interbank clearing and drafting regulations for mobile payment. • In PNG, the FIRST trust fund is currently supporting several critical activities: - Implementing On-site Supervision (with the PNG Office of Insurance Commissioner, or OIC) will strengthen supervision in the general insurance sector in response to the FSAP-identified need for deeper skills and increased technical and supervisory resources. - Development of Prudential Standards (with the Central Bank) will support BoPNG in updating the existing prudential standards and develop new standards in key risk areas. - Development of Crisis Preparedness Framework, (also with the Central Bank) will provide assistance requested by BoPNG to develop their crisis preparedness framework as per FSAP recommendations. In addition to these technical elements supporting improved financial sector oversight, the World Bank Group is engaged in strategic investments that focus on expanding access to finance in a way that supports much-needed diversification of PNG’s economy away from the dominant oil/gas/mining sector. The IDA-IFC collaboration on a Risk Sharing Facility to improve SME access to finance is a cornerstone in this strategic sectoral program, and is open to participation by four of the nation’s leading financial institutions. IFC’s strategic investments in Bank South Pacific provides a platform for their multifaceted engagement focused on expanded access to finance for agribusiness, SMEs, women in business, and national businesses. 36. Substantial IFC technical assistance, policy advice and investments have led to revised legislation and process changes that simplified procedures and improved access to finance for Micro Small and Medium Enterprise (MSMEs). Support to the Investment Promotion Authority (IPA) will lead to the elimination of time-consuming business registration steps, and the establishment of an online registration system which is being rolled-out in 2012. Amendments to the Companies Act and Business Names Act are likely to strengthen corporate governance and simplify the registration and amendment of business names. 37. Access to finance has improved with both IFC technical assistance to Credit and Data Bureau (which has led to a six-fold increase in credit inquiries) and IFC investments in PNG Microfinance and Bank of South Pacific (BSP), the latter of which included targeted support to rural finance. Since the IFC investment in PNG Microfinance in 2009, the value of loans outstanding has doubled, from K6 million in 2009 to K12.2 million in 2010. Outcome II.2: Greater number of public-private partnerships in infrastructure 38. The PPP work planned for a wide range of sectors (e.g. fisheries, petroleum, and aviation) did not materialize. Rather, the planned PPP engagement in telecoms was directed at a private company (Digicel) and demand emerged for work on the supporting policy for Special Economic Zones (SEZ). In October 2010, IFC provided the Department of Commerce and 42 Industry with detailed recommendations on the shape of Special Economic Zones legislation for PNG. GoPNG ran a consultation process with government agencies and, drawing from the IFC recommendations, prepared a draft Bill. A secondary part of the SEZ project (to be completed once the legal and regulatory framework was complete) – to undertake a market demand analysis for a fisheries processing economic zone and an assessment of possible sites – was dropped when government pre-emptively selected the site of the Pacific Marine Industrial Zone before the analytical work had begun. Outcome II.3: Sustainable increases in commercial agriculture production and artisanal and small-scale mining 39. Significant delays in bringing the smallholder oil palm project from approval to implementation means delivery of planned outcomes has been delayed. This was the first lending project to be prepared following a long break in IDA borrowing, and was seen as a way to accelerate the re-engagement due to the strong case for return on investment. However, delays followed the project every step of the way: it took 13 months to go from Board approval to effectiveness, and then another 10 months for the core project team to be established. To allow sufficient time to implement the project, government requested an extension and the Bank is restructuring the project to ensure that all activities planned within the extension period can be successfully completed. With most of the building blocks for implementation in place by end-2011, road maintenance, improved extension services and infill planting of oil palm blocks started in early 2012; thus, increases in smallholder production are expected in mid-2012. 40. With the addition of a project designed to improve the livelihoods of cocoa and coffee producers, the Bank expanded its agriculture program to cover the three crops (including oil palm) which constitute about 90 percent of PNG’s agricultural exports. While the project was only approved towards the end of the CAS period, and has yet to produce its intended results, the preparation of the project led to some minor achievements. The Bank worked with the Cocoa Board and other stakeholders on further developments of the national cocoa industry strategy and, through a partnership with Mars Inc., provided technical expertise to the Cocoa Board. Similarly, the Bank drew from global expertise to work with the Coffee Industry Corporation on a program to make the Coffee Industry Strategic Plan operational. 41. A small grant project aimed at mitigating or eliminating the negative environmental, social and cultural effects of artisanal and small-scale mining (ASM) on affected communities, closed in the early part of the CAS period. The result tagged to this activity in the CAS Matrix was mis-identified, as it focused on increased ASM employment and incomes which could not be directly linked to the project design. The project did, however, produce valuable guidance and training for small scale miners such as a Guide for Community Clean Water Supplies, a Code of Safe Mining Practice, and a booklet on Laws Governing Small Scale Mining. Outcome II.4: Models for improved local service delivery tested through partnerships between government and civil society, and within and across communities 42. Following the completion of a CDD stock-take and roadmap in 2007, an overly ambitious menu of analytical work and investment projects focused on local service delivery was proposed in the CAS. These plans, including a component of the smallholder oil palm project which was dropped during project restructuring, have been scaled down to a pilot rural service delivery project now planned for two provinces and co-financed by a Bank-managed trust fund and 43 the PNG Sustainable Development Program (PNGSDP). Based on results of this pilot, the project may be scaled up through resources from IDA and other donors. 43. Projects focused on strengthening the engagement of women and youth in local development have also been approved and are mostly in the early stages of implementation, providing indirect support to this outcome. Two grant-funded projects are supporting women: one focused on enhancing economic opportunities in mining areas, and another aiming to strengthen the role of women and women’s organizations in local development and post-conflict peace-building in Bougainville. As a result of the training provided by the Women in Mining project, participants have engaged in new income generating activities and taken on new positions of leadership in their communities. The Bougainville project is in early stages, but results are expected both in the form of strengthened women’s organizations and in the delivery of local services prioritized by women. 44. With little detail provided in the CAS as to the scope and design of initiatives to address the needs of youth, the Bank’s attention to this target group has evolved into a sizeable investment project focusing on urban youth employment in the capital, Port Moresby. As with most of the projects in the active portfolio, the main project activities began only at the end of the CAS period, so there are no results yet. One achievement of project preparation is the agreement of several private sector companies (BSP, Digicel and Exxon-Mobil) to either provide in-kind or financial contributions to the project. See Box 3 on the next page for more detail on the ways in which the Bank has engaged the private sector to leverage pro bono specialized services and co- financing in support of IDA-GoPNG development initiatives. Box 3: Leveraging Private Sector Contributions to Empower Youth and Communities One of the particular advantages of the private sector is the opportunities that it can provide to young people. A key achievement of the Urban Youth Employment Project (UYEP) is the involvement of private sector organizations, such as ESSO Highlands (PNG LNG), in the provision of co-financing for key project activities that complement the organization’s own community outreach programs. Financing from PNG LNG is being used to strengthen the focus on gender inclusion, communications and monitoring and evaluation as well as the Bank’s own supervision capacity of the project. PNG LNG is also providing funding to another Bank program aimed at empowering women in mining communities to engage more actively in oil project planning consultations, and to provide women with skills for improved livelihoods such as agriculture and micro-finance. Under the “Save Your Future� scheme, UYEP has signed a MOU with BSP Ltd and Digicel PNG to effect electronic payments to trainees and establish a link to the mobile banking system. The scheme will offer basic financial literacy training and involve setting up electronic bank accounts for each of the trainees that are eligible for work placements in order to help increase their knowledge, access and usability of formal banking services. Significant co-financing for Bank-funded projects has also been provided by the PNG Sustainable Development Program (PNGSDP), a corporate foundation established as a result of an agreement between the Government of PNG and the Australian company formerly operating the Ok Tedi Mine. PNGSDP has, for example, provided parallel financing for SADP and RMRP, and more recently decided to contribute funds to a trust fund managed by the Bank to support the piloting of the Rural Service Delivery and Local Governance Project. Outcome II.5: Improved condition of roads and bridges in selected provinces 45. The Road Maintenance and Rehabilitation Project has achieved its performance targets, contributing to an increase in the percentage of roads in “good� and “fair� condition from 20 percent in 2002 to 74 percent in 2010. In total, 640 kms of national roads, 220 kms of provincial roads and 65 bridges were maintained or rehabilitated. While project targets were met, it became increasingly difficult to meet these targets as the average cost of road maintenance per 44 kilometer increased sharply from 2008 to 2010. The high cost and difficulty of engaging contractors to work in isolated areas led to a decision to use the force account method of implementation in Manus province when the rapidly evolving market for contractors resulted in poor contractor interest in small and remote areas. See Box 4 for the lessons from this experience, which may have relevance for other countries with thin private sector capacity. 46. Emergency assistance was provided in Oro Province through the Smallholder Agriculture Development Project to address the impact of the November 2007 tropical cyclone that devastated large parts of the province’s infrastructure. Early in 2008, IDA and PNGSDP agreed to support an emergency package to re-open access to smallholder oil palm blocks cut off by the flood. Thirty- seven culverts and seven wet crossings were installed with PNGSDP funding. Box 4: Use of Force Account to Re-Build Roads under Challenging Conditions In 2010, as part of the Bank funded Road Maintenance and Rehabilitation Project (RMRP), the contractor hired to rehabilitate the East-West Highway in Manus Province defaulted on the contract, citing a number of factors which would not allow them to complete their contractual obligations. The firm claimed that significant project delays were incurred due to adverse weather conditions, and that they were losing money by paying personnel that could not work during these periods; there was also consensus amongst the private sector that higher-margin opportunities were available in the Highlands provinces, and few firms remained interested in working in small and remote places. Arguing that hiring a new firm would prevent the project from being completed on time, with significantly higher costs if a new firm were brought in, the Department of Works (DoW) proposed implementing the project via a “force account� approach. It was considered that other contractors would not be interested in a relatively small project in an isolated location during a construction boom driven by the LNG project. Using force account, the DoW managed to complete the Manus East-West Highway rehabilitation on time, and within budget. Force account entails depositing project funds directly with the DOW; their IDA project management unit (EPM) supervised the construction works, as they would for other private contracting firms, and they ensured technical quality standards were met and that use of funds was efficient. While building private sector capacity through competitively bidding for and then implementing road works is the preferred means of implementing road works, this experience has demonstrated that “force account� is a viable alternative, particularly when some or all of the following challenging conditions are encountered: a) intense or prolonged adverse weather conditions, b) extreme isolation of project site, and c) limited timeframe for fulfilling necessary procurement procedures (for example, project closing date approaching or emergency response type situation). 47. The results of socio-economic surveys beginning in project provinces in 2004 and finishing in 2009 revealed significant improvements in the lives of beneficiary communities, although the project only had significant impacts in specific areas. Access to markets (measured by trips to town) increased 1.7 times on average in sample villages, and only 1.4 times in control villages. Roadside sales increased and clearly benefited from the rehabilitated roads, with more traffic and passengers on the roads. Potential for income generating activity expanded especially for women, who can earn money near home and still mind children and attend to other household livelihood tasks. 48. Originally slated to close in FY03, the Second Gazelle Restoration Project was restructured several times and extended to close in FY08. Since the project had only a few final activities in play at the beginning of this CAS period, the results framework did not incorporate indicators from it. However, it was a highly rated project, and in FY11, a review drawing lessons mainly on implementation through a reconstruction authority, and identifying ways in which those lessons can be applied to future reconstruction projects in PNG was completed and discussed with stakeholders. A summary of key lessons can be found in Box 5. 45 Box 5: Implementation Lessons from the GRA Post-Disaster Project As a post-disaster reconstruction project in a capacity-constrained client country, the GRA work might have been expected to perform only moderately well, but in fact it was well-rated by the Bank and Independent Evaluation Group, and very highly regarded by Government and communities. Lessons learned provide evidence of factors that contributed to success and might be relevant for other efforts, as well as actions that could increase Bank and client effectiveness not only in other post-disaster settings but in the challenging environment for project implementation throughout PNG: 1. Constantly renew and cultivate relationship with National Departments, leveraging support through different stakeholders to resolve problems such as lack of counterpart funding. 2. Intensive upfront training by donor agencies in procedures and practices can make a project run more smoothly, reducing delays, costs, and frustration levels. 3. Reflecting on the implementation experience and recognizing the value that engineers played in nurturing the evolving private sector capacity to perform well on reconstruction contracts, GRA now feels they should have engaged more technical staff earlier in the program. 4. Communications with the full range of stakeholders need to be better managed to ensure that the information being given to people was heard, and understood, in context. 5. Explicit attention should have been given to the risk that even groups not directly affected – either as relocated populations or host populations – would feel either invested in or disadvantaged by the Medium Term Restoration Program (MTRP). 6. Timeframes need to be realistic. It was apparent that the MTRP was too ambitious for a 3-4 year timeframe, thus placing unrealistic pressure on GRA and other stakeholders to deliver. 7. As an example of transition from reconstruction to development, the GRA transition from the ITRP to the MTRP illustrates the importance of common principles and pillars that are widely communicated (and even publicly debated, as in the move of ENBPA from Rabaul to Kokopo) even though administrative arrangements and implementation modalities may change as the transition is made. 8. Explicit agreement on both formal and informal “standard operating procedures‟ in the emergency context are important so that the broader team – implementing partner agency and donor agency – are not working at cross- purposes. 9. The short notice, intensive meeting schedules, and large volume of documents required for World Bank supervision missions were a significant burden to stakeholders, although GRA reported that they valued the technical support and mentoring from Bank missions. Extracted from the report: “Building Capacity by Rebuilding Community Assets: Learning from the Gazelle Restoration Authority (GRA) Experience.� Outcome II.6: Strategic energy sector planning launched to provide framework for investment in lower-carbon and lower-cost electricity in rural centers and urban concentrations 49. The original CAS outcome of “improved availability and lower cost of electricity,� was modified in the CAS Progress Report to focus specifically on the strategic approach needed to make wise energy investments. After being fully appraised, the main project designed to achieve this outcome, the Energy Sector Development Project (IDA with GEF co-financing), stalled due to a lack of consensus among key government stakeholders regarding the roles of the public and private sectors in power generation and transmission. While Government stakeholders worked to resolve the delay, the Bank deployed a modest program of programmatic technical assistance (including workshops, a study tour to Lao PDR and highly targeted analytical work). 50. These activities increased stakeholder awareness of hydropower financing options, and raised the social and environmental issues that must be managed as a part of a national hydropower 46 program. This set the stage for the Bank to be brought in quickly at the end of 2011 when the Cabinet agreed on their Electricity Industry Policy and re-started plans for project negotiations, which are now scheduled for June 2012. In close collaboration with Government, the Bank mobilized an ASTAE/PPIAF grant for support for the electricity regulator, and agreed with GoPNG on TA on information exchange (workshop bringing international perspectives) and consultant TA for capacity building on rural electrification access, to be deployed in parallel with the upcoming IDA/GEF project and to help lay the foundation for expanded engagement in the energy sector in the CPS 2012-2016 period. 51. Two GEF-funded projects, with similar design and outcomes, were not successful in increasing use of renewable energy sources through incentives for buyers to borrow. Both projects relied on the use of risk-sharing guarantees with banks to encourage them to market specialized lending products for this purpose. Unfortunately, none of the financial institutions involved made an effort to develop and market these products, and, in the end, 24 loans were provided with total borrowing of less than $28,000 for both projects combined. For the larger project, the Sustainable Energy Financing Project, PNG only represented 6 percent of total borrowing for the three participating countries (PNG, Fiji and Solomon Islands). Outcome II.7: Expanded access to affordable and reliable telecommunications services in rural areas and outside Port Moresby 52. As one of the most dynamic and competitive sectors in the PNG economy, the private sector is aggressively driving increased access to affordable telecommunications. The Rural Communications Project is in the early stages of implementation, so there are few significant achievements, although the Rural Connectivity Study completed in 2007, and subsequent follow-up technical assistance during this CAS period made significant contributions to the design of the Universal Access Fund. The UAF (as a component of the National ICT Policy) was adopted by Cabinet in March 2009, and a new converged ICT regulator (the National Information and Communications Technology Authority, NICTA), combining the functions of ICCC and the past regulator, PANGTEL in telecommunications, was established to be independent of Government. Support to an inclusive and growing private telecommunications sector continued as well, with IFC’s Business Edge training program trained 130 Digicel distributors in good business practice and accredited four national trainers to deliver the training themselves. Original Outcome II.8: Increased resources supporting higher primary school participation and retention 53. This outcome remains highly relevant to PNG’s development strategy, particularly to reaching the Millennium Development Goals (MDG #2). The majority of external funding for PNG’s education system is focused on increasing access by expanding the supply of education (e.g. more schools, more teachers, more textbooks). The Bank provided technical support for drafting the Universal Basic Education (UBE) legislation which was endorsed by GoPNG in late 2009. The UBE initiative has been strongly supported since its adoption, beginning with the elimination of fees for elementary education in 2010 and the replacement of these fees early in the year with direct school grant subsidies. The new Prime Minister and Minister of Education successfully pushed through a K300 million supplementary budget allocation for UBE in September 2011, and another K600 million increase was approved for 2012. The objective of this investment is to make education free for all students through grade 10 and to replace parental fees with increased school subsidies. The government expects that this initiative will enable PNG to achieve its MDG 47 goal of universal basic education by 2020, five years later than originally planned, but a dramatic improvement over the recent stagnation. 54. The Bank’s more recent interventions in education are focused on improving the quality of educational outcomes. The READ PNG Project ($19.2 million FTI grant) focuses on improving reading acquisition in elementary and primary schools. Improved reading in the early grades will promote retention and primary completion, and so should also be seen as an intervention that promotes increased access. The Flexible and Open Distance Education (FODE) Project invests in the stock of youth who have been failed by quality programs in the past. It will increase the number of out-of-school youth who complete secondary diploma/certificate equivalency programs. These projects only began implementation in late 2011, so there are as yet no concrete results. However, it should be noted the FODE project represents the first education sector borrowing from IDA or IBRD in 19 years, and is thus demonstrative of GoPNG’s renewed appetite for investment in social sectors. Outcome II.9: Improved evidence base for health sector policies and plans 55. With the completion of the Health Human Resources Review in September 2011, the evidence base for making decisions regarding sector staffing was significantly strengthened. The Review documented for the first time in over a decade the current stock of the publicly financed health workforce in PNG, and their characteristics and deployment across the country by type of health facility and health cadre. The report also presented a set of four demand scenarios, and drew out the implications for the health training system and the health budget for these scenarios. The cost projections and other data in the report will be used by the National Department of Health in their annual budget submission to Treasury. The National Health Plan released in 2010 did not include cost projections, and will use the cost projections produced by the Bank instead. 56. Additional analytical work that identified constraints to family planning, including reasons why some pregnant women do not make use of professionally supervised birth has yet to be translated into follow-up actions to address the challenges identified. Outcome II.10: More effective national HIV/AIDS response through evidence-based policy and interventions 57. Due to stubborn funding limitations and sometimes differing views of the multiple stakeholders involved, it took nearly three years to reach agreement on the Concept Note, governance arrangements and funding for the Integrated Bio-behavior Study (IBBS). Now underway in 2012 the survey is expected to provide accurate estimates of the HIV prevalence and determinants across the country, in turn allowing a better focused HIV program response. Measuring Bank Performance 58. The World Bank Group performance rating is moderately unsatisfactory. The design of the strategy, while well-aligned to the country’s development priorities, was overly ambitious in terms of planned activities and outcome indicators. The identification of risks to implementation was too conservative, with overly generous assumptions about the speed with which a dormant program could be revitalized. IFC’s performance was, however, notably stronger given the absence of a full country office presence at the beginning of the CAS period, and the considerable improvements in the business environment, access to finance and telecom expansion which were nonetheless achieved. 48 59. Although the country strategy was too ambitious, course corrections, including adjustments to CAS outcomes, were implemented – both through changes captured in the CAS-PR and through real-time intensification of implementation support following the CAS-PR to guard against further delays. The Bank took actions to process a significant portfolio increase in a short period of time, including adding new professional and support staff to the Country Office team, and training staff and government counterparts in operational areas such as disbursement, procurement, FM, and safeguards. The Bank’s relationship with government also improved dramatically, allowing an increased level of mutual problem-solving across the portfolio. 60. Project ratings indicate adequate progress towards meeting development objectives, although implementation progress was weaker. Of the 9 IDA projects and 1 trust-funded (READ- PNG) project which had completed ISRs at the end of the CAS period, 5 reported satisfactory (S) progress to achieving development objectives, 4 moderately satisfactory (MS) and 1 moderately unsatisfactory (MU). As for implementation progress, 4 reported as S, 5 as MS, and 1 unsatisfactory (U). 61. Due to the newness of the portfolio, only 3 of the 10 projects had more than two ISRs; movement on project quality has been mixed between the latest two ISRs with some improving and others still struggling. This mixed performance is reflected in the fact that 30 percent of PNG projects were at risk as of May 2012, a rate higher than the EAP average of 21 percent but lower than the 37 percent for the rest of the Pacific. Disbursement rates have been steadily on the rise, and will continue to gain in late FY12 and early FY13, as new projects actively disburse. (See Table 4, below, for performance indicators in PNG, the Pacific and the EAP region, and Annex A for a table of all ISR ratings; all data is reported as of May 2012.) Table 4: Portfolio Performance Indicators No. Active Projects Net Commitment at Disbursement Projects at Risk (%) Commitment risk (%) Ratio (%) PNG 10 30% 266.7 26% 8.9% Pacific 35 37% 503.0 22% 12.0% (for IL only) EAP 286 21% 28,405.5 12% 15.9% (for IL only) Last updated: May 7, 2012 62. To manage the rapid expansion in the portfolio, the Country Office strengthened its presence on the ground. Three national sector staff (infrastructure, agriculture/rural development, and human development) and two operations staff focusing on fiduciary and overall portfolio support were hired. One new international staff was hired with wide portfolio and problem-solving responsibility, and another international staff member was transferred from Sydney to help establish the UYEP project and cover other social development issues. IFC upgraded its operations from a representative office to a country office in 2011, reflecting the enhanced commitment to PNG and a scaled-up work program. 63. Efforts to rebuild the capacity in PNG counterparts and stakeholders to work with the Bank have been steady. The number of project implementing agencies (some projects have more than one) rose from five in 2008 to twelve in 2011. Since none of these agencies had implemented 49 Bank projects in at least 10 years, and in most cases, never, the Bank has had to invest significant time and resources into building the capacity of these agencies to understand and apply Bank policies and procedures. Starting before the rapid increase in new project approvals, from February 2009 to September 2011, the Bank organized three multi-agency training events on procurement and four on financial management, with three of them being combined fiduciary workshops. Two one-day safeguard training events were also conducted. 64. Coordination with Development Partners is strong, with sector-specific variations in Bank engagement. The Bank is an active participant in the Development Partners Roundtable as well as in a number of sectoral coordination groups. Government leadership in donor coordination is particularly strong in four sectors where the Bank is active: education, climate change, energy and gender. There is a desire among development partners that the Bank be more engaged in coordination and information sharing in sectors where it plays a leading role within the donor community, such as agriculture and mining. 65. Implementation risks were inadequately identified in the CAS. The implementation risks identified in the CAS primarily focused on ownership and demand for Bank engagement in governance reform. The CAS did not adequately identify the implementation risks of re-engagement and a significant scale-up in project activity and effective mitigation measures. Mitigation measures were identified in CAS-PR such as training of implementing agencies and building up of local staff numbers and capacity. While significant improvements in relations with government have taken place, in retrospect it would have been important to recognize that improved relationships do not automatically translate into improvements in program processing and implementation capacity. 66. Procurement capacity has been a constraint and preparation of procurement documents in advance of effectiveness could speed implementation. Several projects have struggled to recruit and retain competent procurement staff and advisors. This has been partly due to the limited pool of individuals with training and/or experience in public sector procurement. Individuals with credible CVs, hired for key roles, failed to perform on the job and caused significant bottlenecks. Government should advertise more widely for such consulting opportunities, and undertake more rigorous reference checks, and the Bank can play a more active role in helping project teams to find qualified procurement consultants. 67. Projects have often not focused adequate attention on the mitigation actions suggested in the project documents in relation to procurement risks, which in turn has caused delays. For example, in low-capacity situations advance planning is often under-emphasized, and thus when project teams do not prepare procurement documents sufficiently in advance of effectiveness, they spend valuable project time in the early months of implementation going “back-and-forth� with the Bank seeking no objections. Applying the lessons learned by Bank teams working in institutionally fragile environments elsewhere, the Bank and government have agreed to more proactively engage technical assistance in advance of effectiveness to prepare key procurement and financial documents, and the Bank’s specialists can assist in this effort. 68. Financial Management performance has been largely satisfactory, but clarity is needed in the application of government policies and procedures regarding taxes and audits. Aside from some delays in receiving audit reports, FM challenges did not significantly delay project implementation. There are issues, however, which were not dealt with satisfactorily during project preparation. In general, Auditor General (AGO) audits are accepted as sufficient for annual project audits. However, payment for AGO-commissioned audits is an additional cost to the project, and includes not only the cost of the auditor, but a fee for the AGO as well. The AGO process of procuring contracted auditors also needs to be reviewed to ensure that it meets Bank standards. Bank 50 projects can also not make effective use of tax exemptions for foreign aid projects as Bank projects which are exempt may not use IDA funds for GST because this exemption can only be applied on a refund basis. As a work-around, GoPNG uses its own funds to pay for GST and then collects the refund. Project teams are not sufficiently aware of the pros and cons of using the exemption, and have therefore projects have become stuck, particularly when they have had to wait for GoPNG funds to be made available to pay GST. 69. Safeguard policies have been successfully applied, with a need for improvement in applying the Indigenous Peoples Policy (OP 4.10) highlighted by an Inspection Panel case filed against the SADP project. In the Inspection Panel case, concerns regarding environmental safeguards were considered by the Panel to be sufficiently covered. No other specific environmental concerns were raised during the CAS period. The primary focus of improvement in applying OP 4.10 will lie in strengthening the implementation of consultations, particularly in ensuring appropriate translation, participation and documentation. See Box 6 for a summary of other lessons for good consultations emanating from the Inspection Panel case. A desk review of safeguards performance in the Pacific Portfolio also highlighted the need to increase attention to safeguard monitoring during project implementation both by the client and the Bank. Continuous training is also needed to strengthen government capacity to implement safeguard policies. Box 6: Quality Consultation and Documentation Key to Social Safeguards With approximately 840 distinct ethno-linguistic groups, and more than 90 percent of land under customary ownership, the majority of Papua New Guinea land area comprises traditional communities and their customary lands. Whenever these lands or traditional communities are affected by a project, whether it be positive or negative, the World Bank’s Indigenous Peoples Policy is triggered. When direct project beneficiaries are largely IP communities, the policy gives the option of not requiring a separate IP plan; when a proposed project involves significant adverse impacts (such things as relocation and loss of communal land), a stand-alone IPP may be the best way to protect the community from adverse affects. When the benefits are largely voluntary and positive, the policy provides that rather than designing a separate Indigenous Peoples Plan (IPP), the elements of an IPP must be integrated in the overall project design. The Bank and project management units have learned several lessons in applying this policy to PNG, particularly through its response to an Inspection Panel claim against the Smallholder Agriculture Development Project. It is highly recommended that such lessons are applied to all relevant future projects in PNG. These include:  Define what “broad community support� means in the context of the project, and clearly document this support for the project.  Translate summaries of key project documents (i.e. PAD, ESMF, safeguard assessments, etc.) into Tok Pisin and any other local languages that project affected people may say they need to understand the project and disseminate in project areas.  Properly record all consultation information, including: location, participation, main topics discussed, complaints raised and resolutions agreed, etc.  Once decisions are made on whether or not to modify project design or implementation as a result of consultations, actively feedback those decisions to the groups consulted with, and document that “feedback loop� in a detailed fashion.  Ensure that appropriate community representatives are involved in consultations, including both local government and traditional leaders.  Involuntary taking of land by the project is highly discouraged, and the process for verifying voluntary use should be agreed with customary authorities and carefully documented. 51 Lessons learned and recommendations for future strategy and program design 70. Be more modest in the selection of results during a period of re-engagement. Starting from a zero or low base of activity means that significant time will be needed to put in place the staff, systems and procedures needed to support the client to manage new projects. By the time these building blocks are established, there is little time remaining to see results such as increased megawatts of power and increased enrollment. Intermediate outcomes provide a more realistic measure of progress during re-engagement. The choice of outcome indicators should be highly selective, focusing on results from projects either already active or having a high level of readiness for implementation. 71. Advance project readiness beyond current levels by the time of approval. Delays in achieving effectiveness or initiating major project components can be reduced by ensuring that the implementing agencies are well advanced in their efforts to recruit key project staff and consultants, establishing bank accounts, and preparing procurement packages. Most projects approved during this CAS have spent valuable time after the signing of legal documents trying to establish implementation capacity, increasing the likelihood of requests for project extensions and restructuring increases. Actions to consider for improving readiness include: (a) provide for retroactive financing in cases where implementing agencies can advance the funds; (b) engage fiduciary staff more actively to provide line ministries with hands on support for establishing systems, and (c) provide direct Bank- executed funding for FM and procurement during the first year of implementation, delivered in a collaborative way that nurtures GoPNG ownership while relieving them of some of the administrative burden. The use of effectiveness conditions to address fiduciary capacity issues should be reconsidered. 72. Sustain support to key sectors and institutions delivering visible services, particularly at a time when public expectations are high and dependent on the perceived benefits of large resource extraction projects. With huge gains from LNG production prominent in public discourse, the inability of government to deliver on development promises could lead to political instability and public unrest. Sustained sector engagement will both allow the institutions responsible for these projects time to strengthen their capacity to deliver public services, while also producing visible results in local communities: better maintained roads, expanded mobile phone coverage, and improved employment for youth and school leavers. 73. Plan sector engagement to include the potential for a range of instruments that can be adjusted to adapt to the varying speeds of sector engagement. If large and complex projects are being advanced and time is needed to allow for new or rejuvenated stakeholder consensus building, smaller interventions such as study tours and workshops can be important tools for maintaining engagement until the timing is right to proceed with larger, or scaled up activity. In the case of the energy sector, such flexibility was required to allow for consensus to develop on the roles of the public and private sectors in electricity generation. A similar approach was taken in the piloting of a new community-driven service delivery model when the responsible government department had concerns regarding its own capacity to manage a large activity. Such flexibility is especially important when institutional capacity is assessed as weak. 74. Continue to strengthen the case for return on investment for social sector projects, particularly to highlight the importance of human capacity in sustaining economic growth. While it is significant that government decided to borrow for two social sector projects (Youth Employment and Distance Education), GoPNG remains skeptical on whether social sector activities 52 should be financed by credits/loans, given large amounts of bilateral grant funding available. Discussion with key government stakeholders of returns on Human Development investments in other similar countries would help to strengthen the strategic thinking of government regarding ways in which different sources (i.e. grants and loans) can be combined to maximum effect. 75. Reasons why projects came to fruition during this CAS should be considered in selecting projects for the next CAS. These include: political will, evidenced by the combination of a Ministerial champion and strong support from senior technocrats; a good fit between WBG comparative advantage and client goals; compelling evidence of high return on investment, particularly when grant funding is an alternative; and visible and significant impact on people living in rural areas. 53 Table 5: Summary of CAS Progress Self-Evaluation Lending and Non- Status and Evaluation Lessons for the New CAS Intermediate Indicators of CAS Outcomes and lending Activities that Summary Progress toward CAS Outcome-Level Indicators contributed to the Outcomes outcome PILLAR I: PROMOTING AND MAINTAINING SOUND ECONOMIC AND NATURAL RESOURCE MANAGEMENT GoPNG shows continued • Regular monitoring of AAA (FY Completed) Achieved A careful process that awareness of importance of macroeconomic • Managing Volatility The % of public debt to nurtures technocratic interest maintaining fiscal management, and Economic Note (FY10) GDP reduced from 39 to in key macro-fiscal topics discipline and stable engagement with GoPNG • Debt Management 25%. Fiscal and debt and builds upon that macro-economic when there are slippages Performance management advice platform to open up more environment • National household income Assessment (FY11) provided from PERR difficult topics for policy • Inflation in lower single and expenditure survey • Financial Sector through to DEMPA. discussion can provide the digits (Baseline: 2.3% in launched Assessment Program Managing Volatility paper basis for a wider range of 2006) (FY11) provided significant input policy and TA inputs, • Increased international • Study tour to Chile on into the first discussions on including opening up space reserves (Baseline: US$ Sovereign Wealth Fund the Sovereign Wealth Fund, for more diverse multi- 1.4 billion at end-2006) (FY12) and south-south exchanges stakeholder discussions • Reduced public debt • Anti-money supported strategic choices. about formerly ‘techno-only’ burden (Baseline: 39% Laundering Review Completion of HIES topics like Sovereign Wealth public debt to GDP in (FY11) provides basis for evidence- Funds. 2006) based poverty reduction policymaking. Expanded and • Cabinet-level discussion AAA (FY Completed) Not achieved In an environment with little strengthened multi- and adoption of discussion • EITI MDTF Technical A State Working Group to history of multi-stakeholder stakeholder mechanisms to paper signaling GoPNG Assistance Grant work on EITI was processes, the timeline will review overall intent to join EITI (ongoing) established by Cabinet in need to be both more flexible policymaking and • MDTF grants approved March 2011, and expanded and more generous. extractive industries and underway to support to include civil society and Continued work on highly • GoPNG joins with civil GoPNG and civil society in industry in February of contentious areas such as society and industry to moving forward under 2012; Cabinet discussion extractives industry form multi-stakeholder EITI candidate status and decision on joining EITI transparency requires a quiet structures for EITI is planned for mid-2012. persistence in providing 54 Lending and Non- Status and Evaluation Lessons for the New CAS Intermediate Indicators of CAS Outcomes and lending Activities that Summary Progress toward CAS Outcome-Level Indicators contributed to the Outcomes outcome Increased public • Capacity building program AAA (FY Completed) Not achieved support in areas that are of availability of accessible underway to support civil • EITI MDTF Technical A capacity building program most interest to the client, information to support society and GoPNG in Assistance Grant for EITI audits has yet to rather than pursuing aspects monitoring of government reporting and analysis (ongoing) commence. judged important by the performance required for EITI audits Bank but where interest is • Media, Non-Governmental • Media publishes regular Strengthening Institutions of not shared. Organizations, and CBOs features on deliberations of Oversight and are using and analyzing the Public Accounts Accountability project was factual information from Committee dropped. audit reports, sub-national and budget documents – evidenced in press Strengthened institutional • Mineral Resource Authority Financing (FY Partially achieved Implementation can stall structures in mining sector, internal mgmt procedures Approval-Completion) Bougainville Department of even in sectors where there emphasizing transparent established and staff trained • Women in Mining/TF Mines has been established is a high degree of trust and management and resource • Bougainville Division of (FY07 - FY12) and staff are being trained confidence with the distribution Mines established • Mining Technical and ‘twinned’. Borrower. If implementing • MRA operating • Geological database Assistance II/IDA Additional audits have been agency staff assigned to lead effectively, with clear completed and available to (FY08-F14) conducted as capacity- project unit has insufficient governance arrangements; investors building exercised in the time to devote to the task, Bougainville Dept. of • Capacity building of IRC, and an additional $30m implementation can slow Mines operational Internal Revenue in revenues was generated. dramatically. Bank and • Increased annual spending Commission underway client must jointly monitor The geological database was on mining/petroleum other competent project staff among several activities exploration, including in can be deputized to assume delayed by changes in Bougainville (Baseline: new decision-making project staff, including US$ 50m in 2007) authority, or additional procurement specialist; as of • 3 additional tax audits of personnel can be put in place early 2012 these were back EI companies completed in order to prevent further on-track to deliver outputs by IRC (Baseline: 2 in disruptions to or delays in by end-2013. 2007) the project. 55 Lending and Non- Status and Evaluation Lessons for the New CAS Intermediate Indicators of CAS Outcomes and lending Activities that Summary Progress toward CAS Outcome-Level Indicators contributed to the Outcomes outcome Program in place to • Minimum of two PNG Financing (FY Partially achieved Collaboration between IFC leverage extractive industry financial institutions Approval-Completion) A new project placed in and IDA can leverage larger and enclave project expanding lending to SMEs • SME Access to Finance pipeline for CAS Progress pools of resources for private revenues for broader SME • Targeted outreach to Risk Share Facility Report was approved by sector investment, and employment women SME owners results (FY11- FY25) both IDA and IFC. IDA ensure that both public and • Increased availability of in expanded share of funds provide ‘first loss’ private sector capacity are credit for SMEs participating banks’ SME coverage up to USD11.67 built at the same time to (Baseline TBD, data lending going to women- million, while IFC provides increase the chances of disaggregated by gender) owned businesses ‘second loss’ coverage of up sustainable, new business to USD46.69 million to activity. leverage commercial lending to SMEs. As of October 2011, one financial institution was participating. Specific outreach actions designed to expand lending to women. Strategic framework for • Climate Change Financing (FY Partially achieved Key conditions for climate disaster risk management Stocktaking completed, Approval-Completion) National Strategy on change mitigation are not in and climate change contributing to GoPNG’s • Disaster Risk Climate Compatible place, such as a credible adaptation / mitigation prep work for COP15 & Management and Development prepared with MRV system and a greater adopted by GoPNG, REDD+ readiness Climate Change significant analytical input public understanding of the investment program • Agreed approach with Adaptation in drawn from Bank analytical pros and cons of carbon supported by partners DMPGHM on climate Agriculture and work. finance. Unrealistic • Improved warning systems change adaptation & Transport Program DRM/CCA Program expectations fueled by and information base disaster risk management (FY10 – FY15) established with Office of “carbon cowboys� have under development by • Strategic Plan on climate AAA (FY Completed) Climate Change and temporarily discredited the GoPNG consistent with resilience prepared (with • Climate Change Development as the approach, so new efforts climate-change disaster support from PPCR) Strategic Framework coordinating agency. must correct this before risk mgmt strategy (FY10) Program to build resilience credible carbon finance to natural disasters and efforts can begin. 56 Lending and Non- Status and Evaluation Lessons for the New CAS Intermediate Indicators of CAS Outcomes and lending Activities that Summary Progress toward CAS Outcome-Level Indicators contributed to the Outcomes outcome • Climate Change climate change in agriculture Stocktaking (FY09) and transport sectors Lack of coordination • Reducing Risks of launched with Depts of between CCA and DRM Disasters and Climate Agriculture and Works. institutions poses a challenge Variability: PNG World Bank DRM/CCA to maintaining a Country Assessment Specialist hired, based in programmatic approach to (FY10) OCCD. DRM/CCA. Lending and Non- Status and Evaluation Lessons for the New CAS Intermediate Indicators of CAS Outcomes and lending Activities that Summary Progress toward CAS Outcome-Level Indicators contributed to the Outcomes outcome PILLAR II: IMPROVING LIVELIHOODS AND SERVICE DELIVERY, ESPECIALLY FOR THE RURAL POOR Stronger business enabling • Improved business Financing (FY Partially Achieved Patient and consistent environment, with registration and licensing Approval-Completion) Changes to both business support, including dedicated improved financial procedures introduced • PNG Micro-finance registration and licensing staff and consultants infrastructure • National policy on Ltd. (IFC) procedures have been ‘embedded’ in the • Business regs simplified informal economy • Bank of South Pacific introduced. The time for Investment Promotion (Baseline: 56 days in development and (IFC) business registration is Agency, can eventually 2007) integration formulated AAA (FY Completed) expected to drop generate a critical • Growth in number of • PNG Microfinance Ltd. • Regulation considerably with momentum for change. MSMEs in formal sector, operational, with 3-year Simplification and introduction of an online as measured by active institution-building Investment Promotion registration system in 2012. registered MSMEs paying program underway Policy (IFC) The National Informal taxes (Baseline: 12,740 in • Payment Systems and Economy Policy was 2009) Credit Bureau promulgated by Cabinet. Technical Assistance MSME loan inquiries (IFC) increased from 600/month in • Doing Business Report 2009 to 4000/m in 2011. 57 Lending and Non- Status and Evaluation Lessons for the New CAS Intermediate Indicators of CAS Outcomes and lending Activities that Summary Progress toward CAS Outcome-Level Indicators contributed to the Outcomes outcome (IFC) PNG Microfinance is • Financial Competency operational, and its loans Study/TF outstanding have doubled from 2009 to 2010. Greater number of public- • Development of Special AAA (FY Completed) Not achieved Regardless of the level of private partnerships in Economic Zone policy • National Special No new PPPs were intellectual engagement infrastructure supports new fisheries Economic Zone Policy established with Bank or across key counterparts, • New PPPs established industrial park (IFC) IFC support. The PPP dramatic changes in national (Baseline: 0 PPPs under Policy was adopted by approaches to public-private development in 2007) government in 2010, but it partnership requires not only has yet to be applied to a technocratic support but specific geographic area or client-led consensus at the sector. A market demand political level. Without a analysis for fisheries Cabinet champion, processing economic zone, technocratic consensus will and a site assessment of not be sufficient to generate possible sites, was dropped decisions. when GoPNG selected site and secured own financing. Sustainable increases in • Increased palm oil Financing (FY Not achieved Statutory boards/industry commercial agriculture production through Approval-Completion) Delays in implementation of organizations still face production & artisanal & improved extension • Smallholder the oil palm investment have significant challenges in small-scale mining (ASM) services and road access for Agriculture meant that the main project terms of governance, audits, • Increased smallholder smallholders Development activities only commenced & implementation capacity, income from oil palm • ASM training, capacity Project/IDA (FY08– in late 2011, and will thus and progress is production in Oro and building, and extension FY13) only generate new correspondingly slower than West New Britain services expanded to 3 addl • Productive Partnerships production in late 2012. A usually expected, even when (Baseline: 2006 communities, with in Agriculture new project supporting compared to projects led by smallholder oil palm increased support to women Project/IDA (FY11 – cocoa and coffee sectors GoPNG agencies. income in project areas = and youth FY16) will further increase Reliance on government 58 Lending and Non- Status and Evaluation Lessons for the New CAS Intermediate Indicators of CAS Outcomes and lending Activities that Summary Progress toward CAS Outcome-Level Indicators contributed to the Outcomes outcome approx K75.1 million) • Artisanal and Small- smallholder incomes. counterpart funding for • Increased ASM Scale Mining/TF (FY05 projects anchored in employment and incomes, – FY08) The Artisanal and Small- commodity boards can be as measured by Small Scale Mining was completed politically difficult to secure Scale Mining Association early in the CAS period. and requires intensive (Baseline: prelim estimate engagement each year. was 100,000 in 2008) Models for improved local • Piloting of at least one Financing (FY Not achieved The community-driven service delivery tested alternative model of Approval-Completion) Domestic funding for a rural service delivery mechanism through partnerships community-led service • Women in Mining/TF service delivery pilot has pioneered by the Bank between government and delivery agreed by (FY07- FY10 ) been secured, but activities remains new to and untested civil society, and within and Government and • Urban Youth have yet to begin. A in PNG, and the funds flow across communities incorporated into a Bank- Development community development through local government • Local service delivery in supported project Project/IDA (FY12 – component in the SADP systems pose challenges pilot areas increased, as • Joint meetings conducted FY16) project that would have even in setting up measured by project-level between local and national • Inclusive Development offered another venue for implementation indicators (e.g. women’s associations, and in Post-Conflict CDD was dropped during arrangements. Once in infrastructure, social local governments in Bougainville/TF (FY11 the mid-term restructuring. place, the commitment to services) mining areas – FY14) Activities aimed at building piloting should allow • Civil society partnerships • Labor-intensive • Rural Service Delivery skills for youth and women sufficient time for a (incl. women’s assns.) employment and skills and Local Governance to participate more actively thorough testing of this established in targeted development activities Pilot Project/TF (FY12) in economic and alternative system of service communities, with local underway in Port Moresby development have begun but delivery. governments AAA (FY Completed) block grants have not yet • Increased access for urban • Equitable Benefit been disbursed. youth to skills training and Sharing (FY11) daily employment schemes • Household Income and (Baseline: existing (non- Expenditure Survey UYEP) public works job (ongoing) placements = 485 per year, 2009 data) 59 Lending and Non- Status and Evaluation Lessons for the New CAS Intermediate Indicators of CAS Outcomes and lending Activities that Summary Progress toward CAS Outcome-Level Indicators contributed to the Outcomes outcome Improved condition of • Wider adoption of the Financing (FY Achieved The increasing cost of roads/ bridges in selected Road & Bridge Asset Approval-Completion) The percentage of national materials and labor have provinces Maintenance systems to • Road Maintenance and roads in “Good� and “Fair� made it difficult for new • Increased % of national maintain up-to-date Reconstruction condition increased from contractors to establish roads rehabilitated and records and plan future Project/IDA/IBRD 20% to 74%. operations, even while the maintained to “fair� or works (FY03 – FY12) Private sector contracting of expansion in minerals better condition in RMRP • Reconstruction and • Road Maintenance and road maintenance increased projects offer ever- provinces (Baseline: 20% maintenance of provincial Reconstruction Project from 40% to 95%. increasing possibilities for in 2002) access roads in Oro II/IDA (FY12 – FY17) A reallocation of SADP civil works contracts. This • Improved condition of province • Second Gazelle contributions from IDA and will continue to inhibit access roads, measured by • Training and support Restoration PNGSDP allowed 27 competition, so strategies a decrease in annual crop program for small and Project/IBRD (FY00- culverts, and wet crossings for addressing this challenge losses (Baseline: 16% loss medium-sized private FY08) to be repaired following the will be needed. Review of in 2006) contractors in place damage caused by Cyclone the positive experience in • Increased private sector Guba in the Oro Province. Manus using force account, contracting of road and consideration of maintenance measured by targeted activities to help % of competitive bid build the capacity of smaller contracts in RMRP contractors to ‘grow to provinces (Baseline: 40% medium’, will be important. 2002) Strategic Energy sector • Plan for energy sector Financing (FY Not Achieved The intensity and pace of planning launched to strategy to be developed Approval-Completion) Main sector investment put engagement in provide framework for based on technical • Sustainable Energy on hold pending government transformational sectors like investment in lower-carbon assistance and following Financing Project (FY consensus on public and energy must be adjusted to and lower-cost electricity in wide consultation, 07 - FY12) private roles. Government allow for client-led rural centers and urban providing base for • Teachers’ Solar awareness of complex consensus to emerge across concentrations investments in low-carbon Lighting Project (FY05 hydropower issues raised. a range of governmental, rural and urban – FY10) Very little uptake in private and investments • Energy Sector financing for consumer and nongovernmental Development Project wholesale purchase of stakeholders. To cultivate 60 Lending and Non- Status and Evaluation Lessons for the New CAS Intermediate Indicators of CAS Outcomes and lending Activities that Summary Progress toward CAS Outcome-Level Indicators contributed to the Outcomes outcome Strategy/IDA/TF (FY renewable energy sources. appetite for a wider range of 11 – FY16) IBRD loan and guarantee AAA (FY Completed) products, Bank must • Hydropower Workshop dedicate staff time and (FY11) attention to building • Hydropower financing capacity in GoPNG to TA (FY12) understand those products • Study tour to visit Lao and consider them an PDR hydropower integral part of their range of project (FY12) financing options. Expanded access to • Rural communication Financing (FY Partially Achieved Even in sectors where the affordable, reliable policy adopted and Approval-Completion) National ICT Policy was WBG relationships with telecoms in rural areas & implementation launched • Rural Communications passed in March 2009, and both government and outside Port Moresby • PPP-based rural telecom Project/IDA (FY11- has been implemented, industry are robust, • Teledensity increased by access program designed FY16) including transformation of implementation of complex 10% (Baseline: 3% in and launched in at least 2 • Digicel/IFC ( FY08 ) PANGTEL into NICTA, the ‘state-of-the-art’ 2007) provinces new industry regulating interventions like • At least one public • Competition in basic AAA (FY Completed) agency. There are now 3 performance-based payphone per 500 people telecom services • Rural Telecom Options mobile operators, Digicel, Universal Access reverse providing basic services in introduced: at least 2 Study (FY06 – FY07) Bemobile and Citifon; auction subsidies requires towns >1,000 people in mobile operators active by • Business Edge market is competitive, with constant implementation targeted provinces 2009 Training/IFC (ongoing) improved coverage and support. Maintaining • Average user cost of basic lower prices. momentum after the flurry telecom services decreased The IDA project only began of initial actions is over by 10%, as measured by implementation in 2011, so demands a different pattern cost of 3-min local calls the Universal Access of task team engagement (mobile) and 60-min tendering and other policy than in standard IDA Internet access (Baselines: support activities have yet to countries. 3.6PGK and 15PGK, end- launch. 2009) 61 Lending and Non- Status and Evaluation Lessons for the New CAS Intermediate Indicators of CAS Outcomes and lending Activities that Summary Progress toward CAS Outcome-Level Indicators contributed to the Outcomes outcome Increased resources • Priority education policies Financing (FY Achieved A pro-active approach to supporting higher primary in place and costed Approval-Completion) The Bank provided technical implementation readiness is school participation and • Administrative data in use • Flexible Open Distance support for drafting the critical in PNG. At the time grade retention on selected effectiveness Education/IDA (FY11- Universal Basic Education of agreement signing, the • Higher GoPNG budget indicators FY16) (UBE) legislation endorsed implementing agency must allocations and increased • READ PNG/TF (FY11- by GoPNG in late 2009. be sufficiently staffed to multi-donor support for FY14) The UBE initiative has been either begin implementation, universal basic education AAA (FY Completed) strongly supported from the or to conduct the • Early Grade Reading outset, beginning with the recruitment process in a Assessment (ongoing) elimination of fees for timely fashion. Recruitment elementary education in activities should optimally 2010 and the replacement of take place during the period these fees early in the year immediately after approval with direct school grant and signing, rather than subsidies. The effectiveness occupying valuable time of both Bank projects was during the first months of delayed by many months implementation. primarily due to inadequate government capacity to establish the project units, with projects activities only starting in very late 2011. Improved evidence base for • Stronger evidence base for AAA (FY Completed) Partially Achieved A more nuanced and heath sector policies and health sector resource • Health Human The HR Review iterative process for plans management Resources Review documented for the first delivering, discussing, and • 2011 NDoH evidence- • Improved distribution and (FY12) time in over a decade the disseminating products of based budget submission allocation of human • Family Planning current stock of the publicly analytical work is needed in successfully leverages resources for health Constraints Assessment financed health workforce, sectors where the Bank’s increased resources in (FY11) and GoPNG is formulating key contribution is recurrent budget actions informed by the intellectual, rather than Review. The Family financial, such as health. 62 Lending and Non- Status and Evaluation Lessons for the New CAS Intermediate Indicators of CAS Outcomes and lending Activities that Summary Progress toward CAS Outcome-Level Indicators contributed to the Outcomes outcome Planning Constraints The momentum generated Assessment has helped to by the HR Review shows identify reasons why that a programmatic mothers do not use approach to AAA may be supervised delivery services, the key to playing the which in turn has informed “knowledge Bank� role, and the Maternal Mortality Task this has been adopted in the Force planning. new multi-year Health AAA. More effective national • National HIV/AIDS AAA (FY Completed) Not achieved HIV/AIDS response population bio-behavioral • HIV/AIDS Population The survey has taken nearly through evidence-based survey designed and Bio-Behavioral Survey three years to prepare, but is policy and interventions launched (ongoing) poised to produce results by • Info on extent/nature of end- 2012. HIV/AIDS available to support GoPNG & donor interventions 63 Table 6: Project Ratings (latest ratings are as of May 2012) Project Name Indicator Previous Ratings Latest Rating RMRP-I Progress towards achievement of PDO S S MS S S S S Implementation Progress S S MS MS S S S RMRP-II Progress towards achievement of PDO S Implementation Progress S SADP Progress towards achievement of PDO S S MU MU MU MU Implementation Progress S S MU U U U Mining TA Progress towards achievement of PDO S MS MS MS MS Implementation Progress MU MS MS MU MS PPAP Progress towards achievement of PDO S MS Implementation Progress MS MS Rural Communications Progress towards achievement of PDO S MS Implementation Progress MS MS UYEP Progress towards achievement of PDO S Implementation Progress MS READ-PNG Progress towards achievement of PDO S MS Implementation Progress S MS FODE Progress towards achievement of PDO S S Implementation Progress S S SME Access to Finance Progress towards achievement of PDO S S Implementation Progress S S 64 Table 7: PNG’s Overall Progress Towards its National MDG Targets Excerpt from GoPNG 2009 National Progress Report on MDGs PNG NATIONAL MDG 2010 ASSESSMENT TARGETS MDG 1 Decrease by 2015, the proportion LIKELY: Progress was monitored by several proxy of people below the lower poverty indices and since 1990, the combined impact of all these line by 10 percent (using the 1996 proxy indices indicate a small improvement of about 5 national average figure of 30 to 10 percent in the poverty situation. In other words, percent as the benchmark figure). PNG is more or less on track with its national target. However, the continuing very high Gini coefficient is a Increase by 2015, commercial clear example that improvement in the poverty index agricultural production by 10 does not necessarily translate into development in which percent and subsistence citizens of the country share equally. agricultural production by 34 percent. MDG 2 Achieve, by 2015, a Gross POTENTIALLY: Although some progress was made Enrolment Rate of 85 % at the with regards to access, retention and achievement, primary level. progress is disappointing, considering that the educational reforms that started in Achieve, by 2015, a Cohort 1994 should have been completed in 2004. Against its Retention Ratio of 70 % at the national MDG targets, it appears that PNG is slightly primary level. lagging behind with regards to access to school and more significantly with regards to retention and youth Achieve, by 2015, a Youth literacy. Literacy Ratio of 70%. MDG 3 Eliminate gender disparity at the POTENTIALLY: Gender disparity in many areas primary and lower secondary (education, literacy, employment, longevity etc.) is not level by 2015 and at the upper as large as often secondary level and above by assumed. However, PNG’s gender culture places women 2030. in a disadvantaged position. Gender based violence (GBV) in particular is widespread and this is one of the factors that fuels the HIV/AIDS epidemic. This poses an enormous threat for future development and is considered a cross-cutting challenge for the achievement of all MDGs. MDG 4 Reduce the Infant Mortality Rate LIKELY: In 2009, the national target for under-five to 44 per thousand by 2015. mortality was achieved. Moreover, if current trends persist, the IMR is expected to come very close to the Reduce the Under Five Mortality 2015 national target. Rate to 72 per thousand by 2015. 65 Excerpt from GoPNG 2009 National Progress Report on MDGs PNG NATIONAL MDG 2010 ASSESSMENT TARGETS MDG 5 Decrease the maternal mortality VERY UNLIKELY: The trend in maternal mortality ratio to 274 per 100,000 live since 1990 suggests that the national target is births by 2015. unachievable. PNG’s very high level of maternal mortality is another clear indication of significant gender disparity and inequity. MDG 6 Have controlled by 2015 and VERY UNLIKELY: Monitoring of HIV/AIDS is stabilized the spread of exacerbated by the fact that data remains very HIV/AIDS by 2020. incomplete and defective. However, with the increased number of testing sites, monitoring after 2004 has Have controlled by 2015, and improved. The available evidence suggests that there is either stabilized or reversed the as yet no sign that the HIV/AIDS epidemic has incidence of pneumonia, TB, stabilized. The same also applies to several opportunistic malaria and other diseases by diseases that are closely associated with HIV/AIDS, 2020. especially TB, pneumonia and malaria. MDG 7 Implement the principles of VERY UNLIKELY: PNG has signed 46 multilateral sustainable environmental agreements and a very large number of development through sector indicators were adopted for the monitoring of progress. specific programs However, most of these have never been measured and by 2010 and no later than 2015. may never be measured. Furthermore, monitoring is made very difficult because of the conflicting views with By 2020, increase commercial use regards to environmental issues, especially in the area of of land and natural resources forests and forestry. Moreover, monitoring that is carried through improvements in out is fragmented and uncoordinated. environmentally friendly technologies and methods of production. Increase to 60 % the number of households with access to safe water by 2010 and to 85 % by 2020. By 2020, to have achieved a significant improvement in lives of disadvantaged and vulnerable groups in urban areas. 66 Attachment C Papua New Guinea Medium-Term Macroeconomic Projections 1. The baseline projections represent a median scenario. Aggregate GDP growth slows in 2013 and 2014 from the strong rates achieved in 2010 to 2012, as construction of the PNG-LNG and spin- off private sector investments concludes. Growth then spikes in late 2014 and 2015 as the production from the PNG-LNG raises the level of GDP rises by around 25 percent. This production makes little contribution to non-mineral GDP, the decline in construction activity dragging on the aggregate economy. The start of and return to production at a number of smaller mines in 2012 and 2013 provides some additional support to real GDP in those years relative to non-mineral GDP; the allowance for some fraction of the resource projects currently in the development pipeline to start development in 2014 and 2015 provides some offset to the end of PNG-LNG construction. 2. In the external accounts, ongoing foreign direct investment and debt inflows fund the PNG- LNG and other private investments, which require large capital goods and service imports, expanding the current account deficit to near one-third of GDP at the peak. As this deficit is fully funded by committed capital inflows this is not considered to be a point of vulnerability. The modest retreat in export prices between 2012 and 2014 slows growth in export values and the trade surplus, as well as the growth in the income deficit (which a large share of export earnings repatriated to the project owners). Inflation, predominately driven in recent quarters by large positive demand shocks constrained by a lagging supply response, is expected to remain persistently high (underlying annual rates between 6 and 8 percent), only gradually moderating towards 6 percent at the end of the projection period. The downside risks associated with lower global energy and other prices is offset by the potential for the exchange rate to weaken, absorbing the remaining disinflationary impulses from the exchange rate appreciation of 2010 through early 2012. 3. The revenue profile of aging resource projects, the concessional arrangements provided to projects now coming on-stream, and the weakening in export prices especially when expressed in PGK terms, will see government revenue decline in real per capita terms, breaking the previous decade’s trend of strong growth. Expenditure is expected to slow less sharply, leading to a shift to deficits from 2012, although these are likely to be modest and sustainable under the Treasury department’s projections that spending will also grow less rapidly than inflation and population. The fiscal non-mineral balance is expected to remain volatile. Despite this tightening in fiscal conditions, the growth in nominal GDP and assumed stability in the exchange rate are projected to further lower the ratio of public debt to GDP. 4. A scenario of a sharper external economic downturn would see sharper falls in the international prices of PNG’s exports to around 2006 levels, and scarcer financing for new projects, leading to slower net foreign direct investment inflows, declines in export receipts, and, over time, a weaker exchange rate. These developments would cut growth especially in nominal GDP, and, with it, fiscal revenues, leading to a larger deficit, which would become unsustainable without a correction in spending plans and/or significant improvements in collection. While the non-mineral economy would be less effected than the aggregate economy (because resource activity is most exposed to global prices), output and employment growth would be modestly slower relative to the baseline projections. Note that PNG’s gold exports provide some buffer to deteriorating global conditions or global inflation, given the role of gold as a hedge against inflation and economic uncertainty. (This scenario draws on the more extreme projections associated with a scenario of a disorderly workout of the European sovereign debt situation weakening commodity demand and ‘higher risk’ currencies, and significant tightening in the availability of funds for long-term investment on global capital markets.) 67 5. The third scenario simulates the impact of domestic social/institutional disturbances, creating difficulties for the private sector to operate and the public sector to deliver services. This would see a sharp fall in foreign investment inflows and prompt nationals to expatriate their savings, leading to a weakening of the currency, especially after BPNG has run down its foreign exchange reserves. This scenario sees a more substantial slow-down in non-mineral GDP than aggregate GDP, as the latter would be supported by enclave resource projects while the former is more reliant on ongoing improvements in general social and institutional conditions. This scenario would also see strong inflation, eroding real spending power of those in a slower-growing labor force. The disconnectedness of resource production supports exports, while the disruption to the domestic non- mineral economy and to new investment plans slows import growth, boosting the trade surplus. The government deficit would be smaller than the baseline and external downturn scenarios, as revenues would grow faster with the acceleration in nominal GDP (expressed in PGK) due to rising local currency prices following the exchange rate’s deprecation, while the value of spending is assumed to remain at baseline levels or may even weaken due to lower implementation capacity. 68 PAPUA NEW GUINEA MEDIUM-TERM Aggregate GDP Growth 2011e 2012f 2013f 2014f 2015f ECONOMIC SCENARIOS (annual) BASELINE PROJECTIONS Real GDP (% change y-o-y) 9.0 7.5 4.0 7.5 20.0 Real non-mineral GDP (% change y-o-y) 10.8 7.2 3.9 4.7 6.2 % 21 % Formal employment (% change y-o-y) 6.5 6.0 2.0 -3.0 0.0 External downturn External: 18 Domestic disruption Trade balance (millions US$) 861 1,325 1,998 2,792 8,053 Baseline 15 Exports of goods (% change y-o-y) 20.6 10.5 2.0 10.0 50.0 Imports of goods (% change y-o-y) 45.2 4.5 -8.0 0.0 -15.0 12 Current account balance (% GDP) -35.0 -30.0 -20.0 -13.0 9.0 9 Net foreign direct investment (millions US$) 1750 1200 1000 1800 400 Fiscal: 6 Government revenues & grants (% GDP) 29.8 27.5 26.8 24.3 19.0 3 Government expenditures (% GDP) 29.4 30.0 28.8 25.8 19.6 Government balance (% GDP) 0.4 -2.5 -2.0 -1.5 -0.6 0 2006 2008 2010 2012f 2014f Memo items: Nominal GDP (billions US$) 12.7 15.4 16.1 18.2 25.0 Export prices (US$, index, 2000=100) 463 470 468 462 458 PGK/US$ (eop) 2.15 2.06 2.10 1.97 2.15 SHARPER EXTERNAL DOWNTURN % 12 % External downturn Real GDP (% change y-o-y) 9.0 7.5 3.3 6.0 18.0 Domestic disruption Real non-mineral GDP (% change y-o-y) 10.8 7.0 3.0 4.0 4.0 10 Baseline Formal employment (% change y-o-y) 5.6 3.6 1.6 2.1 2.1 8 External: Trade balance (millions US$) 861 371 -652 267 3,935 6 Exports of goods (% change y-o-y) 20.6 -3.0 -22.5 6.1 51.0 Imports of goods (% change y-o-y) 45.2 4.5 -8.0 -10.0 -15.0 4 Net foreign direct investment (millions US$) 1750 1200 1000 800 200 Fiscal: 2 Government revenues & grants (% GDP) 29.8 27.5 26.8 24.3 19.0 0 Government expenditures (% GDP) 29.4 32.7 33.7 30.7 26.9 2006 2008 2010 2012f 2014f Government balance (% GDP) 0.4 -5.2 -6.9 -6.4 -7.8 Memo items: Nominal GDP (billions US$) 12.7 13.5 12.6 12.9 15.7 Export prices (US$, index, 2000=100) 463 407 305 290 290 PGK/US$ (eop) 2.15 2.15 2.30 2.50 2.50 10 %% 8 Baseline DOMESTICALLY-GENERATED ECONOMIC DISRUPTION External downturn 6 Real GDP (% change y-o-y) 9.0 7.5 4.0 5.5 17.0 Domestic disruption 4 Real non-mineral GDP (% change y-o-y) 10.8 7.2 3.5 3.0 2.5 2 Formal employment (% change y-o-y) 5.6 3.7 1.8 1.6 1.3 External: 0 Trade balance (millions US$) 861 1,325 2,127 3,503 8,657 -2 Exports of goods (% change y-o-y) 20.6 10.5 2.0 10.0 50.0 -4 Imports of goods (% change y-o-y) 45.2 4.5 -10.0 -10.0 -15.0 -6 Net foreign direct investment (millions US$) 1750 1200 800 600 0 -8 Fiscal: -10 Government revenues & grants (% GDP) 29.8 27.5 26.8 24.3 19.0 2006 2008 2010 2012f 2014f Government expenditures (% GDP) 29.4 31.4 27.4 25.1 21.7 Government balance (% GDP) 0.4 -3.9 -0.6 -0.8 -2.7 Memo items: Nominal GDP (billions US$) 12.7 14.5 13.7 14.3 16.2 Export prices (US$, index, 2000=100) 463 470 468 462 458 PGK/US$ (eop) 2.15 2.10 2.60 2.75 3.00 Sources: National data sources, IM F, World Bank DECPG data and projections, and World Bank staff estimates and projections. e = estimate f = forecast Notes: In the alternative scenarios, government expenditure is assumed to remain at baseline absolute values and revenues to remain at the baseline share of nominal GDP. e = estimate f = forecast 69 PAPUA NEW GUINEA KEY ECONOMIC 2006 2007 2008 2009 2010 2011e 2012f 2013f 2014f 2015f INDICATORS AND PROJECTIONS Output, Employment and Prices Real GDP (% change y-o-y) 2.3 7.2 6.7 6.1 7.6 9.0 7.5 4.0 7.5 20.0 Real non-mineral GDP (% change y-o-y) 3.1 3.9 7.6 7.0 8.5 10.8 7.2 3.9 4.7 6.2 Formal employment (% change y-o-y, BPNG index) 7.4 10.4 7.9 4.4 1.1 6.5 6.0 2.0 -3.0 0.0 Consumer price index (% change year average) 2.4 0.9 10.7 6.9 6.0 8.4 6.8 6.7 6.6 6.0 Public Finances Government revenues & grants (% GDP) 36.1 37.3 32.6 27.3 31.3 29.8 27.5 26.8 24.3 19.0 Government revenues & grants (% non-minerals GDP) 52.6 52.5 44.8 34.6 40.3 36.7 33.6 32.5 31.4 31.4 o/w Minerals revenues (% GDP) 11.7 12.7 9.9 3.7 6.7 7.1 5.5 5.6 5.0 5.1 Government expenditures (% GDP) 29.7 28.4 30.1 36.9 28.2 29.4 30.0 28.8 25.8 19.6 o/w Recurrent (% GDP) 17.6 18.7 17.4 18.7 15.8 17.7 18.0 18.0 17.5 13.0 o/w Development (% GDP) 9.1 7.1 7.5 10.5 12.4 13.0 13.1 10.8 8.3 6.6 Fiscal balance (% GDP) 6.5 9.0 2.5 -9.6 3.1 0.5 -3.0 -2.0 -1.5 -0.6 Fiscal non-mineral balance (% GDP) -7.8 -5.0 -7.4 -13.3 -3.6 -6.6 -8.5 -7.1 -5.7 -4.1 Public and publically-guaranteed debt (% GDP) 40.6 35.0 31.7 31.5 25.6 25.2 23.2 21.3 18.4 13.5 o/w External (% GDP) 21.4 17.1 13.2 12.5 10.4 9.8 9.7 9.8 9.2 7.1 o/w Domestic (% GDP) 19.2 17.9 18.5 19.1 15.2 15.4 13.5 11.5 9.3 6.4 Foreign Trade, BOP and External Debt Trade balance (millions US$) 2,333 2,193 2,545 1,253 1,582 861 1,325 1,998 2,792 8,053 Exports of goods (millions US$) 4,324 4,822 5,685 4,511 5,843 7,047 7,788 7,944 8,738 13,107 (% change y-o-y) 28.2 11.5 17.9 -20.7 29.5 20.6 10.5 2.0 10.0 50.0 o/w Mineral exports (% change y-o-y) 9.3 4.8 16.0 -19.5 29.1 17.3 14.0 2.0 10.0 70.0 Imports of goods (millions US$) 1,991 2,629 3,140 3,258 4,261 6,186 6,463 5,946 5,946 5,054 (% change y-o-y) 13.9 32.0 19.4 3.8 30.8 45.2 4.5 -8.0 0.0 -15.0 Current account balance (millions US$) 442 208 674 -1,325 -2,532 -4,605 -4,374 -3247 -2365 2337 (% GDP) 8.0 3.3 8.4 -16.3 -25.6 -35.0 -30.0 -20.0 -13.0 9.0 Net foreign direct investment (millions US$) 0 0 -31 420 858 1750 1200 1000 1800 400 External debt (billions US$) 2.2 2.0 2.0 4.5 6.7 11.7 14.6 17.0 16.4 15.0 (% GDP) 39.1 31.2 25.5 55.0 67.2 91.9 95.0 105.6 90.0 60.0 Debt service ratio (% exports of g&s) 8.0 8.3 5.1 13.4 14.7 15.7 16.5 15.3 31.0 19.6 Foreign exchange reserves, gross (millions US$) 1,401 2,054 1,953 2,426 2,895 4,126 4,099 4,487 4,619 5,200 (months of imports of g&s) 3.8 4.2 5.1 5.4 4.3 4.9 4.5 5.3 9.3 12.3 Financial Markets Domestic credit (% change y-o-y) 19.4 5.5 31.3 30.2 25.2 17.0 15.0 12.0 10.0 10.0 Short-term interest rate (% p.a.) 3.7 4.4 5.9 7.0 7.0 7.8 7.8 -- -- -- Exchange rate (Kina/US$, eop) 2.97 2.76 2.61 2.63 2.64 2.15 2.06 2.10 2.14 2.15 Real effective exchange rate (2005=100, period average) 99.9 94.6 107.5 116.2 113.0 127.4 149.4 153.0 150.0 150.0 (% change year average) -0.1 -5.3 13.6 8.1 -2.8 12.7 17.3 2.4 -2.0 0.0 Memo items: Nominal GDP (billions US$) 5.6 6.3 8.0 8.1 10.0 12.7 15.4 16.1 18.2 25.0 Export prices (US$, index, 2000=100) 285 314 350 280 378 463 470 468 462 458 Sources: National data sources, IM F, World Bank DECPG data and projections, and World Bank staff estimates and projections. e = estimate f = forecast 70 Attachment D Gender Dimensions of PNG’s Development Challenges The 2011-2012 PNG Country Gender Assessment was structured to build upon the GoPNG National Policy for Women and Gender Equality 2011-2015, which says: Gender equality is when the roles of women and men are valued equally. The definition has three aspects: equal opportunities, equal treatment, and equal entitlements … Gender equality overcomes stereotypes, prejudices, and other barriers so women and men can contribute to and benefit from economic, social, cultural, and political developments in society at the same level. In a highly participatory and consultative process involving a wide range of stakeholders representing some four dozen institutions and agencies, the 2011-12 PNG CGA provided a snapshot of the gender dimensions of the nation’s development challenges, focusing on access to resources (through education, health, employment, and entrepreneurship), access to rights (through legal and social empowerment, and freedom from violence) and access to voice (through participation in decision-making). The result is an evidence-based document that covers the critical gender issues of concern, informed both by sectoral data and knowledge and by the 2009-2010 Household Income and Expenditure Survey, or HIES which provides the first nationally-representative household data since 1996. The intent is to develop a shared platform of understanding, to allow key stakeholders to jointly diagnose the gender-related barriers to poverty reduction and sustainable and inclusive economic growth. A sampling of key findings includes the following: • Women and men are both very involved in the agricultural sector, but beyond that there are inequalities in economic opportunities for women and men that lead to inefficient use of the country’s labor resources. • There are stubborn differences between women and men in formal labor force participation, in range of occupation, and in wages paid. • Girls and young women contribute many more household work hours than men and boys – even if the men or boys are not employed or doing entrepreneurial activities • While women’s and girls’ responsibilities for child care and other household chores may be one obstacle to their ability to attend school or contribute to household income, concerns for girls’ safety are a very significant barrier • The country's legal framework still has provisions (and gaps) that mean there are different "rules of the game" for women and men that affect their ability to participate in the economy and society, and some of these factors mean women experience less effective rights and protections under the law • There are gender gaps in education, health, and nutrition – girls and women to not enjoy the same level of literacy, school participation, health care, and treatment of disease – influenced BOTH by household choices AND service delivery failures • The most dramatic difference in women's and men's participation in political decision- making comes at the provincial and national levels. The table on the following pages summarizes the potential actions identified throughout the CGA by topic groups that each focused on one specific area of concern, and also shows which of these actions were flagged as the highest priorities (as indicated by higher “ranking� numbers in the Table). Scoring was done using a metric that included which actions were considered as being of highest importance, which were identified as ‘quick wins’ implementable immediately, and which were judged to be capable of generating political will and consensus. 71 Each priority action that has a related intervention in the proposed WBG CPS is tagged in the table. Ranking of CGA Recommended Priority Actions to Address Gender Dimensions of Development Challenges in PNG, and Linkages to World Bank Group programs in CPS Potential Actions to Increase Access To Education, Health, and HIV-AIDS Ranking Linked to Treatment CPS? • Mobilize high-profile senior GoPNG leadership in the NEC to send both public YES messages and departmental circulars reinforcing key government policies, and 8 institute mandatory monthly monitoring of compliance with these: − Maternal and child health services are officially exempt from fees 3 − Survivors of domestic violence are officially exempt from higher fees charged on “tribal violence� injuries 4 • Strengthen the provision of care to survivors of gender-based violence at aid posts, health centers, and the new CHPs by revising protocols and including 5 GBV in pre-service and in-service curricula for primary health service providers • Collaborate with the proposed donor-financed national survey on GBV and YES begin routinely collecting data through the NHIS on service use by survivors of 4 GBV. • Develop and make available male-focused sources of information on HIV 3 prevention, and referrals to male providers of services for HIV and STI. − Provide budget to the NDoE Gender Equity Desk, appoint Gender Focal Points, & develop Division Gender Action Plans (per NDoE Gender Equity 2 Strategy Plan) • Prioritize collection and analysis of sex-disaggregated data on enrolment and 2 YES completion as fee-free education and UBE continues; report publicly • Update the NHIS database system to permit easier retrieval of sex- disaggregated data across all categories, and introduce systematic annual reporting and analysis of the routine sex-disaggregated NHIS data collected on 2 outpatient visits • Use results of 2012 IBBS to better identify the HIV status of men and women at 2 YES different ages; form new program guidance using that information • Conduct the NHS planned assessment of partner and stakeholder capacity to 2 design, implement and report on gender-responsive HIV-AIDS programming. • Mobilize high-profile senior GoPNG leadership in the NEC to send both public messages and departmental circulars reinforcing key government policies, and 1 institute mandatory monthly monitoring of compliance with these. • Support a joint effort by the NDoE and the DNPM to reconcile and align the various strategy documents’ programs and interventions related to gender parity in education, with specific focus on bringing the MTDP sections 3.4 and 5.3 and the UBE and NEP2 all up–to-date with concrete and costed actions on gender parity. Potential Actions to Increase Access To Employment, Livelihoods, and Ranking Linked to Economic Resources CPS? • Use the current and upcoming reviews of mining and oil& gas policies and laws YES to provide for mandatory participation by women in negotiations, and guidance 5 on allocations of dedicated shares of benefits based on Ok Tedi CMCA. • Prioritize donor support and municipal budget allocations for market safety 4 initiatives 72 Ranking of CGA Recommended Priority Actions to Address Gender Dimensions of Development Challenges in PNG, and Linkages to World Bank Group programs in CPS • Solicit donor support for greater investment in numeracy and financial literacy 5 YES − Prioritize the proposed IFC support to “FAST�, a program that provides 3 YES basic financial and business literacy to women farmers • Include a specific gender focus in the proposed Agriculture Sector Update 3 YES planned by the World Bank in collaboration with DAL − Link these analyses to an investigation of the gender-differentiated impact 2 YES of climate change (pests, rainfall, land use changes) on rural livelihoods • Seek support for the Department of Petroleum and Energy to invest in YES institutional mechanisms that support programs for women in petroleum, just 2 like the MRA does for women in mining. • Consider a targeted ‘deepening’ of the successful alternative dispute resolution program ongoing at the national court to focus on sectors where increased YES access for women to efficient and low-cost dispute resolution will significantly improve their productive economic involvement (as in key agriculture niches 1 like coffee) • Request collaboration and support from key donors on tax policy and YES improvements that make it easier for informal sector to formalize and “graduate 1 up�. • Convene a review group to support the CLRC in drafting amendments to the two laws that currently affect women negatively in livelihoods and employment (the Wills and Probate Act, and the Employment Act with regards to 1 underground and night work) • Provide systematic training for judges on the gender implications of their 1 rulings under the Matrimonial Causes Act. • Finalize and pass the draft law on using moveable assets as collateral. 1 • Investigate the positive benefits that could results from a GoPNG partnership with investors at the PMIZ in Madang to commit to improved work conditions for the largely female canning workforce, with robust GoPNG monitoring and 1 enforcement • Follow through on the DMPGM corporate plan commitment to draft legislation 1 and policies specifically related to women in mining. • Support agriculture sector research that focuses on post-production constraints, such as gender-differentiated benefits from improved marketing chain and cold storage Potential Actions to Increase Access To Rights Through Legal and Social Ranking Linked to Empowerment CPS? • Seek donor support for more extensive training for Village Court Magistrates – many of whom are now women – on GBV especially intimate partner violence, 6 and link this to mediation as a key method of resolving disputes • Provide high visibility GoPNG support to collection and analysis of nationally- YES representative data on gender-based violence to allow for more evidence-based 5 programming by all stakeholders − through the proposed AusAID-funded UN-implemented national survey (using the methodology other Pacific countries used), and 73 Ranking of CGA Recommended Priority Actions to Address Gender Dimensions of Development Challenges in PNG, and Linkages to World Bank Group programs in CPS − part of the study on the socioeconomic costs of crime and violence YES being led by the World Bank under the guidance of Prime Minister’s office • Explicitly address the aspects of “empowering communities to deal with local problems of order� (listed as an important priority in the National Law and 3 Justice Policy) that will requires greater emphases on women’s rights. • Prioritize the DNPM finalization of the draft National FSV Strategy based on the work done by the Family and Sexual Violence Action Committee (FSVAC) and delivered to Government in 2011, and bring the draft Strategy to NEC for 2 discussion and approval • Fast-track the consideration of draft Family Protection Bill, and amendments to 2 Criminal Code required to criminalize people smuggling/ trafficking. • Consider the potential value in better resourcing and implementing current legal mechanisms as an important step toward reform, no less important than creating 1 new laws or powers. • Encourage training on GBV conducted by service providers and advocacy programs to address cultural constructions of masculinity and the implications for perceived condoning of aggression and violence, especially with inputs by 1 local PNG institutions and academic / research bodies • Convene a dialogue with service providers and faith-based institutions to develop service standards and core training modules for safe havens and counseling programs like Meri Saif Ples. • Provide explicit and public Government support – messaging at a minimum, if not immediate financial resources – for safe haven initiatives largely initiated by private business, churches, and civil society. • Empower the CLRC to consider benefits and challenges of reform to statutes that control the executive branch’s delivery of basic services (health, education, etc.) to make them justiciable (e.g. create legally enforceable citizens’ rights with explicit wording on equal access to men and women, boys and girls) Potential Actions to Increase Voice and Participation in Political and Ranking Linked to Institutional Spheres CPS? • After assessing the level of MP support in the new Parliament for advancing the Equality and Participation Bill (creating 22 reserved seats for women) past the final required votes, consider a diversification of effort and resources beyond 10 national Temporary Special Measures − Investigate the potential demand for, and financial donor support for, legal provisions similar to Timor-Leste which uses mandatory participation of women in each political party’s slate of candidates to help ensure equality 9 of participation at the national level − Investigate the needs of women considering, or running for, local-level office (LLGs and districts) and invest resources there, perhaps through a focus on provinces where 1) women are already successful (Manus) and/or 2) special measures have been introduced (Bougainville, New Ireland). − Prioritize investments in community and ward governance mechanisms that encourage women’s participation in local decision-making / resource 2 allocation. 74 Ranking of CGA Recommended Priority Actions to Address Gender Dimensions of Development Challenges in PNG, and Linkages to World Bank Group programs in CPS • Consider either a Public Services Department circular or an amendment of the Regulatory Statutory Authorities (Appointment to Certain Offices) Act of 2004 to request that the list of candidates submitted by the responsible Minister to the Public Services Commission for any vacancy should include at least one female 7 candidate. • Provide for specific attention to gender omissions in updates/revision of the key national strategy documents – the Development Strategic Plan and the Medium YES Term Development Plan – to correct the lack of gender targets or statistics on women in baseline or milestones in law and order, and in primary/secondary 4 education. − Incorporate the National Policy for Women and Gender Equality into the YES mid-term review of the MTDP and the DSP. • Resuscitate the gender focal point role in the Department of National Planning and Monitoring, and consider re-positioning the Office for the Development of Women in the Prime Minister’s Office where it was originally meant to be 1 located. 75 Attachment E Understanding Socio-Political Dynamics and the Drivers of Violence and Fragility 1. Papua New Guinea (PNG) is an extremely ethnically and socially diverse society. While the country is rich in natural resources, it continues to struggle with diversifying its economy and addressing the myriad conflicts that have arisen around the use of these resources, as well as bridging the deep divides among its many social groups. Drivers of Resilience or Fragility: Socio-Political Dynamics in PNG The challenge posed by crime and violence, and by institutional fragility, can be understood as the “cost� to Papua New Guinea’s society and economy of not successfully addressing the mis-match between exposure to internal and external stresses and the social capacity to manage these stresses. The five primary stresses on PNG are: Social and cultural: gender inequalities in power and constructions of masculinity that emphasize aggression, rapidly transforming social norms, large youth population, distrust in modern state institutions, substance abuse (alcohol, marijuana), belief in supernatural phenomena such as sorcery and manipulation of that belief (all internal) Citizen and state security: inaccessible and remote rural areas with little or no presence of formal state institutions, increasing and unregulated availability of firearms, growing private security sector also largely unregulated, central role of conflict in traditional life of clans (internal); introduction of Western governance systems (external) Economic: recent and rapid growth in rural-urban migration, stubborn income poverty and growing inequality (especially in urban areas), high unemployment (especially among youth), unequal benefits of resource projects accrued to communities (internal); adverse commodity price movements, natural disasters and extreme weather related to climate change, dominant role of multinational resource companies with diffuse accountabilities (external) Justice: lack of confidence on the part of citizens in law and justice agencies; under-resourcing of the justice sector, failure of customary conflict management mechanisms to handle modern-day violent conflict and crime Political: strong patronage politics within decentralized and central state structures, limited professionalism of political parties, incitement of violence during campaigns and key political decisions 2. This analysis aims to inform the dialogue around the 2012-2016 Country Partnership Strategy (CPS) for Papua New Guinea by describing some of the key drivers of fragility in PNG and offering orientations for addressing these. Based on the lens developed in the report Societal Dynamics and Fragility 5, the analysis conceptualizes fragility as a problem both of state capacity and also of dysfunctional relationships in society that do not allow an efficient state to be built and maintained. The analysis is based on an extensive review of the literature, and can be further developed through discussions with key stakeholders in PNG, including communities and representatives from different social groups, state agencies and small businesses. I. PNG is socially fragmented with little common identity or vision. 3. PNG is home to a diverse and highly fragmented society, with cooperation between groups taking place only transiently, and in highly specific situations. This makes it difficult to create a common 5 For a full description of the lens, please see Marc, A., A. Willman, G. Aslam, M. Rebosio with K. Balisuriya (2012) Societal Dynamics and Fragility: Engaging Societies in Responding to Fragile Situations. Washington DC: World Bank. This piece was produced as a companion to the World Development Report 2011 on Conflict, Security and Development. 76 identity and vision between different social and ethnic groups within PNG, and with the state apparatus that would support that vision. PNG is estimated to have between 2000 and 18,000 different clans – loosely defined as extended networks of families that form the basic social and political units of society. With close to 1000 different languages spoken among a population of approximately 5.3 million people, it is the most heterogeneous country in the world.6 Clans are both small and inherently unstable, as group boundaries are constantly shifting, and allegiances with other groups tend to be short-lived. 4. Conflict – often involving violent fighting – is a central part of inter-clan relationships in PNG. Power is consolidated with ‘big men’ in the community, who win their status by demonstrating strength and power. Cooperation between clans takes place only for a specific battle or exchange and there are even deep, long-lived rivalries between clans. Rivalries are passed down to the younger generation through traditional story-telling, such that tensions between groups often become entrenched and survive for generations. Disputes may lie dormant for an extended time, and resume suddenly when a new event or issue triggers the old claims. The persistence of these conflicts and their periodic mobilization causes untold disruption in social relationships as well as violence that kills hundreds of people each year.7 The geographic isolation of different clans from one another contributes to this social fragmentation. Some clans, particularly in rural areas, while they might be aware of the existence of other ‘ethnic groups,’ have never encountered them directly. As a result, many individuals do not see their identity as extending beyond the clan or ethnic group. 5. In this context of social fragmentation, creating a common vision and fostering a sense of citizenship that can generate strong collective action presents a considerable challenge for the state. Clans see very little incentive to cooperate beyond the short term. The state has been unable to unify clans under a common vision, because formal state authorities have little legitimacy in most communities. Instead, they are viewed as ‘anonymous’ outsiders who cannot be trusted because they are unknown to the clan, and whose functions are largely irrelevant to the daily lives of most people. This fragmentation makes it difficult to establish a set of national priorities that would serve the needs of a large group of people in the population. II. Extreme power imbalances between men and women in PNG – often enforced with violence - threaten social cohesion and the overall economic progress of the country. 6. Deep gender inequalities reflect deep power imbalances in PNG. The United Nations Development Programme ranks PNG 133 out of 138 countries included in its Gender Inequality Index. 8 Women are considered the ‘property’ of men, subject to the will of their male family members, especially their husbands. Polygamy is legal and common, and with the introduction of a cash economy, has further weakened women’s access to material resources.9 As such, ‘ownership’ rather than collaboration defines the relationship between men and women. 10 Women are expected to be dutiful to their husbands and to be a resource drawn upon by men in pursuit of their aims. At the same time, exaggerated masculinities embedded in the cultural notion of the ‘big man,’ encourage the use of 6 There is significant internal variation in the number of ethno-linguistic groups in a province, with some being relatively homogenous, and others- such as the Highlands provinces being the most diverse. 7 Estimates suggest that approx. 20% of the population may be affected by ethnic violence, with some provinces, such as the Highlands, experiencing even higher levels. 8 http://hdr.undp.org/en/statistics/gii/ 9 CEDAW (2009) PNG State Report (combined initial second and third) submitted to the CEDAW Committee May 2009 for consideration by the Committee at its 46th Session, available at http://www2.ohchr.org/english/bodies/cedaw/cedaws46.htm, accessed Sept 7, 2012. 10 The SDV flagship report “Societal Dynamics of Fragility: Engaging Societies in Responding To Fragile Situations� notes that collaborative relationships are a key feature of resilient societies. 77 violence, not only, as described above – in fighting between clans and other social groups- but also by men in their relationships with women. Domestic violence is highly prevalent,11 representing the most common form of violence in PNG, 12 and is sexual violence against women and children is also common. 13 These extreme gender inequalities, and the violence that often enforces them, weaken social cohesion among individuals and communities. 7. Women’s participation in the economy is curtailed by their low and vulnerable social status. Within the family, sons are valued over daughters because they are viewed as future heads of families, resulting in significant inequalities in school enrollment rates, and low literacy rates for women. 14 This bias impacts directly on individual women’s capacity to participate in the economy, and indirectly impacts the capacity of their children to thrive as well.15 Economic productivity is also directly impacted by security concerns arising from the extreme gender inequalities. Fearing for their security, women in some parts of the country report that they don’t want to leave the household. Those trading goods at market, for example, are vulnerable to rape and other serious sexual assault, accusations of sorcery, robbery, beatings and intimidation by men in the market-place and on roads and public transport, especially public motor vehicles (PMVs). These deep power imbalances also affect women’s relationship with the formal state. In PNG, as in many fragile contexts, women’s relationship to the formal state is mediated through the family and clan. They have little voice and decision-making power, within both the private and public spheres. The result is a formal state that does not respond to the needs, and is not accountable to, fully half of its citizens. 16 Similarly, women’s voice in customary institutions is often silenced by the “Big Man� authority system, which is founded on notions of masculinity, wealth and strength. The benefits of stronger development outcomes, and better-informed policy choices and strategies that result from women’s participation in decision-making 17 are also forfeited in PNG. III. Competition for land is increasing with economic shifts, creating divisions between clans, within clans, and within families that can easily lead to violence. 8. The shift over the past 30 years from an economy based almost entirely on subsistence agriculture to one where the economy is dominated by a limited number of natural resource exploitation projects has put stress on relationships between different social groups- between clans, within clans and 11 One study found that 80-90% of injuries treated at health clinics were the result of domestic abuse (Amnesty International 2006). Another found that the majority of pregnant women at an antenatal clinic had been beaten- during pregnancy- by their husbands (PNG Law Reform Commission 1992 quoted in Kopi 2010). 12 Haley, N and R. Muggah (2006), Jumping the Gun: Armed Violence in Papua New Guinea, in Small Arms Survey 2006: Unfinished Business, Geneva: Small Arms Survey, 13 One 1993 study reported that 60% of men interviewed claimed to have participated in gang rape. Reported in Amnesty International (2009) Papua New Guinea: Briefing to the Committee on the Elimination of Discrimination against Women, available at http://www2.ohchr.org/english/bodies/cedaw/cedaws46.htm 14 CEDAW (2009) p.12 15 Empirical research from PNG shows that a mother’s education is at least three times more ‘productive’ than father’s education in terms of generating positive health and nutritional outcomes for children. (Gibson, J. 1997, “How Can Women's Education Aid Economic Development? The Effect on Child Stunting in Papua New Guinea� Background paper prepared for a poverty assessment of PNG, World Bank,) 16 Statebuilding processes in fragile settings often aim to develop the capacity, accountability and responsiveness of states to its citizens. Developing the institutions to do this is seen as one of the key ways in which fragility is addressed (World Bank 2011). 17 World Bank 2011., p48 78 even within families. In the past, social and economic equilibrium had been maintained across groups through the informal compensation system. 18 9. The introduction of large-scale natural resource projects which benefit a select, limited group, but stimulate little growth in the remainder of the economy have put stress on this system for maintaining a social and economic equilibrium. Enclaves have emerged around these projects, creating ‘haves’ and ‘have nots,’ generating intense competition and aggravating perceptions of injustice amongst these groups who benefit directly, and those who don’t.19 10. In particular, the introduction of large-scale resource projects has created disputes and competition around access r to land. The majority of the land in PNG – an estimated 80-90% - is held communally. More than simply a productive asset, land helps define the group’s identity and clans have a strong spiritual connection to their traditional lands. Land has historically been a source of conflict in PNG, with disputes over ownership, boundaries and usage common between neighboring groups. Some of these disputes go back several generations. 11. The leasing of land to private companies under the 1996 Land Law has led to about 11 percent of communally held land being used by private companies for agriculture or logging. 20 The accompanying increase in the value of land is effectively giving clans more wealth to fight over; it has likely contributed to an observed increase in disputes between clans over land. 12. The lease of communal land also has deepened divisions within clans. In some cases co-owners of communal land have either not given informed consent, or have been persuaded to go along with the acquisition without understanding the full implications. Once the implications of the lease become apparent, or if the owners do not agree with the use of the land or of the benefits accrued to them, there is tension between owners, lessors and even local government. Manipulation of land ownership by political and economic elites also takes place, and can create tensions between co-owners who do not always agree on the transaction. 13. The introduction of large-scale resource projects that rely on land acquisition has also contributed to intra-family disputes. In such cases family members, often young men, disagree with decisions over leasing of land or of the distribution of royalty payments within the extended family. There is evidence that disputes over land within families are now overtaking intra-clan disputes in their number. IV. Public sector positions are captured by narrow interests along family, clan and ethnic lines 14. In several parts of PNG, 21 social fragmentation and patronage are strongly reflected in the political and local governance system. The design of political systems and governance institutions has a centrifugal effect on societies, accentuating differences between groups, and heightening tensions and 18 Under this system, material compensation can be demanded from one group by another - ostensibly to resolve a particular grievance. Many observers have described how long-dormant disputes can be suddenly activated by groups that have suffered a depletion of their resources (usually pigs) in order to gain resources held by more affluent groups. 19 In some cases, compensation claims have been activated to acquire some of this newly created wealth. Other cases have been documented of wealthier groups, after receiving royalty payments, starting fights with less-fortunate groups in order to trigger a compensation claim and thus demonstrate their wealth. 20 While the government of PNG has supported the evolution of a set of policies that are intended to redistribute tax-revenues from mining, petroleum and logging back to the customary owners of land from which the wealth is extracted, it is not clear whether the transfer of such entitlements is guaranteed under the lease-leaseback scheme and Land Act. 21 This is particularly the case in Enga, Simbu, the Eastern Highlands and the Southern Highlands. 79 rivalries as public goods are delivered only to allies of those in power. The strength of the wantok system –in which members of a social group (clan, family, or even the same province) are obliged to reciprocate and support each other results in strong expectations that elected leaders will prioritize rewarding individual supporters directly over serving the interests of their geographical constituencies. 15. Given these potential rewards, the stakes for getting a member of one’s own clan into elected office are high, fueling intense – often violent - competition across ethnic groups. 22 In the Southern Highlands Province for example, where constituencies are defined largely geographically, corresponding to ethno-linguistic groups (Mendi, Huli and Kewa speakers), ethnic competition in local governance has led to intense competition not only in the election process itself but also in administration. In many parts of the country, local governance results in the exacerbation of rivalries, and that diversion of public goods towards serving the interests of a limited social group. 16. Whilst a change in the design of the electoral system from a ‘first-past-the post’ approach (the plurality system) to the limited preferential voting system for the elections in 2007 and 2012 has helped somewhat in curbing the ethnic polarization of politics, the political party system is still very weak, and voting continues to be heavily influenced by family, clan or regional alliances. The party system produces very large numbers of political parties, based largely on individuals rather than ideological or policy platforms. 17. The design of provincial administrations contributes to the patronage system in local government. Once in office, Members of Parliaments are given substantial control over provincial government expenditure programs, with weak oversight from the national executive. The legal framework regulating provincial government gives substantial powers to provincial politicians, and it is difficult for national government to play a supervisory role or to intervene in provincial affairs- leaving space for mismanagement of funds and corruption. 23 Political appointments for civil service positions are also growing in a number of provinces, as politicians seek to consolidate their power and control over the distribution of resources. 18. Provincial governments hold substantial power over resources allocated to local government. As provided under the Organic Law on Provincial Governments and Local- Level Government, the provincial governments are responsible for planning, budgeting, accounting and reporting. However, there is little transparency and accountability in the budgeting and expenditure of public funds, and in many districts, development project funds and recurrent budget funds for day-to-day operations are diverted from local government to the provincial level. Institutional design prevents effective oversight by national government, creating a space for provincial-level corruption and mismanagement of funds. Many provinces have experienced at different times, high levels of public dissatisfaction with the lack of service provision and unmet expectations. As already experienced in parts of country- in particular in the Highlands- there is the potential for this dissatisfaction to be mobilized by political agitators, resulting in deeper social divisions and violence. V. Intergenerational conflict is growing, as the gap between the values of older and younger generations widens 22 Competition routinely takes violent forms. Election-related violence, for example, was particularly high in 2002, when numerous deaths and incidences of assault, robbery, vandalism and damage to property and intimidation were perpetrated by candidates and their supporters. In the Southern Highlands Province, firearms were allegedly distributed by candidates to their supporters. 23 As an example, the 2002 SHP audit, conducted by Price Waterhouse Coopers, found that approximately K50 million had been misappropriated from provincial revenue by successive SHP governments over the audit period 1998-2002. There was said to have been little follow-up by the national government on the report's findings. 80 19. Observers have noted a strong intergenerational gap in values and norms in PNG. Relationships between the generations have historically been quite rigid, with decision-making power consolidated with the clan elders. These relationships are being challenged by recent socioeconomic changes, including increased mobility between some geographic areas, urbanization, and the shift away from exclusively subsistence agriculture. 20. In some cases, traditional leadership structures have adapted to these changes by becoming more flexible, with some senior leaders devolving responsibilities to younger members, especially “Western educated� males. In other cases, these roles- such as liaising with foreign companies investing in the area- have been assumed by the young men or ascribed by the private companies, by virtue of the fact that they speak English, but without the consent or approval of traditional leaders. 21. Commentators have noted however, that younger leaders, operating outside of the traditional cultural codes of conflict and lacking in the oratory skills traditionally used in conflict negotiation, are more likely to revert to violent methods of dispute resolution. The strong social imperative for young people to use firearms as a way of enhancing social-status, may also be a contributory factor in the resort to violence outside of the dictates of the conflict system. 22. The fact that younger people feel less bound to traditional codes of behavior often brings them into conflict with their elders (see also the section on land disputes). The authority of elders is being challenged, with physical injury and sometimes death inflicted on them by dissenting young men. The entrance of young migrants into areas with resource projects, for example, has been linked to increased social conflict as they do not operate within a clan structure in their new environments, and as such fall outside the mechanisms for maintaining social order.24 23. Many urban areas in PNG are also seeing the emergence of raskol, or criminal, gangs comprised primarily of youth. As noted in the Urban Youth Employment Project Social Assessment, the growth of these gangs has to do, in part, with the disconnection of youth from traditional social support systems. Removed from their clans, youth are no longer subject to the clan-regulated social norms that would govern their behavior and tie them to other clan members, contributing to a sense of disenfranchisement and alienation. VI. PNG’s institutions – both customary and the formal – are unable to effectively manage the stresses that have arisen from social and economic changes. 24. The effectiveness of customary institutions is being challenged by the social and economic changes being experienced in the country, while state institutions as yet do not play a significant role in the day-to-day lives of people in PNG. 25 In many areas of PNG, state institutions are virtually absent. The expansive territory, rugged terrain and limited infrastructure mean that entire geographic areas exist outside the physical reach of the state. In some districts, the state has been unable to maintain a continuous presence due to ongoing conflict. These factors contribute to a very limited trust in the state and its capacity to mediate across different groups. 25. Many communities, particularly in rural areas, rely on traditional systems of governance and support- such as the leadership of clan elders, mediation of disputes by interested parties and wantoks in the exchange of goods and social services. Recent changes in societies in PNG have placed some 24 They have also been accused of bringing gambling, drinking and prostitution to these local areas. 25 There is no history of formal, centralized organization of societies in PNG prior to European contact. This lack of experience with a centralized structure, it is argued, results in a disregard for the modern state. 81 aspects of these traditional systems under stress. Disputes, for example, have become less amenable to management by traditional means. Economic and social changes brought on by a growing population, rapid urbanization, and the growth of a cash economy are contributing to increased tensions between groups as traditional systems are not able to manage the impacts- in particular the increasing demands for higher-levels of compensation and never-ending cycles of pay-back fighting. The increased use of automatic weapons results in many deaths and much destruction of property in a short time span, and the pig culture and small cash incomes cannot generate enough wealth to pay inflated compensation claims that ensue. Further, while in the past, conflict sprang from the community level or ‘bottom-up’, many conflicts are now triggered from the ‘top-down’, being politically motivated and manipulated, rendering traditional conflict resolution methods far less effective in managing them. 26. The formal institutions charged with providing governance and justice services in PNG are weak, in large part because they lack cultural relevancy. Compared with traditional systems of governance and leadership whereby the status of the ‘big-man’ is achieved over many years and constantly contested, the formal political system provides very little transparency and accountability beyond the election of a representative. As another example, the imprisonment of those who break the law is often seen as ineffective in securing the rule of law in the country. Incarceration does not act as a strong deterrent for would be criminals, as this form of sanction has no basis in the cultures found in PNG and doesn’t serve to disrupt the incentives, for example the cultural imperatives and sanctions, to engage in violent, or what are considered criminal, actions. 27. There are however some forms of indigenous governance mechanisms that still have potential relevance such as the older kiap system and village courts.. The former reinforced the traditional leadership system, acting as an arbitrator in disputes, and the latter addressed family and criminal matters at the local level in place of the state. VII. Addressing the Drivers 28. Drawing on this analysis, the following orientations are offered as possibilities in addressing the drivers of fragility in PNG. These are intended to inform a conversation with stakeholders in PNG and with other donors that, ultimately, aims to improve the effectiveness of the World Bank’s engagement in the country. 29. It is suggested that the CMU consider the following three overarching themes to be mainstreamed across the portfolio. 1. Acknowledge and respond to the social fragmentation in PNG by increasing Bank and GoPNG capacity to mediate across different groups. 30. The intense divisions across the many social groups in PNG and the lack of a cohesive common identity point to the need for the Bank to support mechanisms that build trust and confidence both across groups and between these groups and the state. Specific measures could include: • Assessing, at the country level, the reach of conflict redress and resolution measures across the Bank portfolio. It would be useful to assess which projects have embedded these mechanisms and how, and to identify opportunities for expanding these. • Integrating conflict resolution and redress mechanisms into Bank operations. These could include supporting conflict resolution mechanisms in Bank-led road transport and agriculture projects. These should especially be considered for any Bank support to natural resource projects. Progress could be monitored by tracking the number and type of ‘cases’ brought for resolution, and level of satisfaction 82 with the outcomes. Here the project teams could draw on Bank experience with mechanisms for intra-community cooperation used in CDD projects, such as PNPM in Indonesia. The Bank may also want to consider including training for ‘mediators’ in different projects, who can interface between project teams and communities. • Building the capacity of the GoPNG to communicate clearly with different social groups in their languages (especially Tok Pisin) and in a culturally relevant manner. This support could be provided at different levels of government, so that citizens understand the procedures for budgeting, planning, monitoring and other functions. • Strengthening training in conflict competence within the life-skills component of the UYEP (component 2). These could be designed so as to help heal the bruised relationships with elders, by bringing in the experience of elders and facilitating dialogue between generations as part of the trainings. • Considering a stand-alone Bank project to increase the capacity of the state to mediate across different groups in society. This may need to commence with AAA to understand the strengths and weaknesses in the design and functioning of existing institutions to encourage cooperation, tolerance and conflict resolution across groups. This could include analysis of customary and formal institutions, as well as hybrid institutions such as the village courts. Based on this analysis, pilots or project components could be developed to focus on institutions in key sectors, such as agriculture or mining, where conflicts across groups are common. • Mapping violence and reconciliation across groups in PNG in order to better monitor these dynamics and address them in the country portfolio. It would be important to understand the horizontal inequalities between different social groups, and the perceptions of injustice that attach to these, in order to get a clear picture of the dynamics at play. Key indicators to track could include: resource distribution across different groups; concentration of resources and/or conflict in different geographic regions; interplay of conflict with development projects, and others. • Considering indicators within the planned risk filter that monitor social fragmentation and Bank efforts to address this. For this, it would be important to monitor inequalities and perceptions of injustice between ethnic groups, generational groups and genders. This would obviously be difficult to attribute to the Bank’s work, but is nonetheless important to track regularly. 2. Address conflicts over land and resource allocation. 31. Conflicts between and within clans related to land use and resource allocation are threatening social cohesion. The Bank could address these rifts by: • Supporting efforts to strengthen the capacity of the GoPNG to deal with increasing competition over land. One alternative for this could be encouraging other donor’s support for the Land Courts at the village level, and then linking Bank projects in agriculture to these. • Encouraging greater transparency in natural resource concessions, and land leasing. The Bank can use its lead role in the agriculture sector to encourage greater transparency and public oversight of leasing arrangements to help address disputes over land. • Monitoring citizen perceptions of state transparency and accountability in resource allocation. This could be done by prioritizing efforts to monitor the perceptions of state transparency around service delivery, accountability, and other outcomes. 3. Consider mechanisms to address social divides between men and women, and between generations. 83 32. The World Bank has included concerns over generational conflict and gender inequality as an important part of its engagement in PNG. This focus could be strengthened further by helping to transform the relationships that contribute to these inequalities through the following: • Better understanding the role of youth in PNG, in order to increase opportunities for youth and heal generational divides. The UYEP Social Assessment is useful background. The analysis presented in the present brief suggests that youth are taking on leadership roles in some cases, and that youth with particular skills (especially English language) are being privileged in access to some economic opportunities, but lack the social skills that would enable them to play these roles in ways that contribute to increased social cohesion. At the same time, youth are becoming disconnected from the social norms that regulated the behavior of their parents and grandparents, deepening a rift between the generations. Youth also seem to be struggling to access employment opportunities in urban areas, particularly when preference for jobs goes to elders or particular clans. Further analysis is needed to understand these dynamics of exclusion, access, and relationships between the generations. • Considering specific measures to build the conflict resolution skills of youth in ways that heal generational divides. • Considering ways to connect youth to the state in ways that improve the state-society relationship. In other contexts, civil service reform as been important in this regard (ie South Africa, India). • Integrating mechanisms that remove obstacles to women’s participation in economic and social life, and that help to level the playing field for women. It is important to understand how social and economic changes are affecting gender relationships, in order to mitigate risks that come from this. For example, current projects to increase women’s role in the private sector (such as the WIM initiative) could include a stronger focus on the enabling environment for women, and how to improve this. The CPS envisions designing projects where women will benefit, and it will also be important to understand the challenges this poses to the rigid gender relationships in PNG, in order to better mitigate these. It will also be important to ensure that gender-disaggregated monitoring indicators are included to the extent possible. • Designing indicators for the planned risk filter that incorporate a gender focus. These could include indicators of incidence of domestic violence and gender-based violence, and indicators to monitor the response of the state to women’s needs and concerns. 84 Attachment F Risk Review for WBG Papua New Guinea CPS, and Retrospective Assessment of 2008 CAS Approaching the strategy development and dialogue process for the WBG in Papua New Guinea in 2012 requires a more holistic and yet also more granular consideration of risk. The country is on the brink of structural economic transformation, benefitting from unprecedented levels of new FDI yet still very extractives-dependent, gaining significant benefits from a much-expanded IFC program and re-gaining access to IBRD to complement IDA, confronting a young, diverse, and increasingly vocal spectrum of stakeholders steadily improving in their ability to unite and confront the government. This means the challenges go far beyond managing technocratic risks in maintaining macro-fiscal discipline and making ‘systems’ improvements in service delivery and public sector governance; thus, the IFC-Bank Country Team has chosen to consider risks differently: • Discuss risks much further upstream in the strategy process (rather than treating them as a residual to be addressed after the program is designed) • Consider risks in a longer-term historical context (rather than treating each strategy document as a tabula rasa with little explicit connection between the analysis of lessons learned in the previous CAS and the analysis of risks in the upcoming CAS) • Inform the risks discussion in a more granular way that uses a more diverse set of evidence and data (from inside and outside of the WBG, and from public and private sector sources), and connects the current ‘diagnosis’ with a retrospective assessment of how previous risk analyses ‘performed’ when seen ex post facto • Construct a risk filter that explicitly does not encourage risk aversion but rather encourages calibration and mitigation of risks; we will ask “Which high-impact interventions are most amenable to risk mitigation?� rather than asking “what are the least risky interventions?� The WBG Context for Talking about RISK: most World Bank Group documents identify the following 'types' or 'sources' of risk: • Risks to Achieving Results – risk to development effectiveness = not achieving PDO • Reputational Risks – risks of acting or not acting, risk of being blamed (for action or inaction), risks of be(com)ing irrelevant • Country Risks - risks persistent across all efforts in a country: economic risks, political risks, credit risks, etc. − may be some combination of legacy (‘their’ history influences ‘our’ current views) and negative synergy (risks that surface in one sector increase perception of risks in another) − is often captured in a category/label or country ‘flag’ − the “label effect� persists even when label is removed (PNG has not been listed as ‘fragile’ for 3+ years, has never been late on an IBRD or IDA loan payment, but is thought of as ‘difficult’ because of GoPNG and WBG leadership interactions a decade ago) • Institutional Risks – weaknesses in implementing partner or government agency − Q- is risk the ‘dark side’ of capacity building, or the manifestation of incomplete institutional development? • Fiduciary Risks – potential for corruption or financial mismanagement, procurement practices that don’t get ‘value for money, or poor handling of environmental and social safeguard issues 85 TABLE A: EVOLUTION OF THE WBG UNDERSTANDING OF RISKS IN PAPUA NEW GUINEA INSTITUTIONAL ECONOMIC RISKS (including PRICE and POLICY POLICY and GOVERNANCE DISASTER RISK, CLIMATE SOCIOPOLITICAL INERTIA or BLACK VOLATILITY, MARKET UNCERTAINTY, MAJOR ECONOMIC GAPS (including fiduciary CHANGE, and EXTREME WEATHER TURBULENCE INADEQUATE SWANS SHOCKS) failures and corruption) CAPACITY 2012-2016 CPS 2000 CAS 2005 ISN 2008 CAS Is this risk Is risk present? increasing? Comments Exogenous risks stem primarily from the potential damage Natural disasters may cause significant economic More frequent extreme from adverse commodity price movements and natural disruption and social dislocation. √ ↑ weather, increased disasters. pests, erratic rainfall Global financial/economic crisis affects export prices, diaspora employment, financial institutions A fall in commodity prices may trigger a rapid decline in No consensus in COUNTRY RISKS economic performance. √ ↔ forecasts Continued weak macroeconomic Endogenous risk is increased political jockeying within ruling Political dynamics management and poor economic governance, coalition will erode nascent support base for reform and compete for impact, push leading to further deterioration of fiscal distract govt from focusing on priority policy issues, and/or √ ↔ for rent-seeking power situation and possible financial sector crisis. erode fiscal discipline and lead to reversal of recent gains. but also pull for reform Failure to meet targets of macroeconomic FID on massive PNGLNG project (total investment = 2x More than a decade of stabilization program, resulting in significant annual GDP) triggers economic and structural changes, fiscal discipline under delays in structural policy reforms. inflation and XR appreciation, skills shortages; accelerated four ministerial regimes urbanization NOTE: the unanticipated risk associated w/ − ↓ PNGLNG is the monolithic scale, not the ‘standard’ extractives risks which were already on our radar Main country risk is chronic political and economic Political conflict may lead to a serious decline in the Larger better-organized uncertainty over the medium-term, and continued poor governance environment. √ ↔ citizen movements governance. incentivize reformers Growing unemployment, especially among urban youth, Few technocrats, no may lead to increased violence and criminal activity, and to √ ↑ politicians focusing on deteriorating social stability. solving ‘youth issues’ Further worsening of law and order problems √ ↑ Evidence base evolving IMPLEMENTATION RISKS Worsening of systemic issues affecting The main risks to implementation of the interim strategy are project implementation threefold: − Relationship risk arising from deterioration in the quality Lack of ownership of public expenditure and governance Increasing traction for of dialogue with the Government on governance and reform and lack of support for national oversight agencies PFM reform ‘for service portfolio-related issues. may stall the progress of CAS implementation. √ ↔ delivery’, but inertia on oversight institutions − Coordination among development partners remains Efforts to promote closer coordination between the More collaborative and weak, due to differing institutional imperatives, thus Government and development partners may not be less fractured DPs limiting the World Bank’s effectiveness and leverage. successful. − ↓ smooths gaps in GoPNG coordination efforts − Ongoing implementation risks posed by systemic Weaknesses in public fiduciary systems may impede Stagnant /poor PFM portfolio problems, including availability of counterpart project implementation. systems remain a threat, funds and poor financial management, combined with √ ↔ but Bank engagement potential risk of corruption in loan and grant portfolio. strengthens some areas The Bank’s engagement will either be too short-lived or too Multi-stakeholder re- small-scale to affect governance in long term. − ↓ engagement is solid 86 TABLE B: RETROSPECTIVE VALIDATION OF 2008 CAS ASSESSMENT OF RISKS AND MITIGATION MEASURES Risks Assessed in 2008 Mitigation Measures Proposed in 2008 Retrospective Validation of events 2008-2012 Country Risks as assessed in 2008 Political conflict may lead to a The CAS will aim to mitigate this risk by focusing This risk did eventuate, albeit late in the CAS period. “Usual� pre-election political serious decline in the on improved transparency and accountability in maneuvering intersected with generational leadership conflict, and by late 2011 governance environment. the use of extractive industry revenues, the generated increasing tensions between branches of government and the population. institutional strengthening of key oversight The resulting dynamics generated threats to governance (actions proposed and/or taken agencies, and community-driven development to challenge independence of judiciary and oversight institutions) but a multi-stakeholder approaches that emphasize good governance. In movement pushed back with effective challenges and a forceful demand for order to build coalitions for improved governance, accountability, and several anti-governance actions were peacefully reversed. Not all the CAS will also support dialogue among key government initiatives were negative, with a modest reform momentum in Cabinet stakeholders, including national and sub-national resulting in concrete actions. government, the private sector, civil society, and development partners. CAS actions linked to extractives transparency (including outreach to all stakeholders) were useful contributors to mitigating the risks, but CAS actions linked to oversight agencies and to CDD were not undertaken. A fall in commodity prices may The CAS will support the steady accumulation of Commodity prices did fall briefly but overall they rose throughout the CAS period; the trigger a rapid decline in reserves and the reduction of public debt, as well primary challenge was increased volatility. Government pursued all macro-fiscal economic performance. as promote the wise and effective use of public measures encouraged in the CAS which in turn buffered the country from the global resources, and intensify efforts to diversify the economic crisis. Bank efforts supported those macro-fiscal policies and increasingly economy. focused on investments that could help in diversifying the economy, and 2010-2011 data shows non-minerals growth (in %) outstripping minerals (albeit started from a low base). Unmentioned in the CAS was the significant two-tailed risk of a single massive minerals investment project promising transformational gains in national income and potential upstream and downstream employment, consuming huge political and financial capital of Government, causing structural shifts in employment and local markets, fueling inflation and exchange rate appreciation, and driving unrealistic expectations: PNGLNG. BLACK SWAN The Bank reacted nimbly to this, shifting the focus of our macro-fiscal dialogue onto managing minerals-induced volatility immediately after the Final Investment Decision was made, and focusing intensive staff time and TF resources on those issues. 87 Risks Assessed in 2008 Mitigation Measures Proposed in 2008 Retrospective Validation of events 2008-2012 Growing unemployment, The CAS will support the articulation of a Youth This risk manifest in a broader way (beyond youth although they were an important especially among urban youth, Integration Strategy designed to create productive component) as a general dissatisfaction with perceived growing inequality and lack of may lead to increased employment opportunities for youth at risk, delivery on expected windfall benefits from extractives projects Mitigation actions were violence and criminal activity, especially in urban areas, and to create ways of less strategic than envisioned in the CAS, focusing on one single investment project and to deteriorating social fostering their social and political inclusion in which would pilot an approach to youth employment but without much policy dialogue stability. community and political affairs. and with no clear path to link hoped-for UYEP ‘success’ to broader national champions. Natural disasters may cause The CAS attempts to mitigate this risk by Only a modest manifestation of risks, with significant difficulty in advancing broad significant economic disruption supporting the development of a climate change consensus on climate change and mitigation/REDD strategies, but Bank efforts to link and social dislocation. strategy and PNG’s participation in regional PNG to resources and regional initiatives on disaster risk reduction gained more traction disaster risk reduction initiatives, while also than expected and is evolving into a robust element in the grant portfolio. promoting responsible and sustainable natural resource management practices. Implementation Risks as assessed in 2008 Lack of ownership of public The CAS attempts to mitigate this risk by This risk fully manifest with only minor movements towards reform opening up late in expenditure and governance supporting efforts to build broad-based the CAS period’ the CAS mitigation measures were largely unexploited, as SAIO was reform and lack of support for constituencies for change, reaching out to civil cancelled after the Concept Review meeting. An entirely different approach emerged, national oversight agencies society and the media by helping them access however, which allowed the Bank to use the steady improvement in macro dialogue as a may stall the progress of CAS information for monitoring and evaluation. In opening to frame the need for PFM reform as a “service delivery issue�; by the end of implementation. addition, the SIAO program will support the the CAS period, the Bank had been invited to lead a Sectoral PER in Education, the capacity of PNG’s oversight institutions to carry single largest budget line item, representing a significant upscaling of engagement on out their functions effectively and to communicate public expenditure aspects of governance. with citizens about their work. The Bank’s engagement will The CAS only intends to take a first step in This risk did not eventuate, even in the face of significant increases in scale from the either be too short-lived or too dealing with complex socio-political issues of this two larger donors (Australia and the ADB); mitigation consisted of the CMU’s active small-scale to affect kind. Over time, and with persistence and use of the CAS ‘statement of principles’ from which to make credible commitments to a governance over the long consistent engagement, the Bank expects to be steadily increasing portfolio and significant BB-funded AAA delivered in response to term. able to assist significantly in spite of its limited specific client demands with an emphasis on modest “just in time� non-lending TA. financial capacity in PNG. 88 Risks Assessed in 2008 Mitigation Measures Proposed in 2008 Retrospective Validation of events 2008-2012 Weaknesses in public Through the PERR and CPAR processes, the These risks manifest repeatedly over the CAS period, with some anecdotal evidence fiduciary systems may impede CAS will attempt to reduce this risk by of deterioration from an already low base in procurement. Neither of the processes project implementation. strengthening GoPNG’s capacity to implement suggested in the CAS as mitigation measures were functional, with the PERR closed effective, transparent procurement, and to apply down in 2009 and the CPAR follow-up stymied by a lack of reform appetite on the part of and monitor procurement and fiduciary guidelines the Central Supply and Tenders Board. The Bank continues to nurture consensus systematically. amongst key donors on the conditions which would allow for a united and serious procurement reform effort. Efforts to promote closer The CAS will attempt to mitigate this risk by a This risk manifest mostly in a continued weakening of GoPNG leadership in coordination between the more straightforward, transparent approach to coordination, but ‘shadow coordination’ amongst donors has improved and is Government and development communicating the Bank Group’s views and succeeding at sectoral levels in fostering slight positive movements in government partners may not be intentions, and by giving greater attention to leadership. The CAS mitigation measures have been widely employed by the Bank successful. consultation with a wide range of stakeholders. and are judged as very effective. 89 Attachment G Prospects for Papua New Guinea Use of WBG Financial Products for IBRD Clients As a Blend client eligible for IBRD financing in addition to the IDA 16 allocation, Papua New Guinea will be considering the range of products shown in the table below as potential mechanisms to help finance strategic investments. Initial discussions for use of IBRD have focused on transformational infrastructure that removes empirically-identified bottlenecks to more inclusive and broad-based growth and better service delivery, such as renewable energy. There are a wide range of IFC products that could be considered, as can MIGA’s risk coverage products. IBRD IDA IFC MIGA Middle-income country governments and sub-national ELIGIBITY Low-income country governments Private sector clients entities (with government guarantee) • IFC A-Loan • Equity finance • Credits • IBRD Flexible Loan • IFC C-Loan • Grants FINANCING Financing • Local currency loans • Subnational finance* • IBRD Flexible Loan for enclave • Subnational finance • Local currency loans operations • IFC B-Loan (third parties) • Parallel loans (third parties) Contingent Financing • Deferred Drawdown Option (DDO) • DDO for IDA Blend countries • Partial risk guarantees • Full/partial credit guarantees • Credit-linked guarantees • Partial risk guarantees • Partial risk guarantees (PRGs) • Trade finance guarantees • IBRD PRGs/PCGs/PBGs for IDA • Political risk Credit Enhancement • Partial credit guarantees (PCGs) • Mezzanine investments in Blend countries insurance • Policy based guarantees (PBG) securitizations • IBRD PRGs for enclave operations RISK MANAGEMENT • Risk sharing facilities • Guaranteed offshore liquidity facility • Currency swaps • Currency swaps • Interest rate swaps • Interest rate swaps • IBRD Hedging products for IDA • Interest rate caps and collars Hedging Products • Interest rate caps and collars Blend countries • Commodity price swaps • Commodity price swaps • Swap guarantees • Carbon delivery guarantees • Weather hedges • Weather hedges Disaster Risk • Catastrophe Risk Deferred Drawdown Option (Cat DDO) • Catastrophe bond • Weather hedges Financing • Insurance pools • Insurance pools • Catastrophe bonds • Asset management (central banks, sovereign wealth funds • Investment • Access to finance and public pension funds) strategy related to ADVISORY • Investment climate • Asset-liability management • Asset management political risk • Environmental and social Client Advisory Services • Capital market access strategy and implementation • Commodity risk management • Dispute resolution sustainability • Commodity risk management • Public debt management • Environmental and • Infrastructure advisory • Public debt management social sustainability • Corporate advice • Transaction processing, reporting and IT 90 Attachment H Development Partners’ Matrix of Activity (Donor Mapping) Net flows to PNG currently average slightly over US$910m per annum, close to 10 percent of GDP or $130 per capita. • Australia is Papua New Guinea’s largest partner, providing annual assistance close to A$500m. The framework for Australian cooperation is set out in the Partnership for Development, focused strategically on four pillars: primary health, education, transport infrastructure, and law and justice. Australia’s whole-of-government program includes support to public finance management and to improved national statistics. • The Asian Development Bank (ADB) has had a long-term engagement in Papua New Guinea, based around an integrated program of analytical work and investments. The ADB Country Operations Business Plan for 2013-2015 outlines a program focusing on infrastructure (transport, power, water/sanitation), state enterprise reform, trade and PFM, microfinance, and health. The ADF allocation is US$168.9m and Ordinary Capital Resources total US$205m, complemented by US$3.25m in preparatory technical assistance. • The European Commission’s country strategy for the period of 2008 to 2013 sets out a framework for engagement with PNG under the 10th European Development Fund. A maximum of €130m (US$157m) available during this period, with a focus on rural economic development and human resources development (basic education and vocational training). • Japan’s assistance varies from year to year, totaling US$131m in 2009. Papua New Guinea benefits from grants, people-to-people exchanges and scholarships, and the program covers three priority areas: infrastructure and investment environment; education and health human resources; and environmental conservation and climate change mitigation/adaptation. • New Zealand, under the Joint Commitment for Development with PNG, provides approximately NZ$35m ($28m) per annum, with a focus on agriculture, electrification, basic health, scholarships and training, and a safer and more stable Bougainville. • China is an important partner with an active program of grant aid, concessional loans, and personnel training for PNG nationals, covering agriculture, engineering construction, industry and telecommunication, and sports and education, with a strong focus on infrastructure. • United States (US) is increasing its support for Papua New Guinea, both through bilateral and regional programs; two primary areas of support are climate change adaptation and community resilience, and HIV/AIDs, with a supplementary focus on strengthening governance and reducing gender-based violence. Support will average US$8-10m per year. • The United Nations (UN) system is active, working strategically as a “Delivering as One� self-starter under a multi-agency 2012-2015 United Nations Development Assistance Framework (including 15 UN agencies) covering four clusters: governance for equitable development; access to basic services; social justice, protection and gender equality; and environment and disaster risk management, within a resource envelope of US$190m. • The International Fund for Agriculture Development (IFAD) provides US$14m equivalent in co-financing for the World Bank Productive Partnerships in Agriculture Project. • Churches and nongovernmental groups play an especially important role in providing services in rural parts of Papua New Guinea, particularly in primary and curative health, education (including early childhood readiness for school), and social protection. 91 This graphic visually maps partners activity in PNG, with the width of each column scaled to the total size of Official Development Assistance (ODA) in that sector (comparative to other columns) and the vertical size of each partners’ “block� indicated the share of total sector activity contributed by that partner. The four largest sectors (in terms of ODA plus GoPNG ‘spend’) are education, health and HIV-AIDS, transport infrastructure, and law and justice. 92 Attachment I Mapping CPS to WBG Global Strategies and Priorities The matrix below maps the WBG proposed country partnership strategy approach for PNG against corporate strategic priorities as identified in the Post-Crisis Directions Paper, the IDA-16 Replenishment Paper, the last three World Development Reports, and the East Asia and Pacific Regional Strategies for both Bank and IFC. It also maps the WBG CPS against Bank-wide sector strategies. Corporate Strategic Focus, Priority or focus area relevant to Specific linkages to PNG program Regional or Sector Strategy WBG PNG CPS Post Crisis Directions − Target the poor and vulnerable strategically − Create opportunities for growth − selectivity; integrated WBG approach − Promote global collective action programmatically − Strengthen governance − TA for social protection − Manage risk and prepare for crises − agriculture, infrastructure, private sector development, clean energy − focus on gender equality − extractives governance, disaster risk reduction/climate change adaptation IDA-16 Priorities − Gender − Outcome-level focus on gender equality − Climate change − Adaptation and disaster risk reduction − Crisis response − Macro-fiscal policy discipline, improved financial sector supervision WDRs 2010, 2011, 2012 − Climate change − Specific interventions for climate change and conflict; gender addressed BOTH − Conflict and fragility through stand-alone AND mainstreamed activities − Gender equality Bank EAP Regional Strategy − Sustaining growth − Renewable energy for ‘green growth’; improved productivity and value-chain − Poverty reduction − Social protection systems, strengthened women’s economic role − Governance and institutions − Focus on service delivery, transparency − Regional and global involvement − Community resilience to disasters − Managing crises and disasters IFC EAP Regional Strategy − Climate change − Renewable energy investments − Inclusion − Financial inclusion and telecomms − Global integration − New models for national businesses, SOEs, PPPs Agriculture and Rural Development − Enhancing agricultural productivity and − productivity focus and public-private linkages in SADP and PPAP Strategy (2002) competitiveness − IFC focus on agribusiness and off-farm value-chain growth − Fostering non-farm economic growth WBG Agriculture Action Plan FY10- − Raise productivity − Focus on smallholders competing in higher-value markets, on market infrastructure 12 − Link farmers to markets and strengthen − IFC and Bank focus on access to finance for agriculture businesses value chains − Ag programs have gender-differentiated design, outreach, M&E 93 Corporate Strategic Focus, Priority or focus area relevant to Specific linkages to PNG program Regional or Sector Strategy WBG PNG CPS − Focus on the ultimate client, especially women WBG Environment Strategy, 2012 − Low-carbon emphasis, shift to renewable − WBG support for GoPNG significant investment renewable energy “green, clean, and resilient� energy − Climate change adaptation and DRR grants twinned with IDA credits in key sectors − Better preparation for shocks associated (ag and transport) with climate change One Goal, Two Paths: Achieving − Whole-of-sector framework − Bank co-leads energy sector partners group Universal Access to Modern Energy − Strategic investment in renewable energy − WBG investments in hydropower in EAP (2010) − Operational efficiency improvements − Bank support to improved technical capacity of GoPNG institutions and deeper − Better coordinated partnerships and engagement with communities funding mechanisms WBG Energy Strategy (consultations Emphasis on balancing economic, − TA for energy strategy development phase, 2010) environmental, and social concerns − Financing for renewable energy investments − Policy analysis and advice, TA for regulatory issues, capacity building − Improve access and reliability of energy supply − Shift to more environmentally sustainable energy sources WBG Infrastructure Strategy Update − building climate and disaster resilience − climate-proofing road investments FY12-15, EAP Regional Plan (2011) into core investments across sectors − energy sector TA and renewable energy investment(s) − sustainable development of sub-national − IFC support for Digicel Solar program level roads to ensure good quality, all- − scoping support for urban water schemes for slum settlements, and rural wat-san year access programs − increased access to electricity with emphasis on low-carbon renewable sources and energy efficiency − results-based approach to rural water supply and sanitation IDA at Work: Mining Sector Reform − focus on the extractive industries value − updated policy and legal regime (2010) chain − improved capacity for oversight and monitoring − efficient fair and transparent collection and allocation of revenues − increased gender-equitable community participation on negotiations of benefits- sharing agreements 94 Corporate Strategic Focus, Priority or focus area relevant to Specific linkages to PNG program Regional or Sector Strategy WBG PNG CPS WBG Information Communication − sector reform and regulation − Bank support to sector modernization Technology (ICT) Strategy 2012 − promoting social inclusion and demand − WBG support to aggressively expand access to mobile connectivity for good governance − piloting use of ICT in top ‘spending’ sectors to monitor service delivery − encourage skills development for ICT- − use of ICT in agricultural value chain related jobs − IFC support through Digicel Business Edge for jobs and entrepreneurs − catalyze investment in broadband − TA for national broadband infrastructure World Bank Strategy for Health − Health systems strengthening − Programmatic AAA for Health Sector (including health financing analysis) Nutrition & Population Results (2007) − Health financing and economics − Scoping on water and sanitation as enabler of improved health outcomes − Leverage an intersectoral approach to HNP results World Bank support for HIV-AIDS − Supporting HIV strategic planning − HIV-AIDS Integrated Bio-Behavioral Survey (IBBS) (2012) World Bank Group Education − Strengthen education systems − Investment in improved quality of classroom experience and materials (READ-PNG, Strategy 2020 “Learning for All� − Build a high-quality knowledge base FODE) − Analytical work: Education Sector Public Expenditure Review; early grade reading assessments World Bank Social Protection and − Build appropriate country-specific social − TA to Social Protection Task Force Labor Strategy 2012-2022 protection systems − Modeling for SP pilot and future financing options using minerals revenues − Finance social protection directly and by mobilizing other support World Bank Support for Criminal − Analysis of costs of crime and violence − Bank multi-disciplinary study of socio-economic costs of crime and violence Justice Activities, Staff Guidance − Alternative Dispute Resolution systems − IFC capacity-building support for ADR Note 2011 − Youth and community programs with − Social cohesion elements of youth and CDD projects elements of crime and violence prevention − Resource management / PFM improvement plans 95 Annex A1 Key Economic and Program Indicators - Change from Last CAS Forecast in Last CAS Actual Current CAS Forecast Economy (CY) 2006 a 2007 b 2008 b 2009 b 2009 c 2010 c 2011 a 2012 b 2013 b 2014 b Growth rates (%) GDP 2.6 5.2 4.0 4.5 6.1 7.6 9.0 7.5 4.0 7.5 Exports 29.8 13.7 0.7 5.4 -20.7 29.5 20.6 10.0 2.0 10.0 Imports 19.6 11.8 6.9 6.6 3.8 30.8 45.2 5.0 -8.0 -2.0 Inflation (%) 2.3 3.0 4.8 4.8 5.7 7.8 6.9 6.8 6.7 6.6 National accounts (% GDP) Current account balance 5.3 7.1 2.6 1.7 -16.4 -25.6 -36.4 -30.0 -21.0 -13.0 Gross investment 18.0 18.0 18.0 18.0 19.9 17.8 20.0 22.0 20.0 17.0 Public finance (% GDP) Fiscal balance 7.3 4.9 1.2 0.4 -9.6 3.1 0.5 -3.0 -2.0 -1.5 Foreign financing -1.3 -0.5 -0.4 -0.4 -0.4 0.1 2.5 0.7 0.5 0.5 International reserves (US$ m) 2426 2895 4126 4099 4487 4619 (as months of imports) 5.4 4.3 4.9 4.5 5.3 5.5 Program (Bank ’s FY) FY__a FY__b FY__b FY__b FY__c FY__c FY__d FY__b FY__ b FY__b 96 Annex A2 Papua New Guinea: At A Glance Papua New Guinea at a glance 4/5/12 Papua East Lower Key Development Indicators New Asia & middle Guinea Pacific income Age distribution, 2010 (2010) Male Female Population, mid-year (millions) 6.9 1,962 2,519 75-79 Surface area (thousand sq. km) 463 16,302 23,579 60-64 Population growth (%) 2.3 0.7 1.5 Urban population (% of total population) 13 46 39 45-49 30-34 GNI (Atlas method, US$ billions) 8.9 7,249 4,078 15-19 GNI per capita (Atlas method, US$) 1,300 3,696 1,619 GNI per capita (PPP, international $) 2,420 6,657 3,632 0-4 10 5 0 5 10 GDP growth (%) 8.0 9.7 6.9 percent of total population GDP per capita growth (%) 5.6 8.9 5.3 (most recent estimate, 2004–2010) Poverty headcount ratio at $1.25 a day (PPP, %) 36 a 14 .. Under-5 mortality rate (per 1,000) Poverty headcount ratio at $2.00 a day (PPP, %) 57 a 33 .. Life expectancy at birth (years) 62 72 65 100 Infant mortality (per 1,000 live births) 47 20 50 Child malnutrition (% of children under 5) 18 6 25 80 Adult literacy, male (% of ages 15 and older) 64 96 80 60 Adult literacy, female (% of ages 15 and older) 57 91 62 40 Gross primary enrollment, male (% of age group) 63 111 110 Gross primary enrollment, female (% of age group) 57 112 104 20 0 Access to an improved water source (% of population) 40 90 87 1990 1995 2000 2010 Access to improved sanitation facilities (% of population) 45 66 47 Papua New Guinea East Asia & Pacific Net Aid Flows 1980 1990 2000 2010 (US$ millions) Net ODA and official aid 326 412 275 513 Growth of GDP and GDP per capita (%) Top 3 donors (in 2010): Australia 276 262 198 387 20 European Union Institutions 0 45 1 50 15 New Zealand 2 3 7 24 10 5 Aid (% of GNI) 13.1 13.3 8.3 5.5 Aid per capita (US$) 101 99 51 75 0 -5 Long-Term Economic Trends -10 95 05 Consumer prices (annual % change) 12.1 7.0 15.6 5.0 GDP implicit deflator (annual % change) 7.1 4.1 13.1 9.3 GDP GDP per capita Exchange rate (annual average, local per US$) 0.7 1.0 2.8 2.7 Terms of trade index (2000 = 100) .. 80 100 124 1980–90 1990–2000 2000–10 (average annual growth %) Population, mid-year (millions) 3.2 4.2 5.4 6.9 2.6 2.6 2.4 GDP (US$ millions) 2,546 3,220 3,521 9,480 1.9 3.8 3.8 (% of GDP) Agriculture 35.4 30.9 35.8 35.8 1.8 4.5 2.4 Industry 28.7 32.4 41.4 44.8 1.9 5.4 4.3 Manufacturing 10.2 9.6 7.5 5.9 0.1 4.6 3.9 Services 35.9 36.8 22.8 19.5 2.0 -0.6 3.9 Household final consumption expenditure 60.9 59.0 44.6 70.0 0.4 3.4 .. General gov't final consumption expenditure 24.1 24.8 16.6 9.5 -0.1 2.5 .. Gross capital formation 25.2 24.4 21.9 17.8 -0.9 1.9 .. Exports of goods and services 43.2 40.6 66.2 55.9 3.3 5.1 .. Imports of goods and services 53.3 48.9 49.2 53.1 -1.3 3.4 .. Gross savings 19.0 9.0 37.7 22.9 Note: Figures in italics are for years other than those specified. .. indicates data are not available. a. Country poverty estimate is for earlier period. Development Economics, Development Data Group (DECDG). 97 Balance of Payments and Trade 2000 2010 Governance indicators, 2000 and 2010 (US$ millions) Total merchandise exports (fob) 2,215 4,646 Total merchandise imports (cif) 1,491 3,759 Voice and accountability Net trade in goods and services 339 -238 Political stability and absence of violence Current account balance 300 -393 Regulatory quality as a % of GDP 8.5 -4.1 Rule of law Workers' remittances and compensation of employees (receipts) 7 15 Control of corruption Reserves, including gold 304 2,650 0 25 50 75 100 2010 Country's percentile rank (0-100) Central Government Finance higher values imply better ratings 2000 (% of GDP) Source: Worldwide Governance Indicators (www.govindicators.org) Current revenue (including grants) 30.5 24.5 Tax revenue 23.8 20.0 Current expenditure 23.5 16.6 Technology and Infrastructure 2000 2010 Overall surplus/deficit -1.1 -5.3 Paved roads (% of total) 3.5 .. Highest marginal tax rate (%) Fixed line and mobile phone Individual .. 42 subscribers (per 100 people) 1 30 Corporate 25 30 High technology exports (% of manufactured exports) 19.0 .. External Debt and Resource Flows Environment (US$ millions) Total debt outstanding and disbursed 2,292 5,822 Agricultural land (% of land area) 2 3 Total debt service 304 812 Forest area (% of land area) 66.5 63.4 Debt relief (HIPC, MDRI) – – Terrestrial protected areas (% of land area) 3.1 3.1 Total debt (% of GDP) 65.1 61.4 Freshwater resources per capita (cu. meters) 141,521 119,492 Total debt service (% of exports) 12.2 12.5 Freshwater withdrawal (% of internal resources) 0.0 0.0 Foreign direct investment (net inflows) 96 30 CO2 emissions per capita (mt) 0.50 0.32 Portfolio equity (net inflows) 0 0 GDP per unit of energy use (2005 PPP $ per kg of oil equivalent) .. .. Composition of total external debt, 2010 Energy use per capita (kg of oil equivalent) .. .. IBRD, 139 IDA, 86 IMF, 0 Short-term, 392 Other multi- lateral, 487 World Bank Group portfolio 2000 2010 Bilateral, 285 (US$ millions) IBRD Total debt outstanding and disbursed 244 139 Disbursements 43 1 Principal repayments 29 11 Interest payments 15 1 Private, 4,433 US$ millions IDA Total debt outstanding and disbursed 92 86 Disbursements 0 8 Private Sector Development 2000 2011 Total debt service 3 4 Time required to start a business (days) – 51 IFC (fiscal year) Cost to start a business (% of GNI per capita) – 15.6 Total disbursed and outstanding portfolio 0 86 Time required to register property (days) – 72 of which IFC own account 0 86 Disbursements for IFC own account 0 85 Ranked as a major constraint to business 2000 2010 Portfolio sales, prepayments and (% of managers surveyed who agreed) repayments for IFC own account 0 40 n.a. .. .. n.a. .. .. MIGA Gross exposure 47 – Stock market capitalization (% of GDP) 49.3 102.8 New guarantees 0 0 Bank capital to asset ratio (%) .. .. Note: Figures in italics are for years other than those specified. 4/5/12 .. indicates data are not available. – indicates observation is not applicable. Development Economics, Development Data Group (DECDG). 98 Millennium Development Goals Papua New Guinea With selected targets to achieve b etween 1990 and 2015 (estimate closest to date shown, +/- 2 years) Papua New Guinea Goal 1: halve the rates for extreme poverty and malnutrition 1990 1995 2000 2010 Poverty headcount ratio at $1.25 a day (PPP, % of population) .. 35.8 .. .. Poverty headcount ratio at national poverty line (% of population) .. 37.5 .. .. Share of income or consumption to the poorest qunitile (%) .. 4.5 .. .. Prevalence of malnutrition (% of children under 5) .. .. .. 18.1 Goal 2: ensure that children are able to complete primary schooling Primary school enrollment (net, %) 65 .. .. .. Primary completion rate (% of relevant age group) 48 52 55 .. Secondary school enrollment (gross, %) 11 13 20 .. Youth literacy rate (% of people ages 15-24) .. .. 67 67 Goal 3: eliminate gender disparity in education and empower women Ratio of girls to boys in primary and secondary education (%) 78 84 84 .. Women employed in the nonagricultural sector (% of nonagricultural employment) 28 .. 32 .. Proportion of seats held by women in national parliament (%) 0 0 2 1 Goal 4: reduce under-5 mortality by two-thirds Under-5 mortality rate (per 1,000) 90 81 74 61 Infant mortality rate (per 1,000 live births) 65 60 55 47 Measles immunization (proportion of one-year olds immunized, %) 67 42 62 55 Goal 5: reduce maternal mortality by three-fourths Maternal mortality ratio (modeled estimate, per 100,000 live births) 340 300 290 250 Births attended by skilled health staff (% of total) .. 42 41 53 Contraceptive prevalence (% of women ages 15-49) .. 26 .. 32 Goal 6: halt and begin to reverse the spread of HIV/AIDS and other major diseases Prevalence of HIV (% of population ages 15-49) 0.1 0.1 0.4 0.9 Incidence of tuberculosis (per 100,000 people) 303 303 303 303 Tuberculosis case detection rate (%, all forms) 20 56 65 70 Goal 7: halve the proportion of people without sustainable access to basic needs Access to an improved water source (% of population) 41 40 39 40 Access to improved sanitation facilities (% of population) 47 47 46 45 Forest area (% of total land area) 69.6 .. 66.5 63.4 Terrestrial protected areas (% of land area) 1.9 2.6 3.1 3.1 CO2 emissions (metric tons per capita) 0.5 0.4 0.5 0.3 GDP per unit of energy use (constant 2005 PPP $ per kg of oil equivalent) .. .. .. .. Goal 8: develop a global partnership for development Telephone mainlines (per 100 people) 0.7 0.9 1.2 1.8 Mobile phone subscribers (per 100 people) 0.0 0.0 0.2 27.8 Internet users (per 100 people) 0.0 0.0 0.8 1.3 Computer users (per 100 people) .. .. .. .. Education indicators (%) Measles immunization (% of 1-year ICT indicators (per 100 people) olds) 25 100 40 75 30 50 20 25 10 0 2000 2005 2010 0 0 1990 1995 2000 2010 2000 2005 2010 Primary net enrollment ratio (..) Ratio of girls to boys in primary & secondary Papua New Guinea East Asia & Pacific Fixed + mobile subscribers Internet users education (..) Note: Figures in italics are for years other than those specified. .. indicates data are not available. 4/5/12 Development Economics, Development Data Group (DECDG). 99 Annex B2 Papua New Guinea: Selected Indicators* of Bank Portfolio Performance and Management As of Date 10/14/2012 Indicator 2010 2011 2012 2013 Portfolio Assessment a Number of Projects Under Implementation 4 9 8 8 b Average Implementation Period (years) 3.2 2.1 2.2 2.5 a, c Percent of Problem Projects by Number 25.0 22.2 12.5 25.0 a, c Percent of Problem Projects by Amount 18.7 18.0 16.2 19.1 a, d Percent of Projects at Risk by Number 25.0 33.3 37.5 62.5 a, d Percent of Projects at Risk by Amount 18.7 28.1 40.1 68.3 e Disbursement Ratio (%) 19.8 12.5 14.9 5.1 Portfolio Management CPPR during the year (yes/no) Supervision Resources (total US$) Average Supervision (US$/project) Since FY Last Five Memorandum Item 80 FYs Proj Eval by OED by Number 35 0 Proj Eval by OED by Amt (US$ millions) 707.9 0.0 % of OED Projects Rated U or HU by Number 47.1 0.0 % of OED Projects Rated U or HU by Amt 41.6 0.0 a. As shown in the Annual Report on Portfolio Performance (except for current FY). b. Average age of projects in the Bank's country portfolio. c. Percent of projects rated U or HU on development objectives (DO) and/or implementation progress (IP). d. As defined under the Portfolio Improvement Program. e. Ratio of disbursements during the year to the undisbursed balance of the Bank's portfolio at the beginning of the year: Investment projects only. * All indicators are for projects active in the Portfolio, with the exception of Disbursement Ratio, which includes all active projects as well as projects which exited during the fiscal year. 100 Annex B3 Papua New Guinea: Indicative IDA/IBRD Financing Program1/ Pillar Fiscal Indicative Cofinanced/ Year Project 1 2 3 US$m IDA IBRD Trust Fund IDA16 Period FY13 Energy Sector Development and Strategy TA � 7.3 � 1.0 GEF FY14 AF Transport Infrastructure � 55.0 � � FY14 AF Agriculture � 20.0 � FY14 AF Communications � 20.0 � FY14 AF Rural Service Delivery and Local Governance � 25.0 � 10.0 Australia FY14 Pilot Urban Water Supply for Slum Communities � 5.0 � 5.0 Australia FY14 Governance TA (PFM and Procurement Reform) � 8.0 � TBD IDA17 Period FY15 Renewable Energy Investments � 40.0 � FY15 Renewable Energy Investments or Guarantees � 138.0 � FY15 AF Urban Youth � 15.0 � FY15 TA for Sovereign Wealth Fund Management � 20.0 � FY16 Repeater Transport Project � 30.0 � FY15-16 CCA-DDR Grants for Infrastructure and � 5.0 5.0 GFDRR Agriculture Resilience (tied to IDA credits) 1/ The indicative IDA pipeline, particularly the IDA17 pipeline, is subject to revision depending on IDA availability. Available IBRD exposure to be confirmed by CFRCR each year; programming will make use of both loans and guarantees (which count 25% against exposure). 101 Papua New Guinea: IFC Investment Operations Program 2010 2011 2012 2013* Original Commitments (US$m) IFC and Participants 167.97 11.30 16.86 IFC's Own Accounts only 167.97 11.30 16.86 Original Commitments by Sector (%)- IFC Accounts only AGRICULTURE AND FORESTRY 17.53 FINANCE & INSURANCE 50.04 100 82.47 INDUSTRIAL & CONSUMER PRODUCTS 2.34 INFORMATION 47.63 Total 100.01 100 100 0 Original Commitments by Investment Instrument (%) - IFC Accounts only Equity 34.51 Guarantee 100 82.47 Loan 65.49 17.53 Total 100 100 100 0 * Data as of July 01,2012 102 Annex B4 Papua New Guinea: Key Ongoing and Indicative Nonlending Services Fiscal Pillar Activity Type Year 1 2 3 Support to SWF development TA FY13 √ Economic Monitoring AAA FY13-FY16 √ TA for Third Party Access Code, and Electrification Roll Out Plan TA FY13 √ Education Public Expenditure Review AAA FY13 √ HIES Analysis, Poverty Monitoring, and Household Welfare Assessment AAA FY13 √ HIV-AIDS Integrated Bio-Behavioral Survey AAA FY13 √ TA for Social Protection Task Force TA FY13 √ Early Grade Reading Assessment AAA FY13 √ Agriculture Sector Update AAA FY13-14 √ Health Financing Review AAA FY13 √ Country Procurement Assessment Report Other FY14 √ TA on SME tax policy simplification (joint with IFC) TA FY14 √ TA for Debt Management TA FY14 √ Education Sector PER (continues) AAA FY14 √ Programmatic AAA for Health (multiple outputs, continues in FY15 ) AAA FY14 √ Multi-Sectoral PER or Health Sector PER AAA FY15-FY16 √ South-South Capacity Building: Finance & Safeguards for Renewable Energy TA FY15-FY16 √ Gender Dimensions in Rural Electrification TA FY15-FY16 √ Civil Society Budget Literacy Training TA FY15-FY16 √ TA for SWF Asset Management TA FY15-FY16 √ TA for Project Appraisal TA FY15-FY16 √ Country Gender Assessment, Gender Portfolio Review, and related activities Other FY15-FY16 √ √ √ 103 Annex B5 Papua New Guinea: Social Indicators Papua New Guinea Social Indicators Latest single year Same region/income group East Low er- Asia & m iddle- 1980-85 1990-95 2004-10 Pacific incom e POPULATION Total population, mid-year (millions) 3.7 4.7 6.9 1,961.6 2,518.7 Grow th rate (% annual average for period) 2.7 2.5 2.4 0.7 1.6 Urban population (% of population) 14.0 14.1 12.5 45.9 39.4 Total fertility rate (births per w oman) 5.2 4.7 4.0 1.8 2.9 POVERTY (% of population) National headcount index .. .. .. Urban headcount index .. .. .. Rural headcount index .. .. .. INCOME GNI per capita (US$) 670 1,040 1,300 3,696 1,623 Consumer price index (2005=100) 22 39 130 131 140 INCOME/CONSUMPTION DISTRIBUTION Gini index .. .. .. Low est quintile (% of income or consumption) .. .. .. Highest quintile (% of income or consumption) .. .. .. SOCIAL INDICATORS Public expenditure Health (% of GDP) .. 2.7 2.5 2.2 1.7 Education (% of GDP) .. .. .. 3.8 4.0 Net prim ary school enrollm ent rate (% of age group) Total .. 65 .. 93 85 Male .. 71 .. 93 87 Female .. 59 .. 94 83 Access to an im proved w ater source (% of population) Total .. 40 40 90 87 Urban .. 89 87 97 93 Rural .. 32 33 84 83 Im m unization rate (% of children ages 12-23 months) Measles 33 42 55 95 80 DPT 40 62 56 94 79 Child malnutrition (% under 5 years) 25 .. 18 6 25 Life expectancy at birth (years) Total 55 57 62 72 65 Male 52 55 60 70 64 Female 58 60 65 74 67 Mortality Infant (per 1,000 live births) 72 60 47 20 50 Under 5 (per 1,000) 100 81 61 24 69 Adult (15-59) Male (per 1,000 population) .. .. 315 157 244 Female (per 1,000 population) .. .. 239 105 175 Maternal (modeled, per 100,000 live births) .. 300 250 89 300 Births attended by skilled health staff (%) .. 42 53 91 57 Note: 0 or 0.0 means zero or less than half the unit show n. Net enrollment rate: break in series betw een 1997 and 1998 due to change from ISCED76 to ISCED97. Immunization: refers to children ages 12-23 months w ho received vaccinations before one year of age or at any time before the survey. World Development Indicators database, World Bank - 17 April 2012. 104 Annex B6 Papua New Guinea: Key Economic Indicators Actual Estimate Projected Indicator 2006 2007 2008 2009 2010 2011 2012 2013 2014 National accounts (as % GDP at current market prices) Gross domestic product 100 100 100 100 100 100 100 100 100 Agriculturea 35.9 36.0 33.6 35.9 35.8 35.9 35.9 35.0 34.0 Industry a 45.1 44.8 47.9 44.5 44.8 44.6 45.0 44.5 44.0 Services a 19.0 19.2 18.4 19.6 19.5 19.5 20.0 20.5 22.0 Total Consumption 63.9 67.6 67.3 79.3 79.4 81.5 82.0 80.0 78.0 Gross domestic fixed 18.1 18.0 18.6 18.5 16.7 14.8 18.0 17.0 16.0 investment Government investment 10.3 9.9 12.6 18.2 12.4 12.0 12.3 11.2 9.3 Exports (GNFS)b 82.1 80.9 74.6 57.8 55.9 51.0 54.0 53.2 51.7 Imports (GNFS) 65.8 68.1 61.8 57.0 53.1 48.1 46.9 41.2 36.2 Gross domestic savings 36.1 32.4 32.7 20.7 20.6 18.5 17.0 19.0 21.0 Gross national savings c .. .. .. .. .. .. .. .. .. Memorandum items Gross domestic product 5,599 6,329 8,000 8,105 9,885 12,655 15,393 16,114 18,192 (US$ million at current prices) Gross national product per 720 940 1100 1190 1300 1480 1600 1650 1700 capita (US$, Atlas method) Real annual growth rates (%, calculated from 1995 prices) Gross domestic product at 2.6 7.2 6.6 6.1 7.6 8.9 7.5 4 7.5 market prices Real annual per capita growth rates (%, calculated from 1995 prices) Gross domestic product at 0.1 4.7 4.2 3.5 5.6 6.6 4.9 1.4 4.9 market prices Total consumption -2.7 12.3 1.0 8.8 8.8 10.6 7.0 3.5 2.0 Private consumption -2.9 14.3 8.7 9.5 -4.8 -4.9 0 3 3 (Continued) 105 Actual Estimate Projected Indicator 2006 2007 2008 2009 2010 2011 2012 2013 2014 Balance of Payments (US$m) Exports (GNFS)b 4,702 5,213 6,056 4,700 6,163 7,517 8,305 8,573 9,411 Merchandise FOB 4,379 4,845 5,685 4,511 5,843 7,047 7,788 8,004 8,814 Imports (GNFS)b 3,790 4,172 3,886 3,942 4,915 6,840 7,215 6,645 6,580 Merchandise FOB 2,895 3,331 3,140 3,258 4,261 6,186 6,463 5,893 5,865 Resource balance 911 1,041 2,170 758 1,248 677 1,090 1,927 2,832 Net current transfers 353 350 161 173 193 158 113 104 81 (including official current transfers) Current account balance 421 112 674 -1,325 -2,532 -4,605 -4,374 -3,247 -2,365 (after official capital grants) Net private foreign direct 13 102 -30 420 858 1,750 1,203 990 1,908 investment Long-term loans (net) -143 -217 21 2,475 2,176 5,099 2,838 2,382 -1,022 Official -63 -127 -43 -35 11 316 102 79 86 Private 94 -86 63 2,510 2,164 4,783 2,736 2,304 -1,109 Other capital (net, including 0 48 -576 -1,330 -68 -968 332 332 1,700 errors and omissions) Change in reservesd -124 -659 -8 -529 -469 -1,231 27 -388 -132 Memorandum items Resource balance (% of 5.445 5.659 10.27 3.459 4.789 2.4993 7.0797 11.962 15.56 GDP at current market prices) Real annual growth rates ( 1995 prices) Merchandise exports -19.8 3.0 0.9 11.8 0.0 -8.2 10.0 12.5 15.0 (FOB) Public finance (as % of GDP at current market prices)e Current revenues 30.3 33.5 32.6 27.3 31.3 29.8 27.5 26.8 24.3 Current expenditures 19.4 19.3 17.4 18.7 15.8 17.3 17.7 17.5 16.5 (Continued) 106 Actual Estimate Projected Indicator 2006 2007 2008 2009 2010 2011 2012 2013 2014 Current account surplus (+) 6.4 8.2 2.5 -9.6 3.1 0.5 -2.5 -2 -1.5 or deficit (-) Capital expenditure 10.3 9.9 12.6 18.2 12.4 12.0 12.3 11.2 9.3 Foreign financing .. .. .. .. .. .. .. .. .. Monetary indicators M2/GDP (at current market 22.1 26.3 25.6 27.9 29.0 31.9 32.3 35.2 34.5 prices) Growth of M2 (%) 25.7 29.8 12.1 12.9 22.6 25.9 14.1 10.0 8.0 Private sector credit growth / 2.0 6.2 1.9 0.4 3.7 -1.4 0.4 1.0 1.0 total credit growth (%) Price indices( 1995 =100) Merchandise export price 141.8 150.8 166.4 114.9 148.2 169.4 144.0 136.8 136.8 index Real exchange rate 99.9 94.6 107.5 116.2 113.0 127.4 147.7 147.7 147.7 (US$/LCU)f Real interest rates Consumer price index 2.4 0.9 10.8 5.7 7.8 6.9 6.8 6.7 6.6 (% growth rate) GDP deflator 10.2 1.9 8.3 -2.6 9.9 5.0 4.6 -3.0 2.3 (% growth rate) a. If GDP components are estimated at factor cost, a footnoote indicating this fact should be added. b. “GNFS� denotes “goods and nonfactor services.� c. Includes net unrequited transfers excluding official capital grants. d. Includes use of IMF resources. e. Should indicate the level of the government to which the data refer. f. “LCU� denotes “local currency units.� An increase in US$/LCU denotes appreciation. 107 Actual Estimate Projected 201 201 2006 2007 2008 2009 2010 2011 2012 3 4 Part A: Main Macro Aggregates Annual growth rates, calculated from constant 1995 price data GDP (mp) per capita 0.1 4.6 4.2 2.1 5 6.2 5.1 1.5 5.1 Total consumption per capita -2.7 12.3 1 8.8 8.7 10.5 5.4 2.4 2.4 GDP at market prices 2.3 7.2 6.6 6.1 7.6 9 7.5 4 7.5 Total consumption -0.3 15 3.4 11.3 11.4 13.2 8 5 5 Private consumption -0.5 17.1 11.4 12.1 -2.6 -2.7 4 4 5 Gross domestic investment (GDI) 19.8 19.7 20 19.4 17.4 18.3 19.5 19.3 16.6 Gross dom. Fixed investment (GDFI) 18.1 18.1 18.6 18.1 16.3 15 16 15.8 13.7 Goods Exports -19.8 3 0.9 11.8 0 -8.2 11.8 12.5 14.5 Savings-investment balances, as percentage of GDP Gross domestic savings 36.1 32.5 32.7 20.2 20.1 18.8 18 20 22 Other GDP inflation 10.2 1.9 8.3 -2.6 9.9 4.9 4.8 -3 2.5 Annual average exchange rate (LCU/US$) 3 2.9 2.6 2.7 2.6 2.1 2 2.1 2.2 Index real average exchange rate ( 99.8 94.6 107.4 116.2 113.0 127.3 147.6 =100) 6 2 9 2 1 8 6 145 145 151. 156. Terms of trade index ( =100) 5 8 159.4 114.4 137.3 145 135 132 130 Money growth 38.9 27.8 7.8 21.3 10.2 17.4 13.3 10 8 Part B: Government Finance Indicators Percentage of GDP Total revenues, of which 36.1 37.3 32.6 27.3 31.3 29.8 27.5 26.8 24.3 Tax revenues 28.2 31.3 18.1 19.7 19.3 20.2 20.1 19.8 18.4 Total expenditures, of which 29.7 29.2 30.1 36.9 28.2 29.4 30 28.8 25.8 Consumption 19.4 19.3 17.4 18.7 15.8 17.3 17.7 17.5 16.5 Deficit(-)/Surplus(+) 6.4 7.2 2.5 -9.6 3.1 0.5 -2.5 -2 -1.5 Financing: - 224. Foreign 5 -393 -1276 1066 -697 -1726 -30 836 636 Net incurrance of liabilities -898 -936 445 171 -330 1659 884 -96 24 Other Total Debt/GDPmp 39.2 33.7 31.7 31.5 25.6 25.2 23.2 21.3 18.4 108 Annex B7 Papua New Guinea: Key Exposure Indicators Actual Estimate Projected Indicator 2006 2007 2008 2009 2010 2011 2012 2013 2014 Total debt outstanding and 321.5 255.7 229.4 231.3 224.6 221.0 228.6 230.8 227.8 disbursed (TDO) (US$m)a Net disbursements (US$m)a -9.169 -69.781 -27.319 1.523 -5.949 -3.563 7.513 2.249 -2.993 Total debt service (TDS) 40.9 97.4 42.7 18.9 16.8 19.8 20.2 20.6 21.0 (US$m)a Debt and debt service indicators (%) TDO/XGSb 6.8 4.9 3.8 4.9 3.6 2.9 2.8 2.7 2.4 TDO/GDP 5.7 4.0 2.9 2.9 2.3 1.7 1.5 1.4 1.3 TDS/XGS 0.9 2.0 0.8 0.4 0.3 0.3 0.3 0.3 0.2 Concessional/TDO 23.5 28.6 31.0 35.5 38.3 43.4 51.4 58.2 64.2 IBRD exposure indicators (%) IBRD DS/public DS 23.2 44.2 19.6 17.5 14.9 10.9 16.5 16.3 16.7 IBRD DS/XGS 0.8 1.8 0.6 0.3 0.2 0.2 0.2 0.2 0.2 IBRD TDO (US$m)d 246.03 182.67 158.19 149.2 138.62 125.03 111 96.488 81.481 Share of IBRD portfolio (%) .. .. .. .. .. .. .. .. .. IDA TDO (US$m)d 75.507 73.041 71.17 82.08 85.987 96.016 117.57 134.32 146.33 IFC (US$m) .. .. .. .. .. 200 220 270 310 MIGA MIGA guarantees (US$m) 0 0 0 0 0 0 0 0 0 a. Includes public and publicly guaranteed debt, private nonguaranteed, use of IMF credits and net short- term capital. b. “XGS� denotes exports of goods and services, including workers’ remittances. c. Preferred creditors are defined as IBRD, IDA, the regional multilateral development banks, the IMF, and the Bank for International Settlements. d. Includes present value of guarantees. e. Includes equity and quasi-equity types of both loan and equity instruments. 109 Annex B8 Papua New Guinea: IFC Committed and Disbursed Outstanding Investment Portfolio (In USD Millions) Committed Disbursed Outstanding FY *Quasi Partici *Quasi Partici Approval Company Loan Equity Equity **GT/RM pant Loan Equity Equity *GT/RM pant 2010 BSP 30 53.3 0 0 0 0 53.3 0 0 0 BSP Risk 2011 Share 0 0 0 62.0 0 0 0 0 10.4 0 2010 Digicel PNG 80 0 0 0 0 70.4 0 0 0 0 2010 KK Kingston 0 4.0 0 0 0 0 3.9 0 0 0 2012 Kongo 3.0 0 0 0 0 0 0 0 0 0 2009 Kula Fund II 0 2.7 0 0 0 0 2.0 0 0 0 2008 ECOM PNG 4.0 0 0 0 0 1.5 0 0 0 0 PNG 2005/10 Microfinance 0 0.3 0 0 0 0 0.2 0 0 0 Total Portfolio: 117 60.4 0.0 62.0 0.0 71.9 59.3 0.0 10.4 0.0 * Quasi Equity includes both loan and equity types. ** Denotes Guarantee and Risk Management Products. 110 Annex B8 Papua New Guinea: Operations Portfolio (IBRD/IDA and Grants) Closed Projects 45 IBRD/IDA * Total Disbursed (Active) 13.11 of w hich has been repaid 0.00 Total Disbursed (Closed) 112.34 of w hich has been repaid 287.03 Total Disbursed (Active + Closed) 125.46 of w hich has been repaid 287.03 Total Undisbursed (Active) 147.40 Total Undisbursed (Closed) 1.01 Total Undisbursed (Active + Closed) 148.41 Active Projects Difference Between Last PSR Expected and Actual Supervision Rating Original Amount in US$ Millions Disbursements a/ Development Implementation Project ID Project Name Fiscal Year IBRD IDA GRANT Cancel. Undisb. Orig. Frm Rev'd Objectives Progress P102396 MS PG Mining Sector Inst Stren MS 2008 17 12.12918 10.307349 P116521 PG-Flexible and Open DistaMU MU 2011 5 4.247878 0.3025 P107782 PG: Rural Communications MS MS 2011 15 14.92816 4.8129455 P120707 PNG - SME Access to FinaS S 2011 21.91 14.14632 P114042 PNG - Urban Youth EmployS MS 2011 15.8 13.76502 0.850432 P110959 PNG Productive PartnershipMS MS 2010 25 22.99234 -1.857749 P119471 PNG Road Maintenance & S S 2011 43 42.84319 0.000005 P079140 PNG-Smallholder AgriculturMU U 2008 27.5 22.34793 15.886278 Overall Result 170.21 147.4 23.180989 111 Annex B8 Papua New Guinea: Major Trust Funds Project TF Effective Closing Pillar Grant ID Number Date Date 1 2 3 US$M Active Recipient Executed Trust Funds Papua New Guinea: Building a more Disaster and Climate P129322 TF011267 7/12/2011 06/30/2015 Resilient Transport Sector x 2.67 Inclusive Development in P125101 TF98558 3/3/2011 06/31/2014 Post Conflict Bougainville x 2.52 Papua New Guinea Disaster P126996 TF10109 10/25/2011 6/30/2015 Risk Management Program x 1.70 P105897 TF098721 3/3/2011 06/30/2014 READ PNG x 19.2 Indicative Recipient Executed Trust Funds Rural Service Delivery and local governance Preparation and pilot x 0.30 Multi-Donor Trust Fund for PNG- IBBS x tbd PNG Social & Economic Empowerment for women in mining and petroleum areas x tbd Papua New Guinea: Extractive Industries Transparency Initiative Implementation (EITI) x tbd Notes: Pillar 1: Increased and more gender-equitable access to inclusive physical and financial infrastructure Pillar 2: Gender-equitable improvements in lives and livelihoods Pillar 3: Increasingly prudent management of revenues and benefits tbd: Trust Fund grant yet to be determined 112 142°E 144°E 146°E 148°E 150°E 152°E This map was produced by the Map Design Unit of The World Bank. PAPUA NEW GUINEA 0° The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank 0° COUNTRY PARTNERSHIP Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries. SOUTH PA C I F I C OCEAN STRATEGY KEY AREA Mussau CITIES AND TOWNS MANUS Island NEW PROVINCE CAPITALS Admiralty Lorengau IRELAND 2°S Islands 2°S NATIONAL CAPITAL Momote Kavieng MAIN ROADS Vanimo Bismar PROVINCE BOUNDARIES k A New Ireland rch Laefu INTERNATIONAL BOUNDARIES Aitape ipe la Lumi Wewak go Namatanai Maprik 156°E SANDAUN Angoram Bismark Sea INDONESIA 4°S Ambunti 4°S Sepik Awar Rabaul EAST MADANG WEST SEPIK WESTERN N E W B R I TA I N Nantamba Maliom Lemankoa Tabubil HIGHLANDS BOUGAINVILLE Ra Madang Talasea Koroba ENGA Gloucester Ewase North mu Wabag Saidor EAST Kimbe Hoskins Tari Mount Hagen Solomons 6°S Kiunga Goroka N E W B R I TA I N 6°S Strickland Mendi Kundiawa Sialum Arawa Kainantu New Britain BU Kandrian Aropa CHIM EASTERN Nadzab SOUTHERN HIGHLANDS ur HIGHLANDS Lae Finschhafen Kik ari P Lake ori Buin Murray MOROBE Bulolo Solomon WESTERN Ara m Kikori GULF Wau Sea SOLOMON ia Morobe 8°S ISLANDS 8°S Fly Balimo Kerema To Merauke Weam NORTHERN Trobriand Bereina Popondetta Losuja Island Morehead Woodlard Kokoda Gulf of Goodenough Island Sibidiri Daru Island Bula P apua PORT Kulumadau Wanigela Fergussson MORESBY Island NATIONAL Esa’ala D’Entrecasteaux 10°S Kupiano Islands CAPITAL Normandy Abau Island PAPUA NEW Alotau Misima CENTRAL MILNE Island GUINEA A ra f u ra Coral Sea Samarai B AY Bwagaola Sea Rossel 0 100 200 Kilometers Island AU ST R A L I A Tagula Island AUGUST 2012 IBRD 39489 0 50 100 150 Miles 12°S 12°S 142°E 144°E 146°E 148°E 150°E 152°E 154°E 156°E