Page 1 PROGRAM INFORMATION DOCUMENT (PID) CONCEPT STAGE Report No.: AB2550 Operation Name POVERTY REDUCTION SUPPORT CREDIT III Region AFRICA Sector General education sector (20%); Health (20%); Law and justice (20%); Central government administration (20%); Other social services (20%) Project ID P100807 Borrower(s) REPUBLIC OF CAPE VERDE Implementing Agency MINISTRY OF FINANCE AND PUBLIC ADMINISTRATION Date PID Prepared September 18, 2006 Estimated Date of Appraisal Authorization December 4, 2006 Estimated Date of Board Approval February 27, 2007 1. Key development issues and rationale for Bank involvement Cape Verde, despite its small size (population 472,000) and remote archipelago formation, continues to post strong gains in social and economic advancement. Cape Verde’s growth performance since the late 80s has raised it to the ranks of lower middle income countries, with a GNI per capita of US$ 2,040 in 2005. Recent economic growth of around 2.5 percent per capita has been sustained through public and private investment based on high levels of donor support, strong private capital flows and remittances. Thanks to this growth, poverty has declined by one-fourth over the last decade, while the human development index has increased from 0.63 in 1990 to 0.72 in 2003. Adult literacy rates are high (approximately 76 percent in 2002) and life expectancy at birth (69) is the third highest in Africa. Political openness has accompanied this economic and social progress. Since the adoption of a multi- party system in 1991, there have been three national elections and two orderly changes in government. A free press and media further support the building of an open society. The last presidential and legislative elections took place in early 2006. As a small, open economy, Cape Verde’s vulnerability to external shocks is high. The country relies heavily on remittances and foreign aid. This foreign assistance poses a severe risk of distortions in public administration if it is not properly channeled through government systems (or at least harmonized with them) and may overwhelm the capacity of the islands’ small group of technical cadres. Unemployment remains high even though most of it is short-lived, and it is a main determinant of poverty. Income inequality has risen and is generally worse than in countries of comparable income levels, creating a potential drag on growth and threatening social cohesion. Geographical dispersion drives internal inequities and raises the cost of services. As rural populations flee entrenched poverty, urbanization is causing increasing social ills and puts pressure on basic services. Overall, the capacity of the environment to support large-scale expansion in tourism, industry and construction may be at risk if not adequately managed. 2. Proposed objective(s) The proposed Third Poverty Reduction Support Credit (PRSC-3) to Cape Verde supports the implementation of the Government’s Poverty Reduction Strategy, as presented in the Growth and Page 2 Poverty Reduction Strategy Paper (GPRSP). PRSC-3 is the third and last in a series of annual single- tranche operations and supports a reform program that is at the core of IDA’s Country Assistance Strategy (CAS). The proposed operation would continue to engage the Bank in policy and technical dialogue in three of the five pillars of the GPRSP, based on the division of labor with other IDA and donor projects and comparative advantage of this lending instrument: (a) promote good governance –especially effectiveness and equity– through reforms in public expenditure management, civil service, the judiciary and decentralization; (b) develop human capital, with a focus on health and education; and (c) strengthen the effectiveness and sustainability of the social protection system. Following the approach of the two previous PRSCs, this third operation is prepared in close coordination with two other budget support partners, the Dutch Cooperation (DC) and The European Union (EU), following a Memorandum of Understanding signed with the Government. The African Development Bank and the Spanish Cooperation also participated in the last joint mission. 3. Preliminary description The Third Poverty Reduction Support Credit (PRSC-3) will continue to support the implementation of Cape Verde’s Growth and Poverty Reduction Strategy (GPRSP). This one-tranche operation would be the third of a planned series of three annual PRSCs. The financial support provided through the Third PRSC will further narrow the gap between the cost of implementing key elements of the GPRSP and resources available from Government’s own domestic revenues and other donor support. A policy dialogue and results-based framework under PRSC-3 will focus on the following pillars of the GPRSP: (i) promote good governance; (ii) develop human capital in the areas of education and health; and (iii) improve the effectiveness and sustainability of the social protection system. 4. Environment Aspects PRSC 3 falls under the DPL OP BP 8.60, and as for PRSC 1 and 2, no environmental assessment is required. Due diligence and pro-activity on environment policies have been carried out in collaboration with the Dutch cooperation which targets its budget support towards environmental issues. 5. Tentative financing Source: ($m.) BORROWER/RECIPIENT 0 INTERNATIONAL DEVELOPMENT ASSOCIATION 10 Total 10 6. Contact point Contact: Maurizia Tovo Title: Sr Social Protection Specialist Tel: (202) 473-7579 Email: Mtovo@worldbank.org Contact: Manuela Francisco Page 3 Title: Country Economist Tel: (202) 473-8209 Email: mfrancisco@worldbank.org Contact: Helene Grandvoinnet Title: Sr. Public Sector Specialist Tel: (202) 473-6764 Email: hgrandvoinnet@worldbank.org