Page 1 PROJECT INFORMATION DOCUMENT (PID) APPRAISAL STAGE Report No.: AB5637 Project Name Municipal Development Project Region LATIN AMERICA AND CARIBBEAN Sector General water, sanitation and flood protection sector (50%);Roads and highways (25%);Other social services (25%) Project ID P111928 Borrower(s) GOVERNMENT OF BELIZE Ministry of Finance New Administration Building Belize Tel: (501) 822-2362 Implementing Agency Belize Social Investment Fund Constitution Drive Belize Tel: (501-8) 220-239/0508 Fax: (501-8) 220-279 daniel.cano@sifbelize.org Environment Category [ ] A [X] B [ ] C [ ] FI [ ] TBD (to be determined) Date PID Prepared June 3, 2010 Date of Appraisal Authorization June 17, 2010 Date of Board Approval September 14, 2010 1. Country and Sector Background 1. Economic background: Belize is a small, upper middle income nation, with around 310,000 inhabitants 1 and a GDP per capita of US$4,375 (2008). Its main economic activities comprise export oriented primary commodities (including sugarcane, bananas, citrus and other fruits, logging and fisheries) as well as tourism. The tertiary sector dominates the economy, accounting for 63 percent of the GDP between 1995 and 2007. With 18 percent of the GDP, the primary sector is the third largest contributor to GDP, but employs 25 percent of the workforce. Recently, the Belizean economy has undergone a significant transformation, including the emergence of the tourism sector (with tourism arrivals doubling between 1995 and 2007), the growth of non-traditional agriculture products and fisheries, and the first commercial oil discovery in 2005. The oil sector has been the principal source of growth in recent years. 2. Natural disasters: Belize has experienced frequent natural disasters of catastrophic proportions, most recently Tropical Storm Arthur (May 2008) which caused extensive damage to infrastructure and the agriculture sector; and Hurricanes Keith (2000) and Iris (2001) which 1 Statistical Institute of Belize. Page 2 resulted in damages in excess of 30 percent of GDP 2 . Belize is particularly exposed to the anticipated intensification of extreme weather events and the effects of increases in sea surface level and temperatures. 3. Political Context: In February 2008, after ten years of rule by the People’s United Party (PUP), a string of scandals and reports of corruption resulted in the election of a new government led by the United Democratic Party (UDP). UDP has committed to establishing transparent and accountable government. 4. Rapid urbanization: According to United Nations estimates 3 , Belize has the third highest urban population growth rate in the region, 3.1 percent per annum between 2005 and 2010. Urban population growth is not evenly distributed and inland cities, including Orange Walk, San Ignacio/Santa Elena, Benque Viejo and Belmopan, are growing faster than the other cities. A large portion of the population growth in the cities can be explained by immigration coming from other Central American countries, such as Guatemala, El Salvador Nicaragua and Honduras 4 . Unable to acquire land, many immigrants are squatters who build shanties, often in low areas at risk of flooding and lacking in infrastructure. 5. Urban Poverty: The poverty rate in Belize is high and growing. From 2002 to 2009, the poverty rate increased from 33.5% to 43.5% of the population. Although rural poverty rates remain substantially higher than urban poverty rates (56.6% and 30.3% respectively), both rural and urban poverty rates increased by the same amount (28%) from 2002 to 2009. Poverty was found to be unevenly distributed across the country’s six administrative districts and has increased particularly quickly in Corazol, OrangeWalk, and Stann Creek. 6. Local Government Structure: Belize has two levels of government: a state government and a single-tier local government. The system of local government comprises two cities (Belmopan and Belize City), seven towns, and a network of 192 village and community councils. At the government level, the Ministry of Labour, Local Government and Rural Development (MLLGRD) is responsible for local government legislation and, including the administration of the Acts relating to city and town councils. It also has responsibility for village council legislation and the alcalde system 5 . The two city councils plus the seven town councils cover the urban population in the six administrative districts of the country. The 180 village and 12 community councils cover the rural population across the districts. 7. Recent Decentralization Process: Historically, Belize has been a very centralized country, to the point that the Constitution did not mention local governance. The process of decentralization started during the 1990s, resulting in the introduction of the direct election of mayors in 2000, a new Belize City Council Act and a new Towns Council Act. In 1999, there 2 Borensztein, E., E. Cavallo and P. Valenzuela (2008). “Debt Sustainability under Catastrophic Risk: The Case for Government Budget Insurance”, IMF Working Paper. 3 U.N. Population Division, 2007. 4 Population Census 2000. Major findings. Central Statistical Office, Belize. 5 The alcalde system is part of the local government structure of Belize. The alcaldes are effectively local magistrates operating at the village and community level. They are paid a small stipend by the government and are responsible for managing the communal land and act as school officers. While mainly found in Mayan communities, in southern Belize this form of local governance is not limited to Mayas. Page 3 was a referendum in Belmopan that incorporated it as a City. After a period of little or no progress, the GOB approved the National Policy on Local Governance (NPLG) in August 2009. The new NPLG provides a framework for improving municipal management and revenues and also clarifies responsibilities and revenue resources for towns and cities. The NPLG points to the following problems as areas where assistance and improvement are most urgently needed: a. Insufficient local revenue. Property taxes and licensing of motor vehicles, liquor and trade are the main sources of own local revenues. Considerable opportunity exists to improve collection of own revenues, in particular collection of property taxes which are the most important revenues source for the towns / cities after the central government transfer. b. Lack of an intergovernmental fiscal transfer formula: The central government provides subsidies and grants to local government. These are not formula based, but have been fairly stable over the last eight years, amounting to BZ$4.16 million for the last four years. The government is in the process of finalizing a new intergovernmental transfer formula that will use set criteria to distribute the funds. c. Traffic Management . Recently, responsibilities for traffic management have been devolved to the level of Cities and Towns, as a way of improving the incentives for local enforcement and accountability as well as providing a source of local revenues; however, municipal capacity to carry out these new responsibilities remains limited. d. Lack of financial accountability. The different councils use different systems for managing their finances, records are often lost when administrations change, and the councils often do not provide required financial reports to the MLLGRD. e. Lack of town planning. Despite growing rapidly, municipalities have little or no experience with urban planning and they have little ability to regulate urban expansion, zoning, land subdivision, or construction. 8. Municipal Infrastructure needs: Cities and towns are responsible for the construction, operation and maintenance of local basic infrastructure including roads, streets, drains, canals, bridges, and traffic management and control, among others 6 . The need for good drainage systems in cities and towns has become more urgent due to the exacerbation of weather related events compounded by Belizean topography. Although most towns and cities in Belize have benefited from some drainage infrastructure investments in the past, these investments remain insufficient, particularly in new and extension areas. The lack of sufficient drainage infrastructure coupled with an ineffective land use planning and inadequate delivery of municipal services (including garbage collection, cleaning, maintenance, and upkeep of drains and streets), have contributed to an increasing problem of flooding during periods of heavy rains and extended rainy season. 9. Objectives: The Project Development Objective is to improve access to and quality of basic municipal infrastructure and to enhance the public service delivery and municipal management in participating Towns and Cities of Belize. 6 National Policy on Local Governance. Government of Belize, 2009. Art D2. Page 4 2. Rationale for Bank Involvement 10. The Bank has recently reengaged with Belize after several years of suspending its program due to deteriorating fiscal conditions and fiduciary concerns within the country, as well as governance problems. The Bank is well positioned to assist the Government of Belize in supporting municipal infrastructure development and capacity building for local government. 11. The new administration, which came to power in 2008, has a vision to restore good governance and fiscal prudence as a means of returning the country to a sustainable and inclusive growth path. In order to achieve this goal, the Government of Belize is focusing on the following four key areas: (i) restoring fiscal sustainability and reducing the debt burden; (ii) improving government transparency and sustainability; (iii) addressing critical infrastructure needs to support economic development; (iv) Investing and developing human capital; and (v) managing environmental resource s to ensure contribution to improving people’s lives today and securing them for future generations. The proposed Project would directly support local government transparency and sustainability through technical assistance to local and central government. It would also meet critical infrastructure needs by providing drainage and traffic management. Finally, this is also aligned with the Bank’s Interim Strategy Note (ISN) for the period of 2009- 2011, which includes two policy pillars of: (i) contributing to public sector strengthening; and (ii) addressing critical infrastructure needs to support economic development. The proposed Municipal Development Project would be the only operation of the new ISN. 12. Second, the Project is also consistent with the new decentralization policy approved in 2009. The National Policy on Local Governance sets the stage for a process of decentralization that clarifies the division of responsibilities between the central government and municipalities and enhances local government’s financial and administrative autonomy. This proposed Project would help on specific aspects of the implementation of the law, mainly in the areas of drainage, traffic management, and other local infrastructure, as well as supporting capacity building for local governments, so that they are better prepared to carry out their new responsibilities. 13. Third, the proposed Project builds upon the Bank’s previous engagement in Belize, particularly municipal infrastructure in secondary towns financed under the Bank’s Roads and Municipal Drainage Project (RMDP) about (US$ 13 million), which closed in 2005. The RMDP, which was the fourth IBRD Loan to Belize for infrastructure development, focused on roads and highways, and was designed in response to the government’s request to continue to provide assistance in the improvement of road infrastructure, but which also included support for municipal drainage. The proposed Project responds to the GOB’s request to continue to provide assistance in the improvement of road and municipal drainage infrastructure in secondary towns. 14. Fourth, the proposed Project complements well other donors’ activities in the country. The proposed project would provide capacity development and technical assistance to all nine towns and cities and would finance infrastructure investments in seven of them (except Belize City and San Pedro). The project’s interventions are designed to complement and coordinate with other projects that are currently being executed in Belize. Through the Land Management Program III, IDB is focusing on strengthening the land information system, which is the responsibility of the Ministry of Natural Resources and Environment. UNDP has been financing Page 5 the development of a decentralization policy, and this Project would support the implementation of that policy. Additionally, the IDB is also executing a project intended to improve solid waste disposal by financing a landfill; however, this project would not touch collection, which is a municipal responsibility. If under the Project, towns prioritize solid waste management investments, the project team will coordinate with IDB so as to avoid overlap in the activities. 3. Description 15. Component 1: Municipal Infrastructure Investments (Total US$ 12.75 million; IBRD US$ 12.30): This component would finance the preparation and implementation of municipal subprojects in participating towns / cities. Eligible investments will be defined in the Operational Manual and are expected to include primarily investments related to drainage and traffic management (roads and road architecture, but also signage), as well as public spaces, parks, tourism enhancements, bridges (smaller, municipal-responsibility), markets, and street lighting, which would improve the environment and the quality of life in participating towns. Larger works that are national in terms of management responsibility (i.e. national highways, national bridges) and housing construction would not be eligible for financing. The component would also finance various studies and technical designs needed for each investment. 16. The component will have two rounds of investment that would provide incentives to enhance municipal management by linking access to infrastructure financing with meeting specific eligibility criteria for each round. The first phase will allocate US$400,000 to each participating town and city meeting prerequisites such as conducting open town meetings, submitting financial reports to the MLLGRD, among others. Under phase 2, an equal share of $250,000 would be allocated to each participating town and city. The remaining funds would be allocated among the seven (7) participating towns and cities using the Municipality Resource Allocation Index (MRAI). (See Annex 4 for details on prerequisites and allocation). 17. Component 2: Technical Assistance and Capacity Building for Town and City Councils and the Central Government (Total US$ 0.99 million; IBRD US$ 0.95): This component would finance capacity building activities and technical assistance to strengthen municipal planning, management, financial management, financial reporting and investment implementation, both in participating Towns and Cities and in relevant national entities, including the MLLGRD, supporting local governments in these aspects. a. Component 2.a: Town and City Technical Assistance and Capacity Building : This subcomponent would include activities to improve the financial management, revenue collection, expenditure management, and town/land use planning; to increase town council accountability and citizen participation (via town council hearings, dissemination of financial statements, enhanced community consultations); and to improve capacity to identify, prepare, implement, maintain and monitor municipal investments, particularly in drainage and traffic management. These activities will support to participating towns and cities in meeting the performance criteria in order to access to municipal infrastructure investments under Component 1. Page 6 b. Component 2.b: Central Government Technical Assistance and Capacity Building: This subcomponent would support capacity building and technical assistance to the MLLGRD and other relevant national entities. The assistance would be focused on supporting the coordination role of the MLLGRD with other ministries, cities and towns and other relevant stakeholders. In particular, the component will finance strengthening of the national framework for town planning, improved financial reporting formats and computerization, human resource management (model job descriptions), and studies relevant to understanding particular problems of high priority to the towns, for example, legality of revenue collect on leased lands. 18. Component 3: Project Management/Administration (Total US$ 1.14 million; IBRD US$ 0.95): This component will finance project management, monitoring and evaluation, technical expertise, staff training, the annual audit, vehicles, office equipment and other operating costs. To implement the project, BSIF would establish a project implementation unit with technical, procurement and financial management experience. The component would ensure that effective fiduciary arrangements are in place during implementation. The outputs of this component are the efficient and effective project implementation and monitoring. By end of May, 2010, all Towns and Cities had complied with four Phase 1 eligibility criteria (open town meetings, organizational charts, job descriptions and spatial information), and are expected to complete the rest of the requirements by the time of appraisal. 4. Financing Source: ($m.) Borrower 0.68 International Bank for Reconstruction and Development 15.00 Total 15.68 5. Implementation 19. Implementing agency: The Belize Social Investment Fund will implement the Project on behalf of the GOB. An inter-ministerial Project Steering Committee will provide Project oversight. There will also be active collaboration with the main government agencies responsible for the local government sector (MLLGRD, Ministry of Economic Development, Ministry of Natural Resources, etc.). 20. Established in 1996, as an autonomous institution, the Belize Social Investment Fund (BSIF) is a body under the Ministry of Economic Development, Industry, Commerce and Consumer Protection (MED). The BSIF funds community projects in line with the government's policies for poverty reduction. Projects are include in the areas of Water Supply and Sanitation, Education, Health, Access and Skills Training . 21. BSIF is managed by a Management Team and Board of Directors comprising representatives from the private sector, NGOs, the Women’s Commission, Youth for the Future, the Ministries of Health, Education, Human Development, Rural Development, and National Development Investment and Culture. Daily operations are organized by a team of 20 Page 7 managerial, technical and administrative professionals. The community driven approach adopted by BSIF has the overall objective “to maximize the socio economic impact on low income livelihoods and ultimately eradicate poverty in Belize”. Between 1996 and 2006, BSIF has implemented over 350 community infrastructure projects (roads, water supply, schools and health clinics). In fact, BSIF has been responsible for the great majority of local infrastructure built during this period, including nearly all the rural schools and health centers. Around half the communities in the country have benefited from one or more of improved roads, water supply, electrification and new or extended primary schools, while around a quarter have had new or upgraded health facilities 7 . 22. Project Implementation Unit (PIU): BSIF will establish a separate project implementation unit for the proposed Project. PIU will consist of a project manager, key technical staff, financial management and procurement staff. Further specification of responsibility, staffing and reporting is detailed in the MDP Operational Manual. 23. Project Steering Committee (PSC) : The committee will provide the setting for coordination and participation of key agencies involved in project preparation and implementation. It will be responsible for ensuring that the Project is in line with national development priorities. The Chairperson of the PSC will be the Chief Executive Officer of the MED. The PSC will have the following members: Chief Executive Officers (CEOs) from the Ministries of (i) MLLGRD, (ii) Economic Development, (iii) Natural Resources and Environment, (iv) Works, (v) Housing and Urban Development; two representatives from the Mayors’ Association; the Executive Director of the BSIF, and an ex-officio member who will serve as Secretary. 24. Towns and Cities: The Towns and Cities are the main partners in the preparation and implementation of the proposed Project. They will be responsible for identifying and submitting applications for sub-project funding under Component 1 (including the preparation and presentation of Feasibility Studies) and collaborate with the BSIF, the MLLGRD, and other relevant Ministries in the implementation of Component 2. The Councils are also expected to participate in all training activities and will provide counterpart financing during the implementation of sub-project activities where necessary. 25. Ministry of Labor, Local Government and Rural Development: The MLLGRD is also a key partner in the implementation of the project. This Ministry provides the institutional structure for the system of local government in Belize. It is charged with ensuring the compliance of all Councils with all laws and regulations in discharging their duties and responsibilities. The role of the Ministry will be to advise the BMDP on its ministerial policies and strategies, and absorb and monitor all new processes and systems that will be established as a consequence of the project. While the Ministry will assist in helping the Councils design and implement their projects, it will also be a direct beneficiary under the project its capacity to monitor and support the work of the Councils will be enhanced. 7 Country Poverty Assessment. December 2009. Halcrow Group Limited and the Belize National Assessment team for the Caribbean Development Bank. Page 8 6. Sustainability 26. Project sustainability will be supported by a) strengthening municipal management capacity, including improving revenues and better managing expenditures; and b) the focus on maintaining existing assets as a basic performance measure. 7. Lessons Learned from Past Operations in the Country/Sector 27. Desirability of using wholesale approaches in municipal development projects. According to an IEG study 8 assessing the Bank’s experiences in successfully supporting municipal development, wholesale approaches had better outcomes because they generated healthy competition among municipalities. Municipalities that failed to meet performance criteria were no longer entitled to project support and weak municipalities that do not qualify at the outset may become eligible for project funding later if their performance improves. The study also finds that projects with a wholesale approach allocated a significantly larger share of the funding to technical assistance and institutional development. The proposed Project draws on this experience by using simple performance-based eligibility criteria for determining town / city eligibility for project-financed investments. 28. Importance of linking municipal development plans with investment planning. The Project builds upon the Bank’s earlier Roads and Municipal Drainage Project (RMDP), which closed in 2005. One of the key lessons highlighted from RMDP was the need to carry out comprehensive development/investment plans in order to help the municipalities to prioritize their investment, coordinate investment in infrastructure, and to ensure technical and financial sustainability of the investment. For instance, the effectiveness of drainage improvements carried out to reduce the incidence of flooding would be undermined if the larger drainage network improvements required are not accompanied. The proposed Project will support towns / cities in developing municipal plans and linking them to subsequent investment pipelines. 29. Need to emphasize Operation and Maintenance (O&M). Experience in investment projects shows that O&M should be prioritized and planned for beginning at an early stage of project inception as this is critical for long-term sustainability. As municipalities in Belize currently lack capacity for such planning and regularly fail to maintain investments, development of the capacity to plan and implement regular maintenance will be an important part of project design. The proposed Project would help the municipalities to prepare O&M plans including clear assignment of roles and responsibilities and financing; O&M plans will be included in the performance criteria for the second round of investment. 30. Prioritizing investments based on analysis. The IEG study also pointed to the importance of prioritizing infrastructure investments based on the need, expected outcomes, and urgency. Use of least cost, cost-benefit or cost-effectiveness analysis helps clients to select the best investments and achieve better outcomes 9 . To help the municipalities prioritize investment needs, the proposed Project would include during the sub-project identification stage a series of 8 IEG Special Study “Improving Municipal Management for Cities to Succeed”, 2009 9 IEG Special Study “Improving Municipal Management for Cities to Succeed”, 2009 Page 9 steps to guide the municipalities investment decision-making process. This would include: carrying out least-cost analysis in order to determine the types of investment that would bring the maximum benefits to the municipalities; and examining and assessing possible technical options for investment. 8. Safeguard Policies (including public consultation) Safeguard Policies Triggered by the Project Yes No Environmental Assessment ( OP / BP 4.01) [x] [ ] Natural Habitats ( OP / BP 4.04) [x] [ ] Pest Management ( OP 4.09 ) [ ] [x] Indigenous Peoples ( OP / BP 4.10) [x] [ ] Physical Cultural Resources ( OP/BP 4.11 ) [x] [ ] Involuntary Resettlement ( OP / BP 4.12) [x] [ ] Forests ( OP / BP 4.36) [x] [ ] Safety of Dams ( OP / BP 4.37) [ ] [x] Projects on International Waterways ( OP / BP 7.50) [ ] [x] Projects in Disputed Areas ( OP / BP 7.60) * [x] [ ] 9. List of Factual Technical Documents 1. Interim Strategy Note for Belize. World Bank. February 2009. 2. Shlomo Angel. Housing Policy in Belize: diagnosis and guidelines for action. January 2010 3. Country Poverty Assessment. Government of Belize and Caribbean Development Bank. December 2009. 4. National Policy on Local Governance. Government of Belize, 2009. 5. Report National S ymposium on Local Governance. “Transforming our communities through good local governance”. Convened by the Ministry of Labour, Local government and Rural Development. November 2008. 6. Belize Towns Property Tax Act 7. Victor Villarreal: Belize Municipal Development Project. Municipal Finance and Revenue Enhancement Inception Report. May 2010 10. Contact point Contact: Ellen Hamilton Title: Sr Urban Planner Tel: (202) 473-6583 Fax: (202) 614-0983 Email: Ehamilton@worldbank.org * By supporting the proposed project, the Bank does not intend to prejudice the final determination of the parties' claims on the disputed areas Page 10 11. For more information contact: The InfoShop The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 458-4500 Fax: (202) 522-1500 Email: pic@worldbank.org Web: http://www.worldbank.org/infoshop