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Document o f The World Bank
FOR OFFICIAL USE ONLY
Report No: 40422 - ET
PROJECT PAPER
ON A
PROPOSED ADDITIONAL FINANCING
IN THE AMOUNT OF SDR 137.05 MILLION (US$215 MILLION EQUIVALENT)
TO THE
FEDERAL DEMOCRATIC GOVERNMENT OF ETHIOPIA
FOR THE
PROTECTION OF BASIC SERVICES PROJECT
November 30,2007
Human Development I11 Country Department East 3 Africa Region
This document has a restricted distribution and may be used by recipients only in the perfonnance o f their official duties. I t s contents may not otherwise be disclosed without World Bank authorization.
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CURRENCY EQUIVALENTS (Exchange Rate Effective October 3 1,2007
AfDB BOFED C I D A CSRP DFID D P DLDP EBS EFY EMCP ESMF FMR FTAPS GAVI H C HSDP ICAS IFR ITN JBAR KfW LIG MA M C B MDG MDTF MOFED MOH MTR NBE OFAG PASDEP PB S PDO PEFA PSCAP
Currency Unit = Ethiopian Birr (ETB) ETB 9.09 = US$ 1.00
US$ 1.56936= SDR 1.00
FISCAL YEAR July 8 - July 7
EFYOO = IDA FY 08 EFYO1 = IDA FY 09
ABBREVIATIONS AND ACRONYMS
Afr ican Development Bank Bureau o f Finance and Economic Development Canadian International Development Agency C iv i l Service Reform Program Department for International Development, UK Government Development Partner District Level Decentralization Program Enhanced Basic Services Program Ethiopian Fiscal Year Expenditure Management and Control Program Environmental and Social Management Framework Financial Management Report Financial Transparency and Perception Survey Global Alliance for Vaccines and Immunizations Health Center Health Sector Development Program Inter im Country Assistance Strategy Inter im (Unaudited) Financial Report Insecticide-Treated Nets Joint Budget and Aid Review German Development Bank Local Investment Grant Management Agent Ministry o f Capacity Building Mi l lennium Development Goal Multi-Donor Trust Fund Ministry o f Finance and Economic Development Ministry o f Health Mid-Term Review National Bank o f Ethiopia Off ic ia l o f the Federal Auditor General Plan for Accelerated and Sustained Development to End Poverty Protection o f Basic Services Project Project Development Objective Public Expenditure and Financial Accountability Public Sector Capacity Building Program
FOR OFFICIAL USE ONLY
RPF SDPRP SNNPR SPG U N F P A UNICEF WOFED
Resettlement Policy Framework Sustainable Development and Poverty Reduction Program Southern Nations, Nationalities and Peoples Region Specific Purpose Grant United Nations Population Fund United Nations Children’s Fund Woreda Office o f Finance and Economic Development
Vice President: Obiageli Katryn Ezekwesili Country Director: Kenichi Ohashi
Sector Director: Y a w Ansu Sector Manager: Laura Frigenti
Task Team Leader: Trina Haque
This document has a restricted distribution and may be used by recipients only in the performance o f their off icial duties. I t s contents may not be otherwise disclosed without Wor ld Bank authorization.
I . I1 I11 Iv V . V I .
VI1 VI11 . Ix . X . XI . XI1 . XI11 . XIV .
FEDERAL, DEMOCRATIC REPUBLIC OF ETHIOPIA ADDITIONAL FINANCING FOR THE PROTECTION OF BASIC SERVICES
CONTENTS
Introduction. ............................................................................. Background for Additional Financing ................................................ Rational for Additional Financing .................................................... Proposed Changes ....................................................................... Project Costs and Financing ...........................................................
Consistency with CAS. ................................................................ Economic Analysis o f Financing Gap ............................................... Appraisal o f Restructured and Scaled-up Project Activities ...................... Environmental Assessment ........................................................... Expected Outcomes ................................................................... Benefits and Risks ..................................................................... Financial Terms and Conditions for the Additional Financing ................. Credit Conditions and Covenants ...................................................
Project Implementation, Financial Management, and Procurement Arrangements. ..........................................................................
SCHEDULES
Schedule A : Estimated Project Cost and Source o f Financing ............................ Schedule B: Financing Plan and Disbursement Schedule ................................
Allocation and Disbursements o f Additional Financing ................... Schedule C: Procurement Arrangements .................................................... Schedule D: Timetable o f K e y Project Processing Events and Project Team ........... Schedule E: Performance Indicators ......................................................... Schedule F : Financial Management and Disbursement Arrangements ................. Schedule G: Environmental and Social Safeguards Management Arrangements . . . . . . Schedule H: Monitoring and Evaluation Framework for the Pi lot Local Investment
Grant ............................................................................. Schedule I : Economic and Fiscal Analysis for the Pilot Local Investment Grant .... Schedule J: Additional Financing for Component 2: Promoting the Health
Schedule K: MAP: IBRD No . 33405
Mi l lennium Development Goals ............................................. Country at a Glance .............................................................
1 1 8 10 13
13 16 16 18 18 19 19 25 25
27 28 29 30 38 39 45 58
61 63
68 69
PROJECT PAPER DATA SHEET
Responsible agency: Federal Ministry o f Finance and Economic Development, Federal Ministry o f Health
Revised project development obj ectives/outcomes [If applicable]
The original development objectives o f the project have not been revised.
Does the scaled-up or restructured project trigger any new safeguard policies? If so, indicate which one(s)
For the Pilot LIG Subcomponent, the Safeguard Policies for Environmental Assessment O P B P 4.01 and Involuntary Resettlement OPBP 4.12 are triggered in the context o f the support for the construction o f small-scale c iv i l works implemented through the multi-sector Specific Purpose Grant (SPG) from the Federal Government. The Environmental and Social Management Framework and a Resettlement Policy Framework have been completed and disclosed in country.
For Component 2, Safeguard Policy for Pest Management OP4.09 i s triggered in the context o f the indoor use o f insecticides. The Guideline for Malaria Vector Control and the Guidelines for Indoor Residual Insecticide Spraying have been prepared and are in use. These guidelines have been disclosed.
For Additional Financing [ ] Loan [ ] Credit [ XI Grant For Loans/Credits/Grants :
Total Bank financing (US$m.): US$215.00 mi l l ion Proposed terms: IDA Grant Financing
Source Borrower IBRD/IDA African Development Bank Canadian International Development Agency Department o f International Development, UK Government (DFID) European Commission KfW German Development Bank The Netherlands Government
Local Foreirn 1 Total
126.99
I Total
189.00 14.00
1,727.22 I 76.90 I 1,804.12 I
32.00
20.86 10.00
7.04
7.00
1,159.23 215.00
55.00 20.86
136.99
196.04 14.00 7.00
I. Introduction
1. This Project Paper seeks approval o f the Executive Directors to provide additional financing in the amount o f SDR 137.05 mi l l ion (US$215 mi l l ion equivalent) to the Federal Democratic Republic o f Ethiopia for the Protection o f Basic Services Project (the Project or PBS), presently financed under the f irst IDA Grant N o . H224-ET. This i s the f i rst additional financing proposal for this Project and for which a second IDA Grant i s proposed.
2. The proposed additional financing would largely provide for the financing gap associated with the completion o f Component 1 - Promoting the Delivery o f Basic Services by Sub-national governments, and Component 2 - Promoting the Health Mi l lennium Development Goals, supported through the Project. In addition, additional financing i s also sought for restructuring to scale up project impact through the implementation o f a new and complementary activity related to the delivery o f basic services, termed the Pilot Local Investment Grant (LIG). The Project’s development objectives would remain unchanged.
3. Funding to initiate the LIG window would expand the mechanisms available to better achieve the project development objective. Whi le the existing Component 1 reimburses Government for recurrent costs related to basic service delivery by regional and local (woreda) governments, the LIG would finance a pi lot effort to increase both the quality and quantity o f capital investment by local governments and thereby scale up the Project’s impact and development effectiveness in the delivery o f basic services. The Basic Services and Pilot LIG Subcomponents would thus complement each other.
4. The proposed additional financing would largely finance: (i) Regional and local government delivery o f basic services in education, agriculture, health, and water supplyhanitation; (ii) capital investments at local government level to improve the quality and quantity o f basic services delivery; (iii) high-impact health commodities and strengthening o f the health system; and (iv) various institutional capacity building activities, consulting services and training to further advance concepts and issues o f transparency and accountability at local administration levels while also strengthening monitoring mechanisms.
5. The PBS enjoys support f rom several other development partners, including the Afr ican Development Bank, CIDA, DFID, EC, the Irish Government, KfW, and the Netherlands Government. T o date, approximately US$580 mi l l ion in donor commitments have been secured from these partners for the PBS, either through co-financing o f the IDA project or direct financing.
11. Background for Additional Financing
6. Context. The IDA-financed Protection o f Basic Services Project (PBS) was approved on M a y 25, 2006 and became effective on June 2, 2006. The closing date i s currently June 30, 2008. The total amount o f the IDA Grant i s SDR 149.60 mi l l ion (US$236 mi l l ion equivalent with exchange rate gains) o f which SDR139.8 mi l l ion or about 94% has been disbursed. The PBS i s an instrument that the Government and eight development partners including the Bank have developed fol lowing the concerns on governance in the aftermath o f the M a y 2005 elections, which led to the suspension o f direct budget support. The development objective o f the PBS i s to protect and promote the delivery o f basic services by sub-national governments while deepening transparency and local accountability in service delivery.
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7. Recent Macroeconomic Developments. The macroeconomic context i s showing stronger prospects today than at the time when the PBS was initiated. Given the size o f aid flows associated with the PBS across a l l partners, the strength o f the macro economy remains o f key interest. PBS partners, including the Wor ld Bank, have supported the need for a strong macroeconomic dialogue with Government and with the participation o f the IMF. Fol lowing the recent agreement between the Government and the International Monetary Fund for the Fund to undertake two macro surveillance missions per year, the f i r s t two reviews have been conducted in March and November 2007 respectively. According to the reviews, real GDP grew by 11.6% in FY06, with a projected growth o f 11.4% for FY07. The macroeconomic outlook seems favorable, with strong macroeconomic policy implementation, yet there are r i sks as the country remains vulnerable to external shocks. The rate o f inflation has picked up in the last year, and i s averaging close to 17.8% per year (as o f end o f M a y 2007). This i s due mainly to fuel price increases and aggregate demand pressure.
8. As per Government authorities, macroeconomic stability remains a high priority. Accordingly, the National Bank o f Ethiopia (NBE) introduced changes to monetary policy effective July 4,2007. The NBE increased commercial banks’ reserve requirement f rom 5 percent to 10 percent, as wel l as the minimum deposit rate (applied for savings deposit) f rom 3 to 4 percent per annum. Government sources also disclosed that they are undertaking a study on the causes- o f inflation so as to effectively avoid macroeconomic instability. The recent measures taken by the NBE i s expected to contribute to curbing inflation as wel l as lowering the excess reserve in the financial system and contributing to the stability o f the foreign exchange market. Furthermore, the Government i s enhancing i t s domestic revenue mobilization efforts, and this i s expected to further lower the need for deficit financing.
9. Project Components. The Project currently supports four components:
10. Component 1 on Promoting the Delivery of Basic Services by Sub-national governments, supports the delivery o f basic services provided by Regional and local governments through the: (a) financing o f sub-national delivery o f basic services; and (b) monitoring o f (i) the level and timeliness o f funding allocations for the Government’s inter-governmental b lock grants to ensure additionality targets are met, (ii) the fair application o f distributional rules; and (iii) actual spending levels o n basic services and i t s distribution.
’
1 1. Component 2 on Promoting the Health Millennium Development Goals provides predictable financing for those critical inputs for primary health service delivery that cannot be efficiently funded at woreda level through the block-grant supported under Component 1. It supports three types o f activities: (i) procurement and distribution o f critical health commodities; (ii) capacity building; and (iii) strengthening o f procurement and logistics.
12. Component 3 on Strengthening Governance Systems on Financial Transparency and Accountability supports activities at the RegiodCity Administrations, woredas and kebele levels that significantly enhance transparency around public budget procedures (budget preparation, expenditure and audits). It also aims to foster broad engagement o f citizen representative groups and citizens more broadly on public budget processes and service delivery by institutionalizing various budget literacy tools. I t aims to establish the foundation for strengthening participatory budgeting within the Government’s decentralized governance structures.
13. Component 4 on Social Accountability supports capacity building for, and piloting of, selected approaches to strengthen voice and client power o f citizens and c i v i l society organizations in the context o f decentralized service delivery and to build the capacity o f citizens
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to engage in public budgeting processes. This component aims specifically at building demand- side governance capacity on public budget issues among citizens and c iv i l society organizations. I t i s financed by a Multi-Donor Trust Fund administered by the Wor ld Bank and i s implemented using a non-government Management Agent.
14. Status of Project Implementation. The Mid-Term Review (MTR) o f the Project was completed in M a y 2007. Outcomes o f the MTR confirm that both the Project’s achievement o f development objectives and overall implementation progress are satisfactory. A further Review was completed in mid-November 2007, confirming continued positive performance. Highlights o f implementation progress are presented below by component, the overall results achieved, and the partnership framework underpinning the PBS. There have been n o changes to the original objectives o f the Project.
15. Component 1: Promoting the Delivery of Basic Services by Sub-national government. The four principles or “tests” o f additionality, fiduciary responsibility, fairness, and accountability have been fully or substantially met consistently, as verified via five reviews conducted jo int ly by the Project’s development partners since effectiveness in June 2006.
16. Additionality. From the base year FY05 until FY07 the Government has increased i t s own source funding to sub-national governments - which provide the bulk o f basic services -by about 21% per year on average, in dollar terms, and i s budgeted to increase another 35% between FY07 and FY08. Total funding for the sub-national government levels i s expected to reach about U S 1 . 5 b i l l ion in FY08, with about 70% o f this from Government’s own resources and the remainder f rom PBS partners. This i s a very large increase compared to the base year (FY05) value o f US$635.5 mi l l ion for total funding from a l l sources to these levels. As a result, total sub-national government spending o n basic services in education, health, agriculture and waterhanitation i s expected to double f rom a base year value o f US$505 mi l l ion in FY05 to US$1,023 mi l l ion in FY08 (see sector breakdown in Figure 1 below).
Figure 1. Regional Recurrent and Capital Expenditures from Treasury Sources on Basic Services (EFY1997 - 2000)
Education Agriculture Health Natura I Re source s (incl. Water)
El EFY97 Pre-Actual 0 EFY98 Pre-Actual €l EFY99 Pre-Actual 64 EFY 2000 Budget Note: Based on current data in EFY 2000 budget, which includes a large unallocated amount related to salary adjustments. I t i s expected that much o f this amount will be reallocated to basic service sectors so recurrent spending on basic services in EFY 2000 may exceed the amounts indicated above.
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17. Fairness. Rigorous analysis o f public spending data has confirmed that the Federal Government and Regional Governments have shown n o systematic bias against woredas that voted for the opposition in 2005, Moreover, the House o f Federation has approved a new formula for distributing Federal grants to the Regional states which addresses disparities and the perceived bias in per capita allocations under the previous formula. The application o f the new formula started with EFY2000, and has resulted in a narrowing o f the Regional per capita gap already: For example, the gap between the minimum and maximum per capita allocations fell f rom 640 Birr (Amhara: 112 Birr, Gambella: 752 Birr) in EFY99 to 506 Birr (Oromiya: 164, Gambella: 670 Birr) in EFYOO.
18. Fiduciary. The 2006 Public Expenditure and Financial Accountability (PEFA) assessment, conducted as part o f the PBS agreement, has been completed at the Federal level and in seven Regions including Afar, Benishangul-Gumuz, Di re Dawa, Gambella, Harari, Oromiya, and Tigray. The findings show particularly good performance on the credibility o f the budget, comprehensiveness and transparency. The report also identified areas o f improvement and the Government committed to incorporate appropriate actions in i t s Expenditure Management and Control Program (EMCP). The 31d and 4th quarterly reports f rom the PBS Continuous Audit at Regional and woreda levels have been completed, bringing the total number o f sub-national entities audited to 227 since the inception o f the PBS. The results continued to show strong internal control systems especially o n the payroll side, with continuing weaknesses in fixed assets and stores management.
19. Independently, the National Audit Office o f the United Kingdom visited the country recently and made a positive assessment o f the current PFM practice in general and in the implementation o f the PBS in particular. Major observations o f the mission include: the effective functioning o f the decentralized system in basic service delivery through setting priority, allocating more resources for basic services, giving more attention to M & E, budget disclosure, and in engaging communities at sub-national levels.
20. Accountability. Local transparency and accountability initiatives remain at early stages but are gaining momentum. A major effort under the PBS i s the widespread publication and posting o f regional and woreda budgets, the f irst initiative o f i t s kind in Ethiopia and which has served to catalyze transparency and accountability at local administration levels. MOFED’s fiscal data continues to be made available v ia i t s website (www.mofaed.org) for independent review. Steps are also underway to introduce tools, e.g. laypersons’ budgets, service delivery templates for posting in schools and health posts, which will make public budget and expenditure information much more accessible for the average Ethiopian citizen. Work on the Financial Transparency and Accountability Perception Survey (FTAPs) i s advanced and i s expected to generate new nationally representative information on h o w Ethiopians view their local service providers and the budget decision-making process. The tri-partite Steering Committee o f Government, CSOs and donors (including the Wor ld Bank) overseeing PBS Social Accountability activities have met numerous times, jo int ly t ahng forward this agenda. Demonstration projects are underway on participatory budgeting in education and quality o f service provision in water and sanitation.
21. Although Component 2 on Promoting the Health Millennium Development Goals experienced init ial slow start-up mostly related to the need to resolve differences in contractual requirements o f the Wor ld Bank and UN agencies (UNICEFLJNFPA), implementation i s n o w underway. Major packages for critical health commodities (i.e. ITNs, vaccines, ACTS, contraceptives, cold chain equipment, indoor residual spraying) have been procured. Distribution o f these commodities to the regions i s ongoing. W o r k to undertake the following pieces o f
4
analytical work have been initiated: (i) Mapping Malaria Epidemic Risk Areas in Ethiopia for Indoor Residual Spraying (IRS); (ii) Strengthening Epidemic Response System; and (iii) Quantitative Services Delivery Survey (QSDS). In addition, a logistics and supply system strategy has been approved and i s in the process o f implementation to further strengthen the supply chain management system. The Procurement Agent has been recruited and i s expected to be on board by the end o f December 2007.
22. Component 3 on Strengthening Governance Systems on Financial Transparency and Accountability has supported several o f the initiatives described above. This includes the Continuous Audit exercise v ia the Office o f the Federal Auditor General (OFAG), recruitment o f a total o f 103 accountants and 65 IT experts throughout al l Regions and the Federal level to strengthen B O F E D M O F E D accounting and reporting capacity; the procurement o f the several budget transparency and literacy activities to be implemented at regional and woreda levels as the baseline o f the Financial Transparency and Accountability Perception Survey (FTAPS); and the unprecedented disclosure o f budget information v ia the web and newspapers for public use.
23. For Component 4 on Social Accountability, as noted above, the Steering Committee charged with providing strategic oversight o f social accountability initiatives i s fully operational and i s working well. A Management Agent - GTZ International Services - has been recruited, and has taken on the primary responsibilities for the day-to-day management and coordination o f Component activities. An international learning event on social accountability was conducted in mid-July 2007, with about 200 CSO participants. T w o demonstration projects have been launched, and the selection o f the large-scale (multi-region) pi lot initiatives are expected to be completed by the end o f November. Almost 50 local CSOs have submitted proposals, an integral part o f which has been letters o f commitment by local woreda administrations.
24. Results Achieved. A key a im o f the PBS was to contribute to sustaining the improvements achieved in major development indicators in recent years, and avoid any roll-back o f gains that might have arisen in the aftermath o f the 2005 elections. The findings conf i rm that this objective has been fully met, and that high impact interventions are yielding positive results (details on the key performance indicators are provided in Schedule E).
Figure 2a: Net Enrolment Rates in Primary Education Figure 2b: Pupil-per-Teacher Ratio 100
90 70 S 80 0 C 60
& 50
40 s 50
f 30 - 40 e 2
z" 20 n
'a, 70 2 2 60 c
E 5 30 - c '$ 20
CI
CI 0
I-
10
0 0 10
Grades 1-4 Grades 1-4 Grades 5-8 Grades 5-8 (Girls) (Boys) (Girls) (Boys)
Grades 1-4 Grades 5-8
1 -97 (Baseline) EV98 (Year 1) a EFY99 (Year 2) 1
5
28. Regarding the number o f health extension workers (HEWs) deployed per rural kebele - a key measure o f human resources required for local health service delivery - the EFY98 and EFY99 targets have been surpassed.A total o f 17,653 HEWs have been deployed, and around 6,118 more HEWs are under training and wil l be deployed in the coming several months. In addition, MOH data show a decreasing percentage o f health posts experiencing stock outs o f injectable contraceptives, with this indicator showing clear improvement in EFY98 beyond the target set by the M O H .
Figure 4: Health Extension Workers EFY97-99 I ---
1 5,000
10,000
5,000
0 1997 1998 1999
29. Rural access to potable water within 1.5 k m s i s estimated to have increased fi-om 41.2% in EFY98 to 46.4% o f the rural population in EFY99. W h i l e representing a significant improvement, the implication s t i l l i s that over ha l f the rural population must travel long distances to access safe drinking water.
30. In the agriculture sector, the cumulative number o f woman headed households receiving and using extension packages almost tripled over the past two years from 130,000 in EFY97 to 380,000 in EFY99, while falling short o f the target o f 450,000.
31. While overall performance was strong as noted above, the Mid Term Review in M a y 2007 showed the need to review some o f the indicators in order to be able to assess performance on an annual basis by using administrative data. This has necessitated modification to existing indicators, plus substitution o f some by others that are more appropriate. These changes can be found in Schedule E.
32. Partnerships. Partnerships have been crucial to achieving results at scale (see below).
Box 1. Development Partnerships - A Cornerstone o f the PBS
The PBS has built a strong partnership across the international donor community. IDA’S original financing o f US$236 mi l l ion for the PBS has thus far leveraged donor financing o f approximately USS580 mi l l ion from 7 other partners - AfDB, Canada, DFID, EC, Germany (KfW), Ireland, and the Netherlands, bringing the total committed financing for the PBS from partners including the Bank to US$816 mill ion. Approximately 77% o f donor funds are channeled through Bank-administered Multi-Donor Trust Funds and the remaining 23% i s provided through direct financing to Government in a harmonized framework. DFID i s planning an additional contribution o f GBP 60 mi l l ion simultaneous with this proposed IDA additional financing, and CIDA i s processing about US$2 1 mi l l ion equivalent additional. Finally, the latest partner to j o in the PBS i s Spain, which has initiated a “debt for development swap” with the Government o f Ethiopia, with the resources being channeled to PBS activities. The PBS resources, especially under Component 1, combines with Government’s own resources and supports existing national systems o f management, service delivery, monitoring and evaluation.
The national results reported in the preceding section could not have been achieved at this scale and rapid pace without these partnerships.
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33. The Borrower i s in compliance with the dated covenants for the Project.
111. Rationale for Additional Financing
34. During the PBS Mid-Term Review, the Government requested additional financing from DFID, the Wor ld Bank, and other partners to continue support to the PBS for Ethiopian Fiscal Year (EFY) 2000 (subsequently revised to also cover the f i r s t two quarters o f EFY 2001) while preparations would be undertaken for the design o f a next phase o f support for the medium-term.
35. Financing gap. In addition to closing the financing gap in EFY 2000, part o f the PBS Additional Financing wil l be used to retroactively close the unforeseen financing gap under Component 1 in EFY 1999. This gap was caused by the delay in some o f the expected donor financing in EFY 1999, which resulted in a higher contribution to the Federal b lock grant by the Government than init ially expected. Additional financing i s also requested in order to address the financing gap associated with the completion o f Component 2 - Promoting the Health Mi l lennium Development Goals, supported through the Project, where, in particular an unexpected financing gap has emerged in the fight against malaria. The original IDA Grant allocation for the PBS has been 94% disbursed as o f mid-November 2007. Thus, while the closing.date o f the existing PBS Project i s June 2008, the bulk o f resources have already been exhausted.
36. Scaling up impact. Additional financing i s also being sought to scale up Project activities through the implementation o f a new and complementary activity - the Pilot Local Investment Grant (LIG) in order to enhance the impact and development effectiveness o f the project. The ultimate objective o f the Government i s to introduce LIG as a national, performance-based capital grant. T h i s would represent a new component in the existing intergovernmental fiscal system. The objectives o f this new capital grant would be to increase the quantity of capital investment by providing additional money specifically earmarked for capital investment, and to improve the quality of that investment by making access to LIG funds conditional on meeting certain performance criteria.
37. Whi le the existing Component 1 (the proposed new Subcomponent l(a)) reimburses Government for recurrent investments related to basic service delivery by regional and local governments, the Pilot LIG would finance capital investment at the local level. The Pilot aims to develop a better understanding o f the constraints to capital investment by local governments and the most effective ways to address them. Broadly, these constraints comprise adequacy o f funding, appropriateness o f systems, and availability o f capacity. An improved understanding o f how these constraints interact to affect performance will enable them to be appropriately addressed in the design o f the National LIG which i s expected to fo l low the Pilot. Additionally, the Pilot LIG will facilitate the implementation o f new national systems and standards for capital investment including planning and project selection, safeguards, and procurement, which are seen as important for addressing existing constraints to quality capital investment.
38. In the PBS Project Appraisal Document, the description o f Component 1 anticipated LIG as an additional mechanism to broaden the dialogue on local service delivery and to provide incentives for sub-national governments to select, implement, and maintain better capital investment projects. Good progress in implementation o f Component 1 permits this more comprehensive and advanced approach to local service delivery to be introduced at this time.
39. Alignment with partners. Another key element underpinning the request for additional financing i s to allow IDA to harmonize i t s financing cycle with the consortium o f donors
8
providing support to the program, especially to the Basic Services Sub-program delivered via sub-national governments (PBS Component 1). Whi le most partners have indicated a preliminary willingness to continue PBS financing into the medium term, the next full operation i s expected to be approved starting FY09. I t i s envisaged that over the course o f the next 7-10 months, Government, IDA, and other partners will jo int ly prepare a f i l l follow-on operation to the PBS (currently proposed as the Enhanced Basic Services Program) for Board approval in Q1 IDA FY09 (EFYO1). This will enable the development and timing o f the next phase o f support to the PBS to be synchronized across financing partners. This approach i s seen by both Government and donors as an important step in the ongoing effort to harmonize donor engagement around the PBS, allowing for a more consistent and coherent donor-Government dialogue on the decentralization, basic service delivery, and accountability reform agenda going forward, and reduce transaction costs for the Government.
40. Evolution of Additional Financing by Component and the Medium-Term. While the implementation o f other PBS components are expected to be completed by December 2008, the f i rs t year o f the planned two year Pilot LIG i s expected to be completed by June 2009. A second year o f the Pilot i s planned to be financed from the proposed Enhanced Basic Services (EBS) program which i s expected to succeed PBS. In order to complete the f i rst year o f the Pilot LIG, the proposal for Additional Financing seeks to extend the closing date o f the PBS by 12 months to June 2009.
41. Consequently, i t should be noted that IDA’S PBS Additional Financing period i s expected to have a short overlap with the proposed EBS program. The staggering o f financing instruments and actual financing (by component) i s illustrated below.
PBS & Additional Financing: Components & Disbursements
2005/2006 2006/2007 2007/2008 2008/2009 2009/2010 2010/2011 EFY1998 EFY1999 EFY2OOO EFY2OOl I EFY2OO2 I EFY2003 I
PBS
PBS Additional Financing
EBS (proposed)
ComDonentla P PBSComp 1
i Addl Financing Comp l a
>. EBS Comp l a (Proposed]
COmDOnentlb P Addl Financing Comp l b
i PBSComp 2
z Addl Financing Comp 2
P EBS Comp 2 (Proposed)
Comrronents i PBSComp 3
2. Addl Financing Comp 3
w EBS Comp 3 (Proposed)
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IV. Proposed Changes
42. Although the Project development objectives would remain unchanged and the existing components retained, a new subcomponent for the Pilot LIG would be added as Subcomponent I(b) to reflect scaled-up project activities. The closing date for the IDA financing would be extended by an additional one year f rom June 2008 to June 2009.
43. the following two subcomponents:
Component 1: Basic Services Program. This component will be amended to include
44. Promoting the Delivery of Basic Services by Sub-national governments, Subprogram A (AjDB: US$55.00 million equivalent; DFID: US$124.00 million equivalent; EC: US$186.28 million equivalent; Kfl: US$14.00 million; GoE: US$1,159.23 million equivalent; and IDA: US$I 65.00 million equivalent). Originally prepared as Component 1, Subcomponent l(a) will continue to support the delivery o f basic services (in health, education, agriculture and natural resources, including water) provided by regional and local governments. Additional resources will be provided to local governments through the federal b lock grant transfer system f o t agreed work plans covering the period EFY 2000 (IDA FY08) through the second quarter o f EFY 2001 (IDA FY09). Part o f the additional financing will also be used to retroactively close the unforeseen financing gap in EFY 1999, which was caused by the delay in some o f the expected donor financing. Progress would be monitored through the implementation o f semi-annual Joint Budget and Aid Reviews ( J B A R s ) , including performance on the four core PBS “tests”.
Subcomponent l(a):
45. Subcomponent l(b): Pilot Local Investment Grant (LIG) ( IDA: US$20.00 million equivalent). This i s a new activity o f the PBS Project. Subcomponent l(b) will support the introduction, on a pi lot basis, o f a multi-sector Specific Purpose Grant (SPG) from the Federal Government, for capital investment in the following sectors: health, education, agriculture, natural resources (including water) and roads. The ultimate objective o f Government i s to introduce a National LIG program, which would be a performance-based SPG with access criteria established in areas relevant for improving the quality o f capital investment at the local-level.
46. The objective o f the Pilot LIG would be to better understand the constraints at the local level to increased and improved capital spending and to support the development o f policies and instruments to address these constraints. While vertical planning processes within sectors are deemed to be relatively strong in Ethiopia, less emphasis has been placed on strengthening the horizontal sector coordination mechanisms at the local-level, and particularly in ensuring that the outcome o f this process reflects citizens’ views o f needs and priorities. Therefore, one area o f particular focus for the Pilot will be to test a new national system for local-level participatory planning and budgeting. Additionally, the Pi lot LIG will support the rolling-out and testing o f new national standards for procurement and environmental screening o f capital projects. The objective would be to determine how effective these new systems are in increasing the quality o f investment in the context o f significant increases in the funding available for capital expenditure. The results f rom the Pilot LIG will be used to shape the National LIG Program. The abil ity to adequately learn lessons from the Pilot LIG program therefore becomes paramount. A monitoring and evaluation framework has been developed for the program with this in mind. An overview o f this i s provided in Schedule H.
47. The proposed additional financing o f US$20 mi l l ion for the Pilot LIG would be transferred to eligible regions according to the intergovernmental B lock Grant Formula (as i s the case under Subcomponent l(a). Regions eligible to participate in the pi lot program will be those
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that have implemented reforms under the Government’s Expenditure Management and Control Program as o f the start o f EFY 2000. These reforms are deemed important for effective fiduciary control o f the program at local and regional level. The Regions would then provide funds to a total o f approximately 50 local governments, over an init ial period covering one fiscal year, yielding an average capital grant o f about US$450,000 per year for a typical woreda. The funds transferred to local governments would represent about 30% o f their total budget. By comparison, the current median share going to the capital budget i s around 9% (see Schedule I for a discussion o f existing capital budgeting and spending trends). This suggests that the Pilot LIG could represent between a three to fourfold increase in capital spending in LIG pi lo t woredas. The value o f LIG resources as a percentage o f the total woreda budget i s a key parameter for the Pilot LIG design. The objective would be to provide woredas with a substantial increase in their capital budget as compared with current trends, within the bounds o f increases that might be expected in the coming years while at the same time not overwhelming existing systems and capacity.
48. The Pilot will involve a start-up phase in EFYOO (IDA FY08) including rol l ing out o f training and completion o f annual planning activities at the woreda level. Disbursements to woredas will commence fol lowing this in the next fiscal year (EFYO1). Since the SPG i s a standard fiscal instrument in Ethiopia, the funds wil l f l ow through regular fiscal channels, managed by the Federal MOFED and Regional BOFEDs.
49. For this new Subcomponent, additional institutional arrangements and implementation procedures have been designed and will be available in an Operational Manual. Since LIG funds wil l flow through regular fiscal channels it wi l l be monitored through existing systems established to report o n public spending. The reporting already required for PBS will be augmented in order to track capital spending at the local level.
50. Component 2: Promoting the Health Millennium Development Goals, Subprogram B. (CIDA: US$20.86 million equivalent; DFID: US$lO.OO million equivalent; EC: US$7.04 million equivalent; IDA: US$29.00 million equivalent; and the Netherlands: US$7.00 million equivalent). Progress on procuring critical health commodities has been substantial, such that by the end o f the f i rs t year o f the project (May 2007), 89% o f the funds made available by donors for Component 2, had been utilized. Additional financing will continue the thrust o f the PBS toward malaria control, reducing infant mortality through vaccines, improving the delivery o f primary health services, family planning, and strengthening the health system, and will cover the shortfall in commodity support and system strengthening.
51. Critical commodity support. Based on gap analysis, there i s an estimated shortfall o f US$16.9 mi l l ion for the fight against malaria, including I T N s , equipment for malaria diagnostics, Indoor Residual Spray, distribution o f malaria behavior change toolkits, and training o f community health workers, which has not been covered by Government, existing PBS or other external financing, including the Global Fund. PBS additional financing will cover US$8.0 mi l l ion required for replenishment o f long-lasting I T N s , US$2.1 mi l l ion for Indoor Residual Spray (subject to the successful completion o f an assessment o f vulnerable areas and populations), US$1.2 mi l l ion for malaria diagnostics, and US$1.3 mi l l ion for behavior change toolkits. This will leave a shortfall o f about US$4.3 million, which will be covered by own sources o f MOH. In addition, there i s an estimated shortfall o f US$6.3 mi l l ion for vaccines, o f which it i s estimated that US$4.8 mi l l ion will be supported from GAVI and UNICEF. Given this expected support, IDA will finance the gap o f US$1.5 mi l l ion in 2008. Further, MOH calculates a shortfall of U S 2 4 . 5 mi l l ion for medical equipment for 1,140 primary health centers until the end of EFY2002. During the Pre-Appraisal mission, IDA agreed to allocate US$8,2 m i l l i on o f the PBS Additional Financing for the procurement of equipment for 384 health centers that will be
11
ready by end o f EFY2001. The status o f construction o f new Health Centers will be reviewed again in October 2008, and the allocation for HC equipment will be revised accordingly at that time based on a reassessment o f the number o f health centers for which rehabilitation and construction will be completed by December 2008 and for which no funds for equipment have been secured. Finally, a gap o f US$7.5 mi l l ion i s estimated for family planning and contraceptives, against which IDA Additional Financing will cover US$5.5 mi l l ion.
52. System strengthening and capacity building. Central to the achievement o f targets under MDG 4 and 5 i s the uptake and utilization o f health goods supplied by the health system. The key to ensufing sustainability and effectiveness lies in the development and strengthening o f the various institutions and processes that form the superstructure on which the various aspects o f production, finance, delivery, organization and management rest. MOH estimates that significant systemic support will be needed for accelerating and sustaining malaria control and reducing infant mortality through widespread vaccine coverage. In particular, i t i s estimated that US$4.5 mi l l ion will be needed for system strengthening to support the ongoing initiatives o n malaria control and reduction o f infant mortality, specifically through training o f community health workers, transportation and distribution support, strengthening procurement systems, improving the planning process and effecting behavioral change among consumers o f health services in order to increase utilization. Of this, US$1.2 mi l l ion will be covered by IDA’S additional financing.
53. Component 3: Strengthening Governance Systems on Financial Transparency and Accountability, Subprogram C. (DFID: US$2.99 million equivalent; EC: US$2.72 million equivalent; and IDA: US$l.OO million equivalent). Building on the experience during the ongoing PBS operation, this component would help scale up local initiatives to further advance issues o f financial transparency and accountability at local administration levels. I t would also continue to further strengthen BOFEDMOFED accounting and reporting capacity. Additionally, a number o f studies, including an investment process review focusing on planning and budgeting, procurement, and environmental screening, and an assessment o f the technical quality o f infrastructure will be financed to build a robust system for the effective monitoring and evaluation o f the Pi lot LIG. Funding will also be provided to carry out a post procurement review o f the Pilot LIG activities for the init ial year o f implementation. Through this component the PBS will also continue to support local initiatives on transparency and accountability, and will set aside specific resources to this effect. Fiduciary risk will continue to be minimized through the implementation o f the Continuous Audits at sub-national levels, bi-annual Public Expenditure and Financial Accountability (PEFA) reviews, and carrying out semi-annual (formerly quarterly) reviews o f budget performance under the Joint Budget and Aid Reviews ( J B A R s ) , by the FederaVRegional Government and PBS development partners. An additional ex-post procurement review o f local-level capital investment in LIG pi lot woredas will help address fiduciary issues related to the new Pilot LIG.
54. Component 4: Social Accountability (no IDAjinancing; CIDA, DFID, EC, Irish and Netherlandsjinancing of US$6 million total via a Multi-Donor Trust Fund managed by the World Bank). Pilot social accountability initiatives envisaged under this component are expected to be implemented as planned. These initiatives were assessed f rom the outset as requiring more start- up time owing to the nascent state o f c iv i l society organizations and the accountability and citizen “voice” agenda in Ethiopia. Thus, Component 4 was originally scheduled to be implemented through the end o f FY09, one year longer than the original PBS project.
55. Activities under this Component are expected to accelerate significantly over the period FY08-FY09 as national capacity building activities develop knowledge o f these demand-side
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strategies, and with the implementation o f a number o f large scale pi lot programs supporting participatory planning and citizen service review initiatives being wel l underway. Progress made under these initiatives will be closely monitored and will in form the design and implementation o f additional accountability programs by c iv i l society organizations and possible extension o f the life-span o f this Component.
Component / Subcomponent
V. Project Costs and Financing
Proposed IDA Additional Financing Amount
(US$ mill ion equivalent)
56. The total project cost, including taxes and duties, i s estimated at US$1,804.12 million, with the fol lowing breakdown: AfDB: US$55 .OO mi l l ion equivalent; CIDA: US$20.86 mi l l ion equivalent; DFID: US$136.99 mi l l ion equivalent; EC: US$196.04 mi l l ion equivalent; GoE: US$1,159.23 mi l l ion equivalent; IDA: US$215.00 m i l l i on equivalent; KfW: US$14.00 mi l l ion equivalent; and the Government o f the Netherlands: US$7.00 mi l l ion equivalent. ' Foreign expenditures are estimated at US$76.90 mi l l ion or 4.3% o f total project cost.
Component 2: Promoting the Health Millennium Development Goals (Subprogram B)
Component 3: Strengthening Governance Systems on Financial Transparency and Accountability (Subprogram C)
TOTAL :
57. Financing i s provided below. Schedule A provides detailed analysis o f estimated project costs.
A breakdown o f the proposed IDA financing for PBS components under the Additional
29.00
1 .oo
215.00
Component 1: Basic Services Program o
o
Subcomponent l(a): Protecting the Delivery o f Basic Services by Sub-national governments (Subprogram A) Subcomponent l(b): Pilot Local Investment Grant (Subprogram D)
165.00
20.00
VI. Project Implementation, Financial Management, and Procurement Arrangements
58. Implementation Mechanisms. Both the implementation mechanisms and institutional arrangements wil l largely be the same under the Additional Financing as those o f the existing Project. At the Federal level, Ministry o f Finance and Economic Development (MOFED) in general, and i t s Macroeconomic Policy and Management Department, in particular, will be responsible for the PBS as a whole and will be the executing agency for Components 1 (both Subcomponents l(a) and l(b)) and 3. At the regional level, Bureaus o f Finance and Economic Development (BOFEDs) will continue to be responsible for coordinating project implementation. At local level the Woreda Finance and Economic Development Offices (WOFED) and Urban Administration Offices of Finance would be responsible for managing and coordinating day-to- day implementation o f activities executed. The Office o f the District Level Decentralization
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Program (DLDP) o f the Ministry o f Capacity Building at federal level and i t s l ine bureaus at regional and local levels will continue to closely collaborate with MOFED and i t s Bureaus in the overall coordination and implementation o f Component 3.
59. As mentioned above, the Macroeconomic Policy and Management Department o f MOFED will be responsible for the implementation o f the new Pilot LIG Subcomponent, with support f rom BOFED and WOFED staff at the regional and local levels respectively. Activities under the Pilot LIG Subcomponent would be organized and run by regional governments who, in turn, will report o n the use o f the SPG to the Federal Government. Local reporting wil l be based, to the maximum extent possible, on the realization o f existing reporting obligations to woredas. These same local governments would be the target for a number o f capacity building activities, to be closely coordinated with the Ministry o f Capacity Building and the Public Sector Capacity Building Program (PSCAP) co-financed by IDA and a number o f other partners.
60. Component 2 will continue to be managed by the Federal Ministry o f Health (MOH) at the level o f the Department o f Planning. MOH has developed an institutional fkamework for monitoring and follow-up o f the implementation o f the Health Sector Development Program by establishing a Central Joint Steering Committee and Regional Joint Steering Committees at federal and regional levels, respectively. These committees will continue to oversee the implementation o f core activities under this Component.
6 1. Financial Management Arrangements. Financial management arrangements will be the same as for the original project since they are workmg well. These are described in Schedule F. Specific arrangements for the new Pilot LIG Subcomponent are highlighted below:
62. Annual Planning Cycle: The Pilot LIG will be an annual program synchronized with the Ethiopian fiscal year based on the inter-governmental B lock Grant formula. In preparing the Federal budget, an allocation for the LIG would be proposed for each region. Based on these figures recipient woredas will include LIG resources on the revenue side o f their budget. Incorporation o f the LIG within woreda budgets i s important for promoting integrated planning and capital budgeting at the woreda level. This system will follow the existing time-line for determining the allocations o f the block grant as part o f the budget cycle in the inter- governmental fiscal system.
63. i s envisaged:
F low o f funds and reporting: The following budget, reporting, and f l ow o f funds process
The Federal Government will create a LIG SPG as a proclamation in the Federal budget, under MOFED, which will include allocations by region o f LIG resources.
Funds f l ow will institutionally fo l low Channel 1; f rom MOFED to BOFED, and from BOFED to WOFED.
Regions will be allocated a portion o f the annual financing for LIG, which will be deposited in the existing Regional treasury account with a new code in the budget proclamation to enable clear tracking. The allocation formula will fo l low the Block Grant formula.
BOFEDs will determine individual woreda allocations for LIG (as per M O F E D guidelines) and wil l inform each WOFED o f these LIG allocations.
Woredas will include LIG resources in their budgets (to be approved by the woreda council) as a separate source o f revenue.
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(vi) BOFEDs wil l transfer resources to woredas to the Woreda treasury account. No separate LIG bank account will be opened at Woreda level, and LIG financing will be pooled with other woreda revenues.
(vii) LIG financing will be spent and accounted for following the same rules and procedures as for the regular woreda budget.
(viii) Disbursement to woredas will follow existing rules for disbursements f rom regional to woreda level for the capital stream o f the Block Grant. After the init ial advance, disbursements are made to woredas based o n the cash requirement forecast.
WOFEDs will produce consolidated expenditure reports, as they do now, and will send to BOFEDs. No separate reporting wi l l be required for the LIG at woreda level.
BOFEDs have the responsibility to report to MOFED, by Pi lot LIG woreda, LIG Region to woreda disbursement data and total capital spending aggregated for Pilot LIG woredas in eligible sectors (based on the expenditure reports they receive f rom WOFEDs).
(xi) MOFED will consolidate the regional LIG expenditure reports and submit them as part o f the LIG .
64. Audits: Consistent with i t s constitutional and legal mandate, the Office o f the Federal Auditor General (OFAG) wil l continue to audit the use o f a l l funds provided via the PBS Project through GOE’s public financial systems. I t will also undertake an enhanced continuous audit o f the regions’ use o f PBS funds and the timeliness and accuracy o f reporting.
(ix)
(x)
65, Procurement arrangements under the proposed Additional Financing will largely be the same as the arrangements under the ongoing Project and these are described in Schedule C. For the Pilot LIG Subcomponent specific additional measures will, however, be required. These are described below.
66. In the public sector in Ethiopia, procurement at Federal level i s governed by proclamation no. 430/2005, ‘Determination procedures o f public procurement and establishing i t s supervisory agency proclamation o f the Federal Democratic Republic Government o f Ethiopia’ dated January 12,2005 and the Federal Public Procurement Directive o f July 2005. These procedures have been reviewed by the Wor ld Bank as part o f the evaluation o f procurement reform and were found to be satisfactory.
67. Fol lowing the federal structure o f the government, procurement at regional and woreda level i s governed by codes enacted by the respective regional governments based on the model l aw prepared by the Public Procurement Agency and issued by the respective regions. At the start o f EFY 2000, the new procurement codes have been enacted by Amhara, Benishangul-Gumuz, SNNPR, Oromiya, and Tigray regions, and the City Administration o f Addis Ababa.
68. The main outstanding issue in public procurement, especially at the local level, i s the lack o f capacity. The main areas o f concern include: (i) building procurement capacity including having trained and qualified procurement officers in place and an appropriate institutional and decision making structure, (ii) ensuring that awareness i s created on the applicable procedures and ru les at each woreda including availability o f standard procurement documents, and (iii) Monitoring and Evaluation o f procurement activities including procurement reviews. PSCAP can help address a significant part o f these issues as part o f the support to the ongoing procurement reform program.
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69. Under the Pilot LIG the investments would be relatively small and widely dispersed. Regions selected for the Pilot are those who have adopted new procurement codes based on the model l aw prepared by the Federal Government, and training will be provided to al l p i lot LIG woredas in application o f this new law and associated standard bidding documents. An ex-post procurement review wil l be conducted on a sample basis by using consultants, and if significant deviations f rom agreed procedures are found a suitable remedy will be applied.
VII. Consistency with CAS
70. In January 2007, the Government finalized i t s Plan for Accelerated and Sustained Development to End Poverty (PASDEP), Ethiopia’s five year second PRSP and development plan covering the period through 2010. Building o n the development strategies pursued under the SDPRP, the PASDEP maintains a strong emphasis on human development as the basic building- block for broad-based and inclusive growth. PASDEP reinforces Government’s pro-poor spending on basic services - education, health, agriculture, and natural resources (including water) - which are fundamental to achieving Ethiopia’s MDG targets and for which expenditures are projected to increase significantly. Increases in public spending on basic services in the past two years have been fueled in part by increased block grant transfers to regional governments, supported by IDA and other development partners under the Protection o f Basic Services Program. Governance i s a cross-cutting issue and the PASDEP places an emphasis on institutional strengthening to address Ethiopia’s governance agenda. Similarly, PASDEP highlights key areas o f focus to further strengthen and build capacity to support ongoing district level decentralization. Ethiopia’s PASDEP was discussed and endorsed by the Bank’s Executive Directors in August 2007.
71. The Bank’s Interim CAS (ICAS FY06-FY07), whi le pre-dating the formal approval o f the PASDEP, i s built to support i t s main objectives. The PBS i s a core part o f the ICAS and a major contributor to the central objective o f the ICAS, supporting Government in developing, achieving consensus with citizens on, and implementing a strengthened program o f institution building and governance reform that will help accelerate Ethiopia’s efforts to reduce poverty.
72. The Bank’s strategy in Ethiopia i s being updated with the preparation o f the CAS, and will be presented to the Board by FY08 4 3 . The CAS (FY08-FY10) will continue and consolidate support to the PASDEP. The proposed additional financing for the PBS supports the service delivery, governance, and harmonization and partnerships pillars o f the proposed new CAS, and allows for a scaling up o f the impact and development effectiveness o f the PBS program.
VIII. Economic Analysis o f Financing Gap
73. The economic and financial analysis provided for the PBS showed high economic rates o f return for spending on the sectors covered by the PBS - education, health, agriculture and natural resources including water. That analysis remains relevant for this request for Additional Financing, since the same sectors will be covered for Component la . The PBS has defined basic services spending as spending undertaken by subnational governments (excluding Addis Ababa) on the PBS sectors. Restricting the definition in this manner ensures a focus on pro-poor spending funded by the PBS, since spending by lower-level governments are responsible for primary and secondary service levels which tend to be more accessible to the poor than higher service levels.
74. A key rationale for the PBS remains i t s focus on additionality as one o f i t s core principles. Steps are taken to ensure that PBS funds are truly additional to government funds in
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the provision o f basic services, and do not simply displace government funds that would then be freed up for use for other purposes. The government has made a commitment to increase funding for Federal b lock grant transfers to regional governments - the main source o f funding for regional governments’ spending including o n basic services - from 9.56 b i l l ion Birr in EFY99 to 13.56 b i l l ion Birr in EFYOO. This i s a large increase and would in turn ensure a sharp rise in spending on basic services.
75. However, for the government, this commitment i s conditional on PBS donors commensurately increasing or at the very least maintaining their funding levels for PBS Component 1 in EFYOO relative to EFY99. The Wor ld Bank provided US$lOO mi l l ion for PBS Component 1 in EFY99. Under the proposed Additiopal Financing, the bulk o f resources totaling US$165 mi l l ion will be allocated to Subcomponent l(a) - Promoting the Delivery o f Basic Services by Sub-national governments for the whole o f EFY 2000 and the f i rs t two quarters o f EFY 200 1. Other donors like DFID and EC will also provide similar or slightly higher levels of funding (calculated for a year rather than 18 months) for Subcomponent l(a) in EFYOO relative to EFY99. This will enable the government to meet i t s commitment o f providing 13.56 b i l l ion Birr o f b lock grant transfer funding to the regions in EFY 2000. Similar levels o f significant increases in the total b lock grant amount and Government’s own financing i s expected in EFY 2001 as per Ethiopia’s latest Medium-Term Expenditure and Fiscal Framework spanning EFY00-02.
76. A target level o f 13.56 b i l l ion Birr for Federal b lock grant transfers to the regions in EFY 2000 i s thus one o f the performance indicators for the Project. With this very large increase in funding for regions from Federal b lock grants which i s their main (but not only) source o f funding, i t i s estimated that basic services spending in EFY 2000 will be much higher at 9.18 b i l l ion Birr (equivalent o f US$1.02 billion) in EFY 2000, as compared to EFY99. In sum, funding f rom the Wor ld Bank and other donors for PBS Subcomponent l(a) in EFY 2000 will leverage a large increase in government funding and thereby result in a very large increase in the total amount o f spending o n basic services in EFY 2000.
77. An additional issue that was analyzed was with respect to the possibility o f whether the large increases in the inter-governmental fiscal b lock grants which are supported by the PBS, may lead to disincentives for Regional revenue mobilization. The analysis suggests that this i s unlikely to be the case.
First, the Government enacted presumptive tax reform two years ago to give small businesses (including in agriculture) an incentive to do well. As expected, the short term impact in EFY98 (IDA FY06) was a decline in revenue collected by Regional administrations. In the medium to long term, however, the reform i s expected to have a positive impact o n revenue through broadening the presumptive tax base (as the informal sector turns formal).
Second, in light o f the recent agriculture-led economic growth, Government has revised upward the tax rates on small business and the agriculture sector. Given the favorable economic conditions noted in EFY 99, the tax rate adjustment, and efforts taken to mobilize more resources, Regional tax revenues in EFY99 (excluding Addis Ababa) exhibited significant improvement.
Third, the revised Federal b lock grant distributing formula introduced in this FY corrected the potential disincentive effect o n Regional tax effort. According to the new Federal formula, b lock grant allocation to Regions are not a function o f the amount they collect (no direct link and thus, there will not be an offset between Regional tax effort and the Federal b lock grant).
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Rather, i t provides incentive to Regions to collect more so that they can enhance their effort to finance Regional spending under their jurisdiction.
0 It may also be noted that an Annual Tax Conference i s held between Federal and Regional governments, and a semi-annual consultation forum, where various issues related to revenue mobilization across different tiers o f Government are ironed out.
78. The Pilot LIG Subcomponent i s being implemented in order to understand the constraints to increasing the quality and quantity o f capital investments to support the delivery o f basic services. The results will be incorporated in a National LIG program tentatively part o f future operations. The economic benefits o f LIG would be manifest in better choices and more efficient implementation and operation o f local infrastructure. Application o f wel l designed systems for planning, budgeting, contracting and operation can significantly increase the returns to public investment. As important, the adoption o f processes which increase the accountability o f public spending lead to increases in allocative efficiency which simply means that the benefits are the ones most desired by the citizenry. Given the present l o w levels o f capital investment by woreda administrations relative to their responsibility for service delivery, good economic returns f rom additional investment are l ikely and they can only be enhanced by the adoption o f processes to improve quality and accountability. Schedule I sets the context for this process.
IX. Appraisal o f Restructured and Scaled-Up Project Activities
79. Additional Financing will largely provide for the financing gap associated with the completion o f Component 1 (the new Subcomponent l(a)) - Promoting the Delivery o f Basic Services by Sub-national Governments and Component 2 - Promoting the Health Mi l lennium Goals, supported through the project. A full review o f the original project was conducted as part o f the Mid-Term Review o f the project in M a y 2007. The Pilot LIG Subcomponent under Component 1 intended to support the scaling up o f the Project’s impact and development effectiveness in the delivery o f basic services i s a new activity and has been the subject o f significant discussion and design with Government for some time. A PHRD Grant has been under implementation since March 2006 (when the LIG was expected to constitute a stand-alone operation) to support development o f a National LIG subprogram and this has financed a number o f critical preparatory activities including the development o f a draft Operational Manual. Review and finalization o f this project documentation satisfactory to IDA will be a Condition o f Disbursement for this subcomponent.
X. Environmental Assessment.
80. The environmental classification o f the ongoing Project remains a Category B.
81. Project implementation will involve medical waste and use o f insecticides which raise safeguard issues. The Ministry o f Health has adopted physical designs for standard health centers and health posts that provide for the proper handling o f wastes and avoid environmental contamination. Small incinerators are also being used by health centers for burning contaminated materials. Insecticides are used indoor and the potential for contaminating the outside environment i s l imi ted in scope. The Malaria Control Program has developed four guidelines namely: a) Guidelines for Malaria Control in Ethiopia; b) Guidelines for Indoor
. Residual Spraying; c) Storage and Responsible Handling o f Insecticides for Malaria Vector Control; and d) Indoor Residual Spraying Training Manual. These guidelines have been distributed and are in use. Malaria control supervisors in each spray site have the responsibility to ensure adherence to the guidelines and supervisors f rom regional malaria control offices
For Component 2.
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regularly check o n the proper implementation o f the guidelines. The guidelines have been updated to capture the recent developments. N o significant negative impact i s anticipated as long as agreed safeguard measures are implemented.
82. The new Pilot LIG Subcomponent will support construction o f small-scale c iv i l works through the multi-sector specific purpose grant (SPG) f rom the Federal Government. These works will be identified and managed by woreda governments and are expected to be similar in scale and scope to those implemented in a number o f other Bank projects in Ethiopia. An Environmental and Social Management Framework (ESMF) in conjunction with a Resettlement Policy Framework (RPF) have been completed and disclosed. The safeguard procedures will be inputs to the Project Implementation Plan and will include a set o f innovative Technical Planning Guidelines for about twenty types o f investments within the existing mandate o f woredas. These Guidelines will serve as a common practical tool at the local government level to improve project selection and technical implementation o f the eligible public works inclusive o f environmental and social considerations.
83. The ESMF and RPF described above are new. The parent Project did not originally require an ESMF/EA or an RPF. Given the Project’s original scope, it had a health care waste management plan which was disclosed in the In fo Shop as the EA. The new LIG activity, however, does trigger the safeguard policy on involuntary resettlement, for which an RPF has been completed.
XI. Expected Outcomes
84. A jo in t comprehensive review o f the Project’s Results Framework was carried out during the Mid-Term Review completed in M a y 2007. The review o f Project outcome indicators showed (i) good progress towards the init ially set targets but (ii) also the need to review some o f the indicators in order to be able to assess performance on an annual basis by using administrative data. The Additional Financing will draw on the Results Framework agreed during the MTR as additional resources will largely be used to finance costs associated with the completion o f Component 1 (the new Subcomponent 1 (a)) and Component 2.
85. In general, the expected outcomes as agreed during the MTR will not change nor wil l the monitoring techniques. During the period o f implementation for PBS these procedures have been twice tested and have served well. Some strengthening and adjustment o f specific measures have been agreed but the results framework i s deemed satisfactory. Additional financing for the new Pilot LIG Subcomponent has i t s own indicators that focus on the success o f the SPG in promoting more and higher quality sustainable investments at the local level.
86. Schedule E.
The proposed indicators and targets for the Additional Financing are presented in
XII. Benefits and Risks
87. The principal benefit to be derived from the proposed Additional Financing i s the continued support to the drive to reach the MDGs via scaling up o f basic services provided at the local levels. Furthermore, the proposed financing would sustain the momentum created during the implementation o f the ongoing PBS operation for the transparency and social accountability agenda. Finally, by broadening the agenda to include funding for capital spending it i s expected that the quality and efficiency o f spending on service delivery will continue to increase.
19
88. For the existing PBS components, the r isks associated with engagement and commitment o f donors and Government, governance and accountability, technical design, fiduciary performance, etc. have decreased as assessed via the successful implementation o f the four PBS tests over the course o f FY07 and the f i rs t ha l f o f FY08, including the MTR. Whi le the r isks associated with the financial management dimensions were rated as substantial during the preparation o f the ongoing PBS, mechanisms and controls which have been introduced - such as the Continuous Audit, PEFA, etc. - have mitigated these risks. A full fiduciary risk assessment has been carried out, and the findings have been used to review the FM risk ratings accordingly.
89. Regarding risks associated with the Pilot LIG Subcomponent, a major impediment to better capital spending at the local level remains uneven capacity. However, the proposal to commence with a pi lot greatly mitigates this risk as the learning process i s focused o n carefully designing and testing the various elements o f capacity related to capital spending in order to determine what i s actually needed for local governments to increase the quantity and quality o f investment. A second risk i s that the participatory approach to planning and budgeting actually leads to a loss o f accountability due to capture by local elites or to selection o f capital investments that are not consistent with the achievement o f important national goals. On both counts the proposed subcomponent mitigates these r i sks by developing for the pi lot a standardized and closely evaluated method o f capital budgeting, planning and project selection and assures full compatibility with sector policies through the use o f Technical Planning Guidelines that are themselves derived from sector l ine ministries. Sustainability o f the benefits o f capital projects i s always a risk because o f the diff iculty that local governments have in attracting and paying necessary staff and in funding other recurrent costs. This risk will be mitigated by providing guidance to local governments participating in the pi lot to so that the necessary commitments are made in their budgets to cover these required costs.
90. In order to respond to governance concerns, the PBS operation has been designed to include more timely and detailed reporting on the use o f resources, explicit monitoring and oversight o f the fairness o f the transfers, monitoring o f service delivery results at the regional and sub-national levels, and the introduction o f measures to reinforce and enhance local accountability to support Government’s commitment to distribute resources for basic services equitably. In addition, PBS supports the development o f accountability mechanisms o n both the government and citizens’ sides that are expected to be scaled-up during the period covered by the additional financing and beyond.
91.
0
0
0
0
0
0
0
Several measures are implemented to promote good governance, including:
Semi-annual (formerly quarterly) JBAR reviews on overall Program performance, following the PBS “tests” four o f additionality, fairness, accountability and fiduciary responsibilities; Disclosure o f public budget information at Regional/City Administration and Sub- Regional Levels; Capacity building for improved financial transparency in MOFEDs, BOFEDs, Zonal Administrations and OFAG; Enhancing the understanding o f budget and public expenditures amongst citizens and CSOs, and strengthening their capacity to engage in these processes; Public disclosure by service facilities o f their annual budgetshesourcing levels, and on agreed performance standards and indicators as established at woredahegional levels; Implementation o f Financial Transparency and Accountability Perception Study; Implementation o f the Social Accountability pilots under PBS Component 4;
20
Implementation o f continuous audits. Implementation o f site visits at kebele and service facility levels; and
92. The Pilot LIG requirements in this area build upon existing systems, regulations and practices, particularly those that have been developed with regard to PBS. The main components o f the governance and accountability framework are:
Financial reporting and audit requirements will build o n and be combined with the rest o f the PBS. The reporting o f capital spending, by woreda, i s available but only reported in aggregate under current PBS reporting. Capital spending that the Pilot LIG eligible woredas have undertaken will now be reported separately for the set o f Pilot LIG woredas.
Communication and demand-side accountability i s at the core o f the LIG objectives o f making woredas more responsive to their citizens for capital spending, and in providing local citizens with more say in determining infrastructure priorities. Several o f the elements o f the Component 3 initiatives o f PBS would directly reinforce LIG; posting o f budgets, improved knowledge o f citizens about the budget process and participatory planning, as wel l as o f plans for capital projects are obvious items.
The Financial Accountability and Transparency Perception Survey (FTAPS) implemented under Component 3 o f the PBS will also provide a mechanism to assess how effectively accountability i s working in terms o f the responsiveness o f local- planning processes to citizens’ priorities and citizens’ perceptions o f whether or not they are adequately consulted by their local authorities.
A Results Framework has been constructed integrated with the rest o f the PBS.
93. Overall risk assessment. In summary, the PBS additional financing i s considered to be o f moderate risk. The original PBS program was considered to be high risk, but given the considerable progress in implementation achieved over the past 14 months, and demonstrated commitment by both Government and partners, the risk rating was reduced in M a y 2007, when the Mid-Term Review was conducted and re-confirmed in the course o f Appraisal in July-August 2007.
94. Regarding country-level risk, tensions between Ethiopia and Eritrea continue at heightened levels, the Ethiopian military has launched an offensive to subdue a rebel movement in the Ogaden region, and Ethiopian troops remain engaged in Somalia. There i s the risk that an escalation in any o f these situations could have a deleterious impact o n the implementation o f the PBS program. Such an impact could be expected especially in the areas o f Ethiopia bordering Eritrea and Somalia, but also more generally, since open conflict will pose demands on the overall budget and l ikely draw high-level attention away fkom addressing challenges related to program implementation.
21
Description o f Risks
I Substantial, H igh) ‘on of Basic Services
Deterioration in poli t ical 1 MIM I 0 Joint donor pol i t ical and economic
Probability/ Impact Mitigation (Low, Moderate,
governance environment resulting in calls for suspension o f PBS instrument, and donor coalit ion may weaken
End-users may not apply funds to basic services o r allocate it in a fair manner
Production lag-time and procurement delays for crit ical commodities in the Health MDG Performance Faci l i ty
L/L
MIM
0
4
0
0
Uneven pol i t ical commitment and institutional incentives could work against increased disclosure and downward accountability
0
0
5
6
- 0
change
Component 4 to strengthen voice and Citizens may not feel S I M 0 Direct support to CSOs under free or be comfortable to participate in demand- engagement side accountability activities Accountabil ity may be LIM 0 Food Security Program adherence to weaker in programs not covered by the protection o f basic services
fiscal rules to be monitored.
0
- 0
0
analysis facilitating common position o n governance and scenario planning Inclusion o f governance indicators in new PRSP (PASDEP) matrix and enhanced dialogue on governance Strong p ro poor bias o f PBS instrument Development and implementation o f j o in t communications strategy Wide range o f donors involved in design and preparation regular consultative events (missions, reviews) planned during implementation “fairness” principle used to evaluate adherence to rules at several stages expenditure reporting wil l be used to assess whether funding for basic services was maintained as agreed UNICEF and UNFPA procurement are being used for the bulk o f the crit ical commodities given long- standing purchase agreements and proven procurement capacity o f both F o r a l l other inputs the Government i s contracting a private agency to handle procurement; this agency’s mandate will include strengthening the procurement capacity o f the Federal
MIM 0 Consensus bui lding activities implemented as part o f project implementation, and via other initiatives
0 Awareness-creation at each level 0 Identif ication o f “champions” for
22
Descr ip t ion of Risks
7
8
Financ 9
10
Probabi l i ty / I m p a c t M i t i g a t i o n (Low, Moderate, Substantial, High)
Pilot L 11
SIS
HIM
procedures may be too burdensome, leading to a slowdown or halt in implementation
system The capacity o f the Auditor General i s being strengthened. A special Continuous Audit o f sub- national entities o f program transactions i s being carried out and reported quarterly by the Federal Auditor-General. In FY07 this included about 200 sub-national entities
0 Pilot approach focuses o n learning to test various elements o f capacity and support programs to address deficiencies
K e y entities may lack capacity to carry out obligations
I
L/M
environmental screening to assess
0 Reporting requirements have been built o n existing systems to the extent possible Timing has been synchronizedcoordinated to minimize transaction costs
0 Adequate time lag for reporting expenditure Reduced frequency o f review missions to minimize transactions costs
Incremental training and capacity bui lding supported by the project Additional support provided under Component 3
'1 Management Quarterly and annual financial reports are not prepared o n time. Audited financial statements are not submitted to donors o n time resulting in non- compliance
:a1 Investment Grant Limited capacity at the - - local level for ensuring quality capital investment, particularly planning and procurement
SIS Reporting format and channel are based o n the existing government
23
Description of Risks
Lack o f separation o f Party and State Lack o f Government Commitment to Social Accountabil ity
12
13
HIM PSCAP implementation including
MIM Separate donor managed t rus t fund support to Civil Service Reform
and implementation o f Component 4 Review o f implementation during
14
Politic 15
16
Participatory approach to planning and budgeting actually leads to a loss o f accountability due to capture by local elites
Risk to sustainability o f the benefits o f capital projects because o f the diff iculty in paying recurrent costs for operations and maintenance (O&M) Financial reporting o n capital investments f r o m p i lo t woredas i s delayed
Probability/ Impact (Low, Moderate, Substantial, High)
WM
MIM
Mitigation
whether national systems are applied and the impact this has had o n the overall process. A s part o f the FTAF’s, assess h o w effectively accountability i s working in terms o f the responsiveness o f local planning processes to citizen’s priorities and perceptions o f whether o r no t they are adequately consulted by their local authorities. Carrying out a capacity survey to develop detailed understanding o f the init ial conditions and capacities for ensuring successful implementation o f capital investments in pi lo t woredas Development o f a standardized and method o f capital budgeting, planning, and project selection to be closely monitored and evaluated. Planning approach also ensures full
compatibil i ty with sector policies through the use o f Technical Planning Guidelines that are derived f rom sector l ine ministries. Local government’s rapidly increasing b lock grant i s creating additional fiscal space for recurrent costs.
Woredas participating wi l l receive training and monitoring with respect to covering costs o f O&M.
Existing Government financial reporting guidelines are being supplemented with specific guidance to Regionslpilot woredas regarding recording and reporting requirements
quarterly revikws
24
Impact Low Probability Low 2 Moderate Substantial High
XIII. Financial Terms and Conditions for the Additional Financing
Moderate Substantial High
6,7,12 1,3,4,8,13,16
11,15 5 9,10,14
96. The Additional Financing will be provided as an IDA Grant. The Country Financing Parameters allow for up to 100% project financing, including taxes. The financing parameters also allow for recurrent cost financing where required provided that the implications o f recurrent cost financing on Ethiopia’s fiscal situation and debt sustainability are taken into consideration.
97. Retroactive Financing. Government has requested retroactive financing for up to 20% o f the total amount o f Additional Financing for al l eligible expenditures that have been incurred after January 7, 2007 and up to the date o f the grant signing. Refer to Schedule F for details.
XIV. Credit Conditions and Covenants
Conditions for Effectiveness
0
0
Submission and adoption o f the revised PBS Operational Manual, satisfactory to the Association. Agreed TOR for the PBS Annual Audit.
Conditions for Disbursements
For Subcomponent 1 (a) on Promoting Basic Services Delivery by Sub-national governments, and Component 3 on Strengthening the Governance Systems on Financial Transparency and Accountability: (i) submission o f annual sub-national budget for basic services comprising Subprogram A satisfactory to the Association; (ii) satisfactory completion o f the Joint Budget Aid Review (JBAR); and (iii) submission o f the Interim (Unaudited) Financial Report (IFRs).
For Subcomponent l(b) on the Pilot Local Investment Grant, the (i) submission and adoption o f an Operational Manual, satisfactory to the Association; and (ii) submission o f IFR.
For Component 2 on Promoting the Health Mi l lennium Development Goals, the submission o f annual work plan satisfactory to the Association; and (ii) submission of IFR.
First Review in April 2008 Semi-annual JBAR Continued dissemination o f budgets and JBAR information
25
0
0
0
0 Project Report
Completion o f field work for “Quantitative Services Delivery Survey” (QSDS) by end April 2008 and dissemination o f findings by end June 2008 Completion o f field work for Indoor Residual Spraying (IRS) by end April 2008 Completion o f “Financial Transparency and Accountability Perception Survey” (FTAPS) field work by end February 2008 and dissemination o f findings by end April 2008
Second Review in October 2008 0 Semi-annual JBAR 0
0 Project Report Continued dissemination o f budgets and JBAR information
Third Review in April 2009 0 Semi-annual JBAR 0
0
Project Report
Continued dissemination o f budgets and JBAR information Follow-up o f FTAPS started by May 2009 Completion o f a post procurement audit review covering a minimum o f 25% o f Pilot LIG woredas by May 3 1,2009.
26
SCHEDULE A
2. Component 2: Heath MDG Performance Facil ity 3.50 (Subprogram B) 3. Component 3 : Financial Transparency and 5.21 Accountability (Subprogram C) Total Proiect Costs 1.727.22
FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA ADDITIONAL FINANCING FOR THE PROTECTION OF BASIC SERVICES
70.40 73.90
1 S O 6.71
76.90 1.804.12
ESTIMATED PROJECT COSTS (in US$ mill ion equivalent)
Government Total:
Category 1. Component 1
(i) Delivery o f Basic Services (Subprogram A)
(ii) Local Investment Grant (Subprogram D)
1,159.23 - 1,159.23 1,727.22 76.90 1,804.12 4.3%
Local Forei
1,703.51
15 .OO
Total 1 1,703.5 1
20.00
SOURCE OF FINANCING (in US$ mill ion equivalent)
27
SCHEDULE B
Annual Cumulative
FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA ADDITIONAL FINANCING FOR THE PROTECTION OF BASIC SERVICES
130.00 85.00 130.00 215.00
FINANCING PLAN (in US$ million equivalent)
Project Cost by Component 1. Sub-National Basic Services
(i) Sub-national Basic Services (Subprogram A)
(ii) Local Investment Grant
2. Health MDGs Performance Facil ity (Subprogram B) 3. Financial Transparency and Accountability
(Subprogram D)
(Subprogram C) Total Baseline Cost Contingencies
Total Project Costs Interest During: Construction
Front-end Fee Total Financing Required
IDA
165 -00
20.00
29.00
1 .oo
215.00
215.00
215.00
GOE
1,159.23
1,159.23
1,159.23
DISBURSEMENT SCHEDULE (in US$ million equivalent)
1,159.23
DONOR
379.28
44.90
5.71
429.89
429.89
429.89
I IDA FY I FY 2008 I FY2009
TOTAL
1,703.5 1
20.00
73.90
6.71
1,804.12
1,804.12
1,804.12
28
SCHEDULE B
Protection of Basic Services Grant
(Original Project)
ALLOCATION AND DISBURSEMENT OF ADDITIONAL FINANCING
Additional Financing Amount
(in SDR) Category
1. Subprogram A
2. Subprogram B
3. Subprogram C
4. Subprogram D
5. Unallocated
Total
1,400,000 640,000
I
12,740,000 i 2,130,000 I
149,600,000 1 137,050,000
% of expenditures to be financed for
Supplemental Grant Amount
Such percentage o f Eligible Expenditures as the Association may determine for EFYOO Such percentage o f Eligible Expenditures as the Association may determine for each EFY Such percentage o f Eligible Expenditures as the Association may determine for each EFY Such percentage o f Eligible Expenditures as the Association may determine for each EFY
29
SCHEDULE C
FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA ADDITIONAL FINANCING FOR THE PROTECTION OF BASIC SERVICES
PROCUREMENT ARRANGEMENTS (in US$ million equivalent)
1. General
Procurement associated with project activities supported through the additional financing would be carried out in accordance with the Wor ld Bank’s “Guidelines: Procurement under IBRD Loans and IDA Credits ” dated M a y 2004 revised October, 2006 and “Guidelines: Selection and Employment of Consultants by World Bank Borrowers ” dated M a y 2004 and revised October, 2006.
In the public sector in Ethiopia, procurement at Federal level i s governed by proclamation no. 430/2005, ‘Determination procedures o f public procurement and establishing i t s supervisory agency proclamation o f the Federal Democratic Republic Government o f Ethiopia’ dated January 12,2005 and the Federal Public Procurement Directive o f July 2005. These procedures have been reviewed by the Wor ld Bank during procurement reform follow-up missions and were found to be generally satisfactory.
Fol lowing the federal structure o f the government procurement at regional and woreda level i s governed by codes enacted by the respective regional governments based o n the model l aw prepared by the Public Procurement Agency and issued to the respective regions. At the time of the preparation o f this note new procurement codeshave been enacted at the four major regions (Amhara, SNNPR, Oromiya and Tigray), one smaller region (Benishangul-Gumuz), and one City Administration (Addis Ababa).
The main outstanding critical issue in public procurement, especially at the local level, i s the lack o f capacity. Whi le capacity i s being built at country level a temporary strategy to address the issues on procurement management needs to be developed. The main areas o f concern include: (i) Building procurement capacity including having trained and qualified procurement officers in place and an appropriate institutional and decision making structure, (ii) Insuring that awareness i s created on the applicable procedures and rules at each woreda including availability o f standard procurement documents, and (iii) Monitoring and Evaluation o f procurement activities including procurement reviews. PSCAP resources can be used to address a significant part o f these issues as part o f the support to the ongoing procurement reform program.
11. Summary of Procurement Performance under the Original Project
Procurement performance o f the existing project activities has been satisfactory, and has contributed significantly to the achievement o f many o f the key results o f this project.
30
SCHEDULE C
For Component 2, the procurement o f ITNs and insecticides, and subsequent distribution in the malarious areas to vulnerable households, has contributed significantly to the reduction o f morbidity and mortality associated with malaria. The procurement o f contraceptives and subsequent distribution to targeted population has contributed to an increase in the contraceptive prevalence rate. The procurement o f cold-chain equipment (refrigerators, vaccine carriers, etc.) has enabled health centers and health posts to carry and store vaccines that were not available earlier.
With the exception o f cold-chain equipment and insecticides, the bulk o f the procurement has been done from UN agencies, chiefly UNICEF and UNFPA, and given the urgent nature o f this procurement, it i s proposed to continue with this arrangement until the capacity within the MOH procurement office i s sufficiently strengthened. An assessment carried out as part o f the semi- annual JBAR review shows that a large percentage o f items procured through UN agencies has been delivered or i s in the warehouse awaiting delivery. The assessment underscores the need for UN agencies through whom these items are being procured to expedite delivery, and this issue has been taken up at the appropriate levels in these agencies.
For Component 3, the Government has procured several consultancies as wel l as goods uti l izing the agreed procurement methods as defined in the procurement plan for the ongoing Project.
111. Description of Procurement Arrangements for the Additional Financing
The general description o f various procurement activities under the different expenditure categories for the Additional Financing i s provided hereafter. For each contract to be financed by the Grant, the different procurement methods or consultant selection methods, the need for prequalification, estimated costs, prior review requirements, and time frame have been agreed between the Borrower and the Bank project team during Negotiations and are described in the Procurement Plan (attached). The Procurement Plan wil l be updated at least annually or as required to reflect the actual project implementation needs and improvements in institutional capacity.
Procurement for Component 1
Subcomponent 1 (a) - Promoting the Delivery o f Basic Services by Sub-national governments (Subprogram A) - The bulk o f this component would entail payments o f salaries and other recurrent expenditures, following the local government’s procurement procedures and rules acceptable to the Bank as i s the current practice under the ongoing PBS Project.
Subcomponent 1 (b): Pi lot Local Investment Grant (LIG) (Subprogram D) would support the introduction o f a Federal Specific Purpose Grant to be used exclusively for capital investment implemented by local governments. I t would include investments in health, education, agriculture, water, and roads. The grants would be used primarily for works and associated goods and equipment. Individual contracts are expected to be small and scattered, with an estimated cost below $50,000. Procurement o f these contracts will fo l low the local government’s procurement procedures and rules acceptable to the Bank.
31
SCHEDULE C
Procurement for Component 2: Promoting the Health Mi l lennium Development Goals (Subprogram B):
Procurement of Goods: The Procurements under the Component would include I T N s , drugs, rapid test diagnostic kits to primary health centers, vaccines and medical equipment. The procurement would be carried out using the same procurement arrangements as with the ongoing project, either f rom UN Agencies such as UNICEF and UNFPA or through a procurement agent. The applicable method o f procurements have been agreed and defined in the project procurement plan.
Selection of Consultants: Consultants services shall include Studies, training, workshops. The procurement procedures to be used for the additional financing are described in the attached Procurement Plan.
Procurement for Component 3: Strengthening Governance Systems on Financial Transparency and Accountability (Subprogram C): The procurement shall include consultant services (studies, assessments, reviews) and procurement o f goods (see procurement plan) and shall be conducted by using the procurement procedures in the attached Procurement Plan..
IV. Assessment of the Agency’s Capacity to Implement Procurement
The overall risk assessment for procurement i s considered to be high. K e y mitigating measures that have been discussed and agreed with Government are described in the Risk Assessment Matr ix in Section XI1 o f the Project Paper. In addition, a set o f procurement capacity building initiatives that have been started as part o f the ongoing project and updated based o n the assessments conducted during supervision missions. The assessment and the ongoing and agreed actions are summarized below:
For Subcomponent l(b), Pilot LIG -
0 Only Regions that have implemented the national accounting and procurement reforms under the Government’s Expenditure Management and Control Program are eligible to receive funding from the Pilot LIG.
As part o f preparation o f the Pilot LIG Subcomponent, an init ial capacity assessment was carried out o f a sample o f woredas. Once the pi lot woredas have been identified, a Capacity Survey would be carried out in al l p i lot woredas, which would include a detailed assessment as to the extent to which the woreda i s able to fo l low national procurement procedures. The assessment would include availability o f staff with adequate knowledge in procurement, appropriate institutional setup and existence o f tender committee. The agreed national procedures would apply to al l capital investments in the Pilot LIG recipient jurisdictions.
Any significant capacity gaps identified by the Capacity Survey would be addressed before the start o f the Pilot LIG implementation, and modalities for the oversight by M O F E D would be agreed.
32
SCHEDULE C
A procurement manual, including related procurement capacity building requirements and national .bidding documents acceptable to the Bank, are in an advanced state o f development and will be developed in conjunction with the preparation o f a detailed Operational Manual for the LIG Subcomponent. The satisfactory completion o f the LIG Operational manual in i t s entirety i s a condition o f disbursement for the Pi lot LIG.
A post procurement review, including a review o f the adequacy o f agreed procedures will be conducted on a sample basis by using consultants engaged by the Project and if significant deviations f rom agreed procedures are found, suitable remedies would be applied.
For Component 2, Health MDGs Performance Facil ity -
A procurement consultant has already been appointed in the Ministry o f Health and has been working closely with the Ministry officials since the beginning o f 2007.
T w o officials f rom Ministry o f Health have received training in Bank procurement rules in a regional workshop organized by the Bank for this purpose.
A procurement unit has been set up within the Ministry o f Health, but full-time procurement staff has not yet been identified.
The process for identifying a Procurement Agent i s completed and it i s expected that the Procurement agent wi l l be in place by December 2007. The Procurement Agent i s expected to provide additional capacity building within the Ministry o f Health and assist in the establishment o f a functioning procurement unit.
For Component 3, Financial Transparency -
A full-time procurement consultant was recruited to support the consultancies conducted under this component o f the original project. This arrangement i s expected to continue throughout the l i f e o f the Additional Financing.
V. Procurement Plan
The Borrower has developed a Procurement Plan for Components 2 and 3 for the Additional Financing, which provides the basis for the procurement methods. This plan has been discussed with the Bank and agreed upon during negotiations. The procurement plan i s available in the PBS Unit Office o f MOFED, in the Ministry o f Health, the Project’s database and in the Bank’s external website. The Procurement Plan will be updated in agreement with the Project Team annually or as required to reflect the actual project implementation needs and improvements in institutional capacity.
33
SCHEDULE C
A consolidated procurement plan would not be required for the small value works activities to be carried out at woreda level under the Pilot LIG as the contracts are small value and planned and executed in a widely dispersed manner in accordance with the local governments’ work plan.
Once Pilot woredas receiving LIG resources have decided what capital investment activities will be undertaken, they will be expected to have local procurement plans and related documents available for the post-procurement audit.
34
SCHEDULE C
SIN
1
2
Protection of Basic Services Project - Additional Financing Procurement Plan
Description of goods Estimated Procurement Responsible Domestic Review by Expected bid cost method entity preference Bank opening date
(in US%) Component 2 - Promoting the Health Millennium Development Goals, Subprogram B ITN 8,000,000 DCLJNICEF M O H No Prior N /A
DiagnosticiLaboratory 1,200,000 ICB M O H Yes Prior January 2008
November 14,2007
3 4
5. 6.
I. GENERAL
Equipment Vaccine 1,490,000 DCAJNICEF M O H No Prior NIA Medical Equipment 8,210,000 ICB M O H Yes Prior January 2008 for HPs 1 HCs IRS 2,090,000 ICB M O H Yes Prior July 2008 Malaria IEC/BCC 900,000 NCB M O H Yes Prior May 2008
1.1 Project information: Country: Project Name: Loadcredit No: H224-1-ET Project Implementing Agency (PIA):
Federal Democratic Republic o f Ethiopia Protection o f Basic Services
1. Component 1 : Ministry of Finance and Economic Development, assisted by its
2. Component 2: Ministry of Health (MOH) 3. Component 3: Ministry of Finance and Economic Development, assisted
MPMD
Macro economic Policy and Management Dept., MPMD)
1.2 Bank’s approval date o f the procurement Plan: November 12,2007 1.3 Date o f General Procurement Notice: January 2008 1.4 Period covered by this procurement plan: January 2008 - June 2009
I Toolkits
II. Procurement Plan
2.1 GOODS
35
2 .2 CONSULTANT SERVICES
I I I I I I I I I Subtotal I $2,370,000 I Component 3 - Strengthening G
Design, Fielding & Analysis o f Follow-up Financial & Accountability Perception Survey (FTAPS)
Reviews for Local Investment Grant:
(0 Technical output assessment
(ii) Investment Process Review
(iii) Ex-post Procurement
Subtotal
vernance Systf $350,000
(i) $270,000
(ii) $230,000
(iii) $60,000
$91 0,000
MPMD Various
Accounta Prior
Priori Post
ility 30-May-2009
3 1 -May-2009
36
2.3 CAPACITY BUILDING
Description of Assignment
c 7
Estimated Review Expected Proposals
(Prior / Post) Submission Date
by Bank Responsible Selection entity Method cost
I
*LIG Coordinator for 1 year *PBS Unit Office Assistant (1 yr) * PBS Unit Procurement Spec (1 yr) * PBS SOC Accountability Spec (lyr) Training o f BOFED & WOFED staff on
$25,000 MPMD IC $20,000 MPMD IC $30,000 MPMD IC $25,000 MPMD IC $57,350 MPMD COS Prior
financial accountability & transparency & utilization of Laypersons’ Budget & Expend. Guides and Templates
Physical and Financial Reporting Systems
Management
Training on Financial Accountability, Transparency and demand-side governance Subtotal:
Training of BOFEDs & WOFEDs on
Training on WB Procurement and Contract
$45,400 MPMD CQS Post
$48,000 MPMD CQS Post
$30,000 MPMD CQS Prior
$280,750
Over the period FY08 and
30 July 2008
37
SCHEDULE D
FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA ADDITIONAL FINANCING FOR THE
PROTECTION OF BASIC SERVICES PROJECT
TIMETABLE OF KEY PROJECT PROCESSING EVENTS
Milestone Available Date
Time taken to prepare
Prepared by
Appraisal August 3 1,2007
Negotiations November 19-21,2007
Estimated Board date December 20,2007
Planned Date o f Effectiveness
Closing Date June 30,2009
6 months
Government with assistance o f IDA and DFID Staff
January 7,2008
The Additional Financing will be processed following streamlined procedures.
Project Team: The preparation team includes: Messrs./Mmes. T i n a Haque, Lead Economist and Team Leader, Mukesh Chawla, Lead Economist; Wi l l iam Wiseman, Economist; Andrew Sunil Rajkumar, Economist; Gebreselassie Okubagzhi, Sr. Health Specialist; Sybille Schmidt, Consultant; Larissa Pelham, Consultant; Southsavy Nakhavanit, Program Assistant, Ken Green, Environmental Specialist Consultant, Ian Campbell, Environmental Specialist Consultamt (AFTH3); Mar i lou Bradley, Sr. Operations Officer (AFTH1); Jemal Omer, Sr. Economist (AFTP2); Lawrence Hannah, Lead Economist (FEU); Carolyn Winter, Sr. Social Development Specialist (AFTCS); Berhanu Legesse, Sr. Public Sector Management Specialist (AFTPR); Abebaw Alemayehu, Sr. Urban Development Specialist (AFTU1); Jonathan Pavluk, Sr. Counsel (LEGAF); Suprotik Basu, Health Specialist (AFTHD); Marie Khoury, Consultant, Luis Schwarz, Sr. Finance Officer (LOAFC); T.K. Balakrishnan, Lead Financial Management Specialist, Jean Charles Amon Kra, Sr. Financial Management Specialist, Mulat Negash Tegegn, Financial Management Consultant (AFTFM); Samuel Haileselassie, Sr. Procurement Specialist (AFTPC). Ms. Laura Frigenti i s the Sector Manager.
38
3
vi
0
ri T
vi
r. 2
z
m
f.
-
m 0
* c
0
d
a
z d
2
E 0
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s x N
n
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El 8 m
d
El s ri
m
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E E
m
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3
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01
M 1: E
3
3
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3
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cI--, E
i
SCHEDULE F
FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA ADDITIONAL FINANCING FOR THE PROTECTION OF BASIC SERVICES
FINANCIAL MANAGEMENT AND DISBURSEMENT ARRANGEMENTS
Introduction
This financial management (FM) assessment was conducted in accordance with the Financial Management Practices Manual issued by the Financial Management Sector Board on November 3, 2005. In addition, OP/BP 13.20, Additional Financing, was also taken into consideration while conducting the assessment. This assessment was done in the months o f July and August 2007.
Substantial amount o f the total additional financing (US$194 mill ion) i s required to address the Jinancing gap in completing core activities under Subcomponent 1 (a) and Component 2 supported through the ongoing Protection o f Basic Services (PBS) Project. Thus, an additional FM assessment i s not carried out for these components, as the FM arrangements will be the same as for the ongoing project. However, since the additional financing incorporates new activities under the Pilot Local Investment Grant window (Subcomponent l(b), US$20 million), a full FM assessment has been carried out to determine whether the implementing entit ies have acceptable financial management arrangements, which will ensure (1) the funds for the LIG are used only for the intended purpose in an efficient and economical way, (2) the preparation o f accurate, reliable and timely periodic financial reports for LIG financial transactions, and (3) safeguard the entities’ assets. This FM assessment draws extensively o n the assessment o f the FM system o f the ongoing PBS, the Fiduciary Assessment (FA), assessment o f the Joint Budget and Aid Review (JBAR) and the assessment o f government FM system in other projects.
Summary Project Description
The additional financing supports activities under three main categories: Subcomponent 1 (a) (US$165 million) - Basic Services, Subprogram A- finances the delivery o f basic services provided by regional and local governments; Subcomponent 1 (b) - the Pilot Local Investment Grant, LIG, Subprogram D (US$20 mill ion) - supports the introduction o f a multi-sector specific purpose grant; Component 2 (US$29 mill ion) - Promoting the Health Mi l lennium Development Goals, Subprogram B - finances those critical inputs for primary health service delivery that cannot be efficiently funded at woreda level through the block-grant; Component 3 (US$1 mill ion) - Strengthening Governance Systems on Financial Transparency and Accountability, Subprogram C- finances the scaling up o f local initiatives to advance issues o f financial transparency and accountability around public finance management at the sub-national levels o f government.
The Pilot LIG Subcomponent l(b) o f the PBS Project would support the scaling-up o f the existing Program’s impact on basic service delivery. This new subcomponent would support the introduction o f a multi-sector specific purpose grant (SPG) from the Federal Government with the purpose o f increasing the quality and quantity o f capital spending by local governments. The
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proposed additional financing o f US$20 mi l l ion for the Pilot LIG would provide funds to up to fifty local governments (woredas) over an init ial period o f one fiscal year.
Country Issues
The recently completed Joint budget and Aid review (JBAR) and the Fiduciary Assessment (FA) show that Ethiopia has made significant progress in strengthening public financial management in recent years. The JBAR, which was conducted by the Bank in collaboration with other donors, reviewed the Public Financial Management (PFM) system using the Public Expenditure and Financial Accountability (PEFA) framework. Out o f the sixteen indicators covered under this review, fourteen were o n government’s systems for public expenditure planning, budgeting and reporting. The remaining two indicators are means to assess donor performance. Ethiopia scored high o n seven o f the fourteen indictors, i.e. macroeconomic management, including aggregate fiscal discipline and minimizing fiscal risks. The JBAR observes satisfactory progress in budgeting and accounting reform but notes that the adequacy and quality o f budget reporting leaves room for improvement and remain a key concern.
The FA, which was completed in early 2005, notes that considerable progress has been made in implementing P F M reforms in both federal and regional levels. The areas o f improvements include budget processes, internal controls and cash management. Also, some steps have been taken in reforming internal and external audits. However, there are some weak areas that require attention - delays in financial reporting (both in-year and annual), inadequate capacity o f the auditors-general to discharge their responsibilities, and weakness in legislative scrutiny o f audited financial reports.
The status o f P F M reform and performance varies between regions. Southern Nation and Nationalities Peoples ( S N N P ) and Tigray regions have been the beneficiaries o f investment and local initiatives to support PFM reform. They both show improvement in the overall public finance function and a consequential reduction in fiduciary risk. Other Regions are at an earlier stage o f investment in P F M or have not yet commenced their plans and therefore demonstrated less progress in PFM improvement. However, there continues to be capacity and staffing issues in areas such as audit in al l the regions. An additional concern i s that while there have been improvements in the financial discipline associated with government funds, the increasing use o f other funding mechanisms such as in the Food Security Program has the potential to increase fiduciary risk. This i s because the use o f alternative funding mechanisms creates additional workload in areas where capacity i s already stretched. I t must be noted that there i s a shortage o f qualified accountants and auditors in the country.
Ethiopia’s public financial management reforms have been carried out through the Expenditure Management and Control sub-program (EMCP) o f the government’s c iv i l service reform program (CSRP). EMCP has developed a revised strategic plan to implement the nine components o f the sub-program. Mobil ization behind the EMCP (in terms o f financial and human resources) i s a key component o f the Public Sector Capacity Building Program (PSCAP) and has now been considered a priority in order to achieve further improvement in al l aspects o f financial management.
Overview o f the PEFA assessment report
An evaluation o f Public Financial Management (PFM) performance in Ethiopia has been conducted in early 2007 based on an international reference framework - the PEFA or Public Expenditure and Financial Accountability framework. The assessment was done at the federal
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and regional levels and two separate reports were issued. Seven regions were included in the assessment.
The assessment report issued in April 2007, which i s s t i l l in i t s draft form, observed significant improvement in the area o f financial management at regions, including budgetary transparency 'in recent years, robust budget preparation, regular internal audit scrutiny and follow up o f internal audit recommendations, timeliness o f in-year and annual financial reports, and mutual supportiveness o f the federal and regional Auditor Generals. Nonetheless, the report noted that the quality and nature o f internal audit i s uneven throughout the regions. It also reported untimely clearance o f suspense accounts and that some regions are s t i l l experiencing significant delays in producing timely in-year and end o f year information. The report further identified capacity limitations in reviewing annual budgets.
The report for the assessment conducted at the federal level shows that the classification o f the budget meets international standards and the information included in the budget documentation i s o f good quality. The fiscal relations between the federal government and the regions are transparent. The report also noted that the budget process i s wel l ordered with the existence o f a budget calendar generally adhered to, and a budget circular issued to budgetary institutions. Payroll and procurement controls are identified as being satisfactory while control for non-salary expenditure shows some weaknesses. Internal audits are also improved over recent years although the department does not share i t s work with the Federal Auditor General. The report indicated that the quality o f in-year budget reports and annual financial statements i s satisfactory and delays in submitting financial statements to OFAG have been significantly reduced. However, the report also noted that the cash f low management i s not fully established and the public has l imited access to key fiscal information.
The Federal government report also shows that the OFAG adheres to I N T O S A I auditing standards and focuses on significant issues. OFAG forwards audited accounts on time and these are reviewed by the parliamentary Public Accounts Committee (PCA). However, the review by the PCA i s not systemic due to l imited capacity and time constraints and the executive does not act upon the recommendations.
The report also looked at the status o f the government reform processes. I t i s highlighted that the f i rs t phase o f the reform (transaction platform) has taken place through budgeting, planning, accounting, and information systems. The second phase o f the reform, pol icy platform, i s continuing at the sub-national level with reforms to the block grant mechanisms and a move towards more performance based budgeting. The government leadership and ownership regarding ongoing P F M reform efforts are both high. The report however observed challenges in carrying out these reforms: diff iculty in accessing the PSCAP funds into which the Expenditure Control and Management Program (ECMP) i s tied to, qualified professional staff are thin at the sub- national level, particularly at the woreda level, and lack o f some basic office infrastructure.
Risk Assessment and Mitigation
The FM risk assessment, and the corresponding mitigation measures, for the Pilot LIG Subcomponent are given below:
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Risk Risk Rating
Control Risk 1 Budgeting
Risk Mitigating Conditions Remarks Measures Incorporated for
into Project Design Effectiveness (Y/N)?
1 Accounting
Inherent Risk 1 Country S
Level
1 Entity Level S 1 ProjectLevel S MOFED, BOFED and
zones recruited additional accountants for PBS.
1 Internal Control
N Risk arises because o f weak capacity, including shortage o f qualif ied accountants and auditors. I t i s being addressed by the ongoing Civil Service Reform Program supported by PSCAP.
A s above. The problem mainly manifested in woredas.
N As above N
1 Funds f low
N
N
N
N
N 1 Financial Reporting
LIG budgeting follows the existing government budget processes LIG transactions wil l be recorded using the government accounting system
Regular established government funds f l ow mechanisms wil l be used. The reporting system involves
gathering information f rom significant number o f woredas and their consolidation.
1 Auditing Y
H=Hig
Delays in submission o f audit reports has been a significant problem in the IDA-f inanced portfolio. The dispersion o f funds across various woredas poses challenges.
L
M
M
M
S
S
S=Subs
The LIG financial activities wil l be subject to continuous audit by the OFAG.
Mechanisms for information flows and consolidation have been agreed. Report based disbursement shall be used for LIG which provides incentives for prompt reporting. Contents o f the IFRs and annual financial statements have been agreed. The LIG financial activities will be subject to continuous audit. The scope o f the audit and audit arrangements have been agreed. Detailed terms o f reference for the audit are being finalized. ntial; M=Moderate; L=
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The overall financial management risk rating for the LIG i s assessed as substantial.
Strengths and Weaknesses
As noted in various reports the country’s discipline in executing budget and compliance with the existing government regulations are the major strengths in implementing Pilot LIG Subcomponent. The proposed FM arrangement will avoid setting up parallel system for the f low o f funds, recording financial transactions, reporting and auditing. The government’s existing arrangements are already being used in a number o f projects, including PBS which i s currently under implementation.
The main weaknesses for the FM arrangements o f the Pi lot LIG Subcomponent, as it i s part o f the overall PBS program, include shortage o f qualified accountants and auditors (mainly at woredas), delay in reporting, l imited focus o f internal audit, and understaffing o f the audit function. The long process involved in producing reports f rom woredas to regions, and from regions to Ministry o f Finance and Economic Development (MOFED), may delay the timely submission o f financial reports to the DPs. Obtaining timely audit reports and timely and relevant financial reports was noted as a problem in most o f the diagnostic works conducted for Ethiopia. Overdue external audit reports for two projects and one IDF Grant implemented by MOFED and M O H (the Productive Safety N e t s Project (PSNP), the Health Sector Development Project (HSDP), and an IDF Grant) have been completed and submitted to the Bank.
Significant Weaknesses
The program i s implemented by various agencies, including regions and woredas
Auditing may take long time to complete Regular financial reports may not be received on time from woredas and reeions
Action
. strengthen the monitoring capacity at federal and regional level . regular supervision by DPs
Strengthen the capacity o f OFAG Establishment and operations o f a smooth information f low and consolidation system
Responsible Person . MOFED
. IDA and other DPs . OFAG, MOFED MOFED, BOFEDs, WOFEDs
Completion Date
. ongoing
ongoing
Ongoing
Ongoing
Implementing Entities
The implementation arrangements under the additional financing would be largely the same as for the ongoing PBS project. MOFED will be the overall implementing agency responsible for Components 1 and 3, including the Pi lot LIG. I t will have the overall responsibility for the oversight, coordination, monitoring and evaluation o f project activities across these two components. At the regional level, Bureaus o f Finance and Economic Development (BOFEDs) will continue to be responsible for coordinating project implementation. At local level the Woreda Finance and Economic Development Offices (WOFEDs) and Urban Administration Offices o f Finance would be responsible for managing and coordinating day-to-day implementation o f activities executed. The Office o f D L D P o f the Ministry o f Capacity Building at federal level and i t s l ine bureaus at regional and local levels will continue to closely collaborate with MOFED and i t s Bureaus in the overall coordination and implementation o f Component 3. Component 2 will continue to be managed by the Federal Ministry o f Health (MOH).
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The wide scope o f the Pilot LIG requires a fairly complex implementation arrangement. Pilot activities are spread over in selected regions and woredas.
Budgeting
The Ethiopian budget system i s complex, reflecting the fiscal decentralization structure. The budget i s processed at federal, regional, zonal (in some regions), and woreda and municipality levels. The federal budgeting process usually starts by issuing the budget preparation note to the Budgetary Institutions (BIs). Based on the budget manual, the BIs prepare their budgets in l ine with the budget ceilings and submit these to MOFED within six weeks following the budget call. The budgets are reviewed at f i r s t by M O F E D and then by the Council o f Ministers. The final recommended draft federal budget i s sent to parliament in early June and i s expected to be cleared at the latest by the end o f the Ethiopian Fiscal Year (EFY). The JBAR notes the need for the budget process to be more transparent and systematic in the areas o f administration o f federal transfers and inter-sectoral allocation, and budget reviews.
The LIG will be an annual program synchronized with the Ethiopian fiscal year. In preparing the Federal budget, an allocation for the LIG would be proposed for each region. Regions will determine appropriate woreda allocations. Based o n these indicative figures, recipient woredas will include LIG resources on the revenue side o f their budget. Incorporation o f the LIG within woreda budgets i s important for promoting integrated planning and capital budgeting at the woreda level. This system wil l fo l low the existing time-line for determining the allocations o f the block grant as part o f the budget cycle in the inter-governmental fiscal system.
Accounting
The Government’s accounting policies and procedures will be used for LIG. Starting f rom July 2002, the Ethiopian government has introduced a double entry modif ied cash basis o f accounting. The new reform has been implemented at the federal level and in many regions. The main elements o f the accounting reform are the adoption o f (i) a revised and comprehensive chart o f accounts consistent with the new budget classification, (ii) a system o f ledgers accommodating al l types o f accounts (including transfers, assets, liabilities and fund balance in addition to revenues and expenditures), (iii)double entry book-keeping (thus, self balancing set o f accounts), (iv) a system o f control o f budgetary commitments (recording commitments as wel l as actual payments), (v) modified cash basis transaction accounting, and (vi) revised monthly report formats to accommodate double-entry book-keeping and commitment control and permit better cash control.
The computerized Integrated Budget and Expenditure (IBEX) accounting system i s now operational at the federal level (MOFED and in 100 o f the 163 federal reporting entities) and most regions. Installation o f this system i s being carried out in Afar and Gambella regions. It i s expected that al l regions, except Somali, shall use IBEX system starting f rom the EFY 2000 (FY 2007/08). The rol l ing out o f IBEX system to zones has continued and three regions (Oromia, SNNPR and Amhara) have already introduced the system in selected zones. The IBEX rol l ing out exercise i s expected to continue and will cover al l federal reporting entities and al l zones in al l regions.
The staffing level in the implementing agencies varies in number and quality. I t i s reported that 168 contractual staff have been recruited for PBS, including 103 accountants and 65 IT specialists. These accountants will be responsible for handling LIG’s accounting operation at their respective offices. The overall staffing level at woredas i s weak because o f understaffing,
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which i s partly due to l o w salary scale to attract and retain qualified staff. This i s being addressed by the ongoing c iv i l service reform supported by the Public Sector Capacity Building Project (PSCAP).
Internal Control and Internal Auditing
MOFED and BOFEDs each have an inspection department performing post audit activities on al l the financial transactions o f the entity, involving an assessment o f whether the budget utilization i s in line with the intended purposes. The staff o f the inspection departments varies f rom region to region. Each WOFED has an internal audit unit responsible for the audit o f public funds.
The C F A A report for Ethiopia recommended that the government should consolidate the organizational structure, redefine the work and duties o f the internal auditors to better address the need o f the government. This has been implemented and the Inspection Department in MOFED now acts as an internal audit regulatory body whi le the internal auditors in sector ministries conduct the audit activities. The Inspection Department in MOFED, in collaboration with the Office o f the Auditor General (OFAG), prepared user manual and provided training to internal auditors o n the manual. T h e internal audit units in most offices are however understaffed and largely ineffective.
The FA notes the need to enhance the independence o f the internal auditors. Also, there i s a need to carry out similar reforms in the Regions and Woredas. The EMCP o f the C iv i l Services Reform Program, amongst other things, focuses on further improving the internal audit function.
For LIG and other components o f the PBS, the internal audit section in each o f the regions and woredas will perform internal audit activities on the financial transactions.
Funds Flow and Disbursement Arrangements
The funds f low for Subcomponent l(a) and Components 2 and 3 will fo l low the same mechanism for the ongoing PBS project. The funding f low mechanism for Subcomponent l(b), the Pilot LIG, will be through regular fiscal channels managed by MOFED and will be monitored through existing systems established to report on public spending. The reporting already required for PBS will be augmented, largely in terms o f level o f aggregation, in order to track capital spending at the local level.
Subcomponent l a - Promoting the Delivery of Basic Services by Sub-national governments, and Component 3 - Strengthening Governance Systems on Financial Transparency and Accountability: The Government o f Ethiopia (GOE) and Development Partners (DPs) will agree on the annual budgets and work plans which will comprise the subprograms A and C for implementation in the year in question. Also, the proportion o f financing between GOE and the DPs will be established each year, and revised as needed. After the init ial advance for the remaining period for the current year, the Government wi l l in each six months submit a Withdrawal Application and Interim (Unaudited) Financial Reports (IFRs) for each Component, which will report actual expenditure at the MOFED and Regional levels for Component 3 and at the woredas and Regions for Subcomponent l(a) to the Wor ld Bank and other DPs. For Subcomponent 1 (a) (Subprogram A), moreover, the DPs would simultaneously conduct a jo in t semi-annual review, including additionality, fairness and fiduciary reviews.
Upon the satisfactory conclusion o f each six months review and analysis, the Bank Task Team Leader (TTL) will advise the Bank’s loan department o f the share o f financing to be disbursed by
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the Bank for Subcomponent l(a) and Component 3, respectively. The Bank in i t s own capacity and on behalf o f other DPs for Bank-administered Multi-donor Trust Funds (MDTFs) will then deposit their share o f financing to a Designated Pooled foreign exchange Account that GOE has designated for that purpose in the National Bank o f Ethiopia. GOE will then draw resources from this account to i t s consolidated funds account, as required. For Subcomponent l(a) and Component 3 the existing Treasury channels o f GOE will be used to transfer the funds from M O F E D to BOFEDs and from BOFEDS to WOFEDs.
The following chart illustrates the funds f low system for Subcomponent l(a) and Component 3.
I I I I Other Participating DPs IDA
Based on request for funds from MoFED (Request for advance/FMRs) Designated Pooled Account A
I I I I I I
At the discretion o f MOFED
+ Government Consolidated
Fund Account in Birr
Through GoE Treasury System, including government resources.
BOFEDs
Through G o E Treasury System, incl. regional government resources
WOFEDS
Component 2 - Promoting the Health Millennium Development Goals: As in the case o f the Subcomponent l(a) and Component 3 described above, a Designated Pooled Account (DPA) will be located in the National Bank o f Ethiopia to which the DPs would contribute on the same basis as explained above. The funds would then be drawn by the Federal Ministry o f Health (FMOH) to finance project expenditure. The DPA wil l be replenished on the basis o f interim financial reports (s) received f rom MOH - which will report expenditure incurred on the project. Upon the conclusion o f each six month review, the Bank TTL will advise LOA o f the share o f financing to be disbursed by the Bank. The Bank team and other DPs will jo int ly review the share o f expenditures to be financed by IDA and the MDTF from time to time. The Bank wil l then deposit their share o f financing to the DPA in i ts own capacity and on behalf o f the other DPs for the Bank-administered MDTFs. The fol lowing chart illustrates the funds f l ow system for Component 2.
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Designated Pooled Account B
I I At the discretion o f MoH
Based on request for funds from MoFED (Request for advance/FMRs)
activities under Component 2
Subcomponent I@), Pilot LIG (Subprogram D): The purpose o f funds f low and reporting arrangement for LIG i s to specifically track expenditures incurred for LIG activities in a manner that will facilitate periodic reporting to and disbursement by the Bank. Accordingly, the following fund f low and reporting process i s envisaged.
The Federal Government will create a LIG Special Purpose Grant as a proclamation in the Federal budget, under MOFED; which will include allocations by region o f LIG resources. Funds f low will institutionally fo l low the treasury system: f rom M O F E D to BOFED, and from BOFED to WOFED. Regions will be allocated a portion o f the annual financing for LIG, which wil l be deposited by MOFED into their treasury accounts. The allocation formula will fo l low the existing Block Grant formula. BOFEDs will determine individual woreda allocations for LIG (as per MOFED guidelines) and will inform each WOFED o f these LIG allocations.
A Designated Account will be opened at the National Bank o f Ethiopia into which the Bank, the sole financing source for the program, shall transfer the required funds for the operation o f the LIG. This DA shall be managed by MOFED. An init ial advance to the extent o f cash f low forecast for the first six months shall be made to the DA and subsequent replenishment shall be made on the basis o f six months financial report received from MOFED indicating the utilization o f the fund. MOFED draws money f rom the DA and transfers it to regions based o n the monthly cash f low forecast received f rom the regions for the LIG capital investment.
For the Pilot LIG, disbursement to woredas will fo l low existing rules for disbursements f rom regional to woreda level for the capital stream o f the Block Grant. BOFEDs will transfer resources to woredas, based on the monthly LIG cash f low forecasts, to the Woreda treasury account. N o separate LIG bank account will be opened at Woreda level, and LIG financing will be pooled with other woreda revenues. LIG financing wil l be spent and accounted for following the same rules and procedures as for the regular woreda budget.
M O F E D will prepare a guideline on the transfer, utilization, accounting and reporting o f L I G funds at federal, regional and woreda level.
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The fund f l ow arrangement for Pilot LIG i s illustrated in the chart below:
I LIG Designated Account I I
Cash transfer based on monthly cash f l ow forecast
through government Treasury system
A I Cash transfer
through government Treasury system
Fund flow
Report flow - - - .I Conditions of Disbursements
Conditions o f disbursements for Subcomponent 1 (a) on Promoting the Delivery o f Basic Services by Sub-national governments (Subprogram A), and Component 3 o n Strengthening Governance Systems o n Financial Transparency and Accountability (Subprogram C) are:
0
0
0
Submission o f annual sub-national budget for basic services comprising Subprogram A, satisfactory to the Association Successful completion o f semi-annual Joint Budget and Aid Review (JBAR); and Submission o f quarterly IFRs for the relevant project quarter.
Conditions for disbursement for Subcomponent l(b) on the Pilot LIG (Subprogram D) are:
0
0
Finalization and Adoption o f the Operational Manual for the Pilot LIG Subcomponent, satisfactory to the Association; and Submission o f quarterly IFRs for the relevant project quarter.
Condition for disbursement for Component 2 on Promoting the Health Mi l lennium Development Goals (Subprogram B) are:
0 the submission o f an annual work plan satisfactory to the Association; and submission o f quarterly IFRs for the relevant project quarter..
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Retroactive Financing
Category of Expenditure Subprogram A (Subcomponent 1 (a))
Subprogram B (Component 2)
Subprogram C (Component 3)
Subprogram D (Subcomponent 1 (b))
Total
Government has requested retroactive financing for up to 20% o f the total amount o f Additional Financing for al l eligible expenditures that has been incurred after January 7, 2007 and up to the date o f the grant signing. Retroactive financing i s required to fill the financing gap under Subcomponent l(a) in EFY 1999. This gap was caused by the delay in some o f the expected donor financing in EFY 1999, which resulted in a much higher contribution to the Federal block grant by the Government than init ially expected. Upon effectiveness, the Public Finance State Minister’s Office o f MOFED i s expected to submit actual expenditure reports for reimbursement.
Amount of Additional Financing in US$ million
% of Expenditure to be Financed
165 Such percentage o f Eligible Expenditures as the Association may determine for each EFY
Expenditures as the Association may determine for each EFY
Expenditures as the Association may determine for each EFY
Expenditures as the Association may determine for each EFY
29 Such percentage o f Eligible
1 Such percentage o f Eligible
20 Such percentage o f Eligible
215
Financial Reporting
The computerized IBEX system enables public bodies to produce financial reports much more easily. MOFED i s accelerating the rollout o f the IBEX system to regions where computerization has not been introduced. As it stands now, the new chart o f accounts i s capable o f recording the financial transactions o f the LIG activities and then producing the required financial reports.
Financial regulations o f regions require that Woredas should submit monthly financial statements to regions 15 days after the end o f each month. In practice, there are delays in submitting monthly financial reports to regions. The main cause o f delay i s the lack o f finance staff in most o f the woredas. As a result o f this, regions are not able to close their annual accounts o n a timely basis.
Currently, regions submit annual financial statements to MOFED for consolidation. For LIG, regions are expected to provide quarterly financial reports to MOFED for replenishment purposes and also for program monitoring. MOFED shall produce consolidated quarterly financial reports to be submitted to DPs. Submission o f quarterly reports by BOFEDs and consolidation o f financial reports at MOFED levels are additional activities as a result o f the LIG activities. BOFEDs and MOFED are expected to handle this with the existing staffing arrangement for PBS. Quarterly IFRs will be prepared and submitted quarterly to the Bank and other DPs within three months o f the end o f the quarter. The IFRs will report on actual eligible expenditure incurred at regional and woreda levels for Components l(a) and l(b), at MOH for Component 2, and at the federal and regional levels for Component 3. The IFR will consist o f government expenditure reports (i.e. a report o f actual eligible expenditure incurred at regional and Woreda levels) for Component 1, and reports on actual expenditures incurred for Components 2 and 3. The format o f
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the government expenditure reports and IFRs have been agreed with government and will be produced from the existing government accounting system. The annual financial statements wi l l adopt the same format as the quarterly reports and will therefore be a consolidation o f the quarterly reports for each year. The audited project financial statements would include: (a) a summary statement o f funds received from al l sources o f financing; (b) a summary o f expenditures incurred on the project appropriately classified - including actual expenditure incurred at the woredas and regions on Components l(a) and l(b), incurred by MOH on Component 2 , and incurred at federal and regional levels on Component 3; and (c) a statement on the project's Designated Account including opening and closing balances and the movements (inflows and outflows).
WOFEDs will produce consolidated expenditure reports, as they do now, and will send to BOFEDs. N o separate reporting will be required at woreda level. BOFEDs have the responsibility to report to MOFED (i) on disbursement data f rom BOFED to WOFED for al l woreda capital expenditure, with a l ine for each pi lot woreda, and (ii) o n expenditure data, by pi lot woreda and eligible sector, for a l l woreda capital expenditure. MOFED will consolidate the regional LIG expenditure reports and submit them as part o f the IFR used for PBS. The financial guideline for LIG shall include a guideline on the transfer and utilization o f LIG funds at the regional and woreda level.
Auditing
According to the Ethiopian Constitution, the Office o f the Federal Auditor General (OFAG) i s responsible for auditing al l the financial transactions o f the federal government as wel l as subsidies to the regions. OFAG has five regional offices. These regional offices audit revenues (including resources f rom higher tiers o f government) utilized by the regions and Woredas. The Woredas are audited using a revolving plan based o n risk classifications. Each o f the regions has regional auditor general, which i s responsible for the audit o f government financial transactions in the region. The FA notes the Auditors-Generals were not able to perform the audits as per planned schedule due to understaffing.
An important principle that i s being applied i s to strengthen the existing government external audit arrangements through the LIG program while at the same time ensuring that Bank fiduciary requirements will be met. Annual federal government audited financial statements will be submitted to the Bank and other DPs within nine (9 ) months o f the end o f the fiscal year. The audit will be carried out by OFAG. OFAG may enter into agreements with the Offices o f Regional Auditor Generals (ORAGs) and other independent auditors to execute the Annual Audit should it deem this to be necessary. The auditor would express an opinion on the project financial statements; and as part o f the audit also examine and report on the FMRs/IFRs used as the basis for disbursements, and the activities o f the Designated Account. The final TOR for the Annual Audit o f Project Financial Statements shall be agreed prior to the effectiveness o f the PBS Additional Financing Grant.
The f irst audit report for the Additional Financing Project would cover the period f rom start o f the project until July 7 , 2008 (including expenditures covered by retroactive financing). This report would be due n o later than April 7,2009, and would be combined with the second audit report for the Original Project.
Additionally, the Auditor General, through i t s regional offices, wil l cany out audit o f the woredas and regions throughout the year on a quarterly basis and submit to DPs quarterly reports indicating summary o f audit findings, within 3 months o f the end o f the quarter. The terms o f
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reference for these continuous in-year audits have been revised and agreed with OFAG by the Bank and other DPs. T h e f i rs t four continuous audit reports (for the 4th quarter o f EFY 1998 and lSt, 2nd, and 3rd quarters o f EFY 1999) were submitted and MOFED has produced an action plan to address issues indicated in the reports. The most prevalent finding was weaknesses around stores and fixed asset management. Other issues observed in the report include lack o f monthly bank reconciliations, irregular payments and delay o f submitting quarterly reports to regions. The ongoing reform undertaken by MOFED to enhance property and cash management will adequately address these issues.
OFAG expressed qualified opinion on the EFY 1997 and 1998 federal accounts because o f recognition o f budgeted subsidies to regions as expenditures. This does not raise any substantive accountability issue in the project. Based on the legislative review o f the audit report, the Public Accounts Committee o f the parliament, in conjunction with MOFED and OFAG, i s charged with studying the experience o f sample countries in treating subsidy transfers to regional states and forward recommendation to the parliament to address the accounting treatment o f subsidies in the country. The recommendation shall be implemented starting f rom the EFY 2002.
As o f November 15, 2007, there are n o outstanding audit reports for projects implemented by MOFED and M O H .
Financial Covenants
IFRs will be prepared on a quarterly basis, and will be submitted to the Bank and other DPs within three months after the end o f each quarter. The IFRs will report on actual eligible expenditure incurred at regional and woreda levels for Component 1 (a) and l(b), at MOH for Component 2, and at the federal and regional levels for Component 3 ,
Annual audited financial statements to be submitted to the Bank and other DPs within nine months after the end o f the government fiscal year
OFAG shall audit, on a continuous basis, samples o f regions and woredas that have received funds under the program, including LIG. The government shall cause OFAG to audit these regions and woredas on a quarterly basis and provide the Bank with quarterly summaries, o f audit findings within three months o f the end o f each quarter.
Supervision Plan
The program in the Additional Financing i s implemented by al l the regions and Woredas (LIG i s implemented by selected regions and woredas). There will be a six monthly jo in t review and supervision by the Bank, government and other DPs. The FM supervisions will align with such timeframe and focuses o n randomly selected regions/woredas. The focus o f the supervision will be to determine: (i) if funds are used for the intended purposes; (ii) any lapses in operation o f the FM arrangements; (iii) further capacity strengthening measures; and (iv) implementation o f financial covenants.
57
SCHEDULE G
FEDERAL, DEMOCRATIC REPUBLIC OF ETHIOPIA ADDITIONAL FINANCING FOR THE PROTECTION OF BASIC SERVICES
ENVIRONMENTAL AND SOCIAL SAFEGUARDS MANAGEMENT ARRANGEMENTS
The project will be implemented throughout the country by local government authorities in collaboration with respective sector specialists operating at the local and regional levels.
The environmental classification o f the ongoing project remains a Category B.
I. Main Safeguard Challenges
For Component 2: Health MDG Performance Facility. Project implementation will involve medical waste and use o f insecticides which raise safeguard issues. The physical design o f health centers and health posts have provisions for proper disposal o f liquid and solid waste in addition to small incinerators for burning contaminated materials used by health centers. Insecticides are used indoor and the potential for contaminating the outside environment i s l imited in scope. The malaria control program has developed four guidelines namely: a) Guideline for Malaria Vector Control in Ethiopia; b) Guidelines for Indoor Residual Insecticide Spraying; c) Storage and Responsible Handling o f insecticides for malaria vector control; and d) I R S training manual. These vector management guidelines have been distributed and are in use since 2002-2006 and the malaria control supervisors in each spray site has the responsibility to ensure adherence to the guidelines and supervisors f rom regional malaria control offices regularly check o n the proper implementation o f the guidelines. The guidelines are being updated to capture the recent developments. No significant negative impact i s anticipated as long as agreed safeguard measures are implemented.
The updated Guidelines for Malaria Vector Control and the Guidelines for Indoor Residual Insecticide Spraying address the requirements o f Safeguard Policy OP4.09. The updated Guidelines have been disclosed
The new LIG Subcomponent would support construction o f small-scale c iv i l works through the multi-sector specific purpose grant (SPG) from the Federal Government. These works would be identified and managed by woreda and are expected to be similar in scale and scope to those implemented in a number o f other Bank projects in Ethiopia. A PHRD funded consultancy identified possible environmental and social safeguard requirements for these c iv i l works. An Environmental and Social Management Framework (ESMF) in conjunction with a Resettlement Policy Framework (RPF) has been completed. The safeguard procedures will be inputs to the Project Implementation Plan and will include a set o f innovative Technical Planning Guidelines for about twenty types o f investments. These Guidelines will serve as a common practical tool at the local government level to improve technical implementation o f the eligible public works inclusive o f environmental and social considerations. The Ministry o f Health has a standard health center and health post designs with the essential structure and facilities to al low proper handling o f wastes and avoid environmental contamination.
58
The ESMF and RPF described above are new. The parent project did not have an ESMF/EA or an RPF. The Project only had a health care waste management plan which was disclosed in the Info Shop as the EA. The project did not have any involuntary resettlement issues. The new LIG activity, however, does trigger the safeguard policy on involuntary resettlement, and for which an RPF has been completed.
11. Potential indirect and/or long term impacts
No long-term impacts are anticipated as long as the provisions for minimizing impacts are implemented as designed and the provisions o f the guidelines are fully adhered to.
The focus on local decentralized service delivery has been recognized with subsequent challenges in improving capacity for planning, construction and supervision at this local level. Through synergy with several other Bank projects, the team has identified national level capacity building needs for woreda and local planning through appropriate institutions and these will be soridified over the next year. Regular supervision to ensure adherence to the safeguard guidelines help minimize the possible adverse impacts.
111. Government Measures to Address Safeguard Issues
For Component 2. Measures adopted as part o f the PBS operation will continue to be implemented. The original Amharic version o f the Government’s Guidelines on the Handling and Disposal o f Waste in Health Facilities (September 1997) has been distributed widely to health facilities providing such services, while an English translation has been disclosed in the Wor ld Bank’s Infoshop (February 2006). The Government has also prepared and adopted the following guidelines: (i) Injection Safety Guidelines to reduce infections through contaminated needles; (ii) Vector Management Plan, in response to the significant scaling up o f I R S activities addressed in the ongoing PBS project as wel l as a prerequisite to insecticide procurement; and (iii) Guidelines for Malaria Vector Control, I R S and Storage o f insecticides have been introduced and in use since 2002-2006. Regular training on I R S i s provided to ensure proper implementation o f the guidelines to staff and supervisors. In addition as part o f their mandates the Drug Administration and Control Authority and the Environmental Protection Agency supervise the management o f chemicals and environmental contaminations, respectively
The Health facility construction designs include provisions for proper handling o f liquid and solid wastes generated by health units and small burning facilities are installed for t ahng care o f contaminated and hazardous materials. Health facilities are provided with autoclaves to sterilize medical instruments and other materials. An environmental sanitation expert located in health centers takes the responsibility for supervising the implementation o f safety pol icy by health facilities.
For the new LIG Subcomponent:
Main environmental and social impacts of the LIG. The main environmental and social impacts associated with the project will result form the construction and/or rehabilitation o f small scale investments in the transport, waste, health and irrigation sectors. Impact and mitigation checklists are provided in the ESMF as a reference guide for identifying and managing these impacts.
Works preparation, screening, review and appraisal process. The LIG Operational Manual o f which the ESMF i s a part outlines the screening procedures, reporting systems, and responsibilities to be adopted by the MOFED during LIG implementation. The tools and
59
mechanisms provided include: (i) steps to be taken for screening subprojects; (ii) terms of reference for an annual environmental and social audit o f the LIG; (iii) Technical Planning Guidelines on the environmental and social impact o f potential sub-projects; (iv) compliance mechanisms; (v) training for staff o f Pi lot LIG woredas who have adopted new procurement codes based o n the model law prepared by the Federal Government, in application o f this law and associated standard bidding documents; and (v) descriptions o f roles, accompanied by terms o f reference.
Mitigation plans. As part o f the assessment process, the Technical Planning Guidelines have been prepared for over two dozen subproject types. These will assist local planners, officials and contractors implement appropriate mitigation measures for specific subprojects. If identified as a requirement o f the sub-project through the screening process, a Resettlement Act ion Plan, will also be prepared.
Legislative framework. The key environmental policies exist which provide the overarching framework for environmental management include: the Constitution o f Ethiopia, the Environmental Policy o f Ethiopia, and the National Conservation Strategy. A number o f proclamations and supporting regulations are also applicable:: Proclamation No.295/2002 for the establishment o f Environmental Protection Organs; Proclamation No.299/2002 for Environmental Impact Assessment; Proclamation No.300/2002 for Environmental Pollution Control; and Proclamation No . 455/2005 on expropriation and compensation.
IV. Key Stakeholders
Local governments and communities are the major stakeholders. The c iv i l works funded under the LIG Subcomponent are vetted through the local government planning process that engages in direct community participation for identifying potential projects. Local woreda authorities, through sector specialists scope the potential projects and include them in annual workplan requests. Disclosure o f the ESMF and RPF will be in country, v ia notices in the media regarding the availability o f these documents at the country Infoshop. As o f August 20, 2007, the Government has released these documents to the Bank for general disclosure.
60
SCHEDULE H
FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA ADDITIONAL FINANCING FOR THE PROTECTION OF BASIC SERVICES
MONITORING & EVALUATION FRAMEWORK FOR PILOT LIG
The ultimate objective o f the Government i s to introduce a performance-based grant for capital expenditure at the local level. In order to better understand the constraints to improving and increasing capital investment at that level and to effectively calibrate the criteria to be used for evaluating performance, a pi lot phase o f LIG would f i rs t be introduced. The main objectives o f the pi lot phase are therefore about learning. The pi lot aims to (i) better understand constraints to undertaking scaled-up capital investment at the local level, and (ii) roll-out and test recently developed national standards for planning and budgeting, procurement, and environmental screening.
In order to achieve these objectives therefore it i s important that there i s a clear framework for monitoring and evaluating the results o f the pilot. The responsibility o f this task will be housed in the unit that will be overseeing overall PBS implementation, the Macroeconomic Department o f MOFED, which will have staff to focus on monitoring implementation o f this particular component. Monitoring o f implementation will take two forms:
Semi-annual data on capital disbursements and capital expenditure by LIG pi lot woredas and by sector will be generated by the Government’s reporting system and will give a basic overview regarding progress in implementation. T h i s data will be presented woreda by woreda as part o f the Pilot. The expenditure reports will be prepared on a quarterly basis for those pi lot woredas that will be visited for implementation reviews (see below) in the relevant quarter.
Quarterly implementation reviews will visit a selection o f p i lot woredas to monitor progress and to identify bottlenecks in implementation, if any. These missions will comprise staff f rom M O F E D and BOFEDs and where appropriate f rom the relevant zonal offices. If problems have been identified an action plan to address these issues will be developed assigning responsibility to the relevant office.
Beyond this, the a im o f the M&E system i s to gain detailed information regarding the investment process and the quality o f the outputs achieved within each pi lot woreda. Additionally the M&E system will a im to provide information as to how ini t ia l conditions in terms o f capacity and structural factors affect these. The following studies will therefore be implemented, to be financed out o f the ongoing PHRD grant and Component 3 o f the PBS:
(i) Capacity survey: Woredas will have been chosen to participate in the p i lo t through a stratified random sampling process in order to ensure that woredas with a diversity o f structural factors are included. The a im o f the capacity survey i s to develop a detailed understanding o f the init ial capacity conditions within each woredas before the implementation o f the LIG pi lo t starts. The ultimate purpose will be to see how important different init ial conditions and capacities are in successful implementation o f capital investments. It will focus on six areas including (i) human resources, (ii) management systems (iii) planning, (iv) financial management, (v) material capacity, and (vi) information and communication. Quantitative as wel l as qualitative indicators
61
will be used in each area to allow comparison and ranlung o f woredas across categories. This survey will be financed through the PHRD Grant
(ii) Investment Process Review: The review will assess whether national systems were applied and the impact this had o n the overall process. I t will focus o n (i) planning and budgeting, (ii) procurement, and (iii) environmental screening. The key criteria will be (i) whether mechanisms for citizen participation led to credible inputs from the citizenry, and (ii) how long various systems took to use and whether they were understood and practical. This review will also assess whether the manuals and the training provided under the pi lot were effective in adding to the capacity o f the woreda in this area.
(iii) Technical Output Assessment: This will focus on an assessment o f the technical quality o f infrastructure built in the woreda, both during the Pilot and preceding it. The key focus i s to determine whether in a given sector the infrastructure built meets the required standards, and if not, what was the cause o f sub-standard outputs (i.e. design, procurement, construction, materials used etc.).
The exact division o f tasks across the Investment Process Review and the Technical Output Assessment has not yet been determined. The focus will be to ensure that the results can be usefully integrated across a l l studies to gain a r ich picture o f the entire investment process within a woreda and determine which key elements affect outcomes.
(iv) Ex-post Procurement Review: Rather than oversee the tendering o f individual investments, an ex-post procurement review will assess procurement f rom a fiduciary perspective. I t would be conducted on a sample basis and would identify areas, if any, where significant deviations f rom national procurement standards had emerged and suggest suitable remedial actions.
Additional to the above, the Financial Accountability and Transparency Perception Survey (FTAPS) being implemented under Component 3 o f the PBS, will also provide a longer-term mechanism to assess how effectively accountability i s working in terms o f the responsiveness o f local-planning processes to citizen’s priorities and citizen’s perceptions o f whether or not they are adequately consulted by their local authorities.
62
SCHEDULE I
FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA ADDITIONAL FINANCING FOR THE PROTECTION OF BASIC SERVICES
ECONOMIC AND FISCAL ANALYSIS FOR THE PILOT LOCAL INVESTMENT GRANT (LIG)
1. Political and Economic Background
1. Political decentralization in Ethiopia i s now wel l advanced and fiscal decentralization i s following quickly. Figure 1 illustrates the sharp increase in Federal b lock grant transfers to regions f rom 5.5 bi l l ion Birr in EFY 1997 up to 13.6 b i l l ion Birr budgeted for EFY 2000. Furthermore, the Government’s Medium Term Expenditure and Finance Framework indicates that an additional 4 b i l l ion Birr will be budgeted for the B lock Grant per year until EFY 2002.
2. As part o f the process o f political and fiscal decentralization, the mandates o f regions and woredas (districts) have increased significantly. Woredas are n o w responsible for a large proportion o f basic service delivery. In the education sector, woredas have the mandate to establish and manage kindergartens and primary schools. In some regions, construction and management o f f irst cycle secondary schools also falls under the jurisdiction o f woredas. With regard to the health sector, woredas have the mandate to establish and manage health posts, clinics and health centers. Furthermore, al l woredas have the mandate to construct, maintain and manage rural roads (community/RRlO roads). In the water sector, woredas in almost a l l regions have the mandate to develop and operate springs, hand-pump wells, water supply lines, water and soil conservation schemes, ponds, water harvesting schemes and small-scale irrigation schemes. In relation to agriculture, al l woredas have the mandate to operate environmental rehabilitation programs, operate and manage veterinary clinics and farmers’ training centers, multiply improved seeds and species o f animals and carry out small-scale irrigation schemes by diverting rivers, floods and using the waters f rom ponds, springs and hand-pump wells.
3. In spite o f the significant increase in the mandates o f woredas to undertake capital investment, Figure 2 indicates that capital expenditure at the woreda level i s s t i l l greatly constrained. The share o f capital spending has remained roughly constant over the past two years at the Regional Bureau level. But, capital expenditure in woredas decreased in relative and absolute terms since EFY 1997 due to the pressure o f recurrent costs, in particular salaries.
63
Figure 1: Federal Block Grant Transfers to Regions (Note: There are no transfers to Addis Ababa)
f 15,000 1-
EFY 1997 EFY 1998 EFY 1999 Actuai Actual Budget
CITotal Federal Block Grant to Regions
EFY2000 EFYZ001 EFYZOOZ Budget Pian Plan
Figure 2: Expenditure Shares at Regional Level (all regions excluding Addis Ababa)
5,000
4,000
L
$ 3,000 p C -
2,000 - 1,000
0
465
EFY97
Regional Woredas Bureau
EFY98
H Salary 0 Operational Expenses Capital
390
Regional I Woredas Bureau 1
EFY99
B. Analysis o f Woreda Capital Budget Shares and Execution Rates”
4. In EFY97, rural woredas” in Oromiya and SNNPR planned to spend 0% to 36% o f their treasury budget (capital and recurrent) o n capital investment (see Figure 3). In both regions combined, the median for rural woredas was 9%. Overall, 87% o f the rural woredas in SNNPR and Oromiya budgeted less than 20% o f their treasury budget o n capital.
Figure 3: Oromiya and SNNPR - Capital Budget (Treasury Only) as Share of Total Expenditure in Rural Woredas, EFY97 -- ~~
Share of Capital Budget in % ____
5. Apart f rom large differences across woredas, there are also significant differences across regions with regard to woredas’ capital budget shares in EFY97. Figures 4 and 5 illustrate the larger variance across woredas - though with a higher median - in SNNPR as compared to Oromiya.
I’ T h i s section analyses variations across woredas in terms o f budget shares and execution rates for the capital budget for the two regions for which detailed information, by woreda, i s available. The sample size i s 299 rural woredas in Orormya (94) and SNNF’R (105) for EFY97.
64
Figure 4: Oromiya - Capital Budget (Treasury Only) as Share of Total Expenditure in Rural Woredas, EFY97
Figure 5: SNNPR - Capital Budget (Treasury Only) as Share of Total Expenditure in Rural Woredas, EFY97
... ..... ..... . .. .... I
I#edlanl Share of Capital Budget In K Share of Capital Budget In %
6. In terms o f execution rates for capital budgets f rom treasury sources across rural woredas in Oromiya for EFY97, more than hal f o f a l l rural woredas performed wel l with capital budget execution rates o f close to or equal to 100%. The median execution rate i s 98%. Moreover, 80% o f al l rural woredas were able to materialize 90% to 100% o f their capital budget f rom treasury sources. The main factor driving these high levels o f expenditure, however, are the extremely small amounts o f capital expenditure. Those woredas that show execution rates o f 100% have a median capital expenditure o f 460,998 Birr, which equaled approximately U S $ 53,00013.
2. Rationale for LIG Pilot and LIG National Program
7. The analysis above shows that woreda capital budgets are very small and have decreased over time due to pressure f rom salary expenditure. Even though the Federal b lock grant to regions i s expected to increase by 4 b i l l ion Birr per year until EFY 2002, interviews with the regions during the PBS Midterm Review and the PBS Additional Financing Mission suggest that the recurrent needs are s t i l l much larger than the proposed increase in block grants. Furthermore, i t was noted by regional representatives that the quality o f capital investments, both in terms o f the processes by which projects are identified, selected and implemented as wel l as the outcomes, varies across woredas and sectors and benefits are often not sustained due to the lack o f sufficient budgeting o f operational and maintenance expenses (O&M).
8. In light o f these findings, the National LIG program intends (i) to increase the quality and quantity o f capital investment at the woreda level; (ii) to strengthen government systems and application o f national standards; (iii) to create an incentive mechanism through performance based conditions o f access for LIG funds; and hence (iv) to improve basic service delivery at the local level.
9. Before starting such a national performance based program, it i s necessary to understand the current constraints that woredas face, be they related to init ial conditions, capacity, or other factors, in order to set access thresholds accordingly. The LIG Pi lot (Subcomponent l(b) under the PBS Additional Financing) aims (i) to test recently developed national standards (planning and budgeting, procurement, technical guidelines, etc); (ii) to better understand constraints o f capital investment at the local level; and (iii) to learn f rom experience in Pilot woredas to help design the National LIG.
l3 The exchange rate in EFY97 was US$ 1 = ETB 8.65
65
3. Simulations of the Size o f the LIG Pilot
10. Government has decided that those regions are eligible to participate in the pi lot program that have implemented the national accounting and procurement reforms under the Government's Expenditure Management and Control Program. These reforms are deemed important for effective fiduciary control o f the program at local and regional level. The five regions that have implemented both o f these reforms to date are Amhara, Benishangul-Gumuz, Oromiya, S M R , and Tigray. For the pilot, rural woredas will be selected o n a random basis in order to maximize the learning opportunities f rom the pi lot program. In order to ensure an appropriate sample the selection process will ensure that key factors that might affect capital investment .are represented by woredas in the sample. These include population (large and small), remoteness (remote and non-remote), and capital investment experience (experience and l imi ted experience). A random sampling procedure will be employed using these criteria for stratification.
11. LIG grants to woredas will be based on the principle that the grants should be equal in relative terms (relative to the woreda treasury budget). Based on the l o w present levels o f capital spending f rom treasury funds and estimates o f the absorption rate o f additional funding i t has been agreed that LIG grants equal to 30% o f the EFY 2000 treasury budget will be made to pi lot woredas. Table 1 below presents the indicative size o f an annual LIG grant for woredas selected for the Pilot by simulating a transfer equivalent to this percentage for small, medium, and large woredas in the four main decentralizing r e g i ~ n s ' ~ . It suggests that while the ratio o f the LIG grant to the budget would be constant, the variation in the absolute value o f the grant would vary significantly. For the two years o f the LIG pilot, the smallest allocation, for small woredas in SNNPR, would be around US$321,000, while the largest allocation would be in large woredas in Tigray at around US$ 863,000.
No detailed budget information by woreda was available at the time of this analysis for Benishangul-Gumuz. 14
66
Table 1: Simulated LIG Grants in US%, Based on LIG Grants representing 30% of EFY99 Total Treasury Budgets
Small”
~ a r g e ~ ) Small’’
~ a r g e ~ ) Small’)
~ a r g e ~ ) Small’)
~ a r g e ~ )
Amhara Medium”
Oromiya Medium”
SNNPR Medium’)
Tigray Medium”
EFYOO Budget 30% Grant (in US$) (in US$)
1,583533 475,060 2,028,475 608,542 2,536,741 761,022
759,140 227,742 1,086,918 326,075 1,519,328 455,798
714,456 214,337 1,068,s 15 320,555 1,704,064 511,219 1,375,508 412,652 1,730762 5 19,229
2,228,351 668,505
12. Table 2 indicates the estimated LIG allocation for each region by applying the block grant formula for the eligible regions to the total LIG Pilot budget o f US$20 mill ion. By using the simulation in Table 1 above, we then estimate the number o f woredas that could l ikely participate in the pilot, by region. The total number o f woredas i s around 50. Actual allocations to woredas wil l be driven by the stratified random sampling procedure mentioned above, which wil l therefore determine the final number o f woredas to participate in the pilot, and their regional distribution.
in US$
Tigray Amhara
Table 2: Possible Number of L IG Pilot Woredas in Five Regions
Estimated L I G N o Woredas Allocations Medium Size
1,496,233 2 5.696.747 9
Oromiya 7,877,740 I 24
67
SCHEDULE J
FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA ADDITIONAL FINANCING FOR THE PROTECTION OF BASIC SERVICES
Intervention Balance Additional PBS 2005-07 ProcuredKJnder (committed Financing
Commitments Procurement under PBS) 2008
Accelerating and sustaining malaria control (Commodities) ITNs 20,383,093 7,922,778 12,460,315 8,000,000 ACT 4,057,836 2,589,367 1,468,469
Spray Pumps 250,000 0 250,000
Sub-total 26,040,929 10,512,144 15,528,785 11,290,000 Reducing Infant Mortality through vaccines Vaccines 5,000,000 2,901,582 2,098,4 18 1,490,000
Sub-total 8,000,000 6,140,694 2,098,418 1,490,000 Primary health service delivery
Medical Equipment to HPs HCs 5,900,000 945,880 4,954,120 8,200,000
Insecticides (IRS) 500,000 0 500,000 2,090,000-
Diagnostics Laboratory Equipment 850,000 0 850,000 1,200,000
Cold Chain Equipment 3,000,000 3,239,112 0 0
Essential drugs 8,500,000 0 8,500,000 0
Revolving Drug Fund 0 0 0 13,454,120 8,200,000
* . Sub-total 14,400,000 945,880 Family Planning Contraceptives 11,595,071 11,495,835 99,236 5,540,000 Sub-total 11,595,071 11,495,835 99,236 5,540,000
Audio visual equipment Transport
964,000 1,500,000
0 964,000 0 0 1,500,000 0
Sub-total 2,464,000 0 2,464,000 0
Monitoring & Evaluation Training Capacity Building
820,000 615,000 220,000
0 820,000 0 615,000 0 220,000
Sub-total 1,655,000 0 1,655,000 1,570,000
68
SCHEDULE K
FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA ADDITIONAL FINANCING FOR THE PROTECTION OF BASIC SERVICES
ETHlOPIA AT A GLANCE
Key D e v e l o p m e n t I n d l c a t o r s
(2006)
Population. mid-year (millions) Surface area (thousand sq. km) Population growth (%) Urban population (% of total population)
GNI (Atlas method, US$ billions) GNI per capita (Atlas method, US$) GNi per capita (PPP, international $)
GDP growth (%) GDP per capita growth (%)
(moot recent eotlmate, 2000-2006)
Poverty headcount ratio at $1 a day (PPP. %) Poverty headcount ratio at $2 a day (PPP. %) Life expectancy at birth (years) Infant mortality (per 1,000 live births) Child malnutrition (% of children under 5)
Adult literacy. male (% of ages 15 and older) Adult literacy. female (% of ages 15 and older) Gross primary enrollment, male ( % of age group) Gross primary enrollment, female ( % of age group)
Ethiopia
72.7 1,140
2.0 15
12.9 180
1,190
9.0 6.9
76 43 80 38
50 23 88 72
Access to an improved water source ( % of population) Access to improved sanitation facilities (% of population)
22
Sub- Saharan
Africa
770 24,265
2.3 36
646 842
2,031
5.6 3.2
41 72 47 96 29
69 50 96 66
56 37
LOW income
2,403 29,215
1.8 30
1,562 650
2,698
6.0 6.1
59 75
72 50
106 96
75 38
N e t A i d Flows
(US$ millions) Net ODA and official aid Top 3 donors (in 2005):
United States Italy United Kingdom
Aid (% of GNi) Aid per capita (US$)
L o n g - T e r m E c o n o m i c T r e n d s
Consumer prices (annual % change) GDP implicit deflator (annual Oh change)
Exchange rate (annual average, local per US$) Terms of trade index (2000 = 100)
Population. mid-year (miliions) GDP (US$ millions)
Agriculture Industry
Services
Household final consumption expenditure General gov't final consumption expenditure Gross capital formation
Exports of goods and sewices Imports of goods and services Gross savings
Manufacturing
1 980
21 1
19 7 4
3.4 6
12 5 4.4
2 1 131
37 7 7,289
54.2 12.1
23.8
80.0 9.8
14.5
7.6 11 9 10 8
I990 2000
1,009 666
50 130 169 26 35 11
8.4 8.7 20 11
5.2 6.2 4 0 6.0
2 1 8.1 151 100
51.2 64.3 12.083 7,903
56.3 47.4 12.4 12.6
5.7 31.3 39.8
77 2 74.7 13.2 18.5 12.9 19.2
5.6 12.5 8.8 24.8
11.9 14.9
(% of GDPJ
2006
1,937
625 87 75
17.1 27
12 3 7 4
8.7 79
72.7 13,315
48.1 12.6 4.7
39.3
93.7 12.4 19.8
15.8 41.7
9.3
A i 0 diatrlbution, 2006 I Male Female
60.64 50.54
40.44
30.34 20-24 10.14
0.4
20 10 0 10 20
DelCe"l
U n d e r 4 mortal i ty rat8 (per 1,000) I 250
1000 1005 2000 2005
OElhiopia OSub-Saharan Africa
Growth of GDP and GDP per capita (%) lZO
03 00
-GDP - GDP percapila
1910-90 1990-2000 2000-06 (average annual growth %J 3 1 2.3 2 1 2.0 3 5 5 7
0.5 2.2 5.0 3.4 3.8 7.0 3.1 3.8 4.4 3.5 4.5 5.7
1.0 3.1 6 3 4.0 9.5 -0.5 4.0 2.3 4 3
3.2 7.1 13.9 3.2 5 8 13 0
Note Figures in italics are for years other than those specified. 2006 data are preliminary. .. indicates data are not available. a. Aid data are for 2005
Development Economics, Development Data Group (DECDG)
69
SCHEDULE K
FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA ADDITIONAL FINANCING FOR THE PROTECTION OF BASIC SERVICES
ETHIOPIA AT A GLANCE
B a l a n c e o f P a y m e n t s a n d T r a d e
( U S $ millionsi Total merchandise exports (fob) Total merchandise imports (ctf) Net trade in goods and servlces
Current account balance as a % of GDP
W o r k e r s ' r e m i t t a n c e s a n d compensation of employees (receipts)
Reserves, including gold
C e n t r a l G o v e r n m e n t F i n a n c e
(% o fGDP) Current revenue (including grants)
Current expenditure
Overall surplusldeficit
Highest marginal tax rate ( % )
Tax revenue
Individual Corporate
E x t e r n a l D e b t a n d R e s o u r c e F l o w s
( U S $ rniilionsi Total debt outstanding and disbursed Total debt service Debt relief (HIPC, MDRI )
Total debt ( % of GDP) Total debt service (YO of exports)
Foreign direct investment (net inflows) Portfolio equity (net Inflows)
2000
466 1,611 -976
-335 4 2
53
349
16.2 9.9
21 3
-9.7
5,463 137
2.264
69.4 13.1
135 0
2006
1,001 4,594
.3,444
.1,367 .10.4
174
1.080
19.1 12.2 13.2
-6.3
35 30
6,176 I 7 2
1,363
54.3 6.3
265 0
l C o m p o r l t i o n o f t o ta l external debt. 2005
P r i v a t e S e c t o r D e v e l o p m e n t 2000 2006
Time required to start a business (days) Cost to start a business ( % of GNI per capita) Time required lo register property (days)
Ranked as a major constraint to business ( % of managers surveyed who agreed)
Tax rates Tax administration
16 - 45.9 43
72.2 58.2
Stock market capitalization (% of GDP) Bank capital to asset ratio ( % )
Governance ind l ca lo r r , 2000 and 2006
Voice and aoCOunlablllly
POI t ical I l a b i l ty
Regulatory quality
Rula o f t a w
controi O f co11"pllo"
0 2 0 0 6 0 2 0 0 0 hCh., I*,".. imph b.11.rnlh~.
Count ryr p@rcenllle rank (0 100)
T e c h n o l o g y a n d I n f r a s t c u c t u r a 2000 2005
Paved roads ( % of to la l ) Fixed line and mobile phone
High technologyexports subscribers (per 1,000 people)
( % of manufactured exports)
E n v i r o n m e n t
Agricultural land (% of land area) Forest area (% of land area) Nationally protected areas (% of land area)
12 0 19.1
0 1 0.2
31 32
Freshwater resources per capita (cu meters) 1 7 1 2 Freshwater withdrawal (% o f internal resources)
CO2 emissions per capita (mt)
GDP per uni t of energy use
4 6
0 0 9 0 I 1
(2000 PPP I per kg of 0 1 1 equivalent) 2 6 2 8
Energy use per capita (kg of oil equivalent) 291 303
( U S $ mrllionsJ
iBRD Total debt outstanding and disbursed Disbursements Principal repayments interest payments
IDA Total debt Outstanding and disbursed Disbursements Total debt service
IFC (fiscal yearl Total disbursed and outstanding portfolio
Disbursements for IFC own account Portfolio sales, prepayments and
repayments for iFC own account
of which IFC own account
0 0 0 0 0 0 0 0
1,779 3,359 137 162
34 72
0 0 0 0 0 0
0 0
MlGA Gross exposure New guarantees
Note' Figures m italics are for years other than those specified .. indicates data are not available. - indicates observation 1s not applicable.
Development Economics, Development Data Group (DECDG)
2006 data are preliminary. 6il6107
70
Ras DashenRas DashenTerara (4620 m) Terara (4620 m)
E t h i o p i a nE t h i o p i a nP l a t e a uP l a t e a u
De
na
ki l D
es
er
t
Gr
ea
t
R
if
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O g a d e nO g a d e n
T I G R AYT I G R AY
A FA RA FA RA M H A R AA M H A R A
S O M A L IS O M A L I
O R O M I YAO R O M I YAG A M B E L AG A M B E L A
DIRE DAWADIRE DAWA
SOUTHERN NATIONS,SOUTHERN NATIONS,NATIONALITESNATIONALITESAND PEOPLESAND PEOPLES
ADDIS ABABAADDIS ABABA
BENSHANGULBENSHANGUL
HARARIHARARI
Dinder
Tekeze
Atbara
Blue Nile
Aw
ash Akobo
Genale
Dawa
Baro
Abay
Hang
er
Didesa
W
abe Shebele
Ramis
Wabe G
estro Wabe Shebele
WeldiyaWeldiyaDebraDebraTaborTabor
AxumAxum
AdigratAdigrat
SodoSodo
NegeleNegele
MegaMega
ImiImi
DoloDoloOdoOdo
Degeh BurDegeh BurAwareAware
WarderWarder
DomoDomo
MoyaleMoyale
YavelloYavello
WendoWendo
ShashemeneShashemene
NazretNazret
WelkiteWelkite
HosainaHosainaBongaBonga
GimbiGimbiAwashAwash
DodolaDodola
HumeraHumera
Kebri DeharKebri Dehar
GonderGonder
DeseDese
DebreDebreMarkosMarkos
AselaAsela
GobaGoba
GoreGore
NekemteNekemte
JimaJima
HarerHarerDire DawaDire Dawa
Bahir DarBahir Dar
MekeleMekele
GambelaGambela
AwasaAwasa
AsosaAsosa
AsayitaAsayita
JijigaJijigaADDISADDISABABAABABA
SUDANSUDAN
ERITREAERITREA
SOMALIASOMALIA
UGANDAUGANDA KENYAKENYA
DJIBDJIB
REP.REP.OFOF
YEMENYEMEN
To To KerenKeren
To To GedarefGedaref
To To MarsabitMarsabit
To To WajirWajir To To
MogadishuMogadishu
To To MogadishuMogadishu
To To HargeysaHargeysa
WeldiyaDebraTabor
Axum
Adigrat
Sodo
Negele
Mega
Imi
DoloOdo
Degeh BurAware
Warder
Domo
Ferfer
Moyale
Yavello
Wendo
Shashemene
Nazret
Welkite
HosainaBonga
GimbiAwash
Dodola
Humera
Kebri Dehar
Gonder
Dese
DebreMarkos
Asela
Goba
Gore
Nekemte
Jima
HarerDire Dawa
Bahir Dar
Mekele
Gambela
Awasa
Asosa
Asayita
JijigaADDISABABA
T I G R AY
A FA RA M H A R A
S O M A L I
O R O M I YAG A M B E L A
DIRE DAWA
SOUTHERN NATIONS,NATIONALITESAND PEOPLES
ADDIS ABABA
BENSHANGUL
HARARI
SUDAN
ERITREA
SOMALIA
UGANDA KENYA
DJIBOUTI
REP.OF
YEMEN
Dinder
Tekeze
Atbara
Blue Nile
Aw
ash Akobo
Genale
Dawa
Baro
Abay
Hang
er
Didesa
W
abe Shebele
Ramis
Wabe G
estro Wabe Shebele
INDIANOCEAN
LakeTana
LakeTurkana
R e d S e a
G u l f o f A d e n
To Keren
To Gedaref
To Marsabit
To Wajir To
Mogadishu
To Mogadishu
To Hargeysa
E t h i o p i a nP l a t e a u
De
na
ki l D
es
er
t
Gr
ea
t
R
if
t
V
al l
ey
O g a d e n
Ras DashenTerara (4620 m)
14°N
36°E 40°E 44°E
46°E 48°E
42°E32°E
34°E 36°E 38°E 40°E 44°E 46°E 48°E42°E32°E
12°N
14°N
12°N
10°N
8°N
6°N
4°N
10°N
8°N
6°N
4°N
ETHIOPIA
This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other informationshown on this map do not imply, on the part of The World BankGroup, any judgment on the legal status of any territory, or anyendorsement or acceptance of such boundaries.
0 50 100 150
0 50 100 150 Miles
200 Kilometers
IBRD 33405 R1
JUN
E 2007
ETHIOPIASELECTED CITIES AND TOWNS
REGION CAPITALS
NATIONAL CAPITAL
RIVERS
MAIN ROADS
RAILROADS
REGION BOUNDARIES
INTERNATIONAL BOUNDARIES