Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No: 77503-GZ

PROJECT PAPER

ON A

PROPOSED ADDITIONAL GRANT

IN THE AMOUNT OF US$10.0 MILLION

TO THE

PALESTINE LIBERATION ORGANIZATION

FOR THE BENEFIT OF THE PALESTINIAN AUTHORITY

FOR A

WEST BANK AND GAZA CASH TRANSFER PROJECT

August 28, 2013

Human Development DepartmentWest Bank and Gaza (MNCO4)Middle East and North Africa Region

This document is being made publicly available prior to Board consideration. This does not imply apresumed outcome. This document may be updated following Board consideration and the updateddocument will be made publicly available in accordance with the Bank's policy on Access toInformation.

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CURRENCY EQUIVALENTS

(Exchange Rate Effective: July 31, 2013)

Currency Unit = Israeli New Sheqalim (ILS)US$1.00 = ILS 3.57ILS 1.00 = US$0.28

FISCAL YEARJanuary 1 - December 31

ABBREVIATIONS AND ACRONYMSAF Additional Financing

CTP Cash Transfer ProgramDA Designated AccountEU European UnionFY Fiscal Year

GDP Gross Domestic ProductIBRD International Bank for Reconstruction and DevelopmentIDA International Development AssociationIFR Interim Financial Report

M&E Monitoring and EvaluationMENA Middle East and North Africa Region

MIS Management Information SystemMOF Ministry of Finance

MOSA Ministry of Social AffairsNGO Non-governmental organizationODI Overseas Development InstituteOM Operations Manual

ORAF Operational Risk Assessment FrameworkPA Palestinian Authority

PCBS Palestinian Central Bureau of StatisticsPCU Project Coordination UnitPECS Palestinian Household Expenditure and Consumption SurveyPLO Palestine Liberation Organization

PMTF Proxy Means Test FormulaPMU Project Management UnitPNDP Palestinian National Development Plan

Q4 Fourth QuarterSHC Special Hardship Cases Program

SSNRP Social Safety Net Reform ProjectTFGA Trust Fund Grant Agreement

TFGWB Trust Fund for Gaza and West BankUNICEF United Nations Children's FundUNRWA United Nations Relief and Works Agency

WBG West Bank and GazaWBGCTP West Bank and Gaza Cash Transfer Project

Vice President: Inger AndersenCountry Director: Mariam J. ShermanSector Director: Steen Lau JorgensenSector Manager: Yasser El-GammalTask Team Leader: Samira Ahmed Hillis

11

WEST BANK AND GAZA

WEST BANK AND GAZA CASH TRANSFER PROJECT

PROJECT PAPER CONTENTS

Additional Financing Data Sheet................................................. iv

I. Introduction .............................................................. 1

II. Background and Rationale for Additional Financing ......................................... 1

III. Proposed Changes ......................................................... 6

IV. Appraisal Summary ........................................................ 7

Annex 1: Results Framework and Monitoring........................................ 12

Annex 2: Operational Risk Assessment Framework ..................................... 17

Annex 3: Reforms and Achievements for Social Protection in West Bank and Gaza .. ............. 20

Annex 4: Activities and Expenditures to be Financed by the AF Grant - Withdrawal of GrantProceeds .................................................................. 23

Annex 5: Financial Management and Disbursements .................................. 25

Annex 6: Implementation Support Plan............................................ 27

111

Additional Financing Data Sheet

West Bank and Gaza

WBGCTP AF (P144967)

MIDDLE EAST AND NORTH AFRICA

MNCO4

Basic Information - Parent

Parent Project ID: P119307 Original EA Category: C - Not Required

Revised Closing Date: December 31, 2014 Current EA Category: C - Not Required

Basic Information - Additional Financing (AF)

Project ID: P 144967 Additional Financing Scale UpType (from AUS):

Regional Vice President: Inger Andersen Proposed EA Category: C - Not Required

Country Director: Mariam J. Sherman Expected Effectiveness October 10, 2013Date:

Sector Director: Steen Lau Jorgensen Expected Closing Date: June 30, 2016

Sector Manager: Yasser El-Gammal Report No: 77503-GZ

Team Leader: Samira Ahmed Hillis

The Palestine Liberation Organization (PLO)Borrower: for the benefit of the Palestinian Authority (PA)

Ministry of Social Affairs (MOSA)Contact Person: H.E. Dr. Kamal Elsharafi, Minister of Social Affairs

Responsible Telephone No.: +97222405641Agency: Fax No.: +97222405659

Email: k.sharafi(gmosa.gov.ps

Project Financing Data - Parent (in USD Million)

Key Dates

Approval Effectiveness Original RevisedProject Ln/Cr/TF Status DaeSigning DateDate Date Closing Date Closing Date

P119307 TF-99665 Effective 28-Apr-2011 10-May-2011 23-May-2011 31-Dec-2013 31-Dec-2014

Disbursements

Un- %Project Ln/Cr/TF Status Currency Original Revised Cancelled Disbursed disburs Disburse

ed d

P119307 TF-99665 Effective USD 10.00 10.00 0.00 10.00 0.00 100

iv

Project Financing Data - Additional Financing (AF) (in USD Million)

[ ] Loan [X] Grant [ ] Other

[ ] Credit [ ] Guarantee

Total Project Cost: 14.5 Total Bank Financing: 10.00

Total Co-financing: Financing Gap: 0.00

Financing Source - Additional Financing (AF) Amount

Borrower 4.5

Special Financing 10.0

Total 14.5

Expected Disbursements (in USD Million) - Additional Financing (AF)

Fiscal Year 2014 2015 2016

Annual 2.5 5.0 2.5

Cumulative 2.5 7.5 10.0

Team Composition

Bank Staff

Name Title Specialization Unit

Samira Ahmed Hillis Task Team Leader and Team Leader MNSSPSenior Operations Officer

Nikolai Soubbotin Lead Counsel Legal LEGAM

Maiada Kassem Finance Officer Finance CTRLA

Eric Ranjeva Finance Officer Finance and Disbursements CTRLA

Gustavo Demarco Lead Economist Social Protection Economist MNSSP

Abdallah Awad Information Officer Information Technology MNCO4Specialist

Nadi Yosef Mashni Financial Management Financial Management MNAFMSpecialist

Riham Hussein Financial Management Financial Management MNAFMSpecialist

Basheer Jaber Procurement Consultant Procurement MNAPC

Lina Fathallah Rajoub Procurement Specialist Procurement MNAPC

Suha Rabah Program Assistant Program Assistance MNCO4

Paul Geli Consultant Implementation & Evaluation MNSSP

Lillian Frost Consultant Operations MNSSP

Stefania Rodica Consultant Data Analysis MNSSPCnobloch

V

Non-Bank Staff

Name Title Office Phone City

Locations

Country First Administrative Division

West Bank and Gaza West Bank

Institutional Data

Parent (WBGCTP-P119307)

Sector Board

Social Protection

Sectors / Climate Change

Sector (Maximum 5 and total % must equal 100)

Major Sector Sector % Adaptation Mitigation Co-Co-benefits % benefits %

Other social services Other social services 90

Public administration Other social services 10

Total 100

ZI certify that there is no Adaptation and Mitigation Climate Change Co-benefits information

applicable to this project.

Themes

Theme (Maximum 5 and total % must equal 100)

Major theme Theme %

Social safety nets Social safety nets 100

Total 100

Additional Financing (WBGCTP AF-P144967)

Sector Board

Social Protection

Sectors / Climate Change

Sector (Maximum 5 and total % must equal 100)

Major Sector Sector % Adaptation Mitigation Co-Co-benefits % benefits %

Other social services Other social services 90

Public administration Other social services 10

Total 100

vi

ZI certify that there is no Adaptation and Mitigation Climate Change Co-benefits information

applicable to this project.

Themes

Theme (Maximum 5 and total % must equal 100)

Major theme Theme %

Social safety nets Social safety nets 100

Total 100

vii

I. Introduction

1. This Project Paper seeks the approval of the Executive Directors to provide an additionalgrant in the amount of US$10.0 million from the Trust Fund for Gaza and West Bank (TFGWB)for the West Bank and Gaza Cash Transfer Project (WBGCTP) Additional Financing (AF)(P144967, TF015389).

2. The original grant (P 19307, TF099665) was approved by the Board of Directors of theWorld Bank on April 28, 2011 through Special Financing from the TFGWB. The proposedadditional grant would finance the costs associated with scaling up this well-performing projectand maximizing its impact in reducing the vulnerabilities of the poorest households in the WestBank and Gaza (WBG). It would primarily be used to scale up activities under the WBGCTP'sCash Benefits Component, which provides quarterly cash payments to households living belowthe extreme poverty line, in accordance with the 2007-2009 Palestinian Central Bureau ofStatistics (PCBS) poverty distribution and based on a Proxy Means Test Formula (PMTF), whichis the main targeting modality for the Cash Transfer Program (CTP). This Project has become acritical safety net in WBG to help the chronic poor and vulnerable households cope witheconomic hardships. The AF would also support the Palestinian Authority's (PA) efforts tocontinue reforms of the CTP. This support includes evaluating the accuracy of the PMTF,reducing the Project's inclusion and exclusion errors, and verifying beneficiaries' eligibilitythrough a constant monitoring and recertification process. There would be no major changes tothe implementation arrangements, and the proposed AF would have the same projectdevelopment objectives (PDO) as the ongoing project.

3. Partnership arrangements. The European Union (EU) is the largest donor to the CTP. Inaddition to financing cash payments to poor households, the EU has been instrumental inbuilding the Ministry of Social Affair's (MOSA) technical capacity by financing short- and long-term experts in key areas such as social policy, adherence to the reform actions, and PMTFupdates (e.g., updating the PMTF using more recent poverty data). The EU and the Bank remaincommitted to providing the necessary technical expertise to support the reform process. TheJune 2010 merger of the EU- and World Bank-funded cash transfer programs furtherstrengthened the high level of coordination among donors. The World Food Programme and theUnited Nations Children's Fund are also involved in providing in-kind contributions such asfood aid and school feeding programs to poor households.

II. Background and Rationale for Additional Financing

Background

4. Country Context. There has been limited progress on the Israeli-Palestinian politicaldialogue and peace talks. Civil unrest to demonstrate against the rising cost of living andrepeated civil service strikes to protest against frequent delays in salary payments have recentlyadded to the complex Palestinian political situation. After growing at an annual rate of elevenpercent during 2010-2011, the Palestinian economy has recently slowed down significantly.According to PCBS, the real gross domestic product (GDP) growth rate in the West Bank and

1

Gaza has declined to 5.9 percent in 2012 as growth dropped in both Gaza and the West Bank.Recent growth trends in the West Bank and Gaza underscore the importance of aid in driving theeconomy; most of the growth witnessed over the last several years was in the public and non-tradable sectors and was driven by donor-supported PA expenditures. Economic activity in theprivate sector has not expanded sufficiently to enable the PA to significantly reduce itsdependence on donor aid. On the contrary, the restriction system put in place by the Governmentof Israel continues to stand in the way of potential private investment. The recent slowdown ineconomic growth has also been reflected in higher unemployment levels, especially among theyouth. In comparison to the fourth quarter (Q4) of 2011, the overall unemployment rate in theWest Bank and Gaza increased by two percentage points to reach 22.9 percent in Q4 2012. Inthe West Bank, unemployment increased to 18.3 percent between Q4 2011 and Q4 2012. Gaza'sunemployment rate continues to be among the highest in the world at around 32.2 percent in Q42012 and Youth unemployment continues to be a serious concern. In the West Bank, 27.9percent of young Palestinians aged 15-29 were unemployed; in Gaza, the youth unemploymentrate was 48.9 percent. The persistence of high unemployment reflects the skewed nature ofgrowth with the expansion of the labor intensive sectors, in particular the manufacturing sector,constrained by Israeli trade restrictions. Palestinian youth are highly discouraged from joiningthe labor force because of the lack of opportunities.

5. In spite of the PA's reform efforts, lower than expected foreign aid is both hinderinggrowth and putting significant stress on the PA's fiscal situation. Donor aid for recurrentspending and development projects has declined from US$1.98 billion in 2008 to US$930million in 2012. This has been compounded by shortfalls in revenue as well as higher thanexpected expenditures-particularly pension payments. The PA has had to compensate for thelower than expected level of donor aid with domestic sources. This has caused frequent delaysin salary payments to public employees, accumulation of arrears to the private sector, as well asincreased borrowing from local commercial banks.

6. Link with the Bank's Strategy for the Middle East and North Africa (MENA) 1. Theproposed AF helps to support the implementation of three out of five priorities of the MENARegional Strategy presented to the Board of Executive Directors on January 30, 2013 as it targetsthe poor and vulnerable; helps strengthen governance and institutions; and helps to manage riskand prepare for crises. The proposed AF is also aligned with the strategy's cross-cutting theme ofgender.

7. Link with the Palestinian National Development Plan (PNDP 2011-2013). The PNDPemphasizes that the PA is mindful of the need to protect vulnerable groups and prevent themfrom falling behind as the economy grows. The primary objective of the PA's Social ProtectionSector Strategy is to ensure a decent life "for the Palestinian citizens on the path to sustainablehuman development in the independent Palestinian state." This strategy has four goals: (a)poverty alleviation; (b) creating an enabling environment for weak and marginalized groups; (c)developing a comprehensive social protection system; and (d) developing an adequate legislativeand institutional environment.

The MENA Strategy is also referred to as 'Regional Update 2013, Middle East North Africa".

2

8. Link with the Bank's Interim Strategy for the West Bank and Gaza (2012-2014). The2012-2014 Interim Strategy Note (ISN) Report # 66781-GZ discussed at the meeting of theBoard of Executive Directors on April 6, 2012 is based on the 2011-2013 PNDP. Pillar 1 of theISN states that "social assistance will remain a critical element of Palestinian policy until vibrantgrowth is able to generate employment" and "the PNDP explicitly promises to ensure effectiveand well-targeted assistance to those most in need." To support this effort, the Bank is workingwith MOSA and PCBS to improve social assistance targeting by using the revised povertymethodology and exploring the scope for combining geographic and individual targeting.Technical assistance will enhance the next round of the expenditure and consumption surveysand develop prototype modules that can assess social assistance in the future.

9. Links to Poverty Reduction. In 2011, almost 26 percent of Palestinians lived in poverty.The overall figure at the national level masks a wide regional divergence because in Gaza thepoverty rate was 39 percent, which was more than double the rate in the West Bank (18 percent).This regional contrast was driven by the severe economic shock that hit Gaza following theinternal divide, which led to a dramatic increase in poverty in 2007, leaving one in two Gazansliving below the poverty line. Similar to other countries, larger households in the West Bank andGaza tend to suffer from higher poverty levels. In 2011, the highest poverty rate of 50 percentwas among individuals who were part of households comprising ten or more members.Additionally, the incidence of poverty among households headed by civil servants was tenpercentage points less than those headed by workers in the private sector. This is explained bythe ongoing strain on private sector activity caused by Israeli restrictions. Notably, socialtransfers have continued to play a key role in reducing poverty levels, especially in Gaza. In2011, in the absence of all social programs, the official poverty headcount rate would have beeneleven percentage points higher. If these social payments were to be reduced or discontinued, itis expected that a large number of households would fall back below the poverty line.

10. The Original Grant. The WBGCTP (funded with US$10.0 million from the Trust Fundfor Gaza and the West Bank) became effective on May 23, 2011; the Project was restructured onJune 5, 2013 with the extension of the closing date from December 31, 2013 to December 31,2014 and a reallocation of the proceeds of the Grant. The one-year extension of the closing datewas necessary to allow the use of the undisbursed balances to secure MOSA's ManagementInformation System (MIS) and update MOSA's database. The reallocation of grant proceedsinvolved the transfer of US$330,000 from the "Project Operating Costs" category to the "CashTransfers" category in order to enable the Bank to continue to contribute to the payment of cashbenefits to the poorest households.

11. The Project is part of the much larger Palestinian Cash Transfer Program (CTP), whichwas established following the 2010 merger of the EU- and Bank-funded cash transfer projectsinto a PA-managed, full-fledged social safety net program. The merger occurred in terms ofprogram management and implementation, but the EU and the Bank have continued to fund theCTP separately. The CTP makes quarterly payments to about 100,000 beneficiary householdsthrough the banking system and the total cost of the Program is about US$110 million a year,which is largely financed by the EU and the PA. Although the Bank contributes only about fourpercent(i.e., about $4.5 million a year) to the overall Program, the Bank has leveraged itsposition and effectively used its technical expertise to guide the work of other donors, including

3

the EU (which provides significantly more funding than the Bank and other donors). Thisguidance has ensured that donor efforts do not overlap and encourages greater collaboration inthe distribution and evaluation of benefits. Overall, the Bank has become a reliable partner forMOSA, as well as for other donors, which has helped in the coordination of donor efforts inresponse to MOSA's needs and has been pivotal in the continued success of the CTP.

12. Objectives of the Original Project. The PDO of the original project is "to (i) mitigate theimpact of the continued socio-economic crisis on a subset of the extremely poor and mostvulnerable households; and (ii) support the Palestinian Authority's efforts to continue reforms ofthe Cash Transfer Program." The project has two components:

13. Component 1 - Cash benefits (US$9 million). This component aims at distributingquarterly cash payments to about 5,500 households living below the extreme poverty line, inaccordance with the 2007-2009 PCBS poverty distribution. However, since the beginning of theWBGCTP, the actual number of beneficiary households financed by the Bank Grant has beenabout 4,500 per quarter. The CTP extremely poor beneficiary households are identified by thePMTF, which is the main targeting modality for the WBGCTP as well as for the whole CashTransfer Program. The method used to determine the level of cash benefits is called "bridging ofthe poverty gap," which sets the benefit level at an agreed percentage of the poverty gap(currently it is set at 50 percent). The benefit level per household ranges between ILS 250-600per month (i.e., US$70-160 a month), and the Bank pays around US$4.5 million a year to about4,500 households. The money is paid directly to the bank accounts of beneficiaries. Inaccordance with the "Withdrawal of Grant Proceeds" in the Trust Fund Grant Agreement, thiscomponent is being co-financed by the PA, which has agreed to contribute 50 percent of the cashbenefits.

14. Component 2 - Assistance with the Reforms of the Cash Transfer Program and with theProject Management and Implementation (US$1 million). This component supports MOSA inits efforts to adhere to its reform agenda by: continuing outreach for CTP targeting, working toensure that all households living below the extreme poverty line are included in the CTP,enhancing the security of the Management Information System (MIS), and engaging in aconstant monitoring and recertification process to determine a household's eligibility to remainin the Program. This encompasses provision of technical assistance and training to MOSA tocontinue the CTP reforms. All aspects of program implementation (e.g., payments, complaintsand grievance mechanisms, controls and accountability mechanisms, etc.) are addressed in theOperations Manual dated July 3, 2013 and are closely followed up by both the EU and the Bank.The Project will use Information and Communications Technology (ICT) when possible toenhance both outreach to CTP beneficiaries and the collection of information and data formonitoring and evaluation (M&E). In addition, this component will strengthen MOSA's and theMOF's capacity for project management and M&E, including the maintenance and upgrading ofMOSA's MIS, project audits, and financing of Project Operating Costs.

15. Project Performance and Implementation Progress. There have been no changes to theoriginal objectives, design, or scope of the Project. The WBGCTP has been implementedaccording to schedule and is on track to achieve its development objectives. By bridging thepoverty gap for all beneficiary households, the overall CTP, of which the WBGCTP is a part,

4

contributes to mitigating the impact of the socio-economic crisis on the extremely poor and mostvulnerable households. The results of a number of assessments (the EU impact evaluation, theUnited Kingdom Department for International Development (DFID) Overseas DevelopmentInstitute (ODI) evaluation, and the Bank's CTP Targeting Assessment Phase I) were positive andacknowledged the program's targeting efficiency as well as its impact. The original US$10.0million grant for the WBGCTP is 100 percent disbursed (as of June 27, 2013), and the amountallocated to the cash benefits component has been fully disbursed (six months ahead ofschedule). The progress toward achievement of the Project Development Objective (PDO) andthe overall implementation progress are rated "Satisfactory" in the last Implementation Statusand Results Report archived in February 2013. The PA is in compliance with all legal covenantsand there are no unresolved fiduciary, environmental, social, or other safeguard problems. Thereare no audit issues and all audits are current and Procurement is currently rated satisfactory.

Rationale for the proposed Additional Financing

16. The rationale for the PA to request the additional grant is the need to extend and scale-upthe CTP activities in order to mitigate the negative effects of the dire economic situation in theWest Bank and Gaza, which has pushed more people into poverty. The AF offers the bestmechanism for supporting the expansion of cash benefits, which reduce the vulnerability of thepoor. The CTP is now a well-tested safety net instrument during crises. The Program hasestablished effective and efficient operational procedures with highly satisfactory management.The use of a repeater or new project would incur unnecessary costs on the part of the Bank aswell as the Recipient and would delay realization of the benefits, given that the ongoing Projectis disbursing ahead of schedule. Furthermore, the choice of the AF instrument is fully in linewith the guiding principle of the WBG Interim Strategy, namely, keeping project design simpleand relying on additional financings to scale up assistance to existing projects that are able toperform well under current conditions.

17. Risks. First and foremost, the country risk remains high. However, the CTP, and itspredecessor, the Bank-financed Social Safety Net Reform Project (SSNRP), were designed tooperate in highly unpredictable environments, and over the past ten years, have performedremarkably well in the midst of crisis situations. On the project side, the main risks pertain to theCTP's heavy reliance on donor funding and the possibility that such funding will not be availablein the future. The CTP has been functioning well and donor funding has been consistent inrecent years, but there is no guarantee that this will always be the case in the future. However,other aspects of sustainability, such as at the institutional level-through the Bank's support forreforms-and at the household level-through the income support that beneficiaries receive-alleviate some of the overall issues related to financial sustainability. Furthermore, the PA hasbeen working to graduate non-poor households into other relevant SSN programs (e.g.,employment generation, economic empowerment, and in-kind assistance programs). Theimplementation risk has been rated as "Moderate" based on the Project's excellent performancein difficult conditions over the years. In accordance with the risk based approach, an OperationalRisk Assessment Framework is provided in Annex 2 of this Project Paper.

5

III. Proposed Changes

Summary of Proposed Changes

Change in Implementing Agency Yes[ ] No[ X]

Change in Project's Development Objectives Yes [ ] No [X]

Change in Results Framework Yes [ X ] No [ ]

Change in Safeguard Policies Triggered Yes [ ] No [X]

Change of EA category Yes [ ] No [X]

Other Changes to Safeguards Yes [ ] No [X]

Change in Legal Covenants Yes [ ] No [X]

Change in Loan Closing Date(s) Yes [ X ] No [ ]

Cancellations Proposed Yes [ ] No [X]

Change in Disbursement Arrangements Yes [ ] No [X]

Reallocation between Disbursement Categories Yes [ ] No [X]

Change in Disbursement Estimates Yes [ X ] No [ ]

Change to Components and Cost Yes [ ] No [X]

Change in Institutional Arrangements Yes [ ] No [X]

Change in Financial Management Yes [ ] No [X]

Change in Procurement Yes [ ] No [X]

Change in Implementation Schedule Yes [ X ] No[

Other Change(s) Yes [ ] No [X]

18. The project scope would be increased, and the AF will help continue the payment ofbenefits to CTP beneficiaries as well as help fund new, qualified (i.e., extremely poor)beneficiaries. There would be changes in the disbursement estimates since the AF is scaling upthe previous project and providing retroactive financing to support advances for the grant foreligible project expenditures (i.e., cash transfers) with a ceiling of US$1.6 million. In addition,since the closing date has changed, the AF would have a different implementation schedule.Aside from these changes, the PDO, project design, and institutional arrangements would remainunchanged.

19. Results Framework: The Results Framework will be updated to include Core sectorindicators which were not included in the Results Framework for the original project and sometargets have been adjusted to reflect the additional financing (see Annex 1). To better reflect theProject's progress in undertaking reforms, two indicators have been added: the number ofbeneficiaries in the lowest quintile and the number of beneficiaries that have been in the databasefor less than two years. The main change is the increase the number of beneficiary households

6

receiving cash payments financed by the Bank Grant from about 4,500 to about 5,500 in. TheProgram's Operations Manual has been updated and endorsed by MOSA's Minister.

20. Closing Date: The scaled up activities are expected to be completed by December 31,2015; therefore, the closing date for the AF would be June 30, 2016 (the closing date for theoriginal project was already extended by one year to December 31, 2014).

21. Components and Cost: The CTP serves as a critical safety net which continues to helpchronic poor and vulnerable households cope with difficult economic conditions. The AF(US$10.0 million) would primarily be used to scale up the Cash Benefits Component(Component 1) of the WBGCTP, which aims to mitigate the impact of the continued socio-economic crisis on a subset of the extremely poor and most vulnerable households.Approximately US$9.0 million would be used to pay quarterly cash benefits to about 5,500households (compared to the about 4,500 households that actually received quarterly cashpayments under the original project). The increased number of households that the Bank mayassist would continue to be among the extremely poor as a result of the PMTF's high targetingaccuracy (which was demonstrated in the Bank's 2012 CTP Targeting Assessment). Theremaining US$1.0 million would be earmarked for technical assistance to continue reforms ofthe CTP and support project management as well as program implementation (Component 2),including continued maintenance and upgrades of MOSA's MIS and training of staff (e.g., socialworkers) to conduct home visits, collect updated data, add new data to the system, and revise thePMTF, which is being used by the Program to reflect beneficiary recertifications and energyaffordability among the poor. In addition, several clear ICT activities are planned underComponent 2. Annex 4 lists the activities and expenditures to be financed by the AF grant andincludes a table on the withdrawal of grant proceeds.

Table 1: Costs by component in $US millionComponent Original Changes Revised

cost with AF cost1: Cash Benefits 9.0 9.0 18.0

2: Assistance with the Reforms of the Cash Transfer 1.0 1.0 2.0Program and with the Project Management andImplementation

Total 10.0 10.0 20.0

22. The Operations Manual (OM) was approved on July 3, 2013. The PA cannot amend anyprovision of the OM without prior approval of the Bank and that poor and vulnerable householdsliving below the national poverty line but above the extreme poverty line (and are thereforeineligible according to the PMTF) will account for no more than 20 percent of the total CTPbeneficiaries.

IV. Appraisal Summary

23. Economic and Financial. The CTP is a social safety net (SSN) operation. Since it doesnot finance capital investment, an assessment of economic or financial returns does not apply.

7

The World Bank Phase I Targeting Assessment 2 found that the CTP is performing well in termsof its coverage, targeting efficiency, reduction of extreme poverty, and cost-benefit ratio. Inaddition, it also demonstrated the PA's commitment to exploring potential modifications to theCTP targeting mechanism in order to combat poverty and to support vulnerable households moreeffectively. This study also concluded that the cost-benefit ratio indicates that the CTP is quiteefficient because for each ILS 1.00 spent in transfers by MOSA, ILS 0.66 goes toward reducingthe extreme poverty gap. Moreover, the CTP is clearly a priority for WBG. The PA hasdemonstrated its commitment to the CTP by contributing over 50 percent of all the CTP's funds(which is well over the Bank's contribution). This high level of government support reflects thatthe PA is not only fully committed to the Project and supportive of the AF, but also that the PAconsiders the CTP an important funding priority. The PA's strong interest in and commitment tothe Project's objectives are driven by a concern for the deteriorating socio-economic situation inWBG, particularly affecting poor households, which is mitigated by the CTP through thebridging of the poverty gap for beneficiary households. Therefore, the objective of mitigatingthe impact of the socio-economic crisis on extremely poor and vulnerable households is beingachieved. Furthermore, thanks to the timely receipt of cash payments, households have a higherstandard of living.

24. Technical. WBG's SSN programs have been recognized as among the most effective inthe region. The 2012 MENA Development Report, "Inclusion and Resilience: The WayForward for Social Safety Nets in the Middle East and North Africa" highlights theseachievements, indicating that the WBGCTP is:

a. An example of best practice regarding the creation and use of a unified registry ofbeneficiaries;

b. The only program in the region with SSN coverage above the world average;c. The only program in the region where SSN transfers have the greatest impact on

the welfare of the poorest quintile and have a higher impact on poverty than isobserved in the best-performing programs; and

d. A program where M&E is effectively used to inform budgetary decisions andreshape programs.

25. A key reform supported by the CTP and its precursor, the SSNRP, was the introductionof an improved targeting system to be used in selecting beneficiary households. Moving awayfrom a largely categorical approach that relied on the subjective opinion of social workers,eligibility for cash transfers is now assessed using "standardized and transparent" eligibilitycriteria based on a PMTF. Particularly noteworthy are the two phases of the Bank-fundedtechnical assistance for a targeting assessment of the CTP. The first phase, completed in June2012, found that the large majority of MOSA applicants are extremely poor and that the PMTF isefficiently and accurately identifying extremely poor households. Overall, the PMTF correctlyidentifies 70 percent of the cases and has exclusion and inclusion errors lower than otherprograms that are widely considered successful (such as Bolsa Familia in Brazil andOportunidades in Mexico).3 A second phase of the targeting assessment, planned to be

2 World Bank, "West Bank and Gaza Targeting Assessment of the Cash Transfer Program," Report ACS890, June2012.

Ibid.

8

completed by September 2013, further analyzes the household data and explores other dynamicsof poverty (e.g., the electricity tariff, correlation between a household's food consumption scoreand poverty level, etc.). Annex 3 provides more information on reforms and achievements forsocial protection in the West Bank and Gaza, including the Bank's targeting assessments.

26. The Project will use ICT when possible to enhance both outreach to CTP beneficiariesand the collection of information and data for M&E. For instance, based on the recentlycompleted poverty maps produced by PCBS, ICT is planned to be used, in conjunction withMOSA's CTP MIS, to develop a geographic information system (GIS) to represent the povertymaps and provide better targeting of localities. The GIS will be implemented in-house, inside ofMOSA's premises, using the MIS's already-existing data. Only the Ministry staff members thatcurrently have access to the MIS will be able to enter the data layers needed to produce the GISmaps. The final product will be geographical maps with project indicators that will be used foranalytical and planning purposes. No personal information regarding the beneficiaries will beused by a third party. MOSA will work closely with PCBS to ensure that the CTP's coverage isconsistent with the poverty maps and that such maps will guide MOSA to improve outreach andtargeting in the most impoverished areas.

27. Review of the Benefit Scale. MOSA has been concerned that under the existing CTP, thespecific needs of households characterized as "vulnerable" (i.e., households that have children,elderly individuals, members with disabilities, and members with chronic diseases) are notadequately met. MOSA submitted to the Bank and EU a proposal to modify the criteria for thecalculation of benefit payments, replacing the PMTF mechanism with a set of allowances for thedifferent categories of household members. The proposed change was presented as a concretestep toward creating a social protection floor for the poor and vulnerable. The essence of theproposal was to set a basic minimum benefit of ILS 250 per month for any eligible household(eligible in accordance with the PMTF), to which allowances (ILS 50 per person with disability,ILS 40 per elderly person, ILS 30 per child, and ILS 30 per patient with a chronic disease) wouldbe added. The total benefit for any household would not exceed ILS 550 per month. Both theBank and EU indicated to MOSA that they were concerned about the impact of the proposedchanges on beneficiary households that are extremely poor because of the reduction in themaximum benefit payment from ILS 600 per month to ILS 550 per month. MOSA's proposalwas discussed extensively during the pre-appraisal mission and thereafter. Consequently, theBank carried out a detailed assessment of the impact of the proposed changes on extremely poorand vulnerable households. According to this assessment, the average per adult equivalent lossesand gains (in ILS per month) for each household are inversely related to the poverty rates, whichsuggests that the poorest households are the biggest losers under this modified scheme. Forexample, the study found that under the new scheme, the poorest CTP beneficiaries, whocurrently receive the maximum amount of assistance, will experience an average loss of 24.4%of their current benefits and that food insecure households in Gaza will experience a loss of up to30% of their consumption levels, making it difficult for these households to cope with dailyexpenditures. These changes to the benefit levels for extremely poor households are troublingsince the overall aim of the CTP is to mitigate extreme poverty and since the CTP was notdesigned to address the diverse, specialized needs of vulnerable groups. It was agreed that nochanges will be made to the benefit level and that the CTP's objectives will remain unchanged.The disability benefit will be dealt with separately and the Bank will not contribute to it.

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28. Project Management. MOSA will continue to have primary responsibility for alltechnical aspects of project implementation, and the Ministry of Finance's (MOF) ProjectCoordination Unit (PCU) will be responsible for all financial management aspects of the CTP.MOSA's Project Management Unit (PMU) will oversee project implementation as well asmonitoring and evaluation. The MOF PCU will work in close collaboration with the MOSAFinancial Management (FM) team. The PCU is fully operational and its staff is familiar withBank fiduciary and implementation procedures, since they have worked on a number of Bank-financed projects, and their supervision will strengthen the CTP's FM capacity. It should also benoted that approximately 90 percent of project funds are disbursed through a well-establishedand effective mechanism that provides quarterly cash benefits to project beneficiaries. Thesebenefits are paid through the banking system in close collaboration with the EU and MOF. Allprevious reviews, spot checks, and external audits confirmed eligibility of expenditures as wellas sound Financial Management (FM) practices.

29. Financial Management and Disbursements. The FM and disbursement arrangements inplace for the CTP will continue to be implemented under the AF. The MOF PCU will continuemanaging the financial aspects of the Project in close collaboration with the MOSA FM team.The additional financing will be provided by the World Bank and disbursed through a new U.S.Dollar Designated Account (DA), opened by the MOF at the Bank of Palestine (Ramallah) andmanaged by the MOF PCU. MOSA will submit payment requests with supportingdocumentation to the MOF PCU to ensure that there are no duplicate payments to CTPbeneficiaries. The MOF Financial Controller will check the list of proposed beneficiaries,confirm their eligibility, and advise the MOF Treasury Department to transfer the cash benefitsfrom the DA. Cash transfers will then be deposited directly into the bank accounts of individualbeneficiaries. The MOF PCU will keep all supporting documentation. More information onfinancial management and disbursements is included in Annex 5.

30. Procurement. The procurement arrangements currently in place for the ongoing CTPwill remain the same for the proposed CTP AF. Procurement of goods will be carried out inaccordance with the "Guidelines: Procurement under IBRD Loans and IDA Credits" publishedby the Bank in January 2011, and the selection of consultants will be carried out in accordancewith the "Guidelines: Selection and Employment of Consultants by World Bank Borrowers"published by the World Bank in January 2011. "Guidelines on Preventing and Combating Fraudand Corruption in Projects Financed by IBRD Loans and IDA Credits and Grants," datedOctober 15, 2006 and updated January 2011, shall apply to the Project. MOSA will beresponsible for CTP AF-related procurement, through the PMU, and the procurement specialistor consultant will continue to support MOSA in implementing procurement for the CTP AF,given the weak procurement capacity of the PMU. Few procurement activities are envisagedunder the AF (total allocation for goods and consultants services is estimated at US$660,000). AProcurement Plan dated June 11, 2013 for all procurement packages to be implemented duringthe first 18 months of the AF was prepared by MOSA's PMU and approved by the Bank. Theprocurement risk rating for the Project is "Moderate."

31. Implementation Support by the World Bank. The support to be provided by the WorldBank during project implementation has been discussed during appraisal and agreed upon during

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negotiations. Because the TTL and fiduciary staff are based in the country office, the WorldBank is able to provide continuous support and respond quickly to any request for assistance.This local presence will be complemented, as required, by the involvement of Washington-basedstaff to deal with more specialized topics, such as targeting or the approach to be adoptedregarding the specific needs of vulnerable groups. Technical assistance provided by the EU andWorld Bank will continue to develop MOSA's capacity to carry out the reform process. Theimplementation support plan is included in Annex 6.

32. Gender Mainstreaming. About 50 percent of project beneficiaries are from female-headed households for whom the CTP is often the primary source of support. In December2012, DFID released a report based on research from ODI that focused on beneficiary andcommunity perceptions of the CTP as well as on beneficiaries' experiences with themultidimensional nature of poverty and vulnerability, with a particular focus on female-headedhouseholds. This report found that beneficiaries regard the CTP as an important albeit limitedcomponent of their range of economic coping strategies and that, for most female-headedhouseholds, it represents a critical safety net. The indicator "Number of beneficiaries,percentage of which are female" has been added to the PDO level indicators, which alreadyinclude an indicator on the number of female-headed households.

33. Social. MOSA will encounter resistance in reducing benefit levels and removingbeneficiary households who, although still poor, no longer meet the CTP eligibility criteria.MOSA will continue the consultation process with beneficiaries and civil society organizations;this will include explaining the CTP eligibility requirements and targeting modalities.Households that have their benefits reduced or that are removed from the list of beneficiaryhouseholds may become eligible for in-kind support or support through microenterprise or small-scale employment activities.

34. Safeguards. No environmental or social safeguards are triggered.

35. Exceptions to or waivers of Bank policies. The AF does not involve any exceptions to orwaivers of Bank policies.

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Annex 1: Results Framework and MonitoringAdditional Financing for the West Bank and Gaza Cash Transfer Project

Revisions to the Results Framework Comments/Rationale for Change

PDO

Current (PAD) Proposed1. To mitigate the impact of 1. To mitigate the impact of the continuedthe continued socio-economic socio-economic crisis on a subset of thecrisis on a subset of the extremely poor and most vulnerableextremely poor and most households. No revisions to the PDO.vulnerable households. 2. To support the PA's efforts to continue2. To support the PA's efforts reforms of the Cash Transfer Programto continue reforms of the (CTP).Cash Transfer Program (CTP).

PDO indicators

Current (PAD) Proposed change*Objective 1:* Quarterly benefit payments from * Quarterly benefit payments from proceeds of Indicator continued. However, sinceproceeds of Bank grant to Bank grant to approximately 5,500 extremely actual numbers of beneficiaryapproximately 5,500 extremely poor households that are not receiving financial households have been only 4,500poor households that are not assistance from another funding source, with under the original project, there wouldreceiving financial assistance the introduction of a special allowance for be an increase in the number offrom another funding source. severely disabled members of the beneficiary beneficiary households.

households.Objective 2:* Based on the total available * Based on the total available funding envelope Indicator revised, with a slight increasefunding envelope from all from all sources, payments of cash benefits to at compared to the actual number ofsources, payments of cash benefits least 120,000 poor households in the West households already receivingto at least 70,000 poor households Bank and Gaza in accordance with the payments, based on the PA's efforts toin the West Bank and Gaza in Palestinian Central Bureau of Statistics (PCBS) ensure that all extremely pooraccordance with the 2007-2009 /Palestinian Household Expenditure and households are included in the CTP.Palestinian Central Bureau of Consumption Survey (PECS) distributionStatistics (PCBS) /Palestinian between West Bank and Gaza.Household Expenditure andConsumption Survey (PECS)distribution between West Bankand Gaza.

* Assessment of targeting * Revision in 2015 of the proxy means test Indicator revised. The Targetingaccuracy of the proxy means test (PMT) formula based on the most recent Assessment has demonstrated that the(PMT) formula based on the PCBS/PECS data and the findings and targeting is accurate. The next step isPCBS/PECS 2007-2009 data recommendations of the Targeting Assessment. to revise/improve the PMT formula.using the most recent PCBS/PECSdata in 2013.NA Core indicators added Core indicators added.

NA Number of CTP beneficiaries in the lowest New Indicator added.quintile (households)

NA Number of beneficiaries that have been in the New Indicator added.database for less than two years (households)

Intermediate Results indicators

Current (PAD) Proposed change*Component 1: Cash Benefits* Targeting and MIS remain * Continued. Indicator continued.operational.

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Revisions to the Results Framework Comments/Rationale for Change

* PA finances a percentage of the * PA finances 50% of the cash benefit paid to Indicator revised and reworded.cash benefit paid to beneficiary beneficiary households in WBGCTP.households in WBGCTP: 30% inthe first year and 50% thereafter.

Component 2: Assistance withthe Reforms of the CashTransfer Program and with theProject Management andImplementation* Processing at least 10,000 new * Processing at least 6,500 new applicant Indicator revised (previous target hasapplicant households every year. households every year in the West Bank and already been met).

Gaza.* No later than Dec 31, 2011, * Recertification of at least 18,000 beneficiary New Indicators added (which wererecertification of at least 31,000 households every year in the West Bank and previously legal covenants in thehouseholds in Gaza. Gaza. PAD).* No later than June 30, 2013,recertification of at least one halfof all households eligible toparticipate in the cash transferprogram.

* Indicate if the indicator is Dropped, Continued, New, Revised, or if there is a change in the end of project target value

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REVISED PROJECT RESULTS FRAMEWORK

Project Development Objective (PDO): To: (i) mitigate the impact of the continued socio-economic crisis on a subset of the extremely poor and mostvulnerable households; and (ii) support the PA's efforts to continue reforms of the Cash Transfer Program (CTP).

Baseline Cumulative Target Values7

Original Progress ResponsibilityPDO Level Results Indicators4 Q UOM, Project To Date 2013 2014 2015 2016 e Data Source for Data Comments

Start (2013Methodology Collection(2011)

Quarterly benefit payments fromproceeds of Bank grant toapproximately 5,500 extremely MOSA and Target refers to numberpoor households that are not E Number 5,000 4,500 4,500 5,000 5,500 5,500 Quarterly MOF MOSA of households and annualreceiving financial assistance from (not cumulative) values.

another funding source (annualvalue).Based on the total availablefunding envelope from all sources,payments of cash benefits to atleast 120,000 poor households inthe West Bank and Gaza (WBG) in Target refers number ofaccordance with the Palestinian E Number 63,000 105,000 106,000 110,000 120,000 120,000 Annual MO MOSA households and annualCentral Bureau of Statistics (not cumulative) values.(PCBS) /Palestinian HouseholdExpenditure and ConsumptionSurvey (PECS) distributionbetween West Bank and Gaza.Revision in 2015 of the proxymeans test (PMT) formula basedon the most recent PCBS/PECS

data and the findings andhorecommendations of the TargetingAssessment.

4Please indicate whether the indicator is a Core Sector Indicator (for additional guidance - please see http://coreindicators).5 UOM = Unit of Measurement.6For new indicators introduced as part of the additional financing, the progress to date column is used to reflect the baseline value.7Target values should be entered for the years data will be available, not necessarily annually. Target values should normally be cumulative. If targetsrefer to annual values, please indicate this in the indicator name and in the "Comments" column.

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Beneiciaies f Saety etsTarget refers to annualBeneficiaries ofZSafety Nets Number 787,000 860,000 867,000 875,000 883,000 885,000 Annual MOSA MOSA (not cumulative) valuesprograms (number) of the overall program.

Beneficiaries of Safety Nets Z Number 322,670 379,200 426,400 442,000 484,000 486,000 Annual MOSA MOSA Target refers to annualPrograms - Female (number). I N 3 (not cumulative) values

Beneficiaries of Safety Nets Target refers to annualPrograms - Unconditional Cash Z Number 540,000 613,000 619,000 625,000 631,000 633,000 Annual MOSA MOSA (not cumulative) valuesTransfers (number).

Beneficiaries of Safety Nets Target refers to annualPrograms - Other social Number 247,000 247,000 248,000 250,000 252,000 252,000 Annual MOSA MOSA (not cumulative) valuesassistance programs (number)

Direct Project beneficiaries Number 540,000 613,000 619,000 625,000 631,000 633,000(number) Annual MOSA MOSA Target refers to annual

(not cumulative) valuesof which are female (percentage) Percenta 41% 48% 52% 52% 55% 55%

geBeneficiaries of Safety Nets Target refers to annualPrograms - Female-headed E Number 26,000 44,584 44,584 46,000 48,000 48,000 Annual MOSA MOSA (not cumulative) values.households - Annual.

Number of CTP beneficiaries in E Number N.A. 49,464 50,000 53,000 56,000 56,000 Annual MOSA MOSA Target refers to annualthe lowest quintile (households) (not cumulative) values.

Number of beneficiaries that have Target refers to annualbeen in the database for less than E Number N.A. N.A. 18,899 19,450 25,000 25,000 Annual MOSA MOSA (not cumulative) values.two years (households)

Intermediate Results and IndicatorsBaseline Target Values

Unit of Original Progress ResponsibilityIntermediate Results Indicators Measur Project To Date 2013 2014 2015 2016 Frequency M urc for Data Comments

ement Start (2013) Methodology Collection(2011)

Intermediate Result 1: Component 1 - Cash Benefits

Targeting and MIS remain E] Yes/No Yes Yes Yes Yes Yes - Annual MOSA MOSAoperational.

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Intermediate Results and Indicators

Baseline Target ValuesUnit of Original Progress Responsibility

Intermediate Results Indicators Measur Project To Date 2013 2014 2015 2016 Frequency uoc for Data Commentsement Start (2013) Collection

(2011)PA finances 50% of the cashbenefit paid to beneficiary E Yes/No No Yes Yes Yes Yes - Annual MOF MOF

households in WBGCTP.

Intermediate Result 2: Component 2 -Assistance with the Reforms of the Cash Transfer Program and with the Project Management and Implementation

Processing at least 6,500 new New indicator (updatedPe Number N.A. N.A. 6,500 6,500 6,500 - Annual MOSA MOSA from a previous related

applicant households every year. indicator)

Recertification ___________ If at_ les 1 0 New indicator (based on

Recertification of at least 18,000 r Number N.A. N.A. 18,000 18,000 18,000 - Annual MOSA MOSA the PAD's legalbeneficiary households every year. covenants)

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Annex 2: Operational Risk Assessment FrameworkWest Bank and Gaza - Cash Transfer Project Additional Financing

Project Stakeholder Risks

Stakeholder Risk Rating HighDescription: Insufficient funds to provide the level of benefits Risk Management: (a) PA meeting financing gap through internal resources; (b) PA seekingdeemed necessary by Palestinian Authority (PA) could additional funds from the EU and other donors; and (c) PA initiated consultation process with civiladversely affect Bank, European Union (EU), client, and society and beneficiaries which should continue throughout project implementation.beneficiary relationship. . Due Date: June 30 Status:In

2016 progressImplementing Agency Risks (including fiduciary)

Capacity Rating: ModerateDescription: Ministry of Social Affairs (MOSA) financial Risk Management: The MOF PCU will continue to manage the FM arrangements. A qualifiedmanagement (FM) capacity needs further enhancement. financial management specialist is assigned and will work in close cooperation with MOSA FMMOSA's procurement and contract management capacity has staff. MOSA will submit payment requests with supporting documentation to the MOF PCU forimproved, but may still cause delays. review, approval, and payment, ensuring compliance with the grant agreement. The MOF PCU will

ensure that there are no duplicate payments to CTP beneficiary households. The MOF's FinancialController will check the list of proposed beneficiary households and confirm their eligibility andadvise the MOF Treasury Department in West Bank to transfer the money from the DA.Procurement activities are limited in number and value and are mostly repeaters of contractsfinanced under the ongoing project. MOF will provide assistance to MOSA in carrying outprocurement and contract management. MOSA procurement and Project Management Unit (PMU)staff have had and will continue to receive training on Bank Procurement.

Im.lementation Due Date: June 30, Status: InResp: Client Stage: Implementatronsmp 2016 progress

Governance Rating: LowDescription: The lack of an effective complaint handling and Risk Management: The complaints-handling and grievances system at MOSA will begrievances system at MOSA. strengthened and supported during implementation.

Adequate controls are in place for the screening of beneficiary households-mitigation measures toenhance transparency and accountability will include external audits, verifications of lists before

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payments are made, and eligibility reviews.

Under the on-going project there have been no instances of fraud and corruption. The most recenteligibility review concluded the soundness and effectiveness of the CTP targeting system. Thedisclosure of information policy will be adhered to. In agreement with the PA, the annual auditedreports and relevant documents will be available to the public, in accordance with the Bank's newaccess to information policy effective July 1, 2010.

Resp: Both Stage: Implementation 'u ae ue 0 ttsl2016 progress

Project Risks

Design Rating: ModerateDescription: The project design is simple since it is a follow-up Risk Management: The Bank and the EU will continue to monitor closely the reform process andto the successful SSNRP and ongoing CTP project. Key risks key undertakings will be referred to as dated covenants in the TFGA, such as the revision of theare related to the continuation of the reform process. Proxy Means Test Formula (PMTF) and the recertification of a select number of households.

Implementation Due Date: June 30, Status: In

R 2016 progressSocial & Environmental Rating: HighDescription: MOSA will encounter resistance in reducing Risk Management: The PA's Social Protection Strategy commits MOSA to work with donors tobenefit levels and removing beneficiary households from the entice them to include these poor households in their existing or scaled up social safety netCTP who were screened and are still poor but no longer meet programs (e.g., micro-finance, employment generation, food aid, etc.)the CTP eligibility criteria.

MOSA will continue the consultation process with beneficiaries and civil society organizations.This will include, among other things, explaining the CTP eligibility requirements and targetingmodalities.

Implementation Due Date: June 30, Status: InResp: Client Stage: Implementations

S2016 progressProgram & Donor Rating: ModerateDescription: The PA has struggled to close the financing gap Risk Management: The PA will need to continue evaluating benefit payments to match availablefor the CTP. CTP funds as well as meet the most important needs of vulnerable and extremely poor households.

The PA also plans to seek additional donor financing for the CTP.Exchange rate fluctuations could negatively (or positively)affect overall CTP funding in local currency. The PA is in the process of adjusting the benefit payments downward in order to match available

CTP funds, which will likely create dissatisfaction among the poorest segment of beneficiaries.However, this will be addressed through the MOSA communications strategy.

Implementation Due Date: June 30, Status: InResp: Client S : 2016 progress

Delivery Monitoring & Sustainability Rating: HighDescription: The CTP is not sustainable without donor Risk Management: The PA has committed to cost sharing the Bank's portion of the CTP (i.e., the

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financing. The reform process aims to progress and divert WBGCTP). Efforts are on-going to remove ineligible beneficiary households from the CTP. It isineligible households to other social safety net programs. The also necessary that the reform process continue in order to transfer beneficiaries from the CTP toCTP's coverage is improving as the PA has started taking other social safety net programs.actions toward graduating ineligible beneficiaries. Implementation Due Date: June 30, Status: In

Resp: Client Stage: Implementations 2016 progressOverall Risk

Overall Implementation Risk Rating: ModerateComments: Although the country risk is substantial, the project risk is moderate based on the Project's excellent performance in difficult conditions over the years.

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Annex 3: Reforms and Achievements for Social Protection in West Bank and Gaza

1. The West Bank and Gaza Cash Transfer Project (WBGCTP) continues to support reformefforts begun under the Bank-financed SSNRP. The Implementation Completion and ResultsReport (ICR) for the SSNRP highlighted important strides which were made by both the Bankand the Recipient during project implementation. In the West Bank and Gaza (WBG), the Bankis one actor among many donors in the Social Protection (SP) sector, and it does not provide thelargest financial contribution of active donors (the European Union (EU) is by far the largestdonor to the Program, and the Palestinian Authority (PA) currently funds 50 percent of the costof cash transfers provided by the Cash Transfer Program-CTP). The Bank has, however,played a key role in leveraging its position to influence the approach of other donors. The mostsalient example of this was the merger of the EU's Special Hardship Cases (SHC) Program andthe Bank's SSNRP into one program: the CTP. The Bank was able to encourage the EU to adoptthe same targeting mechanism (based on the proxy means test formula-PMTF), method ofdetermining benefit levels, and payment modality. These were significant shifts from theprevious approach of the SHC program, which used categorical targeting and provided astandard cash transfer amount to all beneficiaries. This unified targeting system has strengthenedcoordination among all major actors working in the SP sector in WBG. Furthermore, within thecontext of this partnership, the Bank has also been instrumental in ensuring that the PA's reformefforts maintain momentum-moving the larger SP agenda forward.

2. Some of the CTP's recent major achievements include: (1) consolidating a unifiedtargeting database (MOSA's Management Information System) that includes information on allapplicants and household beneficiaries and provides transfers using a uniform payment modalityas well as uniform benefit levels; (2) improving access to CTP assistance by switching fromdisbursing benefit payments through post offices to using more reliable bank accounts; (3)increasing the number of extremely poor households benefiting from the CTP (currently about97,000 households in WBG); and (4) recertifying one-half of all CTP eligible households.Another important achievement includes the 2012 Phase I CTP targeting assessment undertakenby the Bank with assistance from local consultants.

3. The first phase of the CTP targeting assessment (Phase I - P129124), completed in June2012, had several key findings. First, it showed that, in terms of model accuracy, the PMTFcorrectly identified more than 70 percent of all cases. Second, exclusion and inclusion errorswere around 20 percent, which is well below the errors found in analyses of other successfulcash transfer programs.8 Third, the cost-benefit ratio showed that the CTP is quite efficientbecause for each ILS 1.00 spent in transfers by MOSA, ILS 0.66 goes to reducing the extremepoverty gap. Fourth, the CTP is considered highly functional because it distributes timelypayments and maintains positive interactions between the beneficiaries and MOSA socialworkers.

4. A second phase of the CTP targeting assessment (Phase II - P143135), expected to becompleted by September 2013, aims to: (a) further explore Phase I's findings related to theCTP's targeting, administration, and implementation, with particular attention focused on betterunderstanding: (i) households' energy and food consumption patterns as well as their correlation

"West Bank and Gaza Targeting Assessment of the Cash Transfer Program," Report ACS890, June 2012, pg. 20.

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with the current PMTF, (ii) household priorities/characteristics to help inform modifications tothe PMTF, (iii) the amount and type of benefit of the cash transfers, and (iv) the effectivenessand efficiency of the program's processes; and (b) support and complement the activities of thePoverty Reduction and Economic Management Network, such as the development of a socialprotection module and poverty mapping efforts.

5. This second phase of technical assistance could influence the development of acomprehensive SP module in the new round of the Palestinian Expenditure and ConsumptionSurvey (PECS) planned for 2015 and could help refine the PMTF in order to help identify areasthat could improve the CTP's targeting efficiency and coverage. As part of this assessment, theBank recommended adding questions to the upcoming 2015 PECS survey on income shocks andmeans to cope with them in order to explore the correlation between these shocks and theclassification of beneficiaries. In addition, the Bank discussed and explored options with itscounterparts on how best to provide support to vulnerable groups through the PMTF. Thesevulnerable populations often need a different kind of support than regular beneficiaries, and thePMTF can identify them under a different cut-off point for assistance as well as provide themwith a different intervention. Furthermore, the Bank will provide technical assistance on thecosting, modeling, and projections of non-contributory schemes (e.g., for the elderly anddisabled) as well as discuss issues related to the region's flagship disability report, which will becompleted by mid-2013.

6. Like the first phase of the CTP targeting assessment, the second phase has beencharacterized by a high level of interest, coordination, and collaboration among donors anddevelopment partners, including the EU, World Food Program, United Nations Relief and WorksAgency, United Nations Children's Fund (UNICEF), and United Kingdom Department forInternational Development (DFID). In meetings with representatives of these organizations, theWorld Bank team has identified important areas of collaboration and ensured that the Bank'swork did not overlap with that of other partners. Several donors are carrying out studies andevaluations of the CTP.

7. In March 2013, DFID released a report prepared by the Overseas Development Institute(ODI), which is entitled "Transforming Cash Transfers: Beneficiary and CommunityPerspectives of the Palestinian National Cash Transfer Programme." This report deals withbeneficiary and community perceptions of the CTP as well as beneficiaries' experiences with themultidimensional nature of poverty and vulnerability, with a particular focus on female-headedhouseholds. DFID's perception survey for this report followed the Bank's phase one targetingassessment, and the study design was prepared in close collaboration with the Bank and EU.Dissemination workshops took place on March 18, 2013 in Ramallah and on March 21, 2013 inGaza, and the Bank team participated in both of these events. DFID has also expressed itswillingness to help fund small gaps in the Bank's budget for MOSA to help with areas such astechnical assistance and reforms. DFID reiterated its commitment to coordinating with the Bankand other partners to avoid duplication and promote program graduation as well as to improvingmonitoring and evaluation (M&E) systems in WBG.

8. In June 2013, the EU completed and disseminated a study entitled "Impact Evaluation ofthe EU Contribution to the Palestinian Cash Transfer Programme (CTP) in the Framework of the

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PEGASE Programme of Support to 'Vulnerable Palestinian Families' (VPF)." The study usedqualitative and quantitative methods to assess the CTP's impact on households as well as theProgram's processes and procedures. The EU worked with UNICEF to combine theirquantitative field research for this report, but UNICEF's work, contracted with ODI, will be usedin a separate assessment concerning the child-level impacts of the CTP, including children'swellbeing across a number of dimensions and social impacts of the cash transfer. The EU reportfound that for the majority of indicators examined, the intervention groups throughout WBGreached the targets articulated by MOSA. These indicators included meeting some (but not all)basic needs, providing adequate care to vulnerable household members, recovering fromhousehold shocks, accessing loans, paying debts, and linking beneficiaries to other socialservices.

9. WBG's SSN programs have been recognized as among the most effective in the region.The 2012 Middle East and North Africa Development Report, "Inclusion and Resilience: TheWay Forward for Social Safety Nets in the Middle East and North Africa" highlights theseachievements, indicating that the WBGCTP is:

a. An example of best practice regarding the creation and use of a unified registry ofbeneficiaries;b. The only program in the region with SSN coverage above the world average;c. The only program in the region where SSN transfers have the greatest impact on thewelfare of the poorest quintile and have a higher impact on poverty than is observed in thebest-performing programs; andd. A program where M&E is effectively used to inform budgetary decisions and reshapeprograms.

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Annex 4: Activities and Expenditures to be Financed by the AF Grant - Withdrawal ofGrant Proceeds

Activities and expenditures to be financed by the Additional Financing (AF) Grant

1. Under the Cash Benefit Component - US$9.0 million (Component 1, or Part A), the AFGrant will finance the provision of quarterly cash transfers to about 5,500 beneficiary householdsselected in accordance with the criteria and procedures set forth in the Operations Manual (OM).The AF Grant will finance 50 percent of the amounts disbursed by the Ministry of Social Affairs(MOSA).

2. Under the Assistance with the Reforms of the Cash Transfer Program and with theProject Management and Implementation Component - US$1.0 million (Component 2, or PartB), the AF Grant will finance:

a. the provision of technical assistance to MOSA to support its efforts to continuereforms of the Cash Transfer Program, including the extension of the CashTransfer Program to all households living below the extreme poverty line,periodic updates of the proxy means test formula (PMTF), and constantmonitoring and recertification of the participating households to ascertain theireligibility to remain in the Cash Transfer Program.

b. the provision of technical assistance and expenditures to strengthen MOSA's andthe Ministry of Finance's (MOF) capacity for project management and monitoringand evaluation, including maintenance and upgrading of MOSA's ManagementInformation System, project audits, and financing of project operating costs.

3. Goods and consultants' services under Component 2, Part B of the Project - estimatedamount: US$700,000.

4. A tentative list includes the following:

a. Contracts for MOSA's Project Management Unit Staff (Executive Manager,Financial Specialist, and Procurement Consultant-part time) and ICRConsultant.

b. Project financial audits, including spot checks.c. Developing the complaint system.d. Updating the PMTF.e. Capacity building-e.g., continuous training of social workers.f. Updating MOSA's Website (English and Arabic).g. Film and media.h. New MOSA Centers and District Offices.i. Risk recovery plan-e.g., database back-up.

5. Project Operating Costs under Component 2, Part B of the Project - estimated amount:US$300,000

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6. "Project Operating Costs" means incremental operating expenses incurred by the MOSAand MOF Project Team on account of Project implementation, management, and monitoring,including office maintenance, office supplies and utilities, rental of facilities, translation andinterpretation, printing and advertising, communication costs, transportation, local andinternational travel, training, including training of social workers, per diems for social workersand data entry volunteers, bank charges, and any other miscellaneous costs directly associatedwith the Project implementation, all based on periodic budgets acceptable to the World Bank.

7. The main item will be the per diems for MOSA social workers and volunteers to updatethe database every year, recertification of 18,000 beneficiary households, and processing ofabout 6,500 new applicant households.

Withdrawal of Grant Proceeds

8. The following table specifies the categories of Eligible Expenditures that may befinanced out of the proceeds of the Grant ("Category"), the allocations of the amounts of theGrant to each Category, and the percentage of expenditures to be financed for EligibleExpenditures in each Category:

Category Amount of the Grant Percentage ofAllocated Expenditures to be

(expressed in USD) Financed(inclusive of taxes)

(1) Cash Transfers under PartA of he Prject9,000,000 500% of amountsA of the Project disbursed by MOSA

(2) Goods, consultants'services, including audits, 700,000 100%under Part B of the Project

(3) Project Operating Costs 300,000 1000under part B of the Project

TOTAL AMOUNT 10,000,000

9. No withdrawal shall be made for payments made prior to the date of the Trust Fund GrantAgreement, except that withdrawals up to an aggregate amount not to exceed US$1,600,000equivalent may be made for payments made prior to this date but on or after September 15, 2013,for Eligible Expenditures under Category (1).

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Annex 5: Financial Management and Disbursements

Financial Management (FM)

1. The overall FM performance for the ongoing Cash Transfer Program (CTP) is currentlyrated as "Satisfactory." The Ministry of Finance (MOF) Project Coordination Unit (PCU) isfully operational and its staff is familiar with World Bank FM and disbursement guidelines asthey have worked on a number of Bank-supported projects. The accounting system iscomputerized and has been set up to account for and report on the Project's financial transactionsper category and component. The annual audited financial statements and spot audits have beensubmitted on time; the auditors have issued unqualified "clean" audit opinions, and quarterlyspot audit reports have not identified ineligible expenditures.

2. The same FM arrangements in place for the CTP will continue to be implemented underthe additional financing (AF). The MOF PCU will continue managing the financial aspects ofthe Project in close collaboration with the Ministry of Social Affairs (MOSA) FM team. The AFwill be provided by the World Bank and disbursed through a new U.S. Dollar DesignatedAccount (DA) opened by the MOF at the Bank of Palestine (Ramallah), and managed by theMOF PCU. MOSA will submit payment requests with supporting documentation to the MOFPCU to ensure that there are no duplicate payments to CTP beneficiaries. The MOF FinancialController will check the list of proposed beneficiaries, confirm their eligibility, and advise theMOF Treasury Department to transfer the cash benefits from the DA. Cash transfers will then bedeposited directly into the bank accounts of individual beneficiaries. The MOF PCU will keep allsupporting documentation.

3. Previous Interim Unaudited Financial Reports (IFRs) for the CTP were prepared byMOSA FM staff; such IFRs were not properly presented, did not meet quality standards, andwere not submitted on a timely basis. To enhance the performance and effectiveness of thereporting process, FM duties and responsibilities have been reassigned to the MOF PCU.Accordingly, the PCU will manage all FM and Disbursement functions, while the ProjectManagement Unit (PMU) at MOSA will only manage the technical aspects of the Project.

4. The Grant Agreement will require the submission of annual audited financial statementswithin six months after year-end. Project financial statements will be audited in accordance withinternational audit standards by an independent audit firm acceptable to the World Bank andrecruited competitively based on Terms of Reference acceptable to the Bank. The auditor willalso be required to carry out quarterly spot audits of cash transfers to beneficiaries. The cost ofthe audits will be financed from the Grant proceeds.

Disbursement Arrangements

5. Disbursements from the Bank Grant will follow the transaction based method, i.e.,traditional Bank procedures: Statements of Expenditure (SOEs) and Direct Payments. Forcertain payments, above the "Minimum Application Size," as specified in the Disbursement

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Letter, Withdrawal Applications (WAs) will be submitted to the Bank for payments to suppliersand consultants directly from the Grant Account. The initial deposit into the DA will be basedon a forecast of the first cash transfer to beneficiaries, which will be prepared by the MOF PCUand submitted with the WA. Subsequent disbursements into the DA will be based on SOEs,reconciled bank statements, and copies of all bank statements. The supporting documentationfor requests for direct payment should include records which provide evidence of eligibleexpenditures (e.g., copies of receipts, supplier's invoices, etc.). Additionally, the reimbursementmethod may be used for expenditures pre-financed using recipient's resource. Reimbursementsmust be disbursed to an account of the recipient held within the Central Treasury Account (CTA)department and used for purposes consistent with the terms of the legal agreement.

6. Designated Account: A segregated designated account (DA) denominated in USD willbe opened in Bank of Palestine to be used for depositing advances for the grant and to makepayments for eligible project expenditures. Its ceiling is set at US$1.6 million. This is themaximum amount of grant proceeds that may be on deposit in the designated account pendingthe provision to the Bank of supporting documentation evidencing the use of advanced funds.Additional instructions for disbursements are provided in the disbursement letter issued for thisproject.

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Annex 6: Implementation Support Plan

1. The strategy and approach for Implementation Support is characterized by an importantstaff presence in the field and great flexibility to provide support from experts in morespecialized fields. Because the task team leader and fiduciary staff are based in the countryoffice, the World Bank is able to provide continuous support and respond quickly to any requestsfor assistance. This local presence is complemented, as required, by the involvement ofWashington-based staff and consultants to deal with more specialized topics, such as targeting orthe approach to be adopted for taking care of the specific needs of vulnerable groups.

2. Partnership arrangements between the European Union (EU) and the Bank aresignificant. In addition to financing cash payments to poor households, the EU has beeninstrumental in building the Ministry of Social Affair's (MOSA) technical capacity by financinga number of short- and long-term experts in key areas such as social policy, statistics, adherenceto the reform actions, and proxy means test formula (PMTF) updates (e.g., updating the PMTFusing more recent poverty data). The EU and the Bank remain committed to providing thenecessary technical expertise to support the reform process and to build MOSA's capacity. Thehigh level of coordination between the EU and the Bank is now being extended by theestablishment of close working relationships with the World Food Programme, United NationsRelief and Works Agency, and United Nations Children's Fund.

3. The implementation support and supervision by the Bank will continue to focus ontargeting and fiduciary control on the use of the proceeds of the World Bank grant; morespecifically, the Bank's team will ensure that cash benefits are being paid to those living belowthe extreme poverty line. The Bank contribution will be concentrated on statistical analysis andcontinued review of the PMTF, particularly the revision planned for 2015. It will support andcomplement the activities of the Bank's Poverty Reduction and Economic ManagementNetwork, such as the development of a social protection module to better understand socialassistance needs and poverty mapping efforts. As part of these supervision efforts, the Bankteam will work closely with the country economist to follow up on triggers pertaining to reformsof the social safety net. The Bank has approved the MOSA Operations Manual on July 3, 2013and will ensure that it is complied with and being kept up to date.

4. The Bank is well-placed to provide technical assistance based on the institution'sworldwide experience with social safety net and cash transfer programs for poor households.

Focus Skills Needed Number of staff weeks Resourceand trips Estimate

Policy Reform Overall experience in design and 50 weeks, and two semi- US$100,000(including targeting). implementation of effective annual supervision annuallyFiduciary aspects social safety nets. missions for headquarters-(ensuring proper Technical knowledge on based staff.utilization of funds, with statistics and targeting With Bank team in thebenefits paid to poorest mechanisms (PMTF). field, project is underhouseholds). continuous supervision.

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