Rapport sur l'achèvement de la mise en œuvre et les résultats : Opération de réforme de la gouvernance économique

Document of The World Bank Report No:ICR000094 IMPLEMENTATION COMPLETION AND RESULTS REPORT ( IDA-40290HA and IDA-H1420HA ) ON AN ADJUSTMENT CREDIT (SDR24.3 MILLION) AND AN ADJUSTMENT GRANT(SDR 16.4 MILLION) TO THE REPUBLIC OF HAITI FOR AN ECONOMIC GOVERNANCE REFORM OPERATION OCT 25, 2006 Poverty Reduction and Economic Management Department (LCSPR Caribbean Country Management Unit (LCC3C) Latin America and Caribbean Region (LCR) Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized CURRENCY EQUIVALENTS ( Exchange Rate Effective 09/28/2006 ) Currency Unit = HG$ HG$ 1.00 = US$ 0.026 US$ 1.00 = HG$ 38.1 Fiscal Year October 1-September 30 ABBREVIATIONS AND ACRONYMS AAN National Airport Authority AAP Assessment and Action Plan APN National Port Authority CAMEP Metropolitan Water Authority CNMP National Procurement Commission CSCCA Supreme Audit Institution CSO Civil Society Organization EDH National Electricity company EGRO Economic Governance Reform Operation EGTAG Economic Governance Technical Assistance Grant EPCA Emergency Post-Conflict Assistance EU European Union FER Road Maintenance fund FY Fiscal Year GDP Gross Domestic Product HIPC Heavily Indebted Poor Countries I-PRSP Interim Poverty Reduction Strategy Paper ICF Interim Cooperation Framework IDA International Development Association IDB Inter-American Development Bank IMF International Monetary Fund MEF Ministry of Economy and Finance NEPO National Education Partnership Office NFO National Partnership Fund NGO Non- Governmental Organization PIP Public Investment Program PRGF Poverty Reduction and Growth Facility SMP Staff Monitored Program TELECO Telecommunications Utility TSS Transitional Support Strategy ULCC Anti-Corruption Unit Vice President: Pamela Cox Country Director: Caroline D. Anstey Sector Manager: Mauricio Carrizosa Program Team Leader: Antonella Bassani Haiti Haiti Economic Governance Reform Operation CONTENTS 1. Basic Information........................................................................................................ 1 2. Key Dates.................................................................................................................... 1 3. Rating Summary ......................................................................................................... 1 4. Sector and Theme Codes ............................................................................................ 2 5. Bank Staff ................................................................................................................... 2 6. Program Context, Development Objectives and Design ............................................ 3 7. Key Factors Affecting Implementation and Outcomes .............................................. 7 8. Assessment of Outcomes .......................................................................................... 12 9. Assessment of Risk to Development Outcome......................................................... 22 10. Assessment of Bank and Borrower Performance ................................................... 22 11. Lessons Learned...................................................................................................... 25 12. Comments on Issues Raised by Borrower/Implementing Agencies/Partners......... 26 Annex 1. Results Framework Analysis......................................................................... 27 Annex 2. Restructuring (if any) .................................................................................... 32 Annex 3. Bank Lending and Implementation Support/Supervision Processes............. 33 Annex 4. Beneficiary Survey Results (if any) .............................................................. 35 Annex 5. Stakeholder Workshop Report and Results (if any)...................................... 36 Annex 6. Summary of Borrower's ICR and/or Comments on Draft ICR ..................... 37 Annex 7. Comments of Cofinanciers and Other Partners/ Stakeholders ...................... 38 Annex 8. List of Supporting Documents ...................................................................... 39 Annex 9. Additonal Annexes........................................................................................ 40 9.1 Table A1. Haiti Economic Governance Reforms Supported by EGRO, 2004-05.. 40 9.2 Table A2. Haiti Economic Governance Reforms Supported by EGRO, 2004-05.. 54 1. Basic Information Country: Haiti Program Name: Haiti Economic Governance Reform Operation Program ID: P089873 L/C/TF Number(s): IDA-40290,IDA- H1420 ICR Date: 10/31/2006 ICR Type: Core ICR Lending Instrument: SAL Borrower: GOVERNMENT OF HAITI Original Total Commitment: XDR 40.7M Disbursed Amount: XDR 40.7M Implementing Agencies Ministry of Economy and Finance Cofinanciers and Other External Partners 2. Key Dates Process Date Process Original Date Revised / Actual Date(s) Concept Review: 08/19/2004 Effectiveness: 01/10/2005 01/10/2005 Appraisal: 11/10/2004 Restructuring(s): Approval: 01/06/2005 Mid-term Review: Closing: 12/31/2005 03/31/2006 3. Rating Summary 3.1 Performance Rating by ICR Outcomes: Satisfactory Risk to Development Outcome: Satisfactory Bank Performance: Satisfactory Borrower Performance: Satisfactory 3.2 Quality at Entry and Implementation Performance Indicators Implementation Performance Indicators QAG Assessments (if any) Rating: Potential Prob. Program at any time (Yes/No): No Quality at Entry (QEA): None Problem Program at any time (Yes/No): No Quality of Supervision (QSA): None DO rating before Closing/Inactive status: Satisfactory 4. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) General public administration sector 75 75 Telecommunications 4 4 Power 5 5 General transportation sector 12 12 General water, sanitation and flood protection sector 4 4 Original Priority Actual Priority Theme Code (Primary/Secondary) Macroeconomic management Primary Primary Public expenditure, financial management and procurement Primary Primary Other accountability/anti-corruption Secondary Secondary Other public sector governance Primary Primary Other human development Secondary Secondary 5. Bank Staff Positions At ICR At Approval Vice President: Pamela Cox Pamela Cox Country Director: Caroline D. Anstey Caroline D. Anstey Sector Manager: Mauricio Carrizosa Mauricio Carrizosa Program Team Leader: Antonella Bassani Auguste Tano Kouame ICR Team Leader: Antonella Bassani ICR Primary Author: Clara Ana Coutinho Sousa 6. Program Context, Development Objectives and Design 6.1 Context at Appraisal (brief summary of country macroeconomic and structural/sector background, rationale for Bank assistance) Haiti is the poorest country in the Latin America and Caribbean region and among the poorest in the world. The impact of prolonged political conflict and violence, poor economic governance, cycles of high external assistance followed by withdrawal of economic support, and natural disasters has been severe. Real income per capita has declined on average by 2 percent annually over the past twenty years. Also, Haiti's pattern of socio-economic development has been characterized by marked inequalities in access to productive assets and public services, which, together with low growth, has resulted in widespread poverty. Following the resignation on February 29, 2004 of President Jean Bertrand Aristide, a Transitional Government was created with a mandate to hold free and fair elections and hand over power to a new government in early 2006. Faced with the formidable challenges of deep-seated political instability and violence, weak institutions, and inefficient resource allocation and use, the Transitional Government requested international support for its Interim Cooperation Framework (ICF) presented at an international donors conference that took place in Washington in July 2004. In the ICF, the Government identified priority interventions and associated financing needs to support Haiti's path to economic, social and political recovery during the July 2004-September 2006 transition period. The ICF was based on four pillars: (i) strengthening political governance and promoting national dialogue; (ii) strengthening economic governance and contributing to institutional development; (iii) promoting economic recovery; and (iv) improving access to basic services. IDA played a key supporting role to the Government, along with other donors, in the preparation of both the ICF and the donors conference. The donor conference generated US$1.08 billion in new pledges for Haiti for 2004-06, including an exceptional IDA allocation of US$150 million. Weaknesses in economic governance represent one of the most serious obstacles to economic growth and poverty reduction in Haiti. In the area of economic governance, the Transitional Government identified in the ICF an ambitious program of reforms focused on the following critical areas: (i) budget formulation, execution and reporting; (ii) ex-ante and ex-post financial controls; (iii) public procurement; (iv) strengthening of human resources for policy formulation and program implementation; and (v) public enterprise management. A sixth area of interventions highlighted anti-corruption efforts and the strengthening of capacity to monitor reform progress and public sector outputs. The Economic Governance Reform Operation (EGRO) supported critical economic governance reforms identified by the Government in the ICF. The operation was a key component of IDA's program of re- engagement in Haiti as described in the Transitional Support Strategy (TSS) for FY05-06 discussed by the Board in January 2005. In support of the ICF, the strategy was designed to support interventions to deliver hope to the Haitian population and restore credibility in public institutions by helping the Government deliver quick wins in the provision of basic services and job creation and launch reforms that promote longer-term economic governance and institutional development. 6.2 Original Program Development Objectives (PDO) and Key Indicators (as approved) The Economic Governance Reform Operations (EGRO) in the amount of SDR 40.7 million (US$61 million equivalent) supported the Government's implementation of critical economic governance reforms to increase transparency and efficiency in the use of public resources and external assistance. The key objectives were: (a) improvement of budgetary processes and financial controls; (b) strengthening of public procurement processes; (c) stepping up of anti-corruption efforts; (d) improving efficiency and transparency in the management of public enterprises and the Road Maintenance Fund; and (e) creating a mechanism for civil society to monitor economic governance reforms and supporting Government communications efforts to increase public understanding and raise awareness of governance reforms. The preparation of the EGRO was carefully coordinated with the IMF, IDB and other donors. It was underpinned by the analysis of economic governance weaknesses contained in the Government's Economic Governance Strategic Group Sectoral Report (background paper for the ICF prepared by an inter-ministerial team supported by donors, including World Bank staff, in April-June 2004), as well as analytical work undertaken by IDA, IMF, IDB and other donors and institutions. Technical assistance for the implementation of the economic governance reforms supported by the EGRO was provided by IDA through a LICUS grant that was approved in September 2004 (US$1.5 million) and an Economic Governance Technical Assistance IDA grant (US$2 million) approved in May 2005. The EGRO consisted of a credit of SDR 24.3 million (US$ 36.5 million equivalent) and a grant of SDR 16.4 million (US$ 24.5 million equivalent). The operation was disbursed in two tranches. The first tranche, of US$46 million equivalent (of which US$27.5 million equivalent in the form of credit and US$18.5 million equivalent in the form of a grant) was disbursed upon effectiveness in January 2005, based on actions taken by the Government prior to Board presentation. The second tranche was disbursed in March 2006, upon completion of the actions agreed with IDA, for an amount of US$15 million equivalent (of which US$ 9 million equivalent in the form of credit and US$6 million equivalent in the form of grant). Following the disbursement of the second tranche of the Credit, the government continued to implement follow-up actions and reforms in areas supported by EGRO. The Government Letter of Development Policy (Annex 6 to the EGRO Program Document) included a number of outcome and benchmark indicators to help gauge progress toward achieving the objectives of the Government s program supported by the EGRO. 6.3 Revised Program Development Objectives and Key Indicators (if applicable, as approved by original approving authority) and Reasons/Justification Credit objectives remained unchanged. 6.4 Original Policy Areas Supported by the Program (as approved) The EGRO supported reform measures in the following main areas: a. Ensuring a sound macroeconomic framework . A key element of the Government s strategy was the maintenance of a sound macroeconomic framework through satisfactory implementation of the macroeconomic stabilization program prepared in consultation with the IMF. Haiti's macroeconomic framework after the inauguration of the Transition Government was established under the Fund staff- monitored program (SMP) covering the period April-September 2004. Over the following two years, the authorities macroeconomic program was supported by the IMF Emergency Post-Conflict Assistance (EPCA), with disbursements in January and October 2005. The EGRO incorporated the maintenance of a sound macroeconomic framework as tranche release conditions, as well as the macroeconomic targets of the Government s macroeconomic stabilization program agreed with the IMF in the context of the Emergency Post Conflict Assistance as benchmark indicators. b. Fiscal management, budget processes and financial control . To strengthen the role of the budget as an instrument of efficient and transparent management of public expenditures, the Government s agenda during 2004-06 included measures to ensure: (i) timely formulation and approval of budgets; (ii) reduction of the resources channeled through the comptes courants held by individual ministries and increasing transparency in their use; (iii) adequate internal controls; (iv) expansion of the automated system for budget information and management; and (v) wide dissemination of key budget execution data. The Government also planned to strengthen the preparation and execution of the public investment program and design and adopt a framework for a closer monitoring of the poverty content and impact of public expenditures. The EGRO included the following measures as tranche release conditions: (i) adoption of the budgets for FY2005 and FY2006, reflecting key objectives of the ICF, before the start of the fiscal year and regular public dissemination of key budget allocations and execution information; (ii) a drastic reduction in the use of discretionary spending through ministerial comptes courants and wide dissemination on their use; and (iii) strengthening the external audit function with a decree on the organization and functioning of the supreme audit institution, the Cour Superieure des Comptes et Du Contentieux Administrative (CSCCA). c. Public Sector Procurement . Another element of the Government s economic governance reform agenda was improving transparency and efficiency in the procurement process and laying the foundations for deeper medium term procurement reforms. The EGRO included the following measures as tranche release conditions: (i) the adoption of a decree establishing the National Commission for Public Procurement (CNMP), defining thresholds of procurement contracts to be reviewed by the CNMP and re- affirming that public bids are the norm; (ii) the competitive recruitment of the CNMP members; (iii) the adoption of standard bidding documents; (iv) systematic dissemination of the results of tendered bids since December 2004 and the creation of a database of Government suppliers available to the public; and (v) the hiring of an international procurement consulting firm to help the CNMP strengthen procurement capacity in line ministries and lay the ground work for a longer term reform of the public procurement legislative framework. d. Anti-corruption strategy . In line with its objective to improve the use of public resources, the Government s reform agenda included measures to fight corruption within the public sector. In this area, the EGRO I included the following measures as tranche release conditions: adoption of a decree authorizing the creation, for the first time in the country's recent history, of an Anti-Corruption Unit (ULCC) charged with implementation of the OAS convention on corruption, development and implementation of a civil service code of ethics, and the design of a national strategy and institutional framework to fight corruption; the staffing of the ULCC on a competitive basis and the completion of a draft report on a comprehensive diagnostic survey on corruption practices in Haiti prepared with the assistance of the World Bank Institute as an input into the preparation of an anti-corruption strategy. e. Human resource management . To lay the foundations for the development of a medium-term civil service reform program, the government planned to introduce an adequate incentive and accountability system to attract, maintain and motivate civil servants. The EGRO did not include specific tranche release conditions in this area whose objectives were medium and long-term in nature and where legislative changes were required for significant civil service reforms (which the Transition Government could not pursue given the lack of a Parliament). However, EGRO supported the Government efforts to start designing and implementing an efficient human resource management strategy and institutional framework to develop institutional capacity as an important element of its broader economic governance reform agenda and of legislative civil service reform efforts that could be pursued by the recently elected Government. f. Efficiency and transparency in the management of public enterprises and road maintenance . To increase transparency and accountability in the management of public enterprises, the Government s economic governance reform agenda included undertaking financial audits and management reviews for the following key public enterprises: EDH, TELECO, CAMEP, APN and AAN. Although annual audits for public enterprises were required by law, they had not been systematically done or had received little follow-up. The objective of the Government was to re-establish a culture of annual audits in the major public enterprises and to assess ways to improve their organizational and managerial set up. The EGRO included as tranche release conditions the Government s launching of financial audits in at least three key public enterprises and the accounting rehabilitation of TELECO and EDH. The Government reform agenda also outlined measures to implement an efficient and sustainable mechanism for road maintenance in Haiti. The EGRO included as tranche release conditions measures to make the road maintenance fund (FER), which was created in 2004, fully operational. g. Public-private partnership and governance in the education and health sectors . Another element of the Government s reform agenda was to improve the governance of the education sector (where private education accounts for 80 percent of enrollments) by establishing an Office of Public- Private Partnership (NEPO), developing procedures for the public financing of accredited private schools and initiating pilot financial transfers to a number of private schools serving poor households. In the health sector, the Government planned to issue a ministerial decree empowering public health facilities to sign contracts for provision of health services financed through micro-insurance agencies. The EGRO did not include specific tranche release conditions on these areas in order to ensure selectivity, although IDA provided technical and financial support to the Government for the creation of the NEPO and developing procedures for public financing of accredited schools. h. Civil society monitoring and communication around economic governance reforms. In order to build demand for better governance and accountability and maximize its sustainability, the EGRO supported the creation of a mechanism for civil society to monitor the implementation of economic governance reforms. EGRO also supported Government efforts to increase the understanding of and support by the population for such reforms, including through dissemination of key information on public expenditure, procurement and key governance reforms. 6.5 Revised Policy Areas (if applicable) Policy areas remained unchanged. 6.6 Other significant changes (in design, scope and scale, implementation arrangements and schedule, and funding allocations) None. 7. Key Factors Affecting Implementation and Outcomes 7.1 Program Performance Number of tranches: Tranche Amount: Expected Release Date: Actual Release Date: Release Floating Restructured 1 46,850,000.00 01/07/2005 01/10/2005 Regular No No 2 15,000,000.00 02/28/2006 03/15/2005 Regular Yes No Tranche Release binding Conditions Tranche Condition Text of Condition Status: 1 2 Sound macroeconomic framework maintained as evidenced for example by the successful implementation of the Government macroeconomic stabilization program supported by the IMF. Met 1 3 Budget for FY2004-05 adopted by Council of Ministers before beginning of fiscal year on October 1. Budget should incorporate key objectives as indicated in the four pillars of the Interim Cooperation Framework (ICF), particularly those relating to the economic governance program, and the objectives of the macroeconomic stabilization program. Civil society and donors consulted during budget preparation. Approved budget widely disseminated in the country through the Official Gazette and leaflets. Met 1 4 Adoption by Council of Ministers of a decree, Met satisfactory to IDA, for the establishment of the CNMP (decree also establishes procedure for defining threshold of procurement contracts to be reviewed by the CNMP and re-affirms that public bids are the norm). Appointment of Coordinator of CNMP. Preparation of TORs satisfactory to IDA, for members of the CNMP. 1 5 Non-salary current public expenditures disbursed through comptes courants not exceeding 15 percent for the fourth quarter of FY2003-04 (July- September) and 10 percent for the month of September 2004. Information on use of comptes courants in past fiscal year widely disseminated. Met 1 6 Adoption by the Council of Ministers of the ministerial decree authorizing the creation of an Anti-Corruption Unit as an autonomous entity under the Ministry of Economy and Finance; finalization of TORs for the Unit; appointment of the Unit Director General; and key personnel in place. Publication of the Decree in the official gazette and dissemination to the public at large for example during a press conference. Letter sent to the IDA requesting partnership in preparing a comprehensive diagnostic survey on corruption practices in Haiti; TORs for the survey are agreed with IDA. Met 1 7 Appointment of the FER Director General; appointment of members of Board of Directors; Board is operational. Met 1 8 The Government has undertaken the following actions: CAMEP: Calls for bids have been launched to recruit international audit and management firms to conduct a financial audit of CAMEP as well as a management and technical audit in preparation for its reform and management improvement program. APN: Calls for bids have been launched to recruit international audit firms to conduct the financial audit of APN. EDH: Call for bid for selection of international firm has been issued for accounting rehabilitation. TELECO: Accounting rehabilitation of TELECO has been completed. Met 1 9 Coordinator for Communication and Relations with Civil Society appointed by the Minister of Economy and Finance. Decision on the modules of the economic governance program to be monitored by civil society made, and information is published in local papers by Ministry of Economy and Finance. TORs for the Consultative Committee and Executive Secretariat approved by Minister of Economy and Finance (TORs will include responsibility of Executive Secretariat to publish the reports prepared by civil society organizations charged with monitoring of the economic governance program). Met 2 1 Sound macroeconomic framework maintained as evidenced for example by the continued successful implementation of the Government macroeconomic stabilization program supported by the IMF. Met 2 2 Satisfactory execution of the FY 2004-05 approved budget in accordance with its objectives and approved allocations. Key budget execution data widely disseminated to the local media. Met 2 3 No more than 10 percent of cumulative non-salary current public expenditures since beginning of FY2004-05 disbursed through comptes courants. Met 2 4 Approval and publication of new decree modifying the 1983 decree on the organization and functioning of the CSCCA, consistent with the new Loi Organique on the preparation and execution of Budget Laws, and satisfactory to IDA. Met 2 5 Data collection from survey on corruption practices in Haiti has been completed and first draft report on said survey has been completed. Met 2 6 Competitive recruitment of members of the CNMP completed; international procurement consultant/s hired; standard bidding documents adopted; systematic dissemination on the Internet and/or local newspapers of the results of tendered bids since December 2004; creation of database of Government suppliers available to the public through the CNMP. Met 2 7 First road maintenance contract awarded since FER creation; contract published. Met 2 8 The Government has undertaken the following actions for at least three of the five public enterprises included in the economic governance program: CAMEP: International audit and technical review firms selected for financial audit, management and technical audit. AAN and APN: International audit firms have been competitively selected and financial audits of APN and AAN initiated. EDH: Accounting rehabilitation of EDH is ongoing and has progressed satisfactorily as per agreed work program; international audit firm has been selected to conduct financial audit of EDH; the Government has authorized the launching of calls for bids to recruit an international firm to undertake an assessment of environmental liabilities as the first of a series of studies that will lead to the preparation of the Management Contract of EDH. TELECO: International firm has been selected to carry out financial audit; decision made on option for restructuring the sector, taking into account, inter alia, the results of a sector-wide review. Met 2 9 Executive Secretariat hired through a competitive process. Timely provision of information requested by civil society organizations (which would have been competitively selected by the Executive Secretariat) in charge of the monitoring of selected modules of the economic governance program. Monthly discussions of monitoring results by Government, Executive Secretariat and civil society organizations selected for monitoring of economic governance program. Met Comments While the Government's economic reform program included a large number of measures covering the areas detailed in section 6.4 of this Implementation Completion and Results Report and listed in Annex 6 of the EGRO Program Document, the EGRO included as tranche release conditions a sub-set of these measures (detailed above) selected on the basis of their importance and expected Government's implementation capacity. 7.2 Major Factors Affecting Implementation Implementation of the program of economic governance reforms supported by the EGRO was negatively affected by the difficult security situation, particularly in the run-up to the elections. This was particularly the case for the launching of the audits of public enterprises given that international firms' interest and willingness to bid for such audits was weakened by the difficult security environment. It should be noted that the Government made an extraordinary effort, with the support of IDA's staff, to pro-actively solicit the interest of international audit firms to bid for these contracts -- a demonstration of its commitment and determination to pursue its governance efforts in this area -- and as a result was able to recruit top audit firms for four public enterprises. Program implementation was also affected by Government weak implementation capacity. Years of political instability, insecurity and low pay have led to the loss of skilled staff. The reversal of these constraints will take time, particularly given the budgetary constraints faced by Government which limit its ability to attract and maintain skilled civil servants over the short term. Despite these limitations, the Government and IDA ensured close coordination and regular monitoring of the reform program implementation, which allowed for timely identification of problems and bottlenecks and their rapid resolution. Notable in this respect was the presence of the EGRO first task manager in the field during January-October 2005 and, in addition to supervision missions, the practice of holding regular implementation review meetings (via phone and video conferences) between the Government inter- agency implementation team and IDA staff, with these meetings being held twice per month during the period November 2005 and March 2006. Several factors have had a positive effect on project implementation. The technical assistance, both informal during the period in which the operation was designed and through the parallel Institutional Development TA Project and LICUS Grant on economic governance, was instrumental in helping the Government design and implement the reforms. Another positive factor was the linkages between the policies and reforms introduced under the IMF EPCA and those supported by EGRO, the close coordination between the donors supporting economic governance reforms (IDA, IMF, IDB, EU and Canada) and the resulting joint donor support for certain key reforms which added momentum for the Government to act. 7.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization The Ministry of Economy and Finance (MEF) was the principal executing agency and had responsibility for coordinating and overseeing all aspects of the EGRO supported program. Other ministries and agencies, notably the Prime Minister Office, the Ministry of Public Works, the ULCC, the CNIMP, the CMEP, the Ministry of Education, the Ministry of Health, the Ministry of Planning and External Cooperation, and public enterprises (EdH, TELECO, APN and CAMEP) also had key roles in executing the program, and worked with the MEF in implementing program components under their respective jurisdictions. The Bank monitored implementation through regular supervision missions as well as the presence in the field of the first EGRO task team leader and frequent phone and video conference from Washington. EGRO, the LICUS grant and the Institutional Development TA Project preparation and supervision missions also provided technical assistance and advisory services, in close coordination with other donors. The monitoring of the EGRO program was based on the use of a matrix to track reform implementation. This matrix identified pending reform measures, bottlenecks or pending problems, expected next steps and institutional responsibilities for follow-up (on both the Government and IDA sides). This matrix was updated regularly by the Government EGRO coordinator and IDA EGRO task team leader and was used by both teams during the regular implementation review meetings and supervision missions. 7.4 Expected Next Phase/Follow-up Operation (if applicable) A second EGRO operation (EGRO II, of US$23 million also in two tranches) is currently under preparation, aimed at pursuing and deepening the reforms introduced in the area of economic governance with support of the first operation and envisaged under the ICF. A matrix of reforms to be supported by EGRO II has already been identified jointly by the Government and IDA and the Government is in the process of implementing the first tranche conditionalities. EGRO II is scheduled to be presented to the Board on January 2007. 8. Assessment of Outcomes 8.1 Relevance of Objectives, Design and Implementation (to current country and global priorities, and Bank assistance strategy) The EGRO objectives, design and implementation arrangement were highly relevant to Haiti. This is based on the following considerations. First, the operation aimed at the critical objectives of the Government economic governance program as presented in the ICF, and for which the Government demonstrated strong ownership. The EGRO was also a main component of IDA's program of re- engagement in Haiti as described in the TSS which focused on supporting reforms that promote longer- term economic governance and institutional development and delivering hope through quick wins such as improved basic services delivery and job creation. Second, a relevant design was achieved through close collaboration with other donor agencies providing assistance in the areas targeted by EGRO, including the IMF, IDB, USAID, CIDA, EU and the French Cooperation Agency and complemented their efforts. This ensured that Government efforts were focused on a commonly agreed and supported reform agenda. An economic governance group (table sectorielle) led by the Government has been operating in Haiti to help coordinate donor work and to ensure it meets Haitian priorities. Third, the operation recognized the high level of risk involved in the implementation of the reform program (including the difficult security situation, capacity constraints in the public sector, the political transition and commitment of future governments to sustain the reforms initiated by the Transition Government) and tried to mitigate these risks through the provision of significant technical assistance, close donor coordination, the involvement of civil society in monitoring governance reforms, and communication and outreach efforts. Also, its implementation was supported by a very close collaboration between the Government and IDA staff, and regular and frequent program implementation monitoring meetings and supervision missions. Finally, the operation relied heavily on earlier studies conducted by IDA and other institutions and supported additional work (such as the diagnostic survey of the state of governance and the perception of corruption in Haiti). 8.2 Achievement of Program Development Objectives (including brief discussion of causal linkages between policy actions supported by the operation and outcomes) Haiti embarked on its reform program after decades of political instability, in a context of severely eroded institutions and poor governance. During 2005 and 2006, the Haitian authorities made significant progress in the implementation of economic governance reforms. These have included actions to improve the legal framework, create and strengthen core public institutions, and enhance financial management processes and procedures, as summarized in 6.4. As a result, the EGRO development objectives and key indicators have been achieved satisfactorily. All EGRO Board conditions were implemented, some prior to Board presentation in January 2005 and others prior to the disbursement of the second tranche in March 2006. While there were slight delays in the implementation of EGRO second tranche conditions, this was mainly due to the country's difficult security environment. After the disbursement of the second tranche, the Transition Government continued the implementation of its economic governance reform program in the areas supported by the EGRO. More importantly, the recently elected Government [1] has declared its commitment to continue the economic governance reform program started under EGRO. Already, it has agreed with IDA on a matrix of reforms to be supported by a follow-on EGRO II operation (under preparation) and EGTAG II (approved by the IDA Board in June 2006), and detailed it in the I-PRSP which it completed in August 2006. Priorities under EGRO II will focus on ensuring full and effective implementation of the new legal and institutional framework introduced under EGRO. This would be accomplished first by continuing the reforms initiated in the areas of budget management, public expenditure controls, procurement, human resource management, management of public enterprises and civil society monitoring. The Government is in the process of implementing the first tranche conditionalities of EGRO II which is scheduled to be presented to the Board on January 2007. Given the nature and depth of the governance problems in Haiti and the existing weak institutional capacity, results will be incremental and take time, but continued support for these reforms will be critical for the ability of the Government to effectively use domestic and external resources for social and economic development. Progress in the implementation of the main components and objectives of the reform program supported by the EGRO is summarized below: A. Ensuring a sound macroeconomic framework During 2004-06, Haiti made significant progress toward strengthening macroeconomic stability (see Table 1).The economy gradually recovered from the shocks experienced in 2004 (political turmoil and severe floods), and annual GDP growth is expected to increase to 2.5 percent in FY2006 from 1.8 percent in FY2005[2]. However, recurring security problems have adversely affected economic activity, donor project implementation and other inflows of foreign exchange. With increased revenues and tighter expenditure controls, the central government overall deficit (including grants) was reduced from 3.5 percent of GDP in FY2003 to a projected 1.1 percent in FY2006. This has largely eliminated recourse to central bank financing of the central government deficit. This substantial fiscal adjustment has also helped reduce end-of-period inflation from 37.8 percent in FY2003 to a projected 12.4 percent in FY2006. During 2004-06, the authorities' macroeconomic program was supported by the IMF's Emergency Post Conflict Assistance program, with disbursements in January 2005 (SDR10.23 million or US$15.6 million) and October 2005 (SDR10. 25 million or US$14.7 million). The EPCA remains on track, and key end-September 2006 quantitative targets were met. An IMF PRGF arrangement covering the next three years is scheduled to be discussed by the IMF Board in November 2006. Haiti: Selected Economic and Financial Indicators (Fiscal year ending September 30) 2003 2004 2005 2006 Actual Actual Prog. Actual Prog. Prel. (Annual percentage change) GDP at constant prices 0.4 -3.5 2.5 1.8 2.5 2.5 Real GDP per capita -1.7 -5.4 -0.2 0.8 Consumer prices (end-of-period) 37.8 21.7 12.0 14.8 10.0 12.4 (In percent of GDP) Central government overall balance (including grants) -3.5 -2.5 -1.2 -0.7 -2.3 -1.4 Current account balance (including grants) -1.5 -1.3 1.3 -0.1 (Changes in percent of beginning-of-period broad money) Broad Money (including foreign currency deposits) 39.8 9.1 12.8 20.3 6.6 9.1 (In millions of U.S. dollars, unless otherwise indicated) Net International Reserves 1/ 38.8 54.5 85.4 70.6 83.6 125.7 Liquid gross reserves 2/ 157.1 207.4 271 228.5 264.7 330.8 In months of imports of the following year 1.2 1.4 1.7 1.4 1.4 1.8 Sources: Ministry of Economy and Finance; Bank of the Republic of Haiti; and Fund staff estimates. 1/ Includes commercial bank's foreign deposits with BRH. 2/ Gross reserves excluding capital contributions to international organizations B. Improvement of budget management and financial controls Budget Preparation and Execution (including comptes courants). Considerable progress was achieved. Basic budgetary procedures have been restored through: (1) timely preparation and adoption of the annual budget and improved alignment of budget allocations with poverty reduction and economic recovery priorities; (2) better budget execution monitoring which resulted, inter alia, in the significant reduction in the use of discretionary accounts (comptes courants); and (3) more budget transparency through public dissemination of budget allocations and expenditures. Following several years of budgets being approved with delays, the FY2005, FY2006 and FY2007 budgets were approved on time before the beginning of the fiscal year on October 1. These budgets and their execution reflected key objectives of the Interim Cooperation Framework, particularly those relating to the economic governance program and of the macroeconomic stabilization program. Also, the FY2006 and FY2007 budgets were prepared according to the budget nomenclature for all revenues and expenditures which was recently adopted. The approved budgets have been disseminated publicly (by posting them on the Ministry of Economy and Finance's web site, and through newspaper articles, the official gazette and leaflets) and key budget execution data have also been widely disseminated. Efforts made by the Government to reduce drastically and regulate stringently the use of public agencies' discretionary spending through ministerial current accounts have resulted in better budget execution monitoring. The percentage of cumulative non-salary current public expenditures disbursed through comptes courants (i.e. Ministries' own accounts where, in the past, budgetary resources were channeled and used non-transparently for discretionary expenditures at the spending agency level) was reduced from 62 percent during October 2003-March 2004 to less than 15 percent for the period July-September 2004 and to less than 10 percent since September 2004 (with October being the beginning of FY2005). Information on the use of the comptes courants has been disseminated to the public and information on their use has been regularly shared with IDA. In addition, a survey of domestic payment arrears of the central government has been completed and a strategy to address them is being formulated. Also, the Government has caught up with the delays in the preparation of the Treasury accounts. Financial Control. The external audit function was strengthened with the adoption of a decree on the organization and functioning of the CSCCA (Supreme Audit Institution). The CSCCA ex-ante control functions were removed, allowing it to focus on ex-post auditing and thereby eliminating some duplication of functions and potential conflicts of interest. The LICUS and EGTAG are supporting the training of CSCCA auditors in their new ex-post control functions. The CSCCA is catching up on delays in the auditing of the Government accounts (it has finalized the audit report for FY2002, has almost completed the one for FY2003 and plans to complete the audit of FY2004 before end CY2006). In addition, a decree on the creation of the General Finance Inspection has been adopted to ensure the good functioning of internal controls in the administration and a chart of account has been adopted. Also, the statutes on financial comptrollers are being better defined, notably to improve their independence. The first batch of recruitment of public accountants was completed with recruits for 9 ministries and units (the Ministries of Public Works, Health, Education, Interior, Internal Revenue Department, Justice, Prime Minister office, Presidency, Planning and External Cooperation and Social Affairs) currently completing their training and expecting to start their function in October 2006. Follow-on batches of recruitments are planned for October 2007 and the following three years. The recruitment of financial comptrollers has been delayed due to the poor quality of the first applicants. A new recruitment effort is ongoing with the objective of posting them in the first quarter of FY2007. Public Investment Program (PIP). The current budget and the investment budget have been unified. Also, the Aid Coordination Unit in the Prime Minister's Office, and more recently the Ministry of Planning, has been tracking more frequently the disbursement of donor project funding. The PIPs for FY2005 and FY2006 were broadly consistent with the framework and objectives of their respective current budgets and the 2004 ICF. The ICF preparation process provided an input from donors and some civil society organizations for the preparation of these PIPs. Weaknesses however remain, notably with respect to inclusiveness of foreign financed expenditures, especially for projects financed by external grants and executed by NGOs. This is because the Haitian authorities continue to have difficulties in obtaining detailed and frequent expenditure information from some donors on projects whose execution does not require the co-signing of the Government. Also, while human resource needs for investment programming and monitoring in the Ministry of Planning and key sectoral ministries were identified in 2004, covering those needs fully was not possible due to resource constraints and other human resource recruitment priorities. The Government is targeting these areas for further improvement. Since 2005, technical assistance has been provided for the preparation of public investment programs to the Government by EGTAG I. Monitoring of Poverty-Related Expenditures. A Poverty Map published by the Ministry of Planning and External Cooperation in 2004 identified four sectors with a high impact on poverty (education, health, water and sanitation). Next, the Government completed in September 2006 an Interim Poverty Reduction Strategy which further developed its poverty reducing expenditure priorities. In addition, it identified specific expenditures targeted to poverty for the use of HIPC resources in the FY2007 budget (see HIPC Decision Point document, September 2006). A recent Public Expenditure Management assessment (Assessment and Action Plan, AAP) to strengthen the capacity of Haiti to track poverty reducing public spending was prepared jointly by IDA/IMF staff in consultation with the authorities in June 2006. The AAP concluded that the recently introduced budget and accounting classifications allow monitoring of budget allocations and expenditures following institutional, sectoral, administrative (including development projects) and economic (expenditure types) dimensions. The budget is also presented in the budget law annexes following a functional classification with 10 broad categories (such as education and health). The AAP presented recommendations to improve the budget classification along functional and program lines in order to better track poverty expenditures. The Government intends to adopt a an automated system to track poverty related expenditure and publicly disseminate quarterly reports on the execution of these expenditure according to the AAP recommendations and consistent with the planned expansion of the automated system for budget information and management (SYSDEP) (see HIPC Preliminary Document, September 2006). Expansion of Automated System for Budget Information and Management. Haiti has an automated financial management system, SYSDEP, which checks the availability of expenditure appropriations committed and authorized for payment. In 2005, following an evaluation of alternative systems, the Ministry of Finance decided to retain SYSDEP and sought donor assistance to expand its coverage and add additional modules. At that time, SYSDEP was installed in five Ministries (Finance, including Treasury, Planning, Health, Public Works, Interior and Local Government) as well as the CSCCA. Since then, SYSDEP has been expanded to the Ministries of Agriculture and Natural Resources, Education, Commerce and Industry, Tourism, the Prime Minister's Office, the Presidency, the Haitian Institute for Statistics, the ULCC, the Tax Directorate and the Customs Administration. Also, an interface has been introduced to connect the SYSDEP with the fiscal revenue collection system in the MEF, thus covering more than 50 percent of spending and revenue collection agencies. The Government is also in the process of installing the infrastructure needed to connect SYSDEP to 17 additional sites by end 2006, including the other