Rapò sou Akonplisman Aplikan ak Rezilta: Twazyèm Operasyon Refòm Gouvènans Ekonomik

Document of The World Bank Report No: ICR00001919 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA-H5350) ON A GRANT IN THE AMOUNT OF {SDR 8.0} MILLION (US$ 12.5 MILLION EQUIVALENT) TO THE REPUBLIC OF HAITI FOR THE THIRD ECONOMIC GOVERNANCE REFORM OPERATION May 25, 2011 Poverty Reduction and Economic Management Caribbean Country Management Unit Latin America and Caribbean a Region Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized R EPUBLIC OF H AITI - G OVERNMENT F ISCAL Y EAR October 1 – September 30 C URRENCY E QUIVALENTS (Exchange Rate Effective as of April 30, 2011) Currency Unit Haitian Gourde US$1.00 HTG 40.00 ABBREVIATION AND ACRONYMS CAS Country Assistance Strategy CEM Country Economic Memorandum CIDA Canadian International Development Agency CNMP National Procurement Commission CSCCA Supreme Audit Institution DGI General Directorate of Taxes DPG Development Policy Grant DSNCRP National Strategy for Growth and Poverty Reduction EDH National Electricity Company ( Electricité d’Haïti ) EGRO Economic Governance Reform Operation EGTAG Economic Governance Technical Assistance Grant FER Road Maintenance Fund HIPC Heavily Indebted Poor Countries IADB Inter-American Development Bank ICR Implementation Completion Report IDA International Development Association IGF General Finance Inspectorate ( Inspection Générale des Finances ) IMF International Monetary Fund MDRI Multilateral Debt Relief Initiative MEF Ministry of Economy and Finance PEFA Public Expenditure and Financial Accountability PEMFAR Public Expenditure Management and Financial Accountability Review PFM Public Financial Management PMO Prime Minister’s Office PRGF Poverty Reduction and Growth Facility SDR Special Drawing Rights SYSGEP Système de Gestion de l’Information sur les Programmes et Projets d’Investissement UN United Nations UNDP United Nations Development Program USAID US Agency for International Development Vice President: Special Envoy: Sector Director: Sector Leader: Co-Task Team Leaders: ICR Team Manager : Pamela Cox Alexandre V. Abrantes Rodrigo A. Chaves Auguste Kouame Luc Razafimandimby and Jasmin Chakeri Emmanuel Pinto Moreira REPUBLIC OF HAITI THIRD ECONOMIC GOVERNANCE REFORM OPERATION TABLE OF CONTENTS 1. ProJECT Context, Development Objectives and Design ........................................... 1 2. Key Factors Affecting Implementation and Outcomes .............................................. 8 3. Assessment of Outcomes .......................................................................................... 17 4. Assessment of Risk to Development Outcome ......................................................... 25 5. Assessment of Bank and Borrower Performance ..................................................... 25 6. Lessons Learned........................................................................................................ 27 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners........... 28 Annex 1: Third Economic Governance Reform Operation Policy Matrix ....................... 29 Annex 2: Bank Lending and Implementation Support/Supervision Processes ................ 32 Annex 3. Donor’s Support to Economic Governance Reform Agenda ............................ 33 Annex 4. Summary of Borrower's ICR and/or Comments on Draft ICR ........................ 34 Annex 5: Haiti at a Glance ............................................................................................... 35 Annex 6: List of Supporting Documents .......................................................................... 37 MAP A. Basic Information Country: Haiti Program Name: HT 3rd Econ. Governance Reform Operation Program ID: P117944 L/C/TF Number(s): IDA - H5350 ICR Date: 05/20/2011 ICR Type: Core ICR Lending Instrument: DPL Borrower: GOVERNMENT OF HAITI Original Total Commitment: XDR 8.0M Disbursed Amount: XDR 8.0M Revised Amount: XDR 8.0M Implementing Agencies: Minist ry of Economy and Finance - Haiti Co - financiers and Other External Partners: Process Date Process Original Date Revised / Actual Date(s) Concept Review: 07/27/2009 Effectiveness: 03/16/2010 01/12/2010 Appraisal: 10/21/2009 Restructuring(s): Approval: 12/08/2009 Mid - term Review: Closing: 12/31/2010 12/31/2010 C.1 Performance Rating by ICR Outcomes: Moderately Uns atisfactory Risk to Development Outcome: Substantial Bank Performance: Satisfactory Borrower Performance: Moderately Satisfactory C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Satisfactory Government: Moderately Satisfactory Quality of Supervision: Satisfactory Implementing Agency/Agencies: Moderately Satisfactory Overall Bank Performance: Satisfactory Overall Borrower Performance: Moderately Satisfactory C.3 Quality at Entry and Implementation Performance Indicators Implementation Performance Indicators QAG Assessments (if any) Rating: Potential Problem 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: Moderately Satisfactory Original Actual Sector Code (as % of total Bank financing) Central government administration 90 General public administration sector 10 Theme Code (as % of total Bank financing) Administrative and civil service reform 14 Public expenditure, financial management and procurement 65 Tax policy and administration 21 Positions At ICR At Approval Vice President: Pamela Cox Pamela Cox Country Director: Alexandre V. Abrantes Yvonne Tsikata Sector Manager: Rodrigo A. Chaves Rodrigo A. Chaves Program Team Leader: Luc Razafimandimby Luc Razafimandimby ICR Team Leader: Emmanuel Pinto Moreira ICR Primary Author: Ana Lucia Armijos / Emmanuel Pinto Moreira Program Development Objectives (from Project Appraisal Document) The operation directly supports key pillars of the Government’s poverty reduction strategy, the DSNCRP, namely building state capacity and improving management of public resources. In particular, the operation aims to contribute to: (i) reducing inefficiencies in the electricity sector in order to support the Government’s effort to reduce the fiscal transfer to the electricity company (EDH); (ii) modernizing and strengthening public financial management to raise and use public resources in a more efficient and transparent manner; and (iii) strengthening and implementing the legal framework for public procurement to contribute to more transparent and cost-effective public expenditure. By addressing weaknesses in public financial management, the operation is also expected to contribute to improvements to the PEFA indicators in the medium term. (a) PDO Indicator(s) Indicator Baseline Value Original Target Values (from approval documents) Formally Revised Target Values Actual Value Achieved at Completion or Target Years Indicator 1 : Electricité d'Haiti's (EDH) Cost Recovery Index (6 month moving average) has increased to at least 45 percent from less than 32 percent in FY2008. Value (quantitative or Qualitative) 32 percent in 2008 At least 45 percent 19.5 percent. Transfers to EDH exceeded the budgeted amount for FY 2010 by 3%. Date achieved 09/30/2008 12/31/2011 12/31/2010 Comments (incl. % achievement) Following the earthquake of January 2010, EDH revenue collection capacity weakened as part of the grid was damaged. The information system is outdated and the meters are not working in most of the cities. Indicator 2 : Improved collection rate as evidenced by collection ratio for gross tax arrears, understood as collection of tax arrears during the Government FY as a percentage of total outstanding arrears. Value (quantitative or Qualitative) Transparency of Taxpayer Obligations and Liabilities Component (i) Clarity and comprehensiveness of tax liabilities Improved collection ratio for gross tax arrears as a percentage of total outstanding arrears Quantitative indicator was not available at the time of the last supervision mission Date achieved 06/25/2008 12/31/2011 12/31//2010 Comments (incl. % achievement) The General Directorate of Taxes (DGI) lost most of its data base during the earthquake. The data are not available even at the time of the ICR Indicator 3 : Operationalization and full compliance of the IGF with its 2009-11 audit work program, including distribution of audit reports to beneficiaries and ministries Value (quantitative or Qualitative) Effectiveness of internal audit control: Component (i) Coverage and quality of the internal audit function; Component (ii) Frequency and distribution of reports Full compliance of the IGF with its 2009-11 audit work program. Based on the revised work program after the earthquake, the IGF has begun some key tasks. Date achieved 06/25/2008 12/31/2011 12/31/2010 Comments (incl. % achievement) The action plan of IGF was revised in June 2010 to integrate emerging priorities and expanded to cover the period 2010 - 2014. Only some key tasks, as part of the 2 010 - 11 ac tion plan, have been completed at the time of the ICR, including the inventory of Government and NGO’s projects , the audits of subsidies in the education sector, the analysis of audit reports issued by the Court of Accounts, and the audit of public accountants activities in the Ministry of Finance Indicator 4 : Existence of multi - year expenditure estimates based on strategic orientations in at least three ministries Value (quantitative or Qualitative) Multi - year perspective in fiscal planning, expenditure and budgeting: Existence of sector strategies with multi - year costing of recurrent and investment expenditure Multi - year expenditure estimates in at least three ministries Only t he Ministries of Agriculture and Education have multi - year expenditure plans. Date achieved 06/25/2008 12/31/2011 12/31/2010 Comments (incl. % achievement) Efforts are underway in several ministries to design an integrated sector and multi - year expenditure plan based on strategic orientations. Indicator 5 : Improve comprehensiveness of budget reporting as evidenced by compliance with the budget and accounting classifications of consolidated statement of deposits and expenditures from comptes courants Value (quantitative or Qualitative) Effectiveness of i nternal controls for non - salary expenditure: Component (iii) Degree of compliance with rules for processing and recording transactions Improve budget and accounting classifications of consolidated statement of deposits and expenditures from comptes coura nts . The procedures are already partially taken into account for FY 2010 but will be only fully effective in FY2011. Date achieved 06/25/2008 12/31/2011 12/31/2010 Comments (incl. % achievement) New procedures on budget & accounting classifications on deposits & expenditures from comptes courants are laid out in the operating manuals for budget execution, the approval of which has been delayed due to the earthquake. The Manual was approved in the second quarter of the 2011 calendar year and being printed out for distribution to line ministries as of May 2011 . These procedures w ill be fully effective in FY2011 - 12. Indicator 6 : Compliance of external audits with regulations as evidenced by timely submission of the Budget Execution Law and Government Accounts to Parliament and the Audit Institution, respectively. Value (quantitative or Qualitative) Scope, nature, and follow - up of external audits Component (ii) Frequency and distribution of external audit reports Timely submission of the Budget Execution Law and Government Accounts to Parliament and the Audit Institution. Government accounts for 2008 - 09 were submitted on time to the Supreme Audit Institution. However, submission of the audit of the 2008 - 09 to Parliament has been delayed. Date achieved 06/25/2008 12/31/2011 12/31/ 2010 Comments (incl. % achievement) The audit of the 2008 - 09 g overnment accounts by the Court of Accounts was delayed following the destruction of its building after the earthquake . Government has submitted to the Court of Accounts the 2009 - 10 government accounts in May 2011. Bank staff discussed with MEF and the Court measures to shor ten the period required for the preparation of government accounts for FY10 in order to enable the Court to prepare both the audits for 2008 - 09 and 20 09 - 1 0 by Sept 2011. Indicator 7 : Enhanced transparency in public procurement, evidenced by increasing share of competitive procurement/ total procurement, measured by the contracts awarded w/o competition as percent of all contracts awarded Value (quantitative or Qualitative) 58% in FY 2008 less than 45% in FY11 Procurement data in line ministries was lost due to the destruction of ministries during the earthquake. Date achieved 06/25/2008 12/31/2011 12/31/ 2010 Comments (incl. % achievement) The government is commissioning a consultancy to gather data from line ministries for 2008 - 2009 and 2009 - 2010 and to update the CNMP database. No. Date ISR Archived DO IP Actual Disbursements (USD millions) 1 06/30/2010 Moderately Satisfactory Moderately Satisfactory 12.50 2 12/31/2010 Moderately Satisfactory Moderately Satisfactory 12.50 Not Applicable 1 IMPLEMENTATION COMPLETION AND RESULTS REPORT FOR THE THIRD ECONOMIC GOVERNANCE REFORM OPERATION TO THE REPUBLIC OF HAITI 1. Haiti is the poorest country in the Latin America and Caribbean region. The latest Household survey available indicated that 76 percent of the population lived below the US$2-a- day poverty line and 58 percent below the US$1-a-day poverty line. Poor access to infrastructure, minimal ownership of assets, low education and literacy levels, and high levels of child malnutrition were identified as the most important causes of poverty in the World Bank’s 2006 Country Economic Memorandum. Inequality is high, with a Gini coefficient of 0.5. A marked gap existed between the rich and the poor in access to economic opportunities and social services and unemployment was high at an estimated rate of 30 percent in 2009. 2. After a two-year transitional period, Haiti successfully returned to constitutional order by holding presidential and parliamentary elections in February and April 2006. Mr. René Préval was elected President with a 51 percent majority, consolidating democracy and improving political stability. The 48 th legislature was opened in May 2006, ending three years of legislative paralysis which strengthened the political process. Municipal elections were held in April 19, 2009, although delayed due to restructuring of the electoral council and the passage of a new electoral code. 3. In 2008, Haiti experienced a series of shocks that threatened macroeconomic stability and diverted resources away from the priorities of the National Strategy for Growth and Poverty Reduction (DSNCRP). In addition to the political stalemate following the food and fuel price riots, Haiti was hit by four back-to-back hurricanes and tropical storms in August-September 2008, which caused damages and losses estimated at about 15 percent of GDP. These domestic shocks were compounded by the effects of the 2008 global slowdown. As a result real GDP growth slowed to 1.2 percent in FY2008 from 3.4 percent in FY2007, turning negative in per capita terms. High food and fuel prices led to sharply rising inflation and a deteriorating current account balance. At end 2008 inflation increased to 14.4 percent and the current account deficit widened to 4.5 percent of GDP, driven by an increasing trade deficit, largely because of higher food and fuel imports. The overall balance of payments remained in surplus due in part to PetroCaribe inflows used as budgetary support that kept international reserve coverage at three months of imports. 4. In the period leading to appraisal the Government responded to the shocks by boosting spending, especially investment expenditure, through the program of post-storm recovery and reconstruction activities funded by PetroCaribe savings (around US$220 million) expected to primarily finance capital expenditures (75 percent), with the remainder for current spending. The reconstruction program and a new proposed program to create 100,000 to 150,000 jobs over two years through infrastructure construction (including labor-intensive works) provided a fiscal 2 stimulus to counteract the effects of the global slowdown. The FY2009 budget also allocated a large share of resources to social sectors and infrastructure in line with the DSNCRP priorities. 5. Notwithstanding these challenges the Haitian economy performed well in 2009. Whereas the GDP of Caribbean nations shrank by 2.2 percent on average during 2009, the Haitian economy grew by 2.9 percent in real terms compared with an average growth of 0.9 percent between 2004 and 2008. Almost half of the growth was concentrated in the agricultural sector, which was hit hard by the 2008 hurricanes. The manufacturing and retail sectors grew strongly at 3.7 and 2.5 percent, respectively. The limited integration of the domestic financial sector in global markets shielded the economy from direct impact of the global financial crisis. Meanwhile, falling global commodity prices relieved pressure on the high cost of living experienced at the height of the food and commodity price crisis in 2008, bringing annual inflation down to -4.7 percent in FY2009, from 19.8 percent in FY2008. Falling commodity prices and a resilient level of remittances contributed to an improvement in the current account deficit from 4.5 percent of GDP in FY2008 to 3.2 percent of GDP in FY2009. The overall fiscal deficit worsened from 3.1 percent to 4.4 percent of GDP because revenues were lower than expected--although expenditure was contained through cuts in capital outlays. 6. In June 2009, a track record of good policy supported by the International Monetary Fund (IMF) three-year Poverty Reduction and Growth Facility (PRGF) program, the implementation of governance, structural and social reforms supported by EGRO I and II helped Haiti reach the completion point of the Enhanced HIPC Initiative. Haiti was thus expected to benefit from debt relief (including HIPC and MDRI) estimated at US$1.2 billion in nominal terms. As a result, public external debt fell from 26.7 percent in 2008 to an estimated 13.9 percent in 2009. On January 12, 2010, an earthquake hit Haiti and caused widespread damage and massive loss of life. The estimated official death toll was 222,570 while thousands of people were injured or permanently disabled. Million and a half people were left homeless. The capacity of the Haitian State was seriously affected because critical staff in various ministries perished and because important official buildings collapsed or were damaged. Major economic, financial and governance activities and functions were disrupted, which represented a major setback for the country following sustained progress in macroeconomic stability in the five years preceding the earthquake. After the disaster, the Bank realized that several of the EGRO III policy measures were no longer consistent with the development challenges. It was decided that the EGRO series would be discontinued, and a new series of policy loans would be considered to better assist Haiti in addressing the new challenges in the post-earthquake period. Some of the policy measures under the EGRO series were transferred to the emergency budget support operation approved in August 2010 to keep up maintaining sound economic governance and to strengthen the reforms started before the disaster. 7. In February 2010, the government of Haiti, supported by the international community, launched a post disaster needs assessment to measure damage/losses and reconstruction needs arising from the earthquake. The needs assessment included consultations with Parliament, civil 3 society, the Haitian Diaspora, the private sector and the population. Damages and losses were estimated at approximately US$8 billion. The government developed an Action Plan for the Reconstruction and the Development of Haiti, which was presented to international donors at the United Nations in New York in March 2010. In a powerful show of support, donors pledged nearly US$10 billion, of which US$5 billion were pledged for the period 2010-2011. 8. On April 15, 2010, the Senate approved an 18-month extension of the state of emergency that the President of Haiti decreed after the January-12 earthquake. The law significantly expanded the powers of the Executive branch to implement the reconstruction plan, authorizing the President to approve contracts without bids, to requisition private land and build camps for people displaced by the earthquake, and to evacuate the displaced from their camps in case of emergency. In order to ensure efficiency and coordination of reconstruction funds, the government created new institutional arrangements. The Interim Haiti Recovery Commission and the Haiti Reconstruction Fund (HRF), for which the World Bank is the fiscal agent, were created under the Emergency State Law of April 2010. A Steering Committee made of government officials at the ministerial level and representatives of various stakeholders would ensure that projects are in line with the Government Action Plan. The Commission would scrutinize project concepts and oversee project implementation funded by the nearly US$10 billion pledged by Haiti’s partners. 9. The single tranche operation under review (EGRO III) approved by the Board on December 8, 2009, built on the successful implementation of Economic Governance Reform Operation I (EGRO I) and EGRO II. EGRO III was the first of a series of two programmatic operations (EGRO III and EGRO IV) and part of a broad package of the International Development Association support for economic management and governance reform program, which includes two Economic Governance Technical Assistance Grants (EGTAG I and II) amounting to US$4 million, accompanied by a US$1.5 million grant from the Low Income Countries Under Stress Trust Fund and the Public Expenditure Management and Financial Accountability Review (PEMFAR) finalized in FY08. This third economic governance reform operation was funded by a $12.5 million grant supporting the reform effort to strengthen public financial management, public procurement, and management and transparency in the electricity sector. In particular, the operation supported policy reforms aimed at: (i) reducing inefficiencies in the electricity sector in order to support the government’s effort to reduce the fiscal transfer to the National Electricity Company (EDH); (ii) modernizing and strengthening public financial management to raise and use public resources in a more efficient and transparent manner; and (iii) strengthening and implementing the legal framework for public procurement to contribute to more transparent and cost-effective public expenditure. 10. The operation supported policy measures in three areas deemed critical for continued progress on economic governance and public financial management, while maintaining a high degree of continuity with the previous operations. The fiscal policy component addressed some of the underlying issues creating pressure to increase fiscal transfers to the loss-making EDH. The public financial management component supported greater revenue mobilization capacity 4 through improvements in customs and tax information systems. On the expenditure side, the component sustained efforts to further improve budget preparation and execution, and the control systems. Finally, the public procurement component supported the implementation of the Public Procurement Law through the timely adoption of the main implementing regulations. 11. The results framework proposed seven programmatic outcome indicators expected to be completed by the end of the second operation (EGRO IV in 2011) as follows: (i) EDH’s Cost Recovery Index (6 month moving average) has improved at least to 45 percent from less than 32 percent in FY2008; (ii) Improved collection rate as evidenced by collection ratio for gross tax arrears, understood as the collection of tax arrears during the government fiscal year as a percentage of total outstanding arrears ; (iii) Existence of multi-year expenditure estimates based on strategic orientations in at least three ministries; (iv) Operationalization and full compliance of the General Finance Inspectorate (IGF) with the 2009-11 audit work program, including distribution of audit reports to the beneficiaries and ministries; (v) Improved comprehensiveness of budget reporting as evidenced by compliance with the budget and accounting classifications of consolidated statement of the deposits and expenditures from comptes courants ( discretionary accounts) ; (vi) Compliance of external audits with regulations as evidenced by timely submission of the Budget Execution Law and Government Accounts to Parliament and the Supreme Audit Court respectively; and (vii) Enhanced transparency in public procurement as evidenced by increasing share of competitive procurement in total procurement, measured by the value of contracts awarded without competition as percent of all contracts. 12. Given the impact of the earthquake of January 12, 2010 on public financial management institutions, the implementation capacity of the government was seriously weakened following the destruction of public buildings and the loss of senior level staffs. As a result, out of the seven indicators used to track the operation progress towards its development objectives, four were partially met, one is not met and data to assess the remaining two are not available. 1.4 Revised PDO (as approved by original approving authority) and Key Indicators, and Reasons/Justification 13. Neither the objectives of the operation nor key indicators were revised. The Bank realized that some of the EGRO III policy measures, following the disaster, were no longer consistent with the development challenges. The EGRO series were discontinued, and the Bank started a new series of policy loans to better assist Haiti in addressing the new challenges in the aftermath of the earthquake. The emergency operation contains some of the actions that were triggers to the EGRO IV, following an assessment of the status of triggers made in May 2010 that concluded that only five of the ten triggers were on track. 14. The government made significant progress in implementing reforms, largely focused on improving the legal and institutional framework for public expenditure and public enterprise management. However, significant weaknesses in economic governance remained and were considered to be one of the most serious obstacles to sustained economic growth and poverty reduction. As a result, the EGRO III focused on addressing those weaknesses. The policy actions 5 were organized under three components: fiscal policy, public financial management, and public procurement. 1.4.1 Fiscal Policy 15. In spite of progress achieved to improve the financial situation and management, significant weaknesses remained in public financial management. Large fiscal transfers to the EDH were (are) still diverting scarce resources away from DSNCRP priorities. Electricity tariffs charged by EDH were frozen between December 2005 and August 2009, despite the substantial increase in fuel prices. This discrepancy between cost of production and cost recovery, combined with high technical and non-technical losses, undermined the financial sustainability of EDH and its efforts to improve cost recovery 1 ; it has also prevented EDH from improving the quality and coverage of electricity services. As a result, EDH had to rely on fiscal transfers from the Treasury in order to continue operating, which amounted US$104 million in the FY2009 budget, exceeding Treasury-financed investment expenditures. These transfers effectively represent inefficient and untargeted subsidies to the electricity sector. 16. Reducing the amount of transfers to EDH was among the key objectives of the Government to which the operation under review was contributing. Sustaining such a reduction would require improving EHD’s cost recovery through higher tariffs and imp roved technical and customer management systems and practices. In addition, greater transparency in the use of the transfers to EDH was needed in order to better assess how quickly they can be phased out. As a prior action for the operation, EDH had designed, publicized and started implementing a cost recovery policy to improve its financial s ituation and management, which included: (i) the launching of an electricity tariff increase; and (ii) the competitive appointment of a provider of new customer and technical management systems in EDH. 17. Indicative triggers for the second operation included (i) further steps of the Government towards its medium-term goal of reducing fiscal transfers to EDH through the strengthening of the mechanism that monitors key financial indicators for EDH, on a monthly basis; and (ii) the Government committed to commissioning a bi-annual audit of the reports by an independent firm in order to ensure that the information is factually correct. These policy reforms were expected to contribute to improving EDH’s administration and enhanced transparency in the management of transfers. The increase in tariffs and the operationalization of the new information systems that allow for tighter monitoring of metering and billing, would decrease EDH’s non -technical losses, improve cost recovery and eventually lead to reduced public transfers to EDH. 1.5.2 Public Financial Management (PFM) 18. In spite of significant progress made under the predecessor operations (EGRO I and II), significant weaknesses remained in public financial management. The preparation of investment and current budgets needed to be consolidated to contribute to the introduction of a forward- looking budget. Important progress still needed to be achieved in the areas of budget 1 Fuel accounts for approximately 67 percent of the total production cost of electricity. 6 comprehensiveness and data management systems, which still lacked data on externally-financed investment. The internal control system needed to be fully operationalized to ensure full compliance with the budget execution framework and with the recommendations issued by the external audits of line ministries aimed at improving the integrity of the budget. The reporting of the discretionary accounts ( comptes courants ) was not processed under the regular procedures for budget resources and the submission of the budget and annual audits needed to be in compliance with the existing regulations. Finally, despite efforts to revamp the tax and customs administration, Haiti’s revenue mobilization remained weak due to small tax base, the absence of a strong legal framework (which encourages corruption) and insufficient capacity in the form of weak decentralized presence and poor communications and coordination between the customs and tax offices. Much of the tax legislation was outdated and dispersed, making it difficult to administer and assess liabilities. The information system was deficient leading to ineffective collection rate and low rate of tax compliance. 19. To strengthen government’s revenue mobilization capacity, the operation supported the following prior actions: (i) the operationalization of a new customs information system in eleven key customs posts, namely, Port-au-Prince port, Port-au-Prince airport and airport arrivals hall, Cap Haïtien, Gonaives, Saint Marc, Miragoane, Malpasse, Ouanaminthe, Belladere and Port de Paix; (ii) the establishment in the Ministry of Economy and Finance (MEF) general directorate of taxes ( Direction Generale des Impots ) a networked information system linking all said directorate office and units in all departments; and (iii) the interconnection of respective information systems operated in MEF’s customs directorate and general directorate of taxes ; and (iv) carrying out the critical staffing of the General Financial Inspectorate to enable the start of internal audit operations. 20. For the second operation, the indicative triggers included the submission of the Fiscal Code to the lower chamber of Parliament aimed at improving tax collection; and as regards public expenditure management, actions aimed at sustaining efforts to improve the budget process for better outcomes and the strengthening of the control systems , through the following measures: (i) the consolidation of the integration of the preparation of investment and current budgets; (ii) the strengthening of the financial control and internal audit functions through the adoption and dissemination of the manual of procedures for internal audit, and the implementation of the FY2010 audit work program established by the Ministry of Finance for the IGF; (iii) the regularization of control procedures for comptes courants ; and (iv) compliance with calendar and legal requirements for external audit; (v) the MEF has submitted to the Supreme Audit Institution (CSCCA) the 2008-09 public accounts; and (vi) the CSCCA has submitted to Parliament an opinion on the audit report for the fiscal year 2007-08. 21. By the end of the programmatic operations, the reforms are expected to lead to improved collection rate as evidenced by collection ratio for gross tax arrears; and the reforms aimed at strengthening public expenditure management are expected to lead to: (i) improved budget preparation process in at least three ministries; (ii) the operation and full compliance of the IGF with its 2009-11 audit work program, including distribution of audit reports to the beneficiaries and ministries; (iii) improved comprehensiveness of budget reporting; and (iv) enhanced compliance of external audits with regulations as evidenced by timely submission of the Budget 7 Execution Law and Government Accounts to Parliament and the Supreme Audit Court respectively. 1.4.3 Public Procurement 22. Despite efforts initiated since 2004 to reform public procurement, progress has been slow in strengthening the system. Policy actions already taken to advance procurement reforms under the predecessor operations include: (i) the creation of the Commission Nationale des Marchés Publics (CNMP); (ii) the adoption of a new Procurement Law by Parliament in June 2009; (iii) the establishment of a web site on which the CNMP publishes invitations to bid, a list of suppliers and contracts awards; and (iv) the introduction of standard bidding documents and a manual of procedures for government procurement staff based on the new code. The dissemination of the new Law was expected to speed the adoption of improved procurement practices. However, significant work is still needed to ensure full compliance with the new Law by sector ministries. Compliance is of particular importance given the increasing number of public procurement processes likely to result from growing external aid. 23. This operation supported the issuance by the Government of the four key implementing decrees ( arrêtés d'application ) required for the Public Procurement Law to become effective, namely: (i) decree establishing all relevant thresholds in respect of public procurement; (ii) decree setting forth the institutional rules and procedures for the CNMP; (iii) decree setting forth the general rules regarding public procurement and public service concessions; and (iv) decree adopting the manual of procedures for public procurement and mandating its general application 24. The triggers for the second operation were designed to lay the foundation for steps to materialize, including two key measures (i) the preparation of annual procurement plans for FY2009-10 by key contracting authorities, communication of said plans to the CNMP and publication of associated general procurement notices; and (ii) enhancement of the CNMP’ s existing database of Government contracts and suppliers to provide more specific and up-to-date information which can be accessed by the general public and can be downloaded from the CNMP website. 25. By the end of this series of programmatic operations, the identified policy reforms are expected to contribute to enhanced transparency in public procurement. The share of noncompetitive procurement in total procurement, measured as the value of contracts awarded without competition as percent of all contracts awarded is expected to decrease significantly. Sustaining implementation of these reforms in the medium term would lead to improvements to the PEFA scores. 26. Policy areas were not revised. 8 27. The grant was approved on December 8, 2009. It became effective one month later on January 12, 2010. The disbursement of the Single Tranche took place January 25, 2010, as stated in the Financing Agreement. This operation was built on two previous Economic Governance Reform Operations EGRO I and EGRO II. EGRO I (2005) was designed as a two-tranche operation in view of the risks involved in a first operation in a transition period. The second tranche conditions were met without any waivers, but with delays. Significant technical assistance was provided to address the problem of low government capacity. Close coordination among donors, intense supervision and a field presence were essential for moving program implementation. The Government, under the EGRO II (2007) made good progress in public financial management and maintained macroeconomic stability despite severe external shocks and a difficult political climate. On the other hand, little was achieved in civil service reform, improving governance of the electricity sector and promoting accountability and transparency in the use of public resources for education. The operation was rated moderately satisfactory as the Government proved unable to deliver on the corrective actions it had agreed to take in return for the waivers granted on four conditions of second tranche release. 28. The operation under review was designed to be followed by a fourth operation as part of a programmatic series of two operations. The fourth operation was to be triggered by a set ten follow-on actions. After the field visit of September-October 2010, the mission reported that given the impact of the earthquake on public financial management institutions, the implementation capacity of the government was seriously weakened following the destruction of a large part of Port-au-Prince and the loss of several senior level staffs. As a result, the implementation of the indicative triggers for the next operation (EGRO IV) was significantly delayed. Only two of ten triggers were met; five were delayed but partially met, and three were not met. 29. Progress in the areas supported by this operation (EGRO III) was encouraging before the earthquake. In fiscal policy , t o improve EDH’s financial situation and management and support the Government’s efforts to reduce the fiscal transfers to the company, EDH had designed and started implementing a cost recovery policy including the launching of an electricity tariff increase and the competitive appointment of a provider of new customer and technical management systems for company. In public financial management , significant progress was made, in particular with respect to revenue collection and efficiency and transparency in public expenditure management. Finally, progress in procurement although relatively slow due to significant delay in the adoption of the new Procurement Law and its implementation, as a prior action to the operation under review, the Government issued four key implementing decrees required for the Public Procurement Law to become effective. 30. Table 1 below summarizes the status of the prior actions to this economic governance reform operation (EGROIII) as well as the status of triggers for the second operation (EGRO IV). 9 Table 1: Status of Prior Actions and Triggers for the Second Operation Prior Actions for Board approval Triggers for the second operation I. Fiscal Policy EDH has designed, publicized and started implementing a cost recovery policy which include s the launching of an electricity tariff increase The EDH monitoring table showing the use of fiscal transfers is published on a monthly basis on the MEF website beginning in November 2009, including the data for November 2008 – October 2009 Partially Met . The MEF has published partial data for November 2008 - September 2009 in January 2010. The publication was interrupted after the quake in January 2010 . The Government published the data bet ween January 2010 and March 2011 in a sequenced manner, not on a monthly basis. The data are incomplete and do not contain all the required key information EDH has designed, publicized and started implementing a cost recovery policy which include the competitive appointment of a provider of new customer and technical management systems in EDH The information contained in the monitoring table is audited on a bi - annual basis by an independent firm Not Met The first audit was scheduled for June 2010 but was delayed due to the earthquake and the impact of the quake on the institutions involved (EDH, MEF, and MTPTC) a s well as the interruption of data collection . The Government is preparing a comprehensive audit of the data on electricity. The TORs for the audit are being finalized by the Government as of May 2011 . II. Public Financial M anagement The Government has carried out in MEF’s Customs Directorate the operationalization of a new customs information system in eleven key customs posts of the Recipient’s territory, namely , Port - au - Prince port, Port - au - Prince airport and airport arrivals hall, Cap Haïtien , Gonaives , Saint Marc , Miragoane , Malpasse , Ouanaminthe , Belladere and Port de Paix The Fiscal Code has been submitted to the lower chamber of Parliament Not Met This follow - on action is delayed significantly following the destruction of the Tax Directorate Completed in MEF’s General Directorate of Taxes (“ Direction Générale des Impôts ”) the establishment and operationalization of a networked information system linking all said directorate’s departmental offices and units ( Direction Départementales des Impôts ) among them The MEF has adopted and disseminated the Procedural Manual for budget preparation and integrated the preparatio n of current and investment budgets Partially Met The Manual is finalized , adopted and being prepared for distribution to line ministries as of May 2011 . Completed the interconnection of respective information systems Internal Audit Function is strengthened through (i) the Partially Met . The Manual of Procedure was 10 operated in MEF’s customs directorate and general directorate of taxes adoption and dissemination of the manual of procedure for internal audit; and (ii) the implementation of the internal audit work program established by the MEF for the IGF f inalized. The internal audit work program for the IGF has been updated after the quake and adopted by the MEF. The IGF action plan for 2010 - 11 has been undertaken. Only some key tasks have been completed but these are key tasks The Government has carried out the critical staffing of its general financial inspectorate ( Inspection Générale des Finances ) to enable the start of internal audit operations Regular controls compliant with budget rules are applied to the deposits and expenditures from ‘comptes courants’ monitored by Public Accountants Partially Met This activity is embedded in the budget execution procedures described in the Procedural Manual The work program will be fully implemented in FY 2011 - 12 . after the dissemination and implementation of the procedural manual for budget execution. The M EF has submitted to CSCCA the 2008 - 09 public accounts Met The 2008 - 09 public Accounts has been finalized by the Treasury The CSCCA has submitted an opinion (Avis) on the audit report for the fiscal year 2007 - 08 to Parliament Met The 2007 - 08 gove rn ment accounts have been audited by the CSC/CA, and the results submitted to the MEF for comments. III. Public Procurement The Government has issued the four key implementing decrees required for the Public Procurement Law to become effective, namely: (i) decree establishing all relevant thresholds in respect of public procurement; (ii) decree setting forth the institutional rules and procedures for the CNMP; (iii) decree setting forth the general rules regarding public procurement and public service concessions; a nd (iv) decree adopting the manual of procedures for public procurement and mandating its general application Key contracting authorities have submitted to the CNMP procurement plans for FY2009 - 10 and associated general procurement notices are published Not met Line ministries have not submitted their procurement plans following the destruction of several line ministries in 2010. . The CNMP has rendered its database on contract awards fully operational, up - to - date, and accessible to the general public Partially Met The server of the CNMP is being repaired but not fully operational yet. 11 2.2.1 Internal factors 31. Parliamentary ratification of the grant agreement took short time contrary to what is generally the case in Haiti. Only one month after the approval of grant agreement (December 8, 2009) the operation became effective January 12, 2010 and the disbursement followed shortly (January 25, 2010). However, the limited government capacity for program implementation resulted in important delays in program execution, including taking the appropriate steps for meeting second operation triggers. 32. The earthquake created a substantial political uncertainty and the progress made in the functioning of democracy before the earthquake, including the political process towards legislative, presidential and municipal elections previously scheduled to be held in 2010 stalled. 2.2.2 External factors 33. The earthquake of January 12, 2010 directly impacted Port-au-Prince and the entire metropolitan area where the most important economic infrastructure facilities are located and a third of the country’s population resides. This disaster very severely disrupted the economy , the public finances and the governance activities and functions representing a major setback for the country following sustained progress in macroeconomic stability and public sector governance in the five years preceding the earthquake. The country’s productive capacities w ere devastated and the vulnerability of the population and of the state institutions increased as the State’s ability to provide essential basic services for the people was eroded. The loss of a considerable quantity of physical capital (infrastructure, housing, equipment and materials) and also of human resources put the country in an unfavorable position for moving into the implementation of policy measures and actions towards the achievement of outcomes expected by the end of the EGRO operations. Some Government institutions, already weak before the disaster, are not yet functioning at pre-earthquake levels. 34. The position of the public finances, which had improved before the earthquake, displayed a definite downward trend. Revenue, which was running at a monthly average of 3 billion gourdes (2009), slumped abruptly to 700 million gourds in January 2010. The target for the 2009-2010 fiscal years was scaled back to 26.3 billion gourdes against the 34.9 billion initially set, hence a performance of just 75 percent. However, preliminary data show that revenue has increased at end 2010 to pre-earthquake level (31.4 billion of gourdes versus 26.3 billion of gourdes). 35. Regarding the implementation of expenditure, the MEF in mid 2010 was operating out of two provisional locations and with a reduced number of personnel. The main servers holding the data were saved and are once again operational. The expenditure forecasts for the fiscal year pointed to a slight reduction in current expenditure, while wages and salaries were swiftly restored and were paid on schedule. Locally financed capital expenditures, which have been diverted in part to cover emergency needs, were expected to increase by about 26 percent by end 2010. 12 36. The Government was committed to the program, but was slow in meeting the triggers for the second operation, because of severe capacity constraints due to the earthquake which inflicted serious damages to the island and its population. The capacity of the Haitian State was seriously affected because critical staff in various ministries perished and because important official buildings collapsed or were damaged. Government buildings that were destroyed or se