SUSTAINABLE DEVELOPMENT FINANCE POLICY OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION: MID-TERM IMPLEMENTATION REVIEW April 7, 2023 ACRONYMS AND ABBREVIATIONS Fiscal Year (FY) = July 1 to June 30 All dollar amounts are US dollars AfDB African Development Bank IMF International Monetary Fund AsDB Asian Development Bank LIC Low-income Countries CPIA Country Policy and Institutional LIC DSF Debt Sustainability Framework Assessment for Low-Income Countries DeMPA Debt Management Performance MAC DSA Debt Sustainability Assessment Assessment Framework for Market-Access DMF Debt Management Facility Countries DPO Development Policy Operation MDB Multilateral Development Bank DRS Debt Reporting System MoF Ministry of Finance DSA Debt Sustainability Analysis NCB Non-Concessional Borrowing DSEP Debt Sustainability Enhancement NCBP Non-Concessional Borrowing Program Policy DSSI Debt Service Suspension ODA Official Development Assistance Initiative OECD Organisation for Economic EU European Union Cooperation and Development FCV Fragile, Conflict, and Violence OP7.30 Operation Policy 7.30 FRS Fiscal Risk Statements PCO Program of Creditor Outreach FY Fiscal Year PPAs Performance and Policy Actions G20 The Group of Twenty major PPG Public and Publicly Guaranteed advanced and emerging PPP Public-Private Partnership economies RECA Remaining Engaged in Conflict GDP Gross Domestic Product Allocation GST General Sales Tax SDFP Sustainable Development IBRD International Bank for Finance Policy Reconstruction and Development SOE State-Owned Enterprise IDA International Development WBG World Bank Group Association IFAD International Fund for Agricultural Development TABLE OF CONTENTS EXECUTIVE SUMMARY ........................................................................................................... i I. INTRODUCTION ................................................................................................................. 1 II. GLOBAL DEBT DEVELOPMENTS ................................................................................. 2 III. DEBT SUSTAINABILITY ENHANCEMENT PROGRAM ............................................ 5 A. Implementation Assessment of FY22 PPAs ....................................................................... 6 i. Design of FY22 PPAs ....................................................................................................6 a. Debt Transparency .................................................................................................. 7 b. Debt Management ................................................................................................... 8 c. Fiscal Sustainability ................................................................................................ 9 ii. Results from the Implementation of FY22 PPAs ........................................................10 B. Formulation of FY23 PPAs .............................................................................................. 12 i. Preparation of FY23 PPAs ...........................................................................................12 ii. Design of FY23 PPAs ..................................................................................................13 a. Debt Transparency ................................................................................................ 14 b. Debt Management ................................................................................................. 14 c. Fiscal Sustainability .............................................................................................. 15 C. Additionality and Continuity of PPAs Over the Past Three Years ................................... 16 D. PPAs in Broader World Bank Engagements .................................................................... 17 E. Lessons Learned................................................................................................................ 18 IV. PROGRAM OF CREDITOR OUTREACH ..................................................................... 23 A. Strategic Objectives and Results Framework ................................................................... 23 B. Creditor Outreach Activities to Foster Information Sharing and Support Debt Sustainability.................................................................................................................. 24 i. Advance Dialog among Development Partners to Support Common Principles ........25 a. Global-Level Engagement .................................................................................... 25 b. Regional-Level Conferences ................................................................................. 26 ii. Facilitate Creditor Coordination at the Country-Level among Creditors to Support Prudent Debt Management .............................................................................27 iii. Support Information Sharing and Dialog on the SDFP to Enhance Debt Transparency .......................................................................................................28 C. Emerging Results .............................................................................................................. 30 D. Lessons Learned................................................................................................................ 31 V. CONCLUSION .................................................................................................................... 32 LIST OF ANNEXES Annex 1. FY23 Approved PPAs ................................................................................................... 34 TABLE OF FIGURES, TABLES, AND BOXES Figures Figure ES. 1. Summary Statistics of the PPAs Approved in FY21, FY22 and FY23 .................... ii Figure 2. 1. Public Debt in IDA Countries (Percent of GDP, Average) ......................................... 2 Figure 2. 2. Risk of External Debt Distress in LIC DSF (Percentage Ahares) ............................... 2 Figure 2. 3. Debt Composition in IDA Countries ........................................................................... 3 Figure 2. 4. GDP Growth and Fiscal Balance in IDA Countries .................................................... 3 Figure 3. 1. Percentage of IDA Countries with PPAs by DSEP Area for FY21, FY22 and FY23 ................................................................................................................... 15 Figure 4. 1. Theory of Change of PCO ......................................................................................... 24 Tables Table 3. 1. Number of Countries that Prepared PPAs in FY22, by Region.................................... 7 Table 3. 2. Key Areas of Outputs from the Successful Implementation of PPAs ........................ 10 Table 3. 3. Number of Countries that Prepared PPAs in FY23 .................................................... 12 Table 3. 4. Number of PPAs by Country Characteristics and DSEP Area in FY23 ..................... 13 Table 3. 5. Programmatic PPAs to Address Debt and Fiscal Vulnerabilities in Sierra Leone ..... 16 Boxes Box 3. 1. Burundi: PPAs as an Instrument for Further Engagements ............................................ 8 Box 3. 2. Democratic Republic of Congo: PPAs as a Conduit for Dialog ..................................... 9 Box 3. 3. Set-Aside Mechanism and Implications under the SDFP ............................................. 11 Box 3. 4. Maldives: Challenges with the Non-Concessional Borrowing Ceilings ....................... 19 Box 3. 5. Pacific Islands: Challenges for Small States with Limited Capacity ............................ 20 Box 3. 6. Burkina Faso: Experience in Fragile, Conflict, and Violence Conditions .................... 21 Box 3. 7. Using PPAs to Help Build Resilience Against Climate-Related Events ...................... 22 Box 3. 8. Pakistan: Experience of Engaging with Subnational Governments .............................. 23 EXECUTIVE SUMMARY i. The Sustainable Development Finance Policy (SDFP, the Policy, hereafter) is in the third year of implementation since it became effective on July 1, 2020. The Policy aims to incentivize countries to move toward transparent and sustainable financing and to further enhance coordination between the International Development Association (IDA) and other creditors in support of the countries’ reform efforts. The Policy helps address debt transparency, fiscal sustainability, and debt management challenges systematically and proactively over a medium- to long-term horizon. The Policy has two pillars: (a) the Debt Sustainability Enhancement Program (DSEP); and (b) the Program of Creditor Outreach (PCO). This report provides an update on the third year of the SDFP implementation focusing on the results from the implementation of the FY22 Performance and Policy Actions (PPAs) and the preparation of FY23 PPAs under the DSEP; presents the strategic objectives, key activities, and expected results under the PCO; and discusses lessons learned and the way forward. ii. The SDFP was launched at a time when IDA countries faced enormous pressures relating to the COVID-19 pandemic and has been implemented during the period of overlapping crises following the COVID-19 pandemic. The SDFP has been an important innovation to IDA’s policy and the allocation framework by addressing limitations of the Non- Concessional Borrowing Policy (NCBP). Instead of reacting to reported cases of non-concessional borrowing under the NCBP, the SDFP expanded the scope and coverage to all IDA countries and adopted an annual process of supporting countries to implement PPAs and improve debt management capacity, debt transparency, and fiscal sustainability. The number of countries implementing PPAs has grown from 55 countries in FY21 and 58 countries in FY22 to 60 countries in FY23. Rolling out the SDFP required significant efforts by client countries and the World Bank, but the policy, by further mainstreaming debt management into the policy dialog with IDA countries, is making a significant contribution to efforts to address debt vulnerabilities and promote creditor coordination on sustainable lending practices. iii. Since 2020, the COVID-19 crisis, followed by Russia’s invasion of Ukraine, food crisis, high inflation, and natural disaster shocks, have worsened the already heightened public debt vulnerabilities in IDA countries as economic growth plummeted, expenditure expanded, and revenue contracted. As of December 2022, 57 percent of IDA countries under the joint World Bank-International Monetary Fund (IMF) Debt Sustainability Framework for Low-Income Countries (LIC DSF) were at a high risk of external debt distress or in debt distress, increasing from an already high share of 50 percent in 2019. Meanwhile, the composition of public and publicly guaranteed (PPG) external debt in IDA countries has shifted from concessional financing from Multilateral Development Banks (MDBs) and Paris Club creditors toward non-concessional external financing from non-Paris Club creditors and market-based debt, including issuances of international bonds. iv. The World Bank, together with IMF, other MDBs, and global initiatives, deployed unprecedented financial support to mitigate the growing debt vulnerabilities exacerbated by the COVID-19 crisis. IDA’s support during the period of April 2020 to January 2023 reached $107 billion (excluding the Private Sector Window), of which $95 billion was on concessional or grant terms. The G20’s debt service suspension initiative (DSSI), established in May 2020 and - ii - expired in December 2021, provided temporary liquidity support during the pandemic as many countries were facing urgent spending pressures amid abrupt decline in revenues. In November 2020, the G20 and Paris Club group of creditors endorsed the Common Framework for Debt Treatments beyond the DSSI (the Common Framework, hereafter) to provide a durable solution to the debt sustainability challenges of countries, on a case-by-case basis, that were eligible for the DSSI. However, the progress has been limited, and there is an urgent need to strengthen the implementation of the Common Framework through a greater certainty on processes and standards as well as shorter and more predictable timelines. To date, only four countries—Chad, Ethiopia, Ghana, and Zambia—have requested debt treatment under the Common Framework, while restructuring discussions, with no immediate debt relief, were concluded only with Chad. Figure ES. 1. Summary Statistics of the PPAs Approved in FY21, FY22 and FY23 FY21 FY22 FY23 130 PPAs (55) 141 PPAs (58) 147 PPAs (60) 42 PPAs (42) 42 PPAs (39) 27 PPAs (26) PPAs Debt Transparency Debt Transparency Debt Transparency 35 PPAs on 6 Non-zero NCB 38 PPAs on 9 Non-zero NCB 31 PPAs on 2 Non-zero NCB Debt Ceiling 29 zero NCB Debt Ceiling 29 zero NCB Debt Ceiling 29 zero NCB 53 PPAs (45) 53 PPAs (45) 62 PPAs (48) Debt Management Debt Management Debt Management 35 PPAs (30) 46 PPAs (33) 58 PPAs (40) Fiscal Sustainability Fiscal Sustainability Fiscal Sustainability Country Characteristics Status 25 FCV 24 FCV 23 FCV 20 Small States 20 Small States 21 Small States Lending 34 IDA only 36 IDA only 36 IDA only Eligibility 12 Blend 12 Blend 13 Blend 9 Gap 10 Gap 11 Gap Risk 31 High & In Distress 33 High & In Distress 34 High & In Distress Level 19 Moderate 20 Moderate 22 Moderate 5 MAC-DSA 5 MAC-DSA 4 MAC-DSA 1/ Figures in parentheses indicate the number of countries with approved PPAs in each FY against respective DSEP area. Source: World Bank. v. Under the DSEP pillar, over 90 percent of IDA countries that prepared PPAs for the first two years satisfactorily implemented all their PPAs even amid a challenging environment. The PPAs were designed to address countries’ key debt vulnerabilities, while paying attention to their specific circumstances. 51 out of the 55 countries that implemented PPAs in FY21 and 52 out of 57 countries that implemented PPAs in FY22 satisfactorily implemented all their PPAs. Unlike the cases in FY21 where most of the unmet PPAs were performance PPAs such as the non-concessional borrowing (NCB) ceiling, in FY22 most of the unmet PPAs were policy or institutional reforms. Maldives and Pakistan did not satisfactorily implement in FY22 the FY21 PPAs that were missed and subsequently carried over to FY22. This led to a permanent discount of the set-aside for both countries (20 percent and 10 percent of their FY22 country allocations, - iii - respectively) and a hardening of terms for Maldives in FY23 due to repeated breaches of an NCB ceiling PPA. vi. FY23 PPAs reflected greater focus on fiscal sustainability after progress made in enhancing debt transparency in the first two years of implementation of the Policy. In FY23, 40 countries across all IDA’s country categories prepared at least one PPA on fiscal sustainability, an increase from 33 in FY22 and 30 in FY21. PPAs for the first two years of implementation focused primarily on debt transparency and debt management to reduce debt vulnerabilities, given the crisis context and the significant fiscal constraints faced by governments. After two years of progress in implementation of reforms to support enhancing debt transparency, many IDA countries have broadened their view to improving fiscal sustainability, often having to deal with fiscal challenges that were further aggravated by the COVID-19 pandemic. Domestic resource mobilization is essential to the capacity of governments to respond to challenges they face. In this context, the SDFP provides a platform to support governments’ efforts to enhancing domestic resource mobilization. The World Bank Group (WBG) is strongly committed to supporting countries to ramp up domestic resource mobilization as elaborated in the Evolution Roadmap that was prepared in response to a call by shareholders to respond to the challenges of poverty reduction, shared prosperity, and global challenges. vii. Three years of the implementation of the SDFP reveal both its importance and challenges as an engagement tool to address debt vulnerabilities in many IDA countries. The SDFP has helped IDA countries introduce and maintain policies focused on debt and fiscal sustainability, with a goal to facilitate reforms aimed at bringing their debt to sustainable levels and increasing their resilience to future shocks. At the same time, the implementation experience thus far revealed challenges for engagements in countries where the World Bank is not a major creditor, the government’s implementation capacity is limited, and the ownership and coordination of reforms are not sustained. To address the issue of limited implementation capacity, greater use of performance actions may need to be considered by setting target indicators to contribute to addressing the country’s debt vulnerabilities. Countries vulnerable to climate risks, including many small island states, may consider climate-related actions for fiscal sustainability. Ownership and coordination of reforms can be enhanced through investments in facilitating coordination and sustained technical engagement over the long term. viii. The implementation experience may also point to the need for further enhancements and flexibility of the Policy through revisions. The Policy, currently allowing revisions and cancellations of PPAs only on an exceptional basis, may add some flexibility to revise PPAs without affecting their credibility. Furthermore, synergies between PPAs and Development Policy Operations (DPOs) should be explored, in addition to programmatic approaches for complex and difficult reforms that would take several years to achieve. ix. Under the PCO pillar, IDA stepped up its engagements significantly in the third year of the SDFP implementation with a combination of global, regional and in-country events. PCO activities are aimed at supporting IDA countries to improve debt sustainability and enhance debt transparency in the broader context of the World Bank’s debt agenda. IDA is well positioned to play a convening role on debt related issues given its strong country presence and global knowledge. With a focus on the importance of debt transparency and information sharing, IDA - iv - convened members of the Organisation for Economic Cooperation and Development (OECD) and the Paris Club, as well as non-Paris Club creditors and private sector creditors. x. The creditor outreach has leveraged IDA’s role as a convener to promote stronger collective action, greater debt transparency, and closer coordination among borrowers and creditors to mitigate debt-related risks. There has been progress in facilitating information sharing among creditors and enhancing debt transparency in IDA countries. Emerging outcomes include: (a) nascent engagements with non-Paris Club bilateral creditors, private sector creditors, and rating agencies in different fora to find entry points to strengthen coordination; (b) continuous close collaboration with other international financial institutions to enhance the alignment of policy frameworks, including the application of NCB ceilings in coordination with IMF, alignment of SDFP PPAs with the Asian Development Bank (AsDB), and coherence with the Agreed Policy Actions of the African Development Bank (AfDB); and (c) continuous systematic information sharing on NCB ceilings with the OECD’s export credit agencies group and through IDA webpages to support transparency and aid client countries with prudent borrowing practices. xi. IDA will continue to scale up coordination with all creditors to support information sharing that incentivizes collective action and supports IDA countries’ effort to enhance debt transparency. WBG is working to enhance investors’ access to payment history for private sector projects in developing markets through the Global Emerging Markets Risk Database, aiming to make the aggregated statistics available to investors as a global public good with appropriate safeguards and quality standards. i Improving debt transparency and enhancing debt sustainability are a joint responsibility of borrowing governments and of all stakeholders, including creditor governments, MDBs, and private sector creditors. IDA will continue enhancing information sharing through IDA websites and the ‘Lending to LICs’ mailbox. Through the PCO, IDA will continue ramping up effort to convene high-level events at the global, regional, and country levels to provide platforms to advance dialog, support the application of consistent debt policies, and strengthen engagement with all stakeholders. The criteria for selecting countries for PCO events will include, among others, country demand, importance of creditor collaboration, and capacity building needs. Outreach activities will be focused on convening high-level events to provide a platform to advance the dialog on debt transparency and debt sustainability with all key stakeholders. These will aim to redouble efforts to support countries facing the most pressing challenges, including those in fragile and conflict-affected situations and Small States vulnerable to climate and disasters shocks, enhancing collaboration with stakeholders to find more entry points, and strengthening engagement with non-traditional creditors. i Interested readers may refer to remarks by President David Malpass: https://www.worldbank.org/en/news/speech/2023/03/23/remarks-president-david-malpass-strengthening- delivery-on-private-capital-facilitation-csis. I. INTRODUCTION 1. The Sustainable Development Finance Policy (SDFP, or the Policy, hereafter) was launched in July 2020 to address rising debt vulnerabilities in IDA countries. The SDFP, as part of the World Bank’s broader debt agenda, aims to incentivize IDA-eligible countries to move toward transparent, sustainable financing and to promote coordination between IDA and other creditors in support of these countries’ efforts to address their debt-related vulnerabilities. The Policy builds on the Non-Concessional Borrowing Policy (NCBP) and addresses a number of limitations of the NCBP by (a) expanding the scope and coverage to all IDA countries, (b) taking a broader and more systematic review of the drivers of debt vulnerabilities through the strengthened link with the Debt Sustainability Analyses (DSAs), and (c) adopting an annual process of supporting countries with elevated debt vulnerabilities to implement Policy and Performance Actions (PPAs) and improve debt management capacity, debt transparency, and fiscal sustainability, instead of reacting to reported cases of non-concessional borrowing. The SDFP also enhances creditor outreach through information sharing, dialog, and improved coordination among creditors. 2. The SDFP comprises two main components: (a) the Debt Sustainability Enhancement Program (DSEP) and (b) the Program of Creditor Outreach (PCO). The DSEP enhances incentives for countries to move toward transparent and sustainable borrowing and investment practices. The PCO utilizes IDA’s global platform and convening role to promote creditor outreach and coordination on sustainable lending practices, including debt transparency. Through the SDFP, IDA strengthens the performance orientation of the IDA allocation framework with a focus on addressing debt vulnerabilities. It leverages IDA’s convening power to bring together all stakeholders, including multilateral development banks (MDBs) and bilateral and private-sector creditors, to coordinate and move toward more transparent and sustainable financing. 3. Overlapping crises underscore the importance of supporting IDA countries, particularly those with implementation capacity constraints, to address their need to access sustainable development financing for crisis recovery and long-term growth. The demand for concessional financing to support poor countries, particularly countries in fragile, conflict, and violence (FCV) situations, has been rising during the overlapping crises, starting with the COVID- 19 pandemic and now worsened by Russia’s invasion of Ukraine, the food crisis, and the prospects of a global slowdown. Emerging and developing countries are facing a multi-year period of slow growth driven by heavy debt burdens and weak investment. Further, non-traditional bilateral creditors and private sector creditors have been playing an increasingly significant role in development financing. In this context, the SDFP plays an important role toward facilitating a cooperative approach to coordinate amongst creditors and supporting country reforms to strengthen debt transparency and enhance debt sustainability. 4. The objective of this paper is to provide an update on the third year of the SDFP implementation to inform IDA20’s mid-term review. The report focuses on the assessment of the FY22 PPA implementation and the FY23 PPA preparation and provides an update on the PCO implementation, including the start of in-country outreach events. The report is organized as follows: Section II provides an overview of recent global debt developments in IDA countries; Section III summarizes the FY22 PPA implementation, the FY23 PPA preparation, and lessons -2- learned; Section IV covers the implementation of the PCO, with a focus on the strategic objectives, key activities, and expected results; and Section V concludes. II. GLOBAL DEBT DEVELOPMENTS 5. The COVID-19 crisis since 2020 has further exacerbated already high public debt vulnerabilities in IDA countries as economic growth plummeted, expenditure expanded, and revenues contracted. A combination of weak macro-fiscal policy frameworks, exogenous shocks, and increased access to non-concessional sources of funding led to a rapid build-up in public debt levels between 2010 and 2019 that got further accentuated since 2020. Average public debt levels as a percentage of GDP reached over 70 percent for IDA/IBRD-blend countries (hereafter ‘IDA- blend’ or ‘Blend’) and 60 percent for other IDA countries in 2021 (Figure 2.1). As of December 2022, the number of IDA countries covered under the LIC DSF at a high risk of external debt distress or already in debt distress reached 39 from 35 in 2019 (Figure 2.2). Figure 2. 1. Public Debt in IDA Countries Figure 2. 2. Risk of External Debt (percent of GDP, average) Distress in LIC DSF (Percentage shares) IDA only Blend Low Moderate High In debt distress GAP IDA FCV 100 IDA Small States 80 80 70 60 60 50 40 40 30 20 20 10 0 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Source: IMF World Economic Outlook, October 2022. Source: World Bank-IMF LIC DSF database. 6. The debt build-up in the last decade has been accompanied by changes in the composition of external debt. Public and publicly guaranteed (PPG) external debt in the IDA countries has shifted toward non-concessional external financing from non-Paris Club creditors and market-based debt, including international bonds (Figure 2.3). The latter were issued mainly by IDA-blend and IDA-gap countries, although a few IDA-only countries also tapped international capital markets and issued bonds. The share of non-Paris Club creditors and market-based debt in PPG external debt in IDA countries increased from 19 percent in 2010 to 43 percent in 2018 before it slightly declined to around 40 percent in 2021, driven by the strong COVID-related increase in multilateral financing. -3- Figure 2. 3. Debt Composition in IDA Countries Figure 2.3a. Debt Composition in IDA Countries Figure 2.3b. Debt Composition in IDA Countries (percentage shares) (volumes, US$, billions) 100% 700 80% 500 60% 40% 300 20% 100 0% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 -100 Bonds Commercial and other private Bonds Commercial and other private Bilateral, Non PC Bilateral, PC Bilateral, Non PC Bilateral, PC Multilateral Multilateral Source: World Bank International Debt Statistics. Figure 2. 4. GDP Growth and Fiscal Balance in IDA Countries Figure 2.4a. GDP Growth in IDA Countries Figure 2.4b. Fiscal Balance in IDA Countries (percentage change, average) (percentage of GDP, average) 10 1 8 0 6 -1 4 -2 2 -3 0 -4 -2 -5 -4 -6 -6 -7 -8 -8 -10 IDA only Blend IDA only Blend GAP IDA FCV GAP IDA FCV IDA Small States IDA Small States Source: IMF World Economic Outlook, October 2022 Source: IMF World Economic Outlook, October 2022 7. The economic and financing landscape confronting the IDA countries is challenging and could aggravate debt vulnerabilities. Global growth is expected to decelerate sharply to 1.7 percent in 2023 (World Bank’s Global Economic Prospects, 2023), the third-weakest pace of growth in nearly three decades, reflecting the synchronous policy tightening aimed at containing very high inflation, the worsening financial conditions, and the continued disruptions from Russia’s invasion of Ukraine. The advanced economies and China are all undergoing a period of pronounced weakness, and the resulting spillovers are exacerbating other headwinds faced by many IDA countries. As a result of the sharp slowdown in global growth (Figure 2.4a), per capita -4- income is not expected to surpass 2019 levels until at least 2024 in many IDA countries. 1 Fiscal space has considerably narrowed, and the concerns over debt sustainability in many IDA countries have risen as global financial conditions have made it more difficult to service debt loads that have accumulated rapidly in recent years, particularly during the pandemic (Figure 2.4b). Given that a large fraction of debt issued domestically and held by banks and pension funds poses a threat to macro-financial stability, restoring debt sustainability will require a strong commitment to reforms and fiscal adjustments. 8. The World Bank, both IDA and IBRD, together with other MDBs and global initiatives, have put in place measures to mitigate the growing debt vulnerabilities exacerbated by these unprecedented shocks to developing countries. The World Bank Group (WBG) is the largest provider of official financial flows while IDA is the top provider of concessional finance and contributed 62 percent of commitments of official development assistance (including both grants and loans) from horizontal funds for the period 2000-2020. 2 Between 2010 and 2019, WBG provided $445 billion of official loans to developing countries and $34 billion in grants. This represented 17 percent of official financial flows over that period. In response to the overlapping crises, IDA is deploying an unprecedented level of support to more than 70 countries to contain the effects of the crises, while laying the groundwork for a greener, inclusive, and more resilient recovery. IDA’s support to these countries for the period between April 2020 and January 2023 reached $107 billion (excluding the Private Sector Window), of which $95 billion was on concessional or grants terms. 9. Greater certainty on processes and standards as well as shorter and more predictable timelines are essential for countries that seek debt restructuring. The G20’s debt service suspension initiative (DSSI), established in May 2020 and expired in December 2021, provided temporary liquidity support during the pandemic as many countries were facing urgent spending pressures amid abrupt decline in revenues. 3 In November 2020, the G20 and the Paris Club group of creditors endorsed the Common Framework for Debt Treatment beyond the DSSI (the Common Framework, hereafter) to offer a structure for guiding agreements on debt treatments for countries eligible under the DSSI. The Common Framework was put forward to consider debt treatment requests from eligible debtor countries on a case-by-case basis and address solvency challenges with a long-term perspective. However, the progress has been limited, and there is an urgent need to strengthen the implementation of the Common Framework through a greater certainty on processes and standards as well as shorter and more predictable timelines. To date, only four countries—Chad, Ethiopia, Ghana, and Zambia—have requested debt treatment under the Common Framework, while restructuring discussions, with no immediate debt relief, were concluded only with Chad. 10. Slower-than-expected implementation of the Common Framework reflects coordination issues and a lack of a clear time-bound process. The composition of creditors has been evolving since the era of the Heavily Indebted Poor Countries Initiative and the Multilateral Debt Relief Initiative. Until the early 2000s, multilateral agencies and the Paris Club members 1 Interested readers may refer to: “Global Economic Prospects” (January 2023), World Bank. 2 Horizontal funds refer to funds provided through the horizontal platform represented by MDBs and other institutions that use a country-based approach. 3 A total of 48 countries joined the DSSI and benefitted from an estimated $12.9 billion in debt-service payment suspension from May 2020 to December 2021. -5- were the main creditors of LICs, making restructuring efforts much simpler. Since then, the share of non-traditional creditors, for example, private creditors and non-Paris Club members, has been growing, complicating restructuring efforts. Also, the Common Framework lacks a clear time- bound process for creditor coordination for debt restructuring and clarity on how official bilateral creditors will evaluate and enforce the comparability of treatment to private creditors. The World Bank and IMF have identified four priorities for strengthening the Common Framework: (a) quicker and more efficient processes through clear and time-bound steps in the implementation; (b) the introduction of a debt service standstill to immediately address the liquidity needs of countries requesting treatment; (c) greater clarity on how official bilateral creditors will evaluate and enforce the comparability of treatment to private creditors; and (d) the expansion of coordinated debt treatments to non-DSSI eligible countries with high debt vulnerabilities. 4 The World Bank, IMF, and G20 set up a Global Sovereign Debt Roundtable aimed at achieving faster debt restructuring process with better outcomes for countries in terms of sustainability. The Roundtable brings together a range of creditors and borrowing countries to discuss solutions for countries with unsustainable debt levels under the Common Framework. The first meeting of the Roundtable took place in February 2023 and the discussions will continue at the WBG-IMF Spring Meetings in April 2023. III. DEBT SUSTAINABILITY ENHANCEMENT PROGRAM 11. In its third year of implementation, the SDFP continues to support IDA countries establishing PPAs that contribute to addressing key debt vulnerabilities and moving toward sustainable and transparent borrowing practices. The SDFP aims to identify and support reforms to mitigate countries’ vulnerabilities in the three DSEP areas: (a) debt transparency; (b) debt management; and (c) fiscal sustainability. Countries have flexibility to prioritize and select PPAs in any of these DSEP areas consistent with their debt vulnerabilities while balancing ambition with an understanding of the country context. Eligible IDA countries are expected to have three PPAs, however, two PPAs can be considered sufficient for Small States and countries facing FCV conditions. 12. To determine whether a country needs to prepare PPAs, all IDA countries are screened for debt-related vulnerabilities at the end of May each year. All IDA-eligible countries are required to prepare PPAs except for: (a) countries subject to the joint World Bank- IMF LIC DSF that are at a low risk of external debt distress and countries under the Debt Sustainability Analysis for Market-Access Countries (MAC DSA) for which Management determines that debt vulnerabilities are limited; (b) countries in non-accrual status; and (c) countries that are eligible for the IDA’s s Remaining Engaged in Conflict Allocation (RECA). 5 13. The process of identification, approval, implementation, and monitoring of PPAs involves significant efforts from both the World Bank staff and IDA countries. Since the inception of the SDFP in FY21, all PPAs have been designed through an intensive dialog with IDA countries and calibrated in line with countries’ capacity constraints, using both technical 4 Interested readers may refer to “Making Debt Work for Development and Macroeconomic Stability” by the IMF and the World Bank Group (April 2022). 5 Refer to Section III Paragraph 16 and footnote 12 for more information on RECA in the SDFP Policy, page 8. -6- assistance and analytical underpinnings, to ensure the scope and substance of PPAs are adequate. The formulation of PPAs is informed by core diagnostics, such as DSA, Public Expenditure Review, Debt Management Performance Assessment (DeMPA), debt management technical assistance, and the Debt Reporting Heatmap (the Heatmap, hereafter). For example, one of Fiji’s FY23 PPAs which focused on reforms related to tax policy measures and public investment efficiency is underpinned by the country’s Public Expenditure Review. One of Pakistan’s FY23 PPAs on debt management is grounded by the country’s DeMPA. All PPAs have been undergoing rigorous internal quality reviews under strong governance, involving both the World Bank’s technical staff and oversight by the corporate and regional Vice Presidencies. Hence, to ensure the robustness, quality, and contestability of the PPAs that support crucial reforms in each country, the PPA process continues to require significant time and effort from both the World Bank staff and IDA countries. A. Implementation Assessment of FY22 PPAs i. Design of FY22 PPAs 14. World Bank management approved a total of 141 PPAs in 58 countries in FY22, of which 139 PPAs were implemented in support of addressing debt vulnerabilities in 57 countries. 6 Five countries needed to prepare PPAs for the first time in FY22 for a variety of reasons, including an elevation in the risk of external debt distress (Madagascar and Rwanda), completion of the World Bank Operation Policy 7.30 (OP7.30) assessment (Mali and Sudan) 7 and a continuation of operational engagements (Nicaragua). In terms of the DSEP areas, two-thirds of IDA countries that prepared PPAs (39 countries), implemented at least one PPA that addressed weaknesses in public debt transparency with a focus on timeliness, frequency, and completeness of PPG debt data. Over three-quarters of IDA countries that implemented PPAs (45 countries) had at least one PPA on debt management. Sixty percent (35 countries) adhered to establishing an NCB ceiling, and 12 countries implemented PPAs focusing on adopting a legal framework for contracting public loans and guarantees as well as improving institutions to enhance transparency and accountability around debt management. Fifty-seven percent of IDA countries that prepared PPAs (33 countries) implemented at least one PPA in support of fiscal sustainability focusing on domestic revenue mobilization and/or management of fiscal risks. 6 Based on the above criteria in paragraph 16, 16 countries were not required to prepare PPAs in FY22. Of which, nine countries were rated at a low risk of debt distress based on LIC DSA (Bangladesh, Cambodia, Honduras, Myanmar, Nepal, Tanzania, Timor-Leste, Uganda, and Uzbekistan). Among the remaining countries, Eritrea, Syria, and Zimbabwe were excluded from the requirement to prepare PPAs as they are in the non-accrual status; South Sudan and Yemen were exempted as these countries were eligible for IDA’s RECA. Furthermore, Afghanistan and Guinea were excluded due to political situations. Sudan prepared PPAs following arrears clearance and full re-engagement with WBG. Following an OP7.30 assessment, it was later exempted from implementing these PPAs. The 141 approved PPAs in FY22 include the PPAs for Sudan and the PPAs not successfully implemented in FY21 and carried over to FY22. 7 OP7.30 on dealing with de facto governments is triggered when a “de facto government” comes into power by means outside of a country's constitution, such as a coup d'état, revolution, suspension of the constitution, or when no government is in place. -7- Table 3. 1. Number of Countries that Prepared PPAs in FY22, by Region Countries that Countries with Countries Total prepared FY22 PPAs low risk of debt exempted IDA O/w: distress or Region No. of or non- countries FCV or limited debt countries accruals or (i)+(ii)+ Small vulnerabilities (i) RECA (ii) (iii) States (iii) Eastern and Southern Africa 14 8 3 2 19 Central and Western Africa 19 10 1 - 20 East Asia and Pacific 11 10 - 3 14 Europe and Central Asia 3 1 - 1 4 Latin America & Caribbean 7 6 - 1 8 Middle East & North Africa 1 1 2 - 3 South Asia 3 2 1 2 6 Total 58 38 7 9 74 1/ Though Sudan prepared FY22 PPAs, following an assessment of OP7.30, Sudan was exempted from implementing the PPAs. Source: World Bank. a. Debt Transparency 15. Debt transparency supports addressing key debt vulnerabilities while ensuring accountability and better debt management as it reduces the cost of public borrowing. Public debt transparency refers to the availability of comprehensive, detailed, timely, and consistent PPG debt data to parliaments, media, and the general public, including the terms and conditions of debt. 8 The quality and consistency of debt data is a key component of sovereign data transparency. Hence, enhancing debt transparency is critical to ensure that debt-related vulnerabilities are known and contained while enabling the creation of additional fiscal space and raising external financing or even supporting a debt restructuring or relief. 16. Two-thirds of countries had at least one PPA focused on debt transparency in FY22 to help sustain progress toward comprehensive debt coverage and reporting. PPAs aimed at enhancing debt transparency support publication of PPG debt data in a comprehensive, detailed, timely, and consistent manner. In the second year of implementation, more countries (about 70 percent of the countries with at least one PPA addressing debt transparency) expanded the perimeter of coverage by including debt owed by State-Owned Enterprises (SOEs) to better monitor fiscal risks and improved frequency and timeliness of public debt reporting. The increased focus on improving the transparency of SOEs’ debt may reflect that, in many cases, fiscal risks arise from the weak or absent monitoring framework of SOEs’ debt (Box 3.1 on PPAs as an instrument for further engagements in Burundi). 8 PPG covers both external and domestic debt: (i) of the public sector, defined as central, state and local governments, social security funds and extra budgetary funds, the central bank, and public enterprises; and (ii) private sector debt guaranteed by the public sector. -8- Box 3. 1. Burundi: PPAs as an Instrument for Further Engagements In Burundi, the implementation of PPAs created an opportunity for further engagement. Debt reporting, having excluded SOEs, domestic arrears, and contingent liabilities, limited the transparency of the country’s overall debt situation and increased uncertainty over risks associated with the country’s debt. The authorities expanded coverage of the debt report by including debt of SOEs, domestic arrears, and contingent liabilities, which was supported by the FY22 PPAs. The implementation process helped the authorities recognize the benefits of debt transparency and identification of associated risks. They have requested further support in debt transparency, including a request for technical assistance on debt reporting, which is planned for FY23. 17. IDA has been supporting IDA countries in addressing their debt transparency challenges through various analytical frameworks, technical assistance, and lending operations. In addition, the IDA policy commitments complement the implementation of PPAs by monitoring public debt transparency and other debt-related initiatives. IDA has been committed to IDA20’s policy commitment on enhancing public debt transparency and management of debt- related contingent liabilities and supporting IDA countries in publishing comprehensive PPG debt reports or fiscal risk statements. The Heatmap, which allows monitoring improvements in public debt reporting, reflects improvements in the quality of dissemination practices in 43 percent of the IDA-eligible countries compared to two years ago, of which several countries implemented PPAs on debt transparency based on the findings from the Heatmap. b. Debt Management 18. Over three-quarters of the countries had at least one PPA aimed at strengthening debt management, most of which focused on an NCB ceiling. NCB ceiling PPAs play a critical role in reducing debt vulnerabilities by lowering the debt service cost of expensive loans in the medium to long term. Per the SDFP implementation guidelines, countries with a high risk of external debt distress or already in distress are in principle required to have a PPA with a zero NCB ceiling on external PPG debt. 9 These also support countries to avoid paying expensive debt service from their scarce concessional financial resources and build advocacy with creditors for more concessional terms. 19. During FY22, 35 countries had a debt ceiling PPA, of these, 30 countries were at a high risk of external debt distress or in distress. Among these 30 countries, four countries (Cameroon, Kenya, Lao PDR, and Papua New Guinea) established a non-zero NCB ceiling on an exceptional basis to meet amortization of existing non-concessional debt and/or support the financing of critical infrastructure projects. Out of the five countries at a moderate risk of debt distress, three countries (Comoros, Niger, and Vanuatu) implemented a PPA with a zero NCB ceiling considering their weak debt sustainability situation while the remaining two countries implemented a PPA with a non-zero NCB ceiling (the Democratic Republic of Congo and Madagascar) (Box 3.2 on PPAs as a conduit for dialog in the Democratic Republic of Congo). 9 NCB ceiling is set in coordination with the IMF and informed by DSAs. The SDFP adopts debt ceilings that are consistent or aligned with IMF programs, based on the agreed assumption on the terms of the new borrowing or use of present value ceilings. For countries with an IMF program, debt limits under the program can in principle be a PPA under the SDFP. Three countries (Liberia, Mali, and Rwanda) with a debt ceiling under the IMF program do not have NCB ceiling PPAs under SDFP in FY22. -9- Box 3. 2. Democratic Republic of Congo: PPAs as a Conduit for Dialog A dialog sparked by SDFP implementation in the Democratic Republic of Congo helped the authorities scrutinize a project to ensure that NCB was directed toward high-return projects. The Democratic Republic of Congo, with a moderate risk of debt distress, has room for limited NCB. In 2021, the non-zero NCB ceiling created an opportunity for a dialog between the authorities and the World Bank on a road project that would be candidates for non-concessional financing. Because of the PPA, the debt management office consulted the World Bank. The World Bank’s transportation team reviewed the project, pointing out areas where project preparation could be improved. This dialog was made possible by the approved PPA on NCB and proved the value of greater scrutiny of NCB given the risks involved. 20. Several countries introduced regulatory and institutional frameworks to manage debt levels prudently as the foundation for medium- to long-term debt sustainability. Some countries adopted debt management policies and regulations to strengthen debt management and to manage fiscal risks associated with government guarantees (Papua New Guinea and Samoa), to direct the publication of debt management reports (Bhutan and Tajikistan), and to establish the guidelines for the issuance of government guarantees and government bonds (Papua New Guinea, Solomon Islands, and Tonga). A few countries implemented medium-term debt management strategies (Burkina Faso, Tajikistan, and Tonga). Comoros, Djibouti, and Tajikistan enacted legislation and set up the institutional structure to improve debt management. Bhutan, Solomon Islands, Tajikistan, and Tonga adopted a programmatic approach for enhancing debt management with the approval of a medium-term debt management strategy in FY21 that provided a strong policy framework for debt management in FY22. 21. Publication of an annual borrowing plan could ensure the availability of funding to cover the financing needs of the government at the lowest possible cost and tolerable level of risks. Fiji, Guyana, and Mali published their annual borrowing plans. Of which, Fiji’s published annual borrowing plan is consistent with the current medium-term debt management strategy approved in the first year of implementation, indicating more sustained improvement and staff capacity. c. Fiscal Sustainability 22. More than half of the IDA countries that implemented PPAs had at least one PPA in FY22 in support of fiscal sustainability focusing on domestic revenue mobilization and management of fiscal risks. On the policy side, these PPAs broadly emphasized raising revenue by introducing tax measures such as broadening the tax base (Cote d’Ivoire), levying fees (Lesotho, Maldives, and Nigeria), and approving the policy framework for tax measures (Sierra Leone and Zambia). On the administrative side, these PPAs supported enhancing revenue collection measures and improving IT systems (Benin, Comoros, Liberia, Madagascar, Pakistan, and Solomon Islands) and streamlining tax expenditures and exemptions (Ghana, Senegal, and Togo). Furthermore, several countries also prepared PPAs on fiscal risk assessments and fiscal responsibility actions (Burkina Faso, Cabo Verde, Kosovo, Kyrgyz Republic, Mauritania, Mozambique, Senegal, and St. Vincent and the Grenadines), regulatory and institutional frameworks for SOEs management (Bhutan and Ethiopia), public financial management and - 10 - public investment management (The Gambia, Kenya, Lesotho, Marshall Islands, and Rwanda), and legal framework and publication of reports on public investment and public-private partnership (PPP) (Malawi and Togo). Enhanced transparency would, in practice, add clarity on contingent liabilities arising from long-term fiscal commitments to PPPs and facilitate better monitoring and management of fiscal risks. Although implementing measures to support fiscal consolidation is particularly challenging in the context of the current overlapping crises, the adoption of PPAs that facilitate reforms on domestic resource mobilization measures could support revenue collection and contribute to a smoother transition out of the crises, in particular, some of the PPAs that supported reforms to broaden the tax base (Cote d’Ivoire), levy fees (Lesotho, Maldives, and Nigeria). In addition, while the crises conditions present a challenge for fiscal consolidation efforts, PPAs focused on institutional reforms and fiscal responsibility help lay stronger foundations for post-crisis recovery. ii. Results from the Implementation of FY22 PPAs 23. During the second year of implementation of SDFP, over 90 percent of countries satisfactorily implemented their PPAs amid a challenging environment Progress made by countries in implementing their PPAs is assessed relative to their defined milestones at the end of each fiscal year. Despite the challenges posed by the overlapping crises, established PPAs for FY22 underwent a rigorous assessment process by World Bank management. The assessment process involved close consultations between regions and their clients together with support from corporate and technical global units forming the SDFP Committee. 10 Table 3. 2. Key Areas of Outputs from the Successful Implementation of PPAs Number of Countries Areas of outputs from the successful implementation of PPAs FY21 FY22 Institutionalized debt publication, improving frequency and timeliness 15 15 Improved coverage of debt reporting and management of debt data 25 24 Adopted new debt policy, mid-term debt strategy or borrowing plans 14 7 Strengthened reforms to better assess fiscal risks, including for SOEs 13 17 Improved measures supporting domestic resource mobilization 9 17 Established policy or framework for the management of public investments 3 4 Adopted regulatory framework for public finance management or fiscal rules 3 6 24. In FY22, five countries did not satisfactorily implement all their PPAs in a timely manner. Unlike the cases in FY21 where most of the unmet PPAs were performance PPAs such as the NCB ceiling, most of the unmet FY22 PPAs were policy or institutional reforms. This may suggest that FY22 PPAs encountered difficulties similar to that faced by DPOs, in which substantial advisory support both before and during policy reforms is needed. Ethiopia did not satisfactorily implement its PPA on parliamentary approval to monitor impacts of SOEs on public finances. On account of a delay in completion of an external audit of annual financial statements for large SOEs, Nicaragua was unable to implement its PPA in time. Nigeria’s PPA aimed to improve debt transparency and debt management through restructuring within the federal 10 The SDFP Committee comprises directors from Operations Policy and Country Services, Development Finance, Macroeconomics Trade and Investment, and Country Credit Risk and the chief counsel of Legal Development Finance. - 11 - government was also not satisfactorily implemented in FY22. Maldives and Pakistan did not satisfactorily implement in FY22 the FY21 PPAs that were missed and subsequently carried over to FY22, which led to a permanent discount of the set-asides for both countries (20 percent and 10 percent of their FY22 country allocations, respectively) and a hardening of terms for Maldives in FY23 as the missed PPA was an NCB ceiling (Box 3.3 on Set-Aside Mechanism and Implications under the SDFP). 11 Box 3. 3. Set-Aside Mechanism and Implications under the SDFP Unsatisfactory implementation of PPAs has implications on IDA allocations through a set-aside for the first year and a discount for the second year in a row. Countries that are unable to implement their PPAs satisfactorily by the end of a fiscal year are subject to a set-aside. The set-aside is drawn from their country allocations and could be either 10 percent if the country is at a moderate risk of external debt distress under LIC DSF or if it is a MAC DSA country; or 20 percent for countries at a high risk of debt distress or in debt distress. The set-aside can be recovered if countries satisfactorily implement the unmet PPAs in the following year. Otherwise, the set-aside will be permanently discounted and redistributed to the rest of the IDA countries that have satisfactorily implemented their PPAs or those that are not required to implement PPAs. In general, countries subject to a set-aside and/or a discount under the SDFP will not be eligible for frontloading or reallocations. However, IDA Small States that are subject to a set-aside and/or a discount will be allowed to frontload up to 50 percent of their indicative allocation for the following FY. Frontloading rules for each FY are established in the IDA allocation guidelines. 25. Management provided waivers for cancellation of PPAs for countries with extenuating circumstances and for a breach of a debt ceiling on an exceptional basis. Management approved a waiver for cancellation of all FY22 PPAs for Sudan and one FY22 PPA for Tonga. Sudan faced military takeover in October 2021, leading to a reinstalment of OP7.30. As WBG paused engagement with Sudan, the World Bank team was unable to assess progress on the PPAs. Tonga faced volcanic eruptions, further compounding COVID-19 health emergencies, resulted in disruption of operations of the central government. The Republic of Congo, which had a zero NCB ceiling PPA, submitted an ex-post exception request for a non-concessional loan. The government contracted it assuming the loan was concessional but subsequently assessed that the grant element was below the 35 percent threshold. The exception was granted given the high economic returns from the project financed by the loan. 12 In addition, recognizing technical capacity deficits, the authorities sought technical assistance from the World Bank team on the calculation of a grant element for loans contracted, and on broader debt-related issues. 11 Due to a repeated breach of an NCB ceiling PPA, Maldives’ financing terms were hardened from 100 percent grants to 50 percent grants and 50 percent credits on small economy terms. 12 In case project financing is provided as a package, country teams may request a review by the SDFP Committee of the overall concessionality of an integrated financing package instead of individual loans. The review assesses if the intended use of the multiple loans is identical. The minimum grant element remains the same for a financing package at 35 percent as is the case for individual loans to qualify as concessional and thus be exempted from an NCB ceiling PPA. If the financing package is not found to be integrated, the concessionality of each element of the package will be assessed individually. - 12 - B. Formulation of FY23 PPAs i. Preparation of FY23 PPAs 26. 60 out of 74 IDA eligible countries prepared PPAs in FY23. 13 Based on the SDFP criteria, 63 countries were required to prepare PPAs in FY23 (Table 3.3). 14 Of which, Afghanistan and Sudan obtained a waiver of the requirement to prepare PPAs following OP7.30 assessment and continuing political uncertainties, while Kosovo, a MAC DSA country, is considered by the Management as with limited debt vulnerabilities. In FY23, three additional countries (Tanzania, Timor-Leste, and Uganda) were required to prepare PPAs due to elevation of their risk rating of external debt distress from low to moderate. Table 3.4 summarizes the characteristics of the IDA countries implementing PPAs in FY23 disaggregated by the DSEP area, IDA lending eligibility, external debt distress risk, and country classifications such as FCV and Small States. Table 3. 3. Number of Countries that Prepared PPAs in FY23 Countries that Countries with Countries Total prepared FY23 PPAs low risk of debt exempted IDA O/w: distress or Region No. of or non- countries FCV or limited debt countries accruals or (i)+(ii)+ Small vulnerabilities (i) RECA (ii) (iii) States (iii) Eastern and Southern Africa 15 7 4 - 19 Central and Western Africa 20 10 - - 20 East Asia and Pacific 12 11 - 2 14 Europe and Central Asia 2 - 1 1 4 Latin America & Caribbean 7 6 - 1 8 Middle East & North Africa 1 1 2 - 3 South Asia 3 2 1 2 6 Total 60 37 8 6 74 1/ Tanzania, Timor-Leste, and Uganda are required to prepare PPAs in FY23 due to change in DSA risk rating from “Low” to “Moderate”. 2/ In FY23, following OP7.30 assessment, Afghanistan and Sudan obtained a waiver of the requirement to prepare PPAs, while Kosovo was exempted due to limited debt vulnerabilities. Source: World Bank 13 Sri Lanka reverse graduated to IDA as a Gap country effective on December 5, 2022, after the annual screening exercise cut-off point in May 2022. Thus, as per the SDFP implementation guidelines, the country is not eligible to prepare PPAs in FY23. 14 Eleven countries that are excluded from the requirement to prepare FY23 PPAs are: Bangladesh, Cambodia, Honduras, Myanmar, Nepal, and Uzbekistan (a low risk of debt distress); Eritrea, Syria, and Zimbabwe (in the no-accrual status), and South Sudan and Yemen (eligible for IDA’s RECA). - 13 - Table 3. 4. Number of PPAs by Country Characteristics and DSEP Area in FY23 Countries Countries with at least one PPA by DSEP Area that Debt Debt Fiscal prepared Transparency Management Sustainability FY23 PPAs Number of IDA countries 60 26 48 40 IDA-only 36 18 33 22 FCV 18 8 17 8 High risk & in debt distress 13 6 13 5 Moderate risk of debt distress 5 2 4 3 Small States 11 3 11 5 High risk & in debt distress 9 2 9 4 Moderate risk of debt distress 2 1 2 1 Gap 11 5 8 8 Small States 3 1 2 2 High risk & in debt distress 1 0 1 0 Moderate risk of debt distress 2 1 1 2 Blend 13 3 7 10 FCV 5 0 3 3 High risk & in debt distress 3 0 3 1 Moderate risk of debt distress 1 0 0 1 MAC-DSA 1 0 0 1 Small States 7 1 2 6 High risk & in debt distress 4 1 2 3 Moderate risk of debt distress 1 0 0 1 MAC-DSA 2 0 0 2 Source: World Bank. ii. Design of FY23 PPAs 27. Management approved a total of 147 PPAs in 60 countries in FY23. 15 In terms of the DSEP areas, 43 percent of the IDA countries that prepared PPAs (27 countries) are implementing at least one PPA that addressed weaknesses in public debt transparency, down from 67 percent in FY22. Eighty percent of the countries that are implementing PPAs (48 countries) have at least one PPA on debt management, up from 78 percent in FY22, and 63 percent (38 countries) established an NCB ceiling. Sixty-seven percent of the IDA countries that prepared PPAs (40 countries) are implementing at least one PPA in support of fiscal sustainability focusing on domestic revenue mobilization and/or management of fiscal risks, up from 57 percent in FY22. 28. FY23 observes a visible shift of the DSEP areas from debt transparency to fiscal sustainability. The number of countries that had at least one PPA in fiscal sustainability increased to 40 in FY23 from 33 and 30 in FY22 and FY21, respectively. Around 40 percent of all proposed PPAs are in the area of fiscal sustainability, while this was less than one third in the past two years. A few countries adopted PPAs on fiscal sustainability for the first time, including Cameroon, 15 The approved PPAs include those not successfully implemented in FY22 and carried over to FY23. - 14 - Niger, Saint Lucia, Tajikistan, and Tuvalu. The shift in the DSEP areas can be seen across all categories of IDA countries in FY23. 29. The shift in the DSEP areas reflects, to a large extent, the progress in implementation of PPAs institutionalizing debt transparency in the first two years. Although strengthening fiscal sustainability was necessary even before the COVID-19 pandemic, it was difficult to envisage fiscal consolidation measures in the context of the pandemic. Hence, the emphasis of PPAs was on improving debt transparency and debt management which is reflected in improved outcomes. For example, in Burkina Faso and Grenada, debt reporting practices have improved substantially, reflected in the World Bank’s Heatmap. After two years of progress in enhancing debt transparency and supporting improvements in debt management, several IDA countries have shifted focus toward reforms relating to the fiscal situation that has been further aggravated with the COVID-19 pandemic. a. Debt Transparency 30. Many countries continue to focus on debt transparency PPAs and support progress toward comprehensive debt coverage and reporting. More than 40 percent of the eligible countries had at least one PPA that addressed weaknesses in public debt transparency in FY23. Among the countries with at least one PPA addressing debt transparency, two-thirds have focused on expanding the coverage of public debt, in most cases to SOE’s debt reporting, and one third of the countries went further to institutionalizing the improvement in coverage, frequency and timeliness of the debt publication through government order or decree. b. Debt Management 31. More than three-fourths of eligible IDA countries preparing PPAs in FY23 had at least one PPA on debt management. In FY23, the following reforms are being implemented: adoption of a legal framework for contracting public loans and guarantees (Comoros, Maldives, and Zambia), preparation of annual borrowing plans (Malawi, Nicaragua, Senegal, and Togo), operationalization of debt recording systems (Chad, Guinea, and Mali), adoption of rules to limit domestic and external debts (Bhutan and Comoros), and establishment of legal frameworks and institutions to create transparency and accountability around debt management (Comoros, Guinea, Pakistan, and Samoa). Furthermore, some countries also prepared PPAs on adopting strategies or approving legal frameworks for liability management of SOEs (Chad, Cote d’Ivoire, Djibouti, Kyrgyz Republic, Nicaragua, Papua New Guinea, and Tajikistan). 32. In FY23, 38 countries had a debt ceiling as a PPA and 29 of them had a zero PPG NCB ceiling. Setting an NCB ceiling serves as an anchor to debt sustainability as well as a clear signal to lenders regarding the country’s commitment to preserve debt sustainability. Nine countries (Cameroon, the Democratic Republic of Congo, Grenada, Kenya, Lao PDR, Madagascar, Niger, Papua New Guinea, and Uganda) established a non-zero NCB ceiling. In addition, three countries at moderate risk of external debt distress (Liberia, Solomon Islands, and Vanuatu) have also prepared a PPA with a zero NCB debt ceiling considering the country’s debt sustainability situation. - 15 - c. Fiscal Sustainability 33. Two-thirds of the PPAs prepared on fiscal sustainability focused on domestic resource mobilization and fiscal risk management in FY23, reflecting the renewed attention on domestic resource mobilization. In the context of the WBG’s Evolution Roadmap, the SDFP provides a platform to incentivize tax reforms given the increasing focus on domestic resource mobilization. PPAs on domestic resource mobilization based on enhanced diagnostics will support fiscal sustainability. On the policy side, these PPAs supported raising revenue by introducing tax measures such as broadening the tax base or adjusting tax rates (Benin, Maldives, Nigeria, Rwanda, Sao Tome and Principe, Solomon Islands, Timor-Leste, and Uganda), levying fees (Fiji), and streamlining tax expenditures and exemptions (Haiti, Sierra Leone, and Togo). On the administrative side, PPAs supported enhancing revenue collection measures and improving procedures and IT systems (Cote d`Ivoire, Guinea, Lesotho, Madagascar, Somalia, Tanzania, Timor-Leste, and Togo). Several countries also prepared PPAs on fiscal risk assessments and publication of fiscal risk statement (Burkina Faso, The Gambia, Kyrgyz Republic, Tajikistan, and Tuvalu), and monitoring and managing fiscal risks associated with SOEs and PPPs (Bhutan, Burkina Faso, Cameroon, Ethiopia, Lao PDR, Niger, Nigeria, Senegal, and Tajikistan). Dominica and St. Vincent and the Grenadines introduced fiscal sustainability PPAs to improve the countries’ fiscal resilience to climate change and natural disasters. Some countries also focused on improved management of the country’s SOEs such as, for example, Tajikistan which approved and published a new SOE Fiscal Risks Management Program to strengthen the Ministry of Finance capacity for monitoring and assessing fiscal risks from the SOE sector and improve corporate governance in SOEs. In addition, countries introduced PPAs to control expenditures (Kenya, Marshall Islands, Rwanda, and Zambia) and enhance the efficiency of public investment (Fiji, Guyana, St. Vincent and the Grenadines, Tanzania, and Uganda) as well as the measures to strengthen public financial processes and systems (Grenada and Saint Lucia). Figure 3. 1. Percentage of IDA Countries with PPAs by DSEP Area for FY21, FY22 and FY23 82% 80% 76% 78% 67% 67% 55% 57% 43% Debt Ceiling 56% Debt Ceiling 63% Debt Ceiling 60% AT LEAST 1 PPA ON DEBT AT LEAST 1 PPA ON DEBT AT LEAST 1 PPA ON FISCAL TRANSPARENCY MANAGEMENT SUSTAINABILITY FY21 FY22 FY23 Source: World Bank. - 16 - C. Additionality and Continuity of PPAs Over the Past Three Years 34. Reforms in the third year of implementation supported by the SDFP built upon the foundations of the reforms in the past two years and reflect both additionality and continuity. Advancing reforms through programmatic PPAs over the medium term needs to ensure additionality of reforms while balancing ambition with the development of countries’ capacities. A programmatic approach has been successful in debt transparency where the first two years of implementation focused on institutional reforms to ensure sustained implementation in later years. The programmatic approach can help introduce intermediate steps that may not be perceived as very strong in the initial years. This would, however, contribute to the fulfillment of a line of sight of a series of PPAs, recognizing that in some years, a PPA that may not appear to be strong is a key step toward the ultimate goal. For instance, PPAs on establishing a legal framework and institutionalization of debt reports/bulletins in FY21 helped develop PPAs for publishing comprehensive debt reports in FY22 and expand their coverage in FY23 (Ghana, Guyana, Kyrgyz Republic, Pakistan, Tajikistan, and Tuvalu). In other cases, FY21 PPAs helped establish a legal and policy framework for monitoring and management of the SOEs’ debt and contingent liabilities that served as a basis for improved fiscal risk monitoring and assessment in the following years (Benin, Central African Republic, Kyrgyz Republic, and Tajikistan). Table 3.5 illustrates a programmatic approach to PPAs in Sierra Leone; the middle column (PPA2) exhibits a programmatic approach on debt transparency (while the right column shows the transition of reforms from debt management to fiscal sustainability as discussed in the previous section). Table 3. 5. Programmatic PPAs to Address Debt and Fiscal Vulnerabilities in Sierra Leone PPA1 PPA2 PPA3 FY21 Debt Management: To improve debt Debt Transparency: Debt Management: To sustainability, the Government will not To improve debt reduce public payment enter into any contractual obligations for transparency and arrears, the government new external public and publicly reporting, the has adopted a cash guaranteed (PPG) non-concessional debt in Government will management plan to FY21. disclose all guarantees build local capacity in and borrowing of the cash flow forecasting, three largest State- as mandated by a owned Enterprises cabinet decision. (SOEs). FY22 Debt Management: To improve debt Debt Transparency: Fiscal Sustainability: sustainability, the Government will not To further enhance To improve fiscal enter into any contractual obligations for debt transparency and transparency and new external public and publicly reporting and reduce revenue capacity, the guaranteed (PPG) non-concessional debt in contingent liabilities, Cabinet will approve a FY22. the Government will Policy that sets out a expand the coverage to framework, with include all guarantees implementation steps and debt stock of the and timelines, for the ten largest State-owned reduction of tax and Enterprises as of end- import duty waivers. December 2021. - 17 - PPA1 PPA2 PPA3 FY23 Debt Management: To improve debt Debt Transparency: Fiscal Sustainability: sustainability, the Government will not To further enhance The Government of enter into any contractual obligations for debt transparency and Sierra Leone will new external public and publicly reporting and reduce submit to Parliament guaranteed (PPG) non-concessional debt in contingent liabilities, for approval an FY23. the Government will amended Revenue expand the coverage to Code that incorporates include all guarantees all key provisions of and debt stock of all 17 the 2022 Duty and Tax State-owned Waiver Policy to Enterprises as of end- strengthen the legal December 2022. framework, boost revenues and improve fiscal transparency. Source: World Bank. D. PPAs in Broader World Bank Engagements 35. Since 2020, the World Bank has annually produced the Heatmap, an assessment of debt data disclosure in publicly available official reports. IDA19 aimed to strengthen countries in their reforms to enhance debt transparency and fiscal risk assessments. The IDA20 commitment advances the quality of outcomes, focusing on enhancing the comprehensiveness of debt reports and publishing comprehensive fiscal risk statements that help mitigate key risks. To achieve this goal, the annual Heatmap exercise helps track the performance of IDA countries along nine transparency indicators. Close to 43 percent of IDA countries recorded an improvement in overall debt reporting performance between 2020 and 2022. 36. The Heatmap serves as a valuable tool that highlights gaps in debt reporting and informs the design of PPAs to address limited debt transparency. Following the 2021 Heatmap findings, Cabo Verde improved reporting of non-guaranteed SOE debt. The authorities published the quarterly SOE bulletin with fiscal risk assessment of the six largest SOEs (FY22 PPA) and further broadened the coverage of the quarterly public debt bulletin to include SOE debt and guaranteed debt from municipalities (FY23 PPA). The Federated States of Micronesia has made significant progress in the 2022 Heatmap, supported by the implementation of PPAs. The 2020 and 2021 Heatmaps reported that the website of the Ministry of Finance did not disclose any debt data. To enhance debt transparency, FY22 PPA was designed to support the authorities to publish two debt bulletins, which include the level of PPG debt with detailed breakdown and debt servicing schedule. Senegal is one of the countries that has recorded significant improvement in the 2022 Heatmap supported by the implementation of FY22 PPA. FY21 PPA was designed to improve and validate the transparency of annual borrowing plans, followed by FY22 PPA supporting the issuance of an instruction for the publication of quarterly debt bulletins, including information on SOEs and PPP debt and assessments of the implementation of the medium-term debt management strategy and the annual borrowing plan. Overall, while there has been progress, there is still room for improvement and countries could ensure more sustained and institutionalized reforms for enhancing debt transparency. - 18 - 37. Reforms supported by Development Policy Operations (DPOs) also focused on addressing debt vulnerabilities amidst the pandemic and overlapping crises. Out of the 55 and 57 countries that implemented PPAs in FY21 and FY22, respectively, 25 countries in each fiscal year had approved DPOs. These DPOs have, on average, 18 percent of all prior actions that were classified as fiscal prior actions, while nine percent classified as debt related. 16 Since the launch of the SDFP in FY21, there were expectations that there would be some alignment between PPAs under SDFP and prior actions in DPOs. However, the number of PPAs incorporated into DPOs has been limited. While the two years of implementation may not be sufficiently long to establish a trend, a few factors may explain this. First, DPOs cover broader macro and structural reforms than PPAs. Second, the formulation of PPAs, which are agreed before the fiscal year starts, largely cannot be revised. DPO preparation allows for the revision or dropping of prior actions when justified. As a result, incorporating PPAs into DPOs or using prior actions in DPOs under preparation as PPAs could be challenging for teams preparing DPOs under uncertain and fluid situations. Third, PPAs in the area of debt transparency and debt management, for example, publication of debt reports, and setting NCB ceilings, are neither policy nor institutional actions that would usually meet the standard for prior actions in DPOs. E. Lessons Learned 38. Three years of implementation of the SDFP provide a rich experience that can be used to finetune implementation going forward. Based on the lessons from the first two years, starting from FY23, the Bank’s internal governance process for PPAs review and approval has been streamlined to reduce the transaction costs for the country teams and for the country authorities while keeping the essential dialog centered on addressing the key drivers of debt vulnerabilities. 39. The SDFP implementation reveals both its importance and challenges as an engagement tool to address debt vulnerabilities in many IDA countries. The increased debt vulnerabilities arising from the pandemic, the food crisis, and the tightening of global financial conditions are particularly pronounced in the IDA countries. Strong preparatory efforts, including informing PPAs with core diagnostic work and assessing the feasibility of PPAs is therefore critical to support countries to identify and implement reform actions that address the drivers of debt vulnerabilities. For sustainability of PPAs, it is important to identify the needed technical assistance early on in the process and to build capacity with implementation. The SDFP has helped IDA countries introduce and maintain policies focused on debt and fiscal sustainability, with a goal of facilitating reforms to bring their debt to sustainable levels and increasing their resilience to future shocks. At the same time, the implementation experience revealed challenges in engaging in countries where the World Bank is not a major creditor, the implementation capacity of governments is limited, and the ownership and coordination of reforms are not sustained. 40. While an NCB ceiling is a powerful tool for sustainable financing practices, its efficacy diminishes in countries where the World Bank is a small financier, which raises the need for a different engagement approach. The number of countries that implemented an NCB ceiling PPA increased from 31 in FY21, to 35 in FY22, and 38 in FY23. Most of these countries 16 Using the Development Policy Actions Database, each prior action is coded for a thematic area. Fiscal and debt- related Policy Actions are defined in line with analysis presented in the 2021 DPO Retrospective. - 19 - implemented this PPA satisfactorily, and the SDFP supported their sustainable financing practices and helped increase the concessionality of external borrowing. However, an NCB ceiling PPA is particularly challenging in countries where the presence of the World Bank as a financier is small relative to other creditors. 17 It is nonetheless important to highlight that an NCB ceiling is prudent in the context of countries that are at a high risk of debt distress or already in distress. Comoros, Djibouti, and Maldives breached their corresponding zero NCB ceiling PPAs in FY21. Comoros and Djibouti, however, adhered to it in the following year. In contrast, Maldives breached its zero NCB ceiling for two consecutive years due to high financing needs for its ambitious infrastructure projects against the backdrop of reduced tourism flows, a key revenue stream for its economy (Box 3.4 on engagements in Maldives). On the one hand, this raises the need to reflect on the limited incentives that the SDFP provides in such circumstances and the need for a more comprehensive approach. On the other hand, it highlights the importance of the PCO and coordination with other creditors. The importance of information sharing and organizing creditor outreach events for such cases is key. Box 3. 4. Maldives: Challenges with the Non-Concessional Borrowing Ceilings Maldives breached its zero NCB ceiling PPA for two consecutive years, resulting in a permanent discount and a hardening of lending terms in FY23. After breaching the zero NCB ceiling in FY21, a 20 percent set-aside of the FY22 country allocation was applied. In FY22, the country authorities were informed that a repeated breach of the zero NCB ceiling PPA in FY22 would lead to: (i) a permanent discount of the 20 percent set-aside of the FY22 country allocation; and (ii) a potential hardening of lending terms. The country contracted new NCB to complete major infrastructure projects. As the NCB ceiling was breached for the second consecutive year, IDA’s financing terms to Maldives were hardened for FY23 to 50 percent grants and 50 percent credits with a 10-year grace period and 40-year maturity (the terms for Small States). Maldives’ experience reflects that some countries have access to large amounts of non- concessional financing although at a high risk of debt distress. Enforcement of the NCB ceiling has been challenging in Maldives, which is an upper middle-income country while classified as IDA eligible as a small island economy. The country has access to private and non-Paris Club creditors to support the government’s growth strategy to accelerate growth through major infrastructure projects including expanding its capacity for tourism – the main driver of growth. The NCB ceiling may not provide enough incentive when the size of the set-aside and potential hardening of terms may provide relatively small leverage. In such cases, it is even more important for the authorities, development partners, and creditors to ensure that such NCBs do not build up unsustainable debts going forward. It also highlights the importance of the second pillar of the SDFP, the PCO, in convening all official and private sector creditors and advocating for more sustainable financing and debt transparency in the country. 41. Country teams coped with implementation challenges in Small States and FCV countries through narrower but focused reforms calibrated in line with the capacity constraints. Small States and FCV countries face challenging policy environments due to their limited capacity and resources. The Policy pays attention to Small States and FCV countries by allowing them to prepare only two PPAs. Country teams helped the authorities articulate narrowly 17 Having said this, a dialog around an NCB ceiling PPA, though expected to be difficult, may help rein in the situation where a country at high risk of debt distress and/or unsustainable debt does not engage with an IMF program. - 20 - focused but impactful PPAs while considering the country’s capacity to implement these PPAs (Boxes 3.5 and 3.6 on engagements in the Pacific and in Burkina Faso under FCV situations). In some cases, one of the PPAs is designed in a programmatic manner to reflect on incremental improvements in their capacity. For instance, one PPA tackles issues of debt transparency or fiscal sustainability through a programmatic approach (e.g., Kiribati and Liberia), while the other continues to support sustainable financing practices by setting an NCB ceiling. Programmatic approaches can also help with implementation challenges. When adopting a programmatic approach, it will be important to maintain flexibility so that PPAs can adapt to the evolving circumstances in the country and incentivize the formulation of substantial and ambitious reforms. Box 3. 5. Pacific Islands: Challenges for Small States with Limited Capacity Capacity constraints in the Pacific Island countries require tailor-made solutions to maximize the benefits of the SDFP. Most Pacific Island countries lack capacity for simple debt management functions while SDFP has sought significant institutional and policy changes. The SDFP implementation is often challenging due to limited country capacity amid other competing priorities. Also, due to the remoteness of countries and weak internet connectivity, country teams found difficulties in providing immediate technical assistance to support reforms. To tackle these challenges, country teams flexibly accommodated country-specific requests to support their implementation. Despite these country constraints, Pacific Island countries have made progress toward achieving the three DSEP objectives. To improve debt management, countries with sizeable contingent liabilities, including Papua New Guinea, Samoa, and Tonga, adopted policies that helped address the associated fiscal risks. Fiji prepared an annual borrowing plan consistent with its medium-term debt management strategy. To enhance debt transparency, Micronesia, Tuvalu, and Vanuatu published regular debt bulletins, and Kiribati expanded the budget coverage to include comprehensive public debt data, including details on government guarantees. To support fiscal sustainability, Solomon Islands strengthened tax administration, and the Republic of Marshall Islands established a legal framework to improve public financial management. However, the SDFP may be more effective if it can accommodate country-specific circumstances. Some country teams argue that the 12-month reform cycle is too short to prepare a set of reforms and the Policy may consider a 24-month cycle instead in small countries with limited implementation capacity to lower the administrative burden on clients and country teams. Substantive reforms often require sustained client dialog, analytical underpinnings, and technical assistance. As opposed to DPOs, the SDFP provides limited room for PPAs to be adjusted or dropped if reform implementation is slightly delayed or the design of the reform is adjusted to country circumstances along the way. 42. Small States may consider focusing on implementing PPAs to address fiscal problems arising from natural disasters. Small States face difficulties in preparing robust policy and/or institutional actions on an annual basis and key risks derive from natural disasters. Therefore, they may consider climate-related performance actions for fiscal sustainability that reflect their circumstances. Such climate-related actions could include, for instance, the use of financial instruments to manage the government’s exposure to climate and disaster risks, assessment of fiscal risks arising from climate change, and tagging and reporting of public expenditures that support measures for climate adaptation and resilience (Box 3.7 on climate-related PPAs). - 21 - Box 3. 6. Burkina Faso: Experience in Fragile, Conflict, and Violence Conditions Despite being an FCV country, Burkina Faso has successfully leveraged the SDFP to make significant improvements in debt transparency, debt management, and fiscal sustainability. In January 2022, a military junta seized power, and the Bank immediately paused its formal engagement with the country until the completion of the OP7.30 assessment in May 2022. The Ministry of Finance (MoF) enhanced debt transparency by introducing a new regulation on debt reporting and aligning its methodological and analytical tools with international good practices. For the second year in a row, Burkina Faso is the only IDA country that met the “full disclosure” rating for all nine categories on the World Bank’s Debt Reporting Heatmap. On debt management, new regulations were implemented to better monitor contingent liabilities and strengthen related data transmission processes. Regarding fiscal sustainability, MoF developed new policy tools, including fiscal risk statements (FRS), to better identify and mitigate fiscal risks. The annually produced FRS has comprehensive coverage of macroeconomic, fiscal, and climate-related risks. Supported by FY21 PPA, the Government also enhanced its fiscal accountability mechanisms by introducing a crisis-response governance framework with adequate control arrangements in the context of the COVID-19 shock. As a result, Burkina Faso was among the first in IDA to embed a COVID-19 tagging-and-tracking system in its Integrated Financial Management Information Systems. Critical factors behind the success include: (i) sustained ownership of reforms; (ii) the design of PPAs calibrated against the capacity with timely technical assistance; and (iii) continuing policy dialog between the MoF and the World Bank. First, MoF proactively took advantage of the SDFP to accelerate the implementation of internal reforms, with the World Bank’s technical assistance to ensure high-quality standards despite several changes at the head of MoF. Second, to ensure ownership and sustainability of the reforms, PPAs were designed to strengthen capacity in a programmatic manner. At each step, the focus was on sharing international good practices, supported by a series of timely technical assistance implemented under roadmaps agreed upfront with the relevant government units. Third, continuing dialog between the Bank and the government at both technical and political levels was crucial for information sharing and risk taking, particularly regarding the scope and ambition of the reforms. Multiple policy dialog platforms, including DPOs, CPIA, and the WBG-IMF Annual and Spring Meetings, were used to ensure continued engagement. 43. Ownership and coordination of reforms are important, especially when the authorities deciding on PPAs do not have control over agencies that implement the PPAs. For instance, in highly decentralized countries, the fiscal autonomy of subnational governments is enhanced, in some cases, without establishing a mechanism to coordinate fiscal targets for the consolidated government. The lack of coordination mechanisms is relevant not only for fiscal targets but also for debt management for the consolidated government in cases where subnational governments can borrow from the market without the central government’s consent. Different political parties governing central and subnational governments further compound the coordination problem. Such circumstances make it difficult to implement PPAs designed by a central government for subnational governments without their ownership. This can be partly addressed by investing substantial efforts in actively facilitating coordination and sustained technical engagement over the long term (Box 3.8 on subnational engagements in Pakistan). - 22 - Box 3. 7. Using PPAs to Help Build Resilience Against Climate-Related Events PPAs in countries with a high risk of climate-related events can focus on strengthening fiscal buffers to build resilience against such events. Small Island States are particularly exposed to risks from periodic disasters, such as floods, droughts, and storms, and face challenges in maintaining the needed fiscal buffers and bearing the costs associated with long-term climate change adaptation. Crisis preparedness can help these countries mitigate the economic and human costs associated with these events. The SDFP can support the crisis preparedness of IDA countries from the fiscal and public financial management perspectives through the implementation of PPAs focusing on climate-related events. Though not exhaustive, below is a brief list of PPAs that countries may consider based on their context and available capacity. • Sovereign risk mitigation: Use/set-up of financial instruments to manage government’s exposure to climate and disaster risks, such as contingency funds, contingency finance, and parametric and indemnity insurance. • Fiscal risk reporting: Assessment and reporting on fiscal risks and contingent liabilities arising from natural disasters and climate change, particularly for Small Island States where identification, management, and mitigation of fiscal risks is an integral part of fiscal sustainability measures. • Climate budgeting: Tagging and reporting on public expenditure supporting measures for climate adaptation and resilience (including expenditure for risk-proofing infrastructure and for operations and maintenance). • Green financing: Issuance of green bonds and financing instruments that integrate climate adaptation considerations or mitigate financial risk from climate change or natural disasters and thereby support fiscal sustainability. • Public assets inventory: Preparing and maintaining a geolocated inventory of public assets and infrastructure and an assessment of their criticality and vulnerability to climate shocks. - 23 - Box 3. 8. Pakistan: Experience of Engaging with Subnational Governments The Constitutional amendment in 2010 enhanced the fiscal autonomy of Pakistan’s provinces without establishing a mechanism for coordination on fiscal targets. The Constitution assigns the federal government to collect, for instance, personal and corporate income tax (except for agricultural income), capital value tax (excluding immovable property), and the General Sales Tax (GST) on goods, while the subnational governments collect agricultural income tax, capital gains tax on property, and GST on services. This fragmentation challenges the federal government’s ability to implement consistent tax policies. Addressing the fiscal mismatch requires an institutional framework that coordinates macro-fiscal policymaking and commitments by both federal and subnational governments to common goals. To address the fiscal mismatch between the federal and subnational governments, the federal government has committed to the following PPAs: (i) harmonization of the GST framework; and (ii) commitment to a coordinated national fiscal policy through a national medium-term fiscal framework. Harmonizing fiscal policy across the country is challenging due to political instability. The consensus for the common GST framework has not been reached in a timely manner due to delayed dialog between the federal and subnational governments. After extensive discussions, an agreement was reached on the definitions of goods and services and place of supply rules paving path for GST harmonization. Gradual progress is also being made on a coordinated national fiscal policy, however, a lack of commitment by the subnational governments remains a challenge. Given that the responsibility of macroeconomic management rests solely with the federal government, the subnational governments have no legal responsibility to commit to common goals. IV. PROGRAM OF CREDITOR OUTREACH 44. Activities under the PCO scaled up significantly in this third year of the SDFP implementation. There were three high-level global events, two regional events, and two in- country events. These creditor outreach activities, conducted as part of the World Bank’s overall debt agenda, aim to support countries’ efforts in improving debt sustainability and enhancing debt transparency. The in-country outreach activities are tailored to the country's challenges and contexts. While it is too early to assess the effect of the outreach on creditor’s behaviors, this section takes stock of the implementation of the PCO in the past year and highlights emerging outcomes that are early indicators of long-term results and impact. A. Strategic Objectives and Results Framework 45. The PCO is designed to leverage IDA’s role as a convener to promote stronger collective action, greater debt transparency, and closer coordination among borrowers and creditors to mitigate debt-related risks. It supports the implementation of the DSEP, complements the existing mechanisms to promote coordination among creditors, and helps IDA countries strengthen their ability to address debt vulnerabilities. 46. The creditor outreach aims to deepen coordination among creditors to facilitate information sharing and promote dialog on debt transparency and debt sustainability. It includes coordination with multilaterals and traditional bilateral creditors, as well as engagement - 24 - with non-Paris Club bilateral creditors and private commercial creditors. This is particularly important in the new and evolving development finance landscape as non-traditional and private sector creditors have been playing an increasingly important role. Effective coordinated efforts among stakeholders are thus crucial to support IDA countries in enhancing their understanding of the changing financial situations and mitigating risks of unsustainable debt accumulation. Through a range of creditor outreach activities at the global, regional, and country levels as well as regular dialog and engagements with stakeholders, the PCO aims to strengthen information sharing on common principles, improve country-level coordination, and enhance communication on debt and sustainable financing. Figure 4.1 lays out the theory of change of the PCO. Figure 4. 1. Theory of Change of PCO PCO activities Expected outcomes • Advance dialog among a broader range of • Promote good practices of supporting information development partners; sharing and coordination with respect to the implementation of country allocation frameworks • Facilitate coordination at the country-level among and lending practices; different creditors, including traditional and non- traditional creditors and IMF, on technical • Support prudent debt management, debt assistance and advisory support; transparency, and sustainable lending practices; • Scale-up efforts on communication in the context • Foster cooperation, dialog, and innovative of existing MDB consultation mechanisms and solutions to enhance debt data sharing and debt convening partners, including traditional and non- reporting and transparency. traditional creditors. B. Creditor Outreach Activities to Foster Information Sharing and Support Debt Sustainability 47. PCO activities ramped up in the past year to support IDA countries to improve debt sustainability and enhance debt transparency in the broader context of the World Bank’s debt agenda. IDA is well positioned to play a convening role on debt related issues given its strong country presence and global knowledge. With a keen focus on the importance of debt transparency and information sharing, IDA briefed the OECD’s Party on Export Credits and Export Guarantees and the Paris Club through regular meetings as well as started engagements with non-Paris Club creditors and private sector creditors. IDA continued to closely coordinate with IMF and other MDBs to promote stronger collective action, greater debt transparency, and closer coordination among borrowers and creditors to help mitigate debt-related risks. Through a series of hybrid and in-person creditor outreach events, IDA provided a platform for information sharing among creditors to enhance the alignment of policy frameworks and support knowledge exchange and capacity building on debt transparency and sustainable financing. 48. The outreach events promoted coordination and discussions among development partners. The activities comprised a series of events with ministry officials, creditors, civil society, and the public. Organizing partners included the Eastern Caribbean Central Bank, the - 25 - Sierra Leonean Ministry of Finance, and the Ugandan Ministry of Finance. 18 Through the outreach, IDA continued deepening the engagements with multilateral creditors, enhancing communication in multiple fora with the OECD and Paris-Club creditors, and finding entry points to engage with non-Paris club bilateral creditors to promote dialog on debt transparency with, among others, private commercial creditors. 49. Under the PCO, IDA continues to promote sustainable lending and debt practices and provide a platform for information sharing. This sub-section presents the creditor outreach activities in line with the PCO’s stated strategic objectives and their emerging outcomes. i. Advance Dialog among Development Partners to Support Common Principles 50. IDA continued to advance dialog among development partners to support common principles through information sharing at high-level public PCO events, as well as through regular meetings with development partners. At these events, IDA convened country authorities, development partners, the private sector, and civil society and promoted dialog on debt policy, debt transparency, and debt sustainability. a. Global-Level Engagement 51. At the global level, IDA brought together a range of stakeholders to explore ways to help developing economies tackle debt vulnerabilities for building a durable foundation for growth and prosperity—amid the overlapping crises. a. At the WBG-IMF Spring Meetings in Washington, D.C. in April 2022, a high-level event, titled “Making Debt Work: Financing for Sustainable Growth”, was held to rally official and private creditors to devise ways of speeding up debt-restructuring processes and generating more sustainable long-term finance. High-level government officials, from Benin (Finance Minister) and Pakistan (Central Bank Governor), representatives from the China-based Multilateral Cooperation Center for Development Finance (Chief Executive Officer) and Standard Chartered (Head of Research), and senior management of WBG spoke on the panel. 19 The discussion covered ways to improve debt transparency, which is essential to sustainable borrowing and lending practices and to improve legal frameworks for debt management. b. At the IDA20 Launch in Tokyo in September 2022, a high-level event, titled “Making Debt Work: How to Incentivize Sustainable and Transparent Financing and Improve Creditor Coordination,” explored ways to strengthen the partnership among stakeholders and further coordinate to support the most vulnerable countries in addressing their debt risks for sustainable recovery and prosperity. The discussion focused on information sharing and discussing: (a) how sustainable financing and debt policies support client countries; (b) key results and lessons from the implementation of IDA’s SDFP; and (c) 18 The IMF panelists engaged and supported the PCO events in Sierra Leone, St. Kitts and Nevis, and Uganda. 19 Over 300 participants, including representatives from IDA borrower and creditor governments as well as other MDBs and development stakeholders, tuned in to the event. - 26 - examples of successful initiatives on debt transparency and information sharing, including from the private sector. c. At the WBG-IMF Annual Meetings in Washington, D.C. in October 2022, a high-level event, titled “Managing Debt amid Rising Uncertainty,” explored what governments can do to avoid buildups of unsustainable debt amid shocks like conflict and COVID-19. 20 In cases where debt was already unsustainable, speakers focused on lessons learned and plans going forward. Zambia’s Minister of Finance, alongside high-level representatives from Ukraine’s finance ministry, the United Kingdom, Moody’s, and the World Bank exchanged ideas. The roundtable provided a platform for stakeholders to share information and exchange ideas of how to manage debt amid rising uncertainty with the overlapping crises and highlighted lessons learned from the SDFP in facilitating debt transparency in LICs. b. Regional-Level Conferences 52. At the regional level, IDA focused on the outreach to two groups of small islands developing states – the Pacific and the Caribbean. Given the common challenges small island developing states are facing – where the compounding impacts of the COVID-19 pandemic and climate shocks worsened debt vulnerabilities and undermined development outcomes – regional level outreach events provided a platform to effectively coordinate among the key global and regional creditors for concerted effort. a. In November 2022, IDA participated in the discussion on debt and fiscal sustainability in the Pacific at the 9th Friends of Pacific Budget Support Meeting. Representatives included bilateral and multilateral creditors (including AsDB, Australia’s Department of Foreign Affairs and Trade, EU, IMF, the Japan International Cooperation Agency, New Zealand, the United States, and the World Bank). Given the Pacific Island Countries are highly dependent on natural resources with a limited industrial base, the discussion focused on DSA, the SDFP, technical assistance on debt management and good practice principles, as external support was deemed crucial. The event provided a platform for creditors to share information about the SDFP, particularly on NCB and blended financing, and on the key challenges facing the countries and how to foster greater collaboration at the country level in the Pacific Island Countries. b. In February 2023, IDA collaborated with the Eastern Caribbean Central Bank, headquartered in St. Kitts and Nevis, to organize a high-level creditor outreach event, titled “Building Resilience through Sustainable Development Financing in the Caribbean,” which was headlined by four ministers of finance from Caribbean small islands states.21 Along with the sub-region’s vulnerabilities to climate change and natural disasters, high indebtedness, lack of fiscal space, and connectivity issues (physical and digital), the crises have accentuated food insecurity, poverty, and gender inequality. The event highlighted the region’s challenges and called for stronger partnership between all stakeholders, including international financial institutions, regional development banks, private sector, 20 Over 60 participants, including government representatives, development partners, World Bank staff, civil society, and members of the media participated in the event. 21 Over 60 people joined in-person and more than 800 viewed on YouTube and Facebook online. - 27 - civil society, and nongovernmental organizations to support the Caribbean countries to improve “The Four Ds” - debt sustainability, development finance, diversification, and data (frequency, coverage, and transparency). 53. Furthermore, through regular dialog, IDA continued to collaborate with IMF, MDBs, the OECD, the Paris Club, and traditional bilateral creditors to enhance the alignment of policy frameworks and support knowledge sharing and capacity building on debt transparency and sustainable financing. The continuous information sharing among development partners contributed to strengthening the application of common principles. Through periodic meetings with AsDB and AfDB, IDA continued the collaboration on resource allocation and improved consistency of the SDFP with these MDB’s policies to enhance debt sustainability of client countries. 22 ii. Facilitate Creditor Coordination at the Country-Level among Creditors to Support Prudent Debt Management 54. A crucial part of the PCO, in-country activities to facilitate country-level creditor coordination, started to take place in the past year as the travel constraints of the pandemic were eased. IDA conducted two in-country creditor coordination activities to provide a platform for information sharing and coordination with traditional and non-traditional creditors. The selection of these two pilots was mainly demand-driven and the events aimed at supporting the countries to address their key debt vulnerabilities through coordination with a range of creditors. a. The first event was held in Kampala in May 2022 in collaboration with the Ugandan Ministry of Finance, Planning, and Economic Development because the country’s risk of external debt distress had deteriorated from low to moderate in 2021 and semi-concessional and non-concessional debt was on the rise. The event, titled “Building Stronger Partnership for Sustainable Financing in Uganda,” was designed to strengthen coordination between the authorities and key creditors, including the private sector, bilateral and multilateral organizations. 23 b. The second event was held in Freetown in December 2022 in collaboration with the Minister of Finance of Sierra Leone. The event, titled “Strengthening Global and Local Partnerships for Sustainable Development Financing in Sierra Leone,” highlighted the impact of the overlapping crises on the country and discussed how fiscal space can be increased sustainably and the progress on the country’s PPAs. 24 Both events received national media coverage, and the conference in Freetown was broadcast live through local media. The first event was held in Uganda because the country’s risk of external debt distress had deteriorated from low to moderate in 2021 and semi-concessional and non- concessional debt was on the rise. The second event was held in Sierra Leone because the country is already at a high risk of debt distress and close collaboration among creditors is 22 The PPAs of AsDB’s SDFP are the same as the PPAs of IDA’s for most countries and the Agreed Policy Actions of AfDB’s Sustainable Borrowing Policy complement IDA’s PPAs to reduce redundancies and bring in more additionality (while the unsatisfactory implementation of IDA’s PPAs will result in set-aside or discount, Agree Policy Actions will not impact African Development Fund allocations). 23 Over 100 people participated in person and an additional 200+ participants who connected virtually. 24 Over 100 people participated in person and another 100+ tuned in on YouTube. - 28 - crucial for supporting the country’s effort to prioritize debt management and debt transparency. Going forward, the criteria of in-country outreach selection will include, among others, country demand, importance of creditor collaboration, and capacity building needs. 55. The pilot creditor outreach activities and feedback from participants helped inform the design of the PCO. For the two in-country creditor outreach events, the activities included both a public country-level conference to share information and stimulate policy debate as well as closed-door events to convene creditors to have candid discussions of the key challenges of debt sustainability that the countries faced and the plans for financing. To support capacity building and the implementation of the SDFP, IDA also organized technical workshops with technical staff from the ministry of finance and the central bank to discuss the rationale, technical components, analytical underpinnings and implications of the SDFP. 56. IDA also convened borrower country authorities, and traditional and non-traditional creditors for candid closed-door discussions on debt vulnerabilities, while exchanging information on programs, portfolios, and pipelines in both in-country outreach events in Uganda and Sierra Leone. The format of these meetings allowed for open dialog about challenges facing each country—while giving key creditors and development partners a platform on which to speak frankly about their intentions and concerns. The Uganda-focused roundtable included representatives from the Absa Bank in Uganda, AfDB, the African Export-Import Bank, Belgium, China, EU, IFAD, IMF, the Islamic Development Bank, and the United States. The Sierra Leone roundtable saw participation from the embassies of China, EU, Germany, Ireland, Japan, the United Kingdom, and the United States, among others. iii. Support Information Sharing and Dialog on the SDFP to Enhance Debt Transparency 57. IDA has been supporting IDA countries in addressing their debt transparency challenges and enhancing debt management, including through advisory services, technical assistance, and lending operations. 25 The Heatmap allows monitoring improvements in public debt reporting and reflects improvements in the quality of dissemination practices. All IDA- eligible countries are required to report external public debt on a loan-by-loan basis to the Debt Reporting System (DRS) on a quarterly and annual basis. Establishing and maintaining an effective debt recording system has been an important factor in realizing improvements in the quality of public debt data. The most recent DRS status report using end-2021 data assessed an improvement in the quality of DRS reporting for five IDA-eligible countries: Burundi, the Democratic Republic of Congo, Lao PDR, Senegal, and Somalia. Each of these five countries has at least one PPA focusing on debt transparency, and all were satisfactorily implemented. There have been improvements in coverage, accuracy, and consistency of the data reported with the information published in national debt bulletins. 25 The World Bank provided technical assistance and training to IDA-eligible countries on debt issues, which are largely financed by the Debt Management Facility (DMF). The DMF plays a key role in strengthening public debt management policies and capacity in developing countries to reduce debt-related vulnerabilities and improve debt transparency through three components: (i) technical assistances; (ii) training on debt issues; and (iii) knowledge management. - 29 - 58. As part of the effort to support information sharing, IDA continued to use the ‘Lending to LICs’ mailbox as an important channel of engagement with creditors. This e- mail service account was created to help creditors make lending decisions that take debt sustainability and concessionality requirements into account. Creditors continued to report on lending (actual or potential) and request clarifications on the implications of the SDFP and the approved PPAs in countries in which they are either interested or considering investing. Since the last update in April 2022, the ‘Lending to LICs’ mailbox has received over 30 inquiries and notifications regarding 14 IDA countries. As in previous years, the inquiries focused on clarification of borrowing limits and grant-element calculations. This continuous engagement helps bring closer alignment to borrowing limits as prescribed in PPAs and/or in the context of IMF programs. IDA will continue to raise awareness of the ‘Lending to LICs’ mailbox and support information sharing. 59. As part of the effort to support dialog on the SDFP, IDA posts key information on debt for all IDA-eligible countries on its external Debt Website main page. The IDA website continues to publish the information of PPAs of each country and in a timely manner, including their formulation, DSEP areas, and implementation status, as well as the information of NCB ceilings if applicable. The formulations of the approved PPAs of all countries since the implementation of the SDFP in the past two years are available online on IDA’s public website. If the implementation of a PPA is not satisfactory, set-aside and discount information are also included following the submission of the SDFP update to the Board. To supplement the SDFP- related information, the website provides debt risk levels of each IDA country as per the most recent DSAs as well as the total lending at the project level. The website is updated regularly to capture new developments in the SDFP implementation, with special attention to the debt characteristics of IDA countries. An easily accessible link to all PPAs over the life of the SDFP will be included on IDA’s public website. 60. As part of the effort to further support the implementation of the SDFP, IDA actively ramped up the knowledge sharing and capacity building activities. Through technical meetings, the SDFP secretariat supported countries to identify key drivers of debt vulnerabilities using analytical tools and devise PPAs to help improve debt transparency, debt management, and fiscal sustainability. Examples include technical workshops with staff of the ministries of finance from Uganda and Sierra Leone, held in Kampala and Freetown, respectively, as part of the creditor outreach events to support the countries’ efforts in strengthening debt sustainability. The training supported the implementation of the DSEP. During the workshops, country officials and the World Bank country office staff brainstormed and shared ideas on the formulation of PPAs to address the key debt vulnerabilities the countries faced, including through programmatic actions. Nearly 100 technical staff from Sierra Leone, Tanzania, and Uganda participated in the training workshops in person or online. Participants generally considered the quality and content of the training useful and timely. 61. The SDFP secretariat also hosted a series of training events for Work Bank staff working in IDA countries. The three training events focused on the nuts and bolts of the implementation of the SDFP with hands-on sessions for in-depth discussions of how to formulate PPAs with a balance of ambition and realism tailored to the specific country context. The World Bank-wide seminar on integrated financing packages provided a venue for country economists to share their experiences. Building on the experience sharing from the cases of Burundi, the - 30 - Democratic Republic of Congo, and Maldives, participants discussed how to assess compliance with a debt ceiling PPA and apply the relevant criteria to measure the concessionality of a financing package. To help Small States address their specific climate-related risks, participants discussed how to identify and implement PPAs centered on building resilience against climate change and strengthening fiscal and external buffers. The series of training helped support the implementation of the DSEP and build capacity to enhance the support to client countries. C. Emerging Results 62. The PCO is supporting IDA countries in their efforts toward sustainable development financing. The outreach contributed to forming partnerships between creditors and development partners, sharing information among relevant stakeholders to improve communication and coordination, and conducting candid and challenging conversations. The public conferences also provided a platform for civil society, members of the public and media representatives to have discussions focused on debt sustainability with their country leaders. While the results on strengthening debt sustainability take time to materialize, the creation of these spaces for conversations around debt aligns strongly with the mission of the PCO and is an important prerequisite for progress on debt transparency. 63. With the significant scale-up of creditor outreach in the past year, progress has also been recorded in facilitating information sharing among creditors and enhancing debt transparency in IDA countries. The main outcomes of the PCO include: a. Nascent engagements with non-Paris Club bilateral creditors, private sector creditors and rating agencies to find entry points to strengthen coordination, including through information sharing at high-level public events and closed-door discussions of development challenges, work programs, and project pipelines. b. Close collaboration with IMF and other MDBs to enhance the alignment of policy frameworks, including the application of the non-concessional borrowing ceilings in coordination with IMF, alignment of PPAs between IDA and AsDB, and coherence with the Agreed Policy Actions of AfDB. 26 c. Systematic information sharing on NCB limits with the OECD’s export credit agencies group and through the IDA webpage to support transparency and aid client countries with prudent borrowing practices. 64. The outreach contributed to the creation of open- and closed-door forums dedicated to discussions around debt sustainability. Given the specific country and regional contexts, these events were widely reported in local/regional news headlines with keen interest from the media. For example, the first in-country outreach event in Uganda facilitated an open dialog between the country authorities and traditional and non-traditional creditors after a long absence of engagement due to COVID-19. Together with the regular meetings with traditional creditors and through IDA website and the ‘Lending to LICs’ mailbox, IDA supported information sharing at the global, 26 IFAD will update its NCBP in 2024 to start the new cycle IFAD13 (2025-2027) with applicable new policy. - 31 - regional, and country levels and facilitated creditor coordination, despite the challenging overlapping crises. 65. Feedback from participants has been encouraging. For example, at the high-level outreach public event in Uganda, Hon. Henry Musasizi, the country’s State Minister for Finance Planning and Economic Development, indicated that “Uganda continues to face challenges in managing our debt portfolio…Engagements such as this are therefore of the utmost importance.” At the high-level outreach public event in Sierra Leone, five out of six participants agreed or strongly agreed that the event helped provide a platform for information sharing among key stakeholders on common principles of sustainable financing; improved the understanding of some challenges faced by the country in accessing sustainable financing for development; supported experience sharing on the importance of improving fiscal sustainability and communication on debt issues; and promoted dialog among creditors on debt sustainability in the country. Similarly, survey findings for the high-level regional Caribbean Program of Creditor Outreach on February 10, 2023, in Basseterre, St. Kitts and Nevis, revealed that the majority of the respondents strongly agreed or agreed that the event provided a platform for information sharing on the common principles of sustainable debt, and that they had a better understanding of the challenges faced by the Caribbean countries in accessing sustainable financing for development because of this event. Ms. Lilian Chatterjee, Canada’s High Commissioner to Barbados and the Organisation of Eastern Caribbean States highlighted that, through the participation of IDA’s creditor outreach event, “we therefore understand the importance of working together to leverage all financing flows as a complement to traditional ODA flows.” D. Lessons Learned 66. Lessons learned from the nearly three years of implementation of the SDFP highlight its role in enhancing IDA’s global platform and convening role, including by expanding the PCO to promote creditor coordination on sustainable lending practices. Partnerships and collaboration among all creditors are crucial in helping countries implement reforms to enhance debt sustainability. Convening all stakeholders in the same room to discuss the challenges and solutions of debt sustainability is only the first step to fostering a concerted effort. A return to the path of sustainable growth and prosperity for countries with elevated debt vulnerabilities will require enhanced debt transparency and creditor coordination, including with the private sector and traditional and non-traditional bilateral creditors. 67. However, challenges remain, particularly in countries where the Bank is a small player and non-concessional borrowing is significant. In some countries where financing from IDA and other MDBs remained a small share, incentives that set-asides or discounts from unsatisfactory implementation of PPAs could provide are often insufficient. Coordinated efforts and consistent policies by MDBs can help strengthen the Policy’s ability to incentivize countries for reforms. For example, the alignment of IDA’s PPA with AsDB’s PPAs provided additional leverage to the development financing policies of both institutions while reducing the burden on countries’ capacity; and the coherence of IDA’s PPA with AfDB’s Agreed Policy Actions sent consistent signals from both organizations on sustainable debt policies at the country level. 68. A global cooperative approach to coordinate among all creditors and support country reforms in strengthening debt transparency is becoming an imperative for - 32 - supporting countries’ efforts to enhance debt sustainability. WBG is working to enhance investors’ access to payment history for private sector projects in developing markets through the Global Emerging Markets Risk Database, aiming to make the aggregated statistics available to investors as a global public good with appropriate safeguards and quality standards. IDA can strengthen the coordination with all stakeholders, in particular, through building on the nascent engagements with non-traditional bilateral creditors and private sector creditors and providing a platform to continue sharing information and fostering dialog on sustainable financing. IDA will continue to reach out for feedback and suggestions from stakeholders to enhance the effectiveness of the outreach. V. CONCLUSION 69. This paper suggests areas where the SDFP may benefit from refinements to continue to help IDA countries address debt vulnerabilities. The SDFP has helped IDA countries introduce and maintain policies focused on debt and fiscal sustainability, with a goal of facilitating reforms to support clients bring their debt levels to sustainable levels and increasing their resilience to future shocks. While the SDFP is on the right track to achieve its goals, the implementation experience thus far suggests opportunities that should be explored further and challenges that need to be addressed both in the DSEP and PCO pillars. 70. Reflecting on successful reforms supported by the DSEP, a programmatic approach for PPAs will be encouraged going forward. Advancing reforms through programmatic PPAs over the medium term will ensure additionality of reforms while balancing ambition with countries’ capacities. A programmatic approach allows authorities with limited capacity to start reforms incrementally that could deliver results over the medium term. This process will be supported with World Bank’s technical assistance and operations, to select PPAs that focus on key drivers of countries’ debt vulnerabilities as well as reinforce the credibility of reforms. If applied systematically and institutionalized in a legal framework, a programmatic approach would support continuity and sustainability of reforms. 27 71. The three-year implementation reveals challenges for engaging in countries where the World Bank is not a major creditor, the government’s implementation capacity is limited, and the ownership and coordination of reforms are not sustained. While an NCB ceiling is a powerful tool for sustainable financing practices, it has proved challenging in countries where the financing from the World Bank is small relative to that of other financiers. It is essential that all stakeholders support the countries’ development financing needs in a more sustainable manner. Small States and FCV countries face challenging policy environments due to their limited capacity and resources. While the Policy considers different country characteristics, further consideration may be given to the greater use of administrative performance actions. Small Island States, for instance, may consider climate-related actions for fiscal sustainability. Ownership and coordination of reforms are important, especially when the authorities which are committed to the implementation of PPAs do not have control over agencies that implement them. For instance, in 27 While a programmatic approach for incremental improvements is ideal, tracking results of reforms remaining in place are also important. In this context, going forward the SDFP Secretariat may introduce a mechanism that reviews if the previous achievements remain sustained. - 33 - decentralized countries with subnational governments, engagements with subnational governments need careful attention when designing PPAs. As it would be difficult to implement PPAs designed by a central government for subnational governments without their ownership, investments in facilitating coordination and sustained technical engagement with subnational governments over the long term should be pursued. 72. The implementation experience may also point to further enhancements of the Policy . The Policy, currently allowing revisions and cancellations of PPAs only on an exceptional basis, may add some flexibility in the revision of PPAs to explore greater synergies between PPAs and DPOs while carefully avoiding losing their credibility. Implementation will further encourage a programmatic approach for complex and difficult reforms to be achieved over several years. 73. Through the PCO, IDA plans to continue ramping up its effort to engage with stakeholders to support information sharing and advance dialog and coordination for sustainable financing. This will be achieved by focusing more on the following three areas: a. Continue convening high-level events at the global and regional levels, including around the WBG-IMF Spring Meetings and Annual Meetings, to avail the opportunity to exchange views with high-level representatives from key stakeholders, enhance information sharing and support the application of consistent debt policies at the country level. b. Step up the outreach to support countries with the most daunting challenges of creditor coordination, including countries in fragile and conflict situations and countries where the World Bank is a small player and non-concessional borrowing was significant, building on the experience of the two in-country outreach events in Sierra Leone and Uganda. c. Further the collaboration with multilateral financial mechanisms to deepen the engagement with traditional and non-traditional creditors, including private commercial banks, other MDBs, and find entry points to strengthen the coordination with all prominent stakeholders. 74. As IDA countries grapple with an alarming number of economic crises brought about by high debt, natural disasters, food insecurity, high inflation, and the impact of Russia’s invasion of Ukraine, the mission of the SDFP has become even more urgent. Because the financing landscape continues to shift and the share of the non-traditional bilateral creditors and private sector creditors continues to increase (relative to that of bilateral debt from Paris Club creditors and multilateral creditors), furthering the coordination between all types of creditors is essential to support IDA countries’ effort to enhance debt sustainability and debt transparency. While it is still too early to determine whether the PCO has led to behavioral changes of creditors, outreach to strengthen country ownership, support open conversations, and facilitate engagement from key stakeholders on debt sustainability and transparency are essential steps in the right direction. Improving debt transparency and enhancing debt sustainability are a joint responsibility of borrowing governments and of all stakeholders, including creditor governments, MDBs, and private sector creditors. Going forward, IDA will continue to scale up the coordination with all creditors to support IDA countries’ effort to enhance debt transparency for sustainable financing. - 34 - ANNEX 1. FY23 APPROVED PPAS Country Country Characteristics PPAs Lending Risk of FCV Small Debt Transparency Debt Management Fiscal Sustainability Category Debt (Y/N) States Distress, (Y/N) May 2022 Benin IDA-only Moderate No No PPA2. To improve debt PPA3. To reduce fiscal risks, PPA1. To expand the tax base and transparency, the Ministry the CAA and DGPED will secure tax revenue, the Ministry of Economy and Finance adopt through a circulaire or of Economy and Finance has and the Debt Office (CAA) similar regulatory instrument a adopted by arrete the will report on the stock of credit risk assessment score simplification of property tax arrears through their card for the provision of public calculated on the basis of the publication in the quarterly guarantees and on-lending to rental value based on published debt bulletins and the fiscal SOEs that will be annually objective criteria. risk annex to the 2023 reported in an internal report Budget Law. between CAA and DGPED; and complete their first report for the three largest SOEs. Bhutan Gap Moderate No Yes PPA2. To strengthen the legal PPA1. To strengthen SOE framework for effective public oversight and fiscal risk debt management, the Cabinet monitoring, the Ministry of has, by March 31, 2023, Finance has published, by March approved the Public Financing 31, 2023, on the Ministry of Policy 2022, which establishes Finance website, the annual SOE broad guidelines for borrowing report for the calendar year 2021, decisions by the public sector, which includes comprehensive and sets out institutional enterprise-level information on arrangements for the risk financial and non-financial assessment and monitoring of performance of all SOEs under public debt. the Ministry of Finance and Druk Holding and Investments, the state holding company. Burkina IDA-only Moderate Yes No PPA1. The MoF has adopted an Faso Order defining the regulatory and institutional framework for the annual production and publication of fiscal risk statements (FRS) and published the FRS associated with - 35 - Country Country Characteristics PPAs Lending Risk of FCV Small Debt Transparency Debt Management Fiscal Sustainability Category Debt (Y/N) States Distress, (Y/N) May 2022 the 2023 budget, in compliance with this Order. The order should define (a) the key modalities of the production of the FRS (including the timeline, roles, and responsibilities of the relevant entities); (b) the scope and content of the FRS; and (c) the mandatory annexation of the FRS to the draft Budget Law submitted to Parliament. PPA2. The country’s independent anti-corruption body ASCE-LC has published two audit reports: one for the National Electricity Corporation (SONABEL) and one for the National Hydrocarbons Corporation (SONABHY), covering organizational, financial, accounting, management, and operational practices for the period from January 1, 2019, to December 31, 2021. Burundi IDA-only High Yes No PPA2. Burundi will PPA1. To improve debt institutionalize recent sustainability, the Government improvements in debt will not enter into any transparency by creating a contractual obligations for new formal requirement external public and publicly (through a service note guaranteed (PPG) non- signed by the Minister of concessional debt in FY22, Finance) to publish debt except if the non-concessional reports annually, within six debt limit is adjusted by the months of the end of the World Bank to a) reflect any reporting period and material change of including information on all circumstances or b) in - 36 - Country Country Characteristics PPAs Lending Risk of FCV Small Debt Transparency Debt Management Fiscal Sustainability Category Debt (Y/N) States Distress, (Y/N) May 2022 SOE debt as well as coordination with the IMF, in domestic arrears. particular in line with Implementation of this adjustments in the IMF Debt requirement will start for Limit Policy (DLP). calendar year 2022, and therefore further evidence will be provided by the actual publication of the annual debt reports for 2021 and 2022 by May 2023. The reports will expand coverage by adding to central government debt and central government guaranteed debt, the debt (guaranteed, on-lent, and non-guaranteed) of all state- owned enterprises (about 17 additional SOEs) and domestic arrears. The reports will include loan terms, creditors, outstanding loan amounts, debt service and currency risks in the portfolio. Cabo Verde Blend High No Yes PPA2: To increase debt PPA1 To improve debt transparency, the Ministry sustainability, the Government of Finance Treasury will not enter into any Department will issue a contractual obligations for new regulatory decree to external public and publicly broaden the coverage of the guaranteed (PPG) non- quarterly public debt concessional debt in FY22, bulletin to include debt of except if the non-concessional SOEs, and guaranteed debt debt limit is adjusted by the from municipalities, and World Bank to a) reflect any publish the quarterly public material change of - 37 - Country Country Characteristics PPAs Lending Risk of FCV Small Debt Transparency Debt Management Fiscal Sustainability Category Debt (Y/N) States Distress, (Y/N) May 2022 debt report with this circumstances or b) in broader coverage coordination with the IMF, in particular in line with adjustments in the IMF Debt Limit Policy (DLP). Cameroon Blend High Yes No PPA2. To improve debt PPA1. To strengthen fiscal risks management, the Government management, the Government will not enter into any will: (i) publish through the Debt contractual obligations for new Department a report with external public and publicly expanded coverage including guaranteed (PPG) non- direct costs and contingent concessional debt in FY23, liabilities stemming from PPPs beyond the cap of XAF 512.9 using the PFRAM tool and billion for the present value of (ii) adopt a regulation clarifying newly contracted or guaranteed roles and responsibilities in external public debt, except if monitoring and disclosing the the ceiling is adjusted by the fiscal costs and contingent World Bank to a) reflect any liabilities during the project material change of lifecycle. circumstances or b) in coordination with the IMF, in particular in line with adjustments in the IMF Debt Limits Policy. Central IDA-only High Yes No PPA1. To improve debt PPA2. To improve debt African management and sustainability, the Government Republic transparency, the will not enter into any government through the contractual obligations for new Ministry of Finance and external public and publicly Budget, has prepared and guaranteed (PPG) non- published in accordance concessional debt in FY23, with the arrêté #27/PM.21 except if the non-concessional of November 5, 2021, an debt limit is adjusted by the annual report on the World Bank to a) reflect any financial performance and material change of - 38 - Country Country Characteristics PPAs Lending Risk of FCV Small Debt Transparency Debt Management Fiscal Sustainability Category Debt (Y/N) States Distress, (Y/N) May 2022 fiscal risks associated with circumstances or b) in all three largest SOEs in the coordination with the IMF, in energy, particular in line with telecommunications, and adjustments in the IMF Debt water sectors (ENERCA, Limit Policy (DLP). SODECA, SOCATEL), covering the period January-December 2021. Chad IDA-only In Yes No PPA1. The Government will distress not enter into any contractual obligations for new external public and publicly guaranteed (PPG) non-concessional debt in FY23, except if the non- concessional debt limit is adjusted by the World Bank to a) reflect any material change of circumstances or b) in coordination with the IMF, in particular in line with adjustments in the IMF Debt Limit Policy (DLP). PPA2. The government: i) to improve the accuracy of debt transactions and payments recording and reporting, will install and make effective the use of SYGADE-6 software, transfer the debt data currently in Excel into the new SYGADE-6 database; ii) to increase the supervision of debt management, will adopt an arrêté to ensure that annual debt reports are published on time - 39 - Country Country Characteristics PPAs Lending Risk of FCV Small Debt Transparency Debt Management Fiscal Sustainability Category Debt (Y/N) States Distress, (Y/N) May 2022 (no later than six (6) months after the end of the year) and use SYGADE-6 to publish annual reports of 2020 and 2021. Comoros IDA-only High Yes Yes PPA1. The Government will not enter into any contractual obligations for new PPG non- concessional debt in FY23, except if the non-concessional debt limit is adjusted by the World Bank to a) reflect any material change of circumstances or b) in coordination with the IMF, in particular in line with adjustments in the IMF Debt Limit Policy (DLP). PPA2. The Government submitted to the Parliament a debt management law that addresses issues related to the modalities of the issuance of sovereign bonds, the signature of loan agreement, the issuance of government guarantee, the use of public debt proceeds and public debt servicing, debt restructuring and retrocession, transparency, control, monitoring and sanctions and requires State-owned enterprises (SOEs) to transmit quarterly data reports on - 40 - Country Country Characteristics PPAs Lending Risk of FCV Small Debt Transparency Debt Management Fiscal Sustainability Category Debt (Y/N) States Distress, (Y/N) May 2022 external and domestic debt to the Ministry of Finance. Congo, IDA-only Moderate Yes No PPA2: DRC publishes, in PPA1: To ensure debt Democratic the annual debt report for sustainability, the Government Republic of 2021 and quarterly debt will not enter into new bulletins for 2022, data on contractual obligations for the debt of key SOEs and external public and publicly selected provincial guaranteed (PPG) debt with governments, as well as cumulative net present value data on domestic arrears exceeding USD 1.5 billion in and contingent liabilities, in FY23. The World Bank may addition to reporting public adjust this limit to a) reflect any and publicly-guaranteed material change of external and domestic debt. circumstances and/or b) in Key SOEs include SNEL, coordination with the IMF, in MIBA and Gecamines, particular in line with which were covered in the adjustments in the IMF Debt Q4 2021 debt bulletin, as Limit Policy (DLP). well as at least two additional SOEs. Congo, Blend In Yes No PPA1. To strengthen debt Republic of distress sustainability and reduce debt vulnerabilities, the Government has: (i) Repaid domestic arrears between July 2022 and March 2023 in the amount defined by the IMF ECF Indicative Targets on “floor on repayment of domestic arrears accumulated by the central government” for the said period; (ii) Between July 1, 2022, and June 30, 2023, complied with a zero- ceiling accumulation of new arrears on external debt - 41 - Country Country Characteristics PPAs Lending Risk of FCV Small Debt Transparency Debt Management Fiscal Sustainability Category Debt (Y/N) States Distress, (Y/N) May 2022 contracted or guaranteed by the central government; (iii) Adopted through the Council of Ministers a strategy with a new scheme for domestic arrears repayments and published it on the website of the Ministry of Finance. PPA2. To improve debt sustainability, the Government will not enter into any contractual obligations for new external public and publicly guaranteed (PPG) non- concessional debt in FY23, except if the non-concessional debt limit is adjusted by the World Bank to a) reflect any material change of circumstances or b) in coordination with the IMF, in particular in line with adjustments in the IMF Debt Limit Policy. Cote d'Ivoire Gap Moderate No No PPA2: To enhance PPA3: To enhance debt PPA1: To optimize the collection transparency and limit the management and limit the risk of non-tax revenues, the Council risk from contingent from contingent liabilities, the of Ministers has adopted and liabilities, the Public Debt Ministry of Budget has adopted transmitted to Parliament a non- Department will publish on a mechanism for approving on- tax revenue procedure law that a quarterly basis, a table on lending to SOEs, extending the sets out the legal framework for its website with details of current framework covering the collection and oversight of on-lent loans to state-owned guaranteed lending. non-tax revenue by the Treasury. enterprises (SOEs). - 42 - Country Country Characteristics PPAs Lending Risk of FCV Small Debt Transparency Debt Management Fiscal Sustainability Category Debt (Y/N) States Distress, (Y/N) May 2022 Djibouti Gap High No Yes PPA1. To improve debt management and reduce contingent liabilities related to state-owned enterprises’ (SOEs), the government of Djibouti has issued and published in the official gazette, a decree stipulating conditions and process for the granting of guarantees to SOEs. PPA2. To improve debt sustainability, the Government will not enter into any contractual obligations for new external public and publicly guaranteed (PPG) non- concessional debt in FY23, except if the non-concessional debt limit is adjusted by the World Bank to a) reflect any material change of circumstances or b) in coordination with the IMF, in particular in line with adjustments in the IMF Debt Limit Policy. Dominica Blend High No Yes PPA1: The Cabinet of Ministers has: (i) issued an order mandating and specifying quarterly and annual financial and debt reporting standards and requirements for the 10 commercial SOEs, including any non-guaranteed debt; and (ii) approved the creation of an SOE - 43 - Country Country Characteristics PPAs Lending Risk of FCV Small Debt Transparency Debt Management Fiscal Sustainability Category Debt (Y/N) States Distress, (Y/N) May 2022 Monitoring and Oversight Committee and the definition of its composition, mandate, roles, and responsibilities. PPA2: The Cabinet of Ministers has approved the creation of a debt repayment fund with a minimum monthly capitalization commitment of EC$500,000 (EC$6.0 million annually) to be used to pay down debt at an accelerated rate. Ethiopia IDA-only High Yes No PPA1. To accelerate the PPA2. The Council of Ministers resolution of outstanding state- has approved for submission to owned enterprise debts and Parliament a draft Public reduce liquidity and credit risks Enterprises Proclamation that in the financial system, the empowers the Ministry of Finance government has approved a to monitor, analyze, and mitigate financing strategy for the the impacts of SOEs on public Liability and Asset finances, in particular the fiscal Management Company that risks caused by the fulfillment of covers the full period until the public service obligations, to maturity of all debts transferred ensure the sustainability of the to LAMC. SOEs and the broader public sector. PPA3. To improve debt sustainability, the Government will not enter into any contractual obligations for new external public and publicly guaranteed (PPG) non- concessional debt in FY23, except if the non-concessional debt limit is adjusted by the World Bank to a) reflect any - 44 - Country Country Characteristics PPAs Lending Risk of FCV Small Debt Transparency Debt Management Fiscal Sustainability Category Debt (Y/N) States Distress, (Y/N) May 2022 material change of circumstances or b) in coordination with the IMF, in particular in line with adjustments in the IMF Debt Limit Policy (DLP). Fiji Blend MAC- No Yes PPA1. To enhance fiscal DSA sustainability, the Government in its 2022-2023 Budget, has approved the following tax policy measures: (i) removal of concessional corporate rates on specific companies to enforce a standard and single corporate tax rate of 20 percent, and (ii) increase in import duty rates on used and new passenger cars by FJ$1,000 per unit and 5 percent respectively, and a FJ$10,000 luxury vehicle levy on passenger vehicles with engine capacity greater than 3000cc. PPA2. To improve public investment efficiency, Cabinet has approved the institutionalization of the appraisal process of major investment projects using publicly available standard assessment criteria. Starting January 2023, project proposals from the 9 Ministries, Departments and Agencies (MDAs) will be assessed by the Committee using the criteria as part of FY24 budget formulation. (i) a Committee - 45 - Country Country Characteristics PPAs Lending Risk of FCV Small Debt Transparency Debt Management Fiscal Sustainability Category Debt (Y/N) States Distress, (Y/N) May 2022 headed by the Ministry of Economy and comprising selected MDAs, and independent experts (where required) has been charged with assessing all infrastructure projects and human and social capital projects of FJ$500,000 and above, and; (ii) the Cabinet has approved Public Sector Investment Program (PSIP) guidelines, and a User Manual for the preparation, appraisal and approval of projects under the PSIP guidelines. Gambia, The IDA-only High No No PPA1. To improve debt PPA3. To improve debt PPA2. To improve fiscal and debt transparency, the MOFEA sustainability, the Government sustainability, the MOFEA will will publish the annual will not enter into any publish the first Fiscal Risk public debt bulletin for contractual obligations for new Statement (FRS) on its website. 2022 including a table on external public and publicly government guarantees guaranteed (PPG) non- extended to all SOEs on its concessional debt in FY23, website. except if the non-concessional debt limit is adjusted by the World Bank to a) reflect any material change of circumstances or b) in coordination with the IMF, in particular in line with adjustments in the IMF Debt Limit Policy (DLP). Ghana Gap High No No PPA1. Approve by Parliament the 2023 Budget with a comprehensive set of tax policy measures aimed at improving revenue collection by at least 1 - 46 - Country Country Characteristics PPAs Lending Risk of FCV Small Debt Transparency Debt Management Fiscal Sustainability Category Debt (Y/N) States Distress, (Y/N) May 2022 percent of GDP in 2023, and: (i) approve by Parliament an increase of the VAT rate to 15 percent; (ii) submit to Parliament a revision of the income tax regime to introduce a new tax bracket of 35 percent a return and a withholding tax for gains on realization of assets and liabilities, and a review of the upper limits for vehicle benefits; and (iii) approve by the Ghana Revenue Authority (GRA) an order to remove the benchmark discount policy for imports. PPA2. The Auditor-General has completed the audit of the COVID-19 spending undertaken between March 2020 and June 2022, submitted it to Parliament, and published it on its website. PPA3. The Cabinet has approved the sale of assets of seventeen (17) identified defunct and/or inactive state-owned entities. Grenada Blend In No Yes PPA1. The government will not PPA2. The government has distress enter any contractual approved the climate change obligations for new external budget tagging methodology for public or publicly guaranteed application to all budget circulars (PPG) non-concessional debt in and annual budget bills, starting in a total amount exceeding FY24. US$80 million throughout FY23, except if the non- concessional debt limit is adjusted by the WB to (a) - 47 - Country Country Characteristics PPAs Lending Risk of FCV Small Debt Transparency Debt Management Fiscal Sustainability Category Debt (Y/N) States Distress, (Y/N) May 2022 reflect a material change of circumstances; or (b) in coordination with the IMF, in particular in line with adjustment in in the IMF debt limit policy. Guinea IDA-only Moderate No No PPA3. To improve the accuracy PPA1. To improve efficiency and and comprehensiveness of data transparency in tax management, in the quarterly Debt bulletin the DGI will generate monthly and in the annual Medium-term revenue reports from the debt strategy, and to strengthen government’s digitally-integrated debt management and tax system, use the reports in the transparency, the debt unit regular cash management (DNDAPD) has put in use a meetings, and post the monthly modern debt data recording, reports on the MEFP website. reporting, and monitoring system (DMFAS). PPA2. To improve mining tax collection, the Ministry of Mining and Geology, the Ministry of Budget, and the Ministry of Economy, Finance and Planning have adopted and are implementing a new inter- Ministerial regulation on transfer pricing that provides a reasonable approximation of the arm’s length price, applicable by default to all bauxite companies. Guinea- IDA-only High Yes No PPA2. To improve debt PPA1. To increase debt Bissau sustainability, the transparency, the Government Government will not enter will: (i) expand the coverage of into any contractual the published annual debt obligations for new external bulletin to cover debt from the public and publicly two largest SOEs in terms of guaranteed (PPG) non- fiscal risk (EAGB and the civil - 48 - Country Country Characteristics PPAs Lending Risk of FCV Small Debt Transparency Debt Management Fiscal Sustainability Category Debt (Y/N) States Distress, (Y/N) May 2022 concessional debt in FY23, aviation authority) and (ii) issue except if the non- a Ministerial Order requiring concessional debt limit is publication of quarterly debt adjusted by the World Bank bulletins and publish a to a) reflect any material quarterly debt bulletin that change of circumstances or includes central government b) in coordination with the debt and guarantees. IMF, in particular in line with adjustments in the IMF Debt Limit Policy (DLP). Guyana Gap Moderate No Yes PPA1. To inform PPA2. To strengthen the assessment of fiscal risks efficiency of public investments, and improve transparency, the Ministry of Finance has the Ministry of Finance approved, by February 2023, a assures the publication of five-year public investment plan audited financial statements (PIP) for two priority sectors for 2019, 2020 and 2021 for (agriculture and infrastructure), five [5] of the most including key prioritization important SOEs with criteria, consistent with the newly outstanding audits and that approved public investment have previously required management framework. support from the budget. The audits will be published by April 2023. Haiti IDA-only High Yes No PPA1. The Government will PPA2. The government has not enter into any contractual approved measures to rationalize obligations for new external tax expenditures stemming from public or publicly guaranteed its tax incentive regime and starts (PPG) non-concessional debt in implementation in the Haitian FY23, except if the non- FY2023 budget. concessional debt limit is adjusted by the World Bank to a) reflect a material change of circumstances or b) in coordination with the IMF, in - 49 - Country Country Characteristics PPAs Lending Risk of FCV Small Debt Transparency Debt Management Fiscal Sustainability Category Debt (Y/N) States Distress, (Y/N) May 2022 particular in line with adjustments in the IMF Debt Limit Policy. Kenya Blend High No No PPA1: To increase debt PPA3. To improve debt PPA2: To strengthen fiscal transparency, the management, the government sustainability by enhancing wage government has published will limit the present value of bill control, the Unified Payroll on the National Treasury new external debt contracted or System has been rolled out to the website an enhanced annual guaranteed through June 2023 Teachers Service Commission and debt report which expands to $11,630 million (cumulative at least 200 MDAs debt coverage to include the since June 2021), except if this outstanding debt of state- limit is adjusted by the World owned enterprises Bank to a) reflect any material change of circumstances or b) in coordination with the IMF, in particular in line with adjustments in the IMF Debt Limits Policy. Kiribati IDA-only High Yes Yes PPA2. To improve debt PPA1. To improve debt transparency, (i) Cabinet sustainability, the Government has approved and published will not enter into any a Fiscal Reporting Policy, contractual obligations for new which sets out new external public and publicly standards for regular public guaranteed (PPG) non- reporting on revenues, concessional debt in FY23, expenditure, State-Owned except if the non-concessional Enterprises, Revenue debt limit is adjusted by the Equalization Reserve Fund World Bank to a) reflect any (RERF) performance and material change of public debt (including circumstances or b) in lender, loan term, interest coordination with the IMF, in rate, terms, purpose, particular in line with amount borrowed, adjustments in the IMF Debt repayments and outstanding Limit Policy. balance); and (ii) the Ministry of Finance and - 50 - Country Country Characteristics PPAs Lending Risk of FCV Small Debt Transparency Debt Management Fiscal Sustainability Category Debt (Y/N) States Distress, (Y/N) May 2022 Economic Development (MFED) has published the first intra-year Budget Performance Report, covering Q1-2022, in accordance with the Fiscal Reporting Policy. Kyrgyz IDA-only Moderate No No PPA1. To improve debt PPA3: To improve public debt PPA2: To ensure fiscal Republic transparency the Ministry of management, the government sustainability the Government Finance (MoF): (i) approves a Cabinet decision to: continues annual preparation and mandates, through an Order (i) mandate restructuring of the publication of the Information on of the Minister of Finance, energy sector SOEs debt to the Fiscal Risks (IFR) and anchors the preparation and government; and (ii) stipulate this process in stronger publication of the annual that any new sub-financing institutional and methodological public debt reports and from the government to energy frameworks and improved issues instructions sector SOEs shall be provided analytical content by: (i) regarding the format and on terms at least equal to the approving, through a Cabinet main requirements of these terms of financing received by Decree, the institutional reports to cover public debt the government from various representation of the Working of central government, financiers. Group on IFR, including the government guaranteed coverage of IFR and data request debt and on-lending, and templates: (ii) approving, through containing analysis and the Finance Minister’s Order, the statistical annexes on upgraded Methodological domestic and external debt Guidelines on preparation and by creditors, terms, publication of IFR; and (iii) currencies, maturities, and publishing on the MoF’s website other details; and the 2023-25 IFR with enhanced (ii) approves through an analyses on public debt Order of the Minister of sustainability, restructured budget Finance and publishes on loans and fiscal risks associated the MoF website the CY22 with SOEs and joint-stack public debt report in line companies, including energy with the format specified in sector SOEs. the Finance Minister’s Order. - 51 - Country Country Characteristics PPAs Lending Risk of FCV Small Debt Transparency Debt Management Fiscal Sustainability Category Debt (Y/N) States Distress, (Y/N) May 2022 Lao People's Gap High No No PPA1. The Ministry of PPA2. The Government will PPA3. The Government will Democratic Finance will publish on its only enter into contractual approve and publish a Decree on Republic webpage a comprehensive obligations for new external State-Owned Enterprises (SOEs) 2022 public debt bulletin public and publicly guaranteed in the official gazette. The Decree that builds on the 2021 (PPG) non-concessional debt to instructs SOEs to: (i) submit bulletin by: (i) expanding meet the amortization of annual financial reports (with its coverage and existing non-concessional debt. information on assets and granularity, by Any such new non- liabilities) to the Ministry of incorporating information concessional debt will not Finance within three months after on newly contracted loans exceed US$ 605 million in the the end of the year, and (ii) seek and bonds, renegotiated and World Bank’s Fiscal Year 2023 approval from the Ministry of deferred debt, average (i.e., July 2022 to June 2023), Finance before accessing sources maturity and interest rate, except if the non-concessional of finance. non-guaranteed SOE debt, debt limit is adjusted by the and other known contingent World Bank a) to reflect any liabilities; and (ii) adding a material change of debt statement summarising circumstances or b) in performance, risks, and coordination with the IMF, in strategy. particular in line with adjustments in the IMF Debt Limit Policy. Lesotho Gap Moderate No No PPA1. To ensure transparency of public payments, Lesotho, through its (a) Ministry of Finance, has issued a Circular to all its Chief Accounting Officers, which mandates the use of Electronic Funds Transfer (EFT) through the Integrated Financial Management Information System (IFMIS) for purposes of making all government’s payments; (b) the Accountant-General has issued guidelines mandating compliance with EFT implementation to all Finance - 52 - Country Country Characteristics PPAs Lending Risk of FCV Small Debt Transparency Debt Management Fiscal Sustainability Category Debt (Y/N) States Distress, (Y/N) May 2022 Directorates. PPA2. To improve revenue collection, Lesotho, through its Ministry of Finance, has issued a treasury circular, which mandates the introduction of cashless payments for non-tax revenues. PPA3. To improve the allocative efficiency of the budget, Lesotho, through its Ministry of Finance, has issued guidelines for a revised Medium-Term Expenditure Framework (MTEF), which lays the foundation for MTEF implementation from the FY24/25 budget. Liberia IDA-only Moderate No No PPA1. The Government PPA2. The Ministry of Finance through the Ministry of and Development Planning Finance and Development (MFDP) and the Central Bank Planning will expand the of Liberia (CBL) have signed a coverage of debt reporting Memorandum of by publishing in the annual Understanding (MoU) that debt report for 2022 the allows the CBL to verified and validated stock automatically debit a of domestic arrears of the government account for debt Central Government, servicing purposes to ensure including reporting on that debt service obligations are spending category fully paid, and no new arrears (compensation of are accumulated on debt employees, acquisition of obligations. goods and services, PPA3. To maintain debt transfers, acquisition of sustainability, the Government nonfinancial assets) and will not enter into any economic agents who are contractual obligations for new - 53 - Country Country Characteristics PPAs Lending Risk of FCV Small Debt Transparency Debt Management Fiscal Sustainability Category Debt (Y/N) States Distress, (Y/N) May 2022 owed payments by the external public and publicly Central Government guaranteed (PPG) non- (private sector suppliers, concessional debt in FY23, government employees, except if the non-concessional SOEs, others). debt limit is adjusted by the World Bank to a) reflect any material change of circumstances or b) in coordination with the IMF, in particular in line with adjustments in the IMF Debt Limit Policy (DLP). Madagascar IDA-only Moderate No No PPA1. To improve debt PPA3. To improve debt PPA2. To improve fiscal transparency, the management, the Government sustainability, the Government government will adopt will limit contractual will implement measures aimed at through a decree a new obligations for new external improving tax arrears collection framework for the public and publicly guaranteed relative to FY22 and will adopt a evaluation and management (PPG) debt to a maximum of decree governing the management of fiscal risks, including US$ 800 million in present of tax arrears to prevent their those related to contingent value from March 2022 to accumulation, including the liabilities March 2023. Thereafter, the establishment of a system of ceiling will be adjusted by the compensation of cross liabilities World Bank to a) reflect any between State-Owned Enterprises material change of and the Central Government. circumstances or b) in coordination with the IMF, in line with adjustments in the IMF Debt Limit Policy. Malawi IDA-only High No No PPA1. To improve debt PPA3. The government through management, the authorities the MoFEA publishes a will not enter into any performance report of 15 large contractual obligations for new projects in the PSIP. This external public and publicly performance report provides guaranteed (PPG) non- details on the financial and concessional debt or swaps in physical status of the projects, as - 54 - Country Country Characteristics PPAs Lending Risk of FCV Small Debt Transparency Debt Management Fiscal Sustainability Category Debt (Y/N) States Distress, (Y/N) May 2022 FY23, except if the non- well as risks and policy issues, concessional debt limit is and proposes mitigation measures adjusted by the World Bank a) for non-performing projects. to reflect any material change of circumstances or b) in coordination with the IMF, in particular in line with adjustments in the IMF Debt Limit Policy. PPA2. In accordance with section 72 of the Public Finance Management Act (PFMA, 2022), the government prepares, submits to Cabinet, and publishes on its website an Annual Borrowing Plan 2023/2024 no later than 30th April. The Borrowing Plan sets out quantitative targets for borrowing operations understood as financing limits. Maldives IDA-only High No Yes PPA2. To improve PPA1. To enhance revenue accountability and strengthen mobilization and increase fiscal and consolidate the legal sustainability, the Government of framework governing public Maldives will submit to debt management, the Parliament for its assent thereof, a Government of Maldives will revised Goods and Services Tax submit to Parliament for its (GST) Bill to: (i) increase the assent thereof, a Debt General GST (GGST) rate from 6 Management Bill. to 8 percent; and (ii) raise the Tourism GST (TGST) rate from PPA3. To improve debt 12 to 16 percent. sustainability, the Government will not enter into any contractual obligations for new - 55 - Country Country Characteristics PPAs Lending Risk of FCV Small Debt Transparency Debt Management Fiscal Sustainability Category Debt (Y/N) States Distress, (Y/N) May 2022 external public and publicly guaranteed (PPG) non- concessional debt in FY23, except if the non-concessional debt limit is adjusted by the World Bank to: a) reflect any material change of circumstances, or b) in coordination with the IMF, in particular in line with adjustments in the IMF Debt Limit Policy. Mali IDA-only Moderate Yes No PPA2. To improve debt PPA1. To strengthen the debt transparency, the recording system (SIGED), the Government will publish Government will deploy the timely debt reports and new version of the public debt information, including debt recording system which statistical bulletins, which integrates information on include the stock of debt domestic and external debt. (loans) on-lent by the government to each of the state-owned enterprises in Mali, annual borrowing plans and medium-term debt strategies, through a dedicated window for the Debt Office (DGDP) on the website of the Ministry of Economics and Finance (MEF). Marshall IDA-only High Yes Yes PPA2. To improve debt PPA1. To strengthen fiscal Islands sustainability, the Government sustainability by improving the will not enter into any efficiency of public spending, the contractual obligations for new Cabinet has approved and external public and publicly submitted to the Nitijela a - 56 - Country Country Characteristics PPAs Lending Risk of FCV Small Debt Transparency Debt Management Fiscal Sustainability Category Debt (Y/N) States Distress, (Y/N) May 2022 guaranteed (PPG) non- Procurement Bill that introduces a concessional debt in FY23, new and modernized legal except if the non-concessional framework that facilitates the use debt limit is adjusted by the of electronic procurement World Bank to a) reflect any arrangements among other material change of enhancements to the procurement circumstances or b) in system. coordination with the IMF, in particular in line with adjustments in the IMF Debt Limit Policy. Mauritania Gap High No No PPA1. To improve debt PPA2. To improve debt PPA3. To improve debt transparency the Ministry of sustainability, the Government sustainability, the Government Finance will publish a will not enter into any will publish and annex to the 2024 comprehensive Annual debt contractual obligations for new budget a Medium-Term bulletin including detailed external public and publicly Expenditure Framework (MTEF) information on the stock guaranteed (PPG) non- with a clearly defined annual and terms of SOE debt concessional debt in FY23, fiscal anchor (deficit and/or debt (including guarantees and except if the non-concessional target). non-guaranteed debt, on- debt limit is adjusted by the lending, new borrowing, World Bank to a) reflect any and arrears) and material change of institutionalize this measure circumstances or b) in through a decision coordination with the IMF, in note/deliberation from the particular in line with Public National Debt adjustments in the IMF Debt Committee. Limit Policy (DLP). Micronesia, IDA-only High Yes Yes PPA1. To enhance debt PPA2. To improve debt Federal transparency: (a) the sustainability, the Government States of Government of FSM will will not enter into any increase the frequency of contractual obligations for new the publication of Debt external public and publicly Bulletins from semi- guaranteed (PPG) non- annually to quarterly by concessional debt in FY23, producing three Debt except if the non-concessional - 57 - Country Country Characteristics PPAs Lending Risk of FCV Small Debt Transparency Debt Management Fiscal Sustainability Category Debt (Y/N) States Distress, (Y/N) May 2022 Bulletins from October debt limit is adjusted by the 2022 to April 2023, which World Bank to a) reflect any includes the level of public material change of and publicly guaranteed circumstances or b) in (PPG) debt actuals coordination with the IMF, in (including historical data particular in line with commencing from adjustments in the IMF Debt FY2018), with breakdown Limit Policy. by (1) national and state government,[1] (2) domestic and external debt, (3) creditor, (4) government guarantees, and (5) debt servicing schedule (historical and forward- looking up to FY2025), on the DoFA website before end-April 2023; and (b) the Cabinet has issued a directive to mandate the quarterly publication of Debt Bulletins on the DoFA website. Mozambique IDA-only High Yes No PPA1. The Government of PPA2. The Government will Mozambique (GoM) has not enter into any contractual prepared a comprehensive obligations for new external report using accurate public and publicly guaranteed external PPG and private (PPG) non-concessional debt in nonguaranteed debt, FY22, except if the non- addressing the severe concessional debt limit is inconsistencies between adjusted by the World Bank to stocks and flows identified a) reflect any material change in the 2021 Debtor of circumstances or b) in Reporting System (DRS) coordination with the IMF, in Report, and has published particular in line with - 58 - Country Country Characteristics PPAs Lending Risk of FCV Small Debt Transparency Debt Management Fiscal Sustainability Category Debt (Y/N) States Distress, (Y/N) May 2022 an error-free debt report for adjustments in the IMF Debt 2022. Limit Policy (DLP). Nicaragua Gap Moderate No No PPA1. The Ministry of PPA2. The Ministry of Finance Finance and Public Credit and Public Credit (MHCP) (MHCP) strengthens debt strengthens the procedures for reporting by issuing guarantees and on- institutionalizing, through lending by revising the current an internal proceeding institutional framework (Procedimiento), the elaborated in the MHCP's gradual inclusion of internal rules and procedures. detailed data and Specifically, the MHCP will information on loan prepare, approve and issue a guarantees, on-lending, Normativa on the issuance and non-guaranteed debts of management of credit SOEs with audited financial guarantees and on-lending by statements, and local March 2023. The framework government debt in the should include: (i) the policy annual public debt report. objectives that govern the For FY23, information on provisions of the guarantee/on- local government debt will lending; (ii) the requirement to initially be for the Managua proceed with comparative municipality (Alcaldía de analyses of costs and benefits Managua, ALMA). The of alternative financing options additional data will be (e.g., government transfers, available as annexes to the guarantees, on-lending and annual public debt report, direct debt contracting); (iii) the published on the MHCP obligation to conduct annual website by March 2023. risk assessments of beneficiaries of guaranteed debt PPA4 (Carry-over from and on-lent funds; (iv) FY22): The Ministry of guidelines for producing all Finance and Public Credit required analyses; and (v) the (MHCP) completes the obligation to create a registry implementation of FY22 system for on-lending PPA1 by overseeing the agreements. The framework preparation and publication would form the basis for a - 59 - Country Country Characteristics PPAs Lending Risk of FCV Small Debt Transparency Debt Management Fiscal Sustainability Category Debt (Y/N) States Distress, (Y/N) May 2022 of external audits of the future stand-alone regulation in financial statements of the the Debt Law. two outstanding SOEs – PETRONIC and EPN – PPA3. The Ministry of Finance covering the period 2015- and Public Credit (MHCP) 21. The approved external strengthens debt management audits of the financial by preparing and publishing an statements of the SOEs will Annual Borrowing Plan (ABP) be published on their that implements the medium- respective websites by term debt strategy (MTDS). March 2023. The MHCP will also institutionalize, through a Procedimiento, the annual publication of the evaluation of the previous year’s MTDS implementation (FY22 PPA3), including an explanation of discrepancies. The ABP should be published on the MHCP website by the end of March 2023, along with an evaluation of the previous year's MTDS implementation. Niger IDA-only Moderate Yes No PPA1. To improve debt PPA2. To improve fiscal management the Government sustainability, the monitoring of will not enter into contractual fiscal risk and performance from obligations for new external state-owned enterprises, an annual public and publicly guaranteed portfolio report covering the (PPG) non-concessional debt in largest SOEs, and presenting FY23, above the limit of FCAF financial and non-financial 250 billion expressed in preset information (including value except if the non- procurement activities, concessional debt limit is implementation of investment adjusted by the World Bank to projects, debt, guarantees, human a) reflect any material change resources), will be published on of circumstances or b) in - 60 - Country Country Characteristics PPAs Lending Risk of FCV Small Debt Transparency Debt Management Fiscal Sustainability Category Debt (Y/N) States Distress, (Y/N) May 2022 coordination with the IMF, in the official website of the particular in line with Ministry of Finance. adjustments in the IMF Debt Limit Policy (DLP). Nigeria Blend MAC- Yes No PPA1. To increase non-oil DSA revenues, a green excise duty on vehicles has been introduced by a presidential order. PPA2. To safeguard non-oil revenues, (i) the Nigerian Electricity Regulatory Commission (NERC) under the guidance and supervision of the Budget Office of the Federation issues a revised Multi-Year Tariff Order before September 30, 2022, that reduces tariff shortfalls in the electricity sector by moving the average commercial tariff closer to cost-reflective levels, and (ii) the Federal Ministry of Finance, Budget, and National Planning issues a Financing Plan for the 2022 expected tariff shortfalls before end-2022. PPA3. To increase non-oil revenues, a presidential order that specifies the rate and defines key aspects of collection processes of the excise duty on telecoms services, as required by section 37 of Finance Act 2020, has been duly issued. - 61 - Country Country Characteristics PPAs Lending Risk of FCV Small Debt Transparency Debt Management Fiscal Sustainability Category Debt (Y/N) States Distress, (Y/N) May 2022 Pakistan Blend MAC- No No PPA3. (i) The Debt PPA1. The Finance Division PPA2. Federal Government issues DSA Management Office (DMO) issues a notification to mandate a notification assigning the publishes an annual report annual publication of Debt functions of medium-term fiscal on public debt that Sustainability Analysis by the planning and fiscal risk compares debt management Macro Fiscal Policy Unit and management, including the strategy implementation publishes the Debt publication of national medium with targets for end-FY22 Sustainability Analysis report term fiscal framework and fiscal and the provincial Finance on the website of the Finance risk statement on an annual basis, Departments publish semi- Division. to Macro-Fiscal Policy Unit annual debt bulletin for (MFPU) within the Finance July-December 2022 by Division. following reporting standards as per international standards for Public Sector Debt Statistics. (ii) The Debt Management and Financial Analysis System (DMFAS) used by the DMO records total domestic debt portfolio. Papua New Blend High Yes No PPA1. To improve debt Guinea sustainability, the Government will not enter into contractual obligations for new long-term external public and publicly guaranteed (PPG) non- concessional borrowing in a total amount exceeding US$ 1.0 billion throughout FY23, except if the non-concessional debt limit is adjusted by the World Bank to a) reflect any material change of circumstances or b) in coordination with the IMF, in - 62 - Country Country Characteristics PPAs Lending Risk of FCV Small Debt Transparency Debt Management Fiscal Sustainability Category Debt (Y/N) States Distress, (Y/N) May 2022 particular in line with adjustments in the IMF Debt Limit Policy (DLP). PPA2: To improve management of fiscal risks, the Government (a) will approve, through its National Executive Council, a revised On-lending Policy that introduces credit risk assessment and strengthens enforcement arrangements, recording and reporting requirements; and (b) will not issue any new on-lending until the revised On-lending Policy is adopted. Rwanda IDA-only Moderate No No PPA1. The Ministry of PPA2. The Cabinet has approved Finance and Economic multiyear expenditure ceilings at Planning (MINECOFIN) the Budget Agency and district has published the quarterly level earlier in the budget process, budget execution reports that is included as an Annex to the with expanded coverage of Outlook paper by the end of the general government to December. include Rwanda Social Security Board (RSSB) PPA3. MINECOFIN has submitted to the Parliament the revisions of the Excise Tax Law, replacing ad valorem taxes on beer, wine, and spirits with a specific excise tax; increasing the share of specific taxes on cigarettes; and imposing excises levied on sugar content. - 63 - Country Country Characteristics PPAs Lending Risk of FCV Small Debt Transparency Debt Management Fiscal Sustainability Category Debt (Y/N) States Distress, (Y/N) May 2022 Samoa IDA-only High No Yes PPA1. To improve the monitoring and management of existing government guarantees and enhance transparency, the Ministry of Finance: (1) conducts credit risk assessment using the Credit Risk Assessment Framework mandated by the Government Guarantee Policy for the Development Bank of Samoa and Samoa Airways and makes a Cabinet submission, which includes the outcome of the credit risk assessment and recommendations to address risks and (2) publishes the gross financial exposure, which includes stock of all government guarantees breakdown by creditor and borrower (SOE) for December 2021, September 2022 and December 2022 quarters in the December Quarter Debt Bulletin by April 2023. PPA2. To improve debt sustainability, the Government will not enter into any contractual obligations for new external public and publicly guaranteed (PPG) non- concessional debt in FY23, except if the non-concessional debt limit is adjusted by the World Bank to a) reflect any - 64 - Country Country Characteristics PPAs Lending Risk of FCV Small Debt Transparency Debt Management Fiscal Sustainability Category Debt (Y/N) States Distress, (Y/N) May 2022 material change of circumstances or b) in coordination with the IMF, in particular in line with adjustments in the IMF Debt Limit Policy. Sao Tome IDA-only In No Yes PPA2. The Government will PPA1. To improve domestic and Principe distress not enter into any contractual revenue mobilization, the GoSTP obligations for new external issues a ministerial order to public and publicly guaranteed implement the VAT and Excise (PPG) non-concessional debt in Tax. FY22, except if the non- concessional debt limit is adjusted by the World Bank to a) reflect any material change of circumstances or b) in coordination with the IMF, in particular in line with adjustments in the IMF Debt Limit Policy (DLP). Senegal Gap Moderate No No PPA2. To improve debt PPA1. To improve fiscal risk management, transparency and management, the Ministry of monitoring of fiscal risks, the Finance will issue an Arrete Interministerial Committee for setting out the methodology for PPPs will comply with the PPP provisioning main fiscal risks decree No 2021-1443 by (i) (including SOEs and PPPs) in its issuing four Ministerial Orders budgets based on its annual fiscal (Arrêtés) referenced in the PPP risk assessments; and task the Decree (ii) publishing on an director responsible for the budget official government website to apply the methodology to the quarterly PPP database 2024 budget law. allowing the centralization of all existing and new PPP projects programming documents, starting from April - 65 - Country Country Characteristics PPAs Lending Risk of FCV Small Debt Transparency Debt Management Fiscal Sustainability Category Debt (Y/N) States Distress, (Y/N) May 2022 2023 and subsequently the timing aligned with the debt bulletin. PPA3. To improve debt management and strengthen the content of the Annual Borrowing Plan ABP, the Ministry of Finance has issued an instruction requesting the General Directory of Public Accounting and Treasury and its Debt Management Office to publish annually and as an annex to the draft budget law (i) a detailed description of the ABP and (ii) an assessment of the implementation of the previous year’s ABP. Sierra Leone IDA-only High No No PPA2. To further enhance PPA1. To improve debt PPA3. The Government of Sierra debt transparency and sustainability, the Government Leone will submit to Parliament reporting and reduce debt will not enter into any for approval an amended Revenue and guarantees, the contractual obligations for new Code that incorporates all key Ministry of Finance will external public and publicly provisions of the 2022 Duty and expand the coverage and guaranteed (PPG) non- Tax Waiver Policy to strengthen publish an updated version concessional debt in FY23, the legal framework, boost of the “Report on the except if the non-concessional revenues and improve fiscal Outstanding Loans of Major debt limit is adjusted by the transparency. State-Owned Enterprises” World Bank to a) reflect any to include all guarantees material change of and debt stock of all 17 circumstances or b) in registered State-owned coordination with the IMF, in Enterprises as of end- particular in line with December 2022 and adjustments in the IMF Debt disaggregate these by SOE. Limit Policy (DLP). - 66 - Country Country Characteristics PPAs Lending Risk of FCV Small Debt Transparency Debt Management Fiscal Sustainability Category Debt (Y/N) States Distress, (Y/N) May 2022 Solomon IDA-only Moderate Yes Yes PPA1. To improve debt PPA2. To improve fiscal Islands sustainability, the Government sustainability and economic will not enter into any growth, Cabinet has approved, for contractual obligations for new tabling in Parliament, a Value- external public and publicly Added Tax Bill, which will guaranteed (PPG) non- encourage tax compliance and concessional debt during the reduce distortions to competition. period July 2022-June 2023, except if the non-concessional debt limit is adjusted by the World Bank to a) reflect any material change of circumstances or b) in coordination with the IMF, in particular, in line with adjustments in the IMF Debt Limits Policy (DLP). Somalia IDA-only In Yes No PPA1. To improve debt PPA2. To support the application distress management, the Government of a single import tariff schedule will not enter into any across the major ports of contractual obligations for new Mogadishu, Bosaso and Kismayo external public and publicly the Recipient’s Ministry of guaranteed (PPG) non- Finance issues regulations on the concessional debt in FY23, Customs Reference Values and except if the non-concessional Customs Declarations. debt limit is adjusted by the World Bank to a) reflect any material change of circumstances or b) in coordination with the IMF, in particular in line with adjustments in the IMF Debt Limit Policy” St. Lucia Blend MAC- No Yes PPA1. the Government, through DSA its Cabinet, has approved the - 67 - Country Country Characteristics PPAs Lending Risk of FCV Small Debt Transparency Debt Management Fiscal Sustainability Category Debt (Y/N) States Distress, (Y/N) May 2022 Public Asset Management Policy to enhance effective public asset management and improve fiscal resilience to climate change and other extreme weather events. PPA2. the Government, through its Cabinet, has approved the Public Financial Management Regulations, to implement the Public Finance Management Act and enhance public financing accountability and debt management, including in the events of natural disasters. St. Vincent Blend High No Yes PPA1. The Government has and the integrated the definition and Grenadines consideration of contingent liabilities (fiscal risks) arising from disasters in the National Emergency and Disaster Management Act (NEDMA) and the Finance Administration Act (FAA), and the associated regulations under these Acts. PPA2. The Government has: (i) completed a Public Investment Management Assessment (PIMA) in order to better prioritize, implement, and sustainably finance its public investment plans; and (ii) approved the adoption of public investment management reforms as identified through the PIMA, and agreed to - 68 - Country Country Characteristics PPAs Lending Risk of FCV Small Debt Transparency Debt Management Fiscal Sustainability Category Debt (Y/N) States Distress, (Y/N) May 2022 as substantive by the Government and the Bank, that would strengthen public investment management, and improve investment efficiency and effectiveness. Tajikistan IDA-only High No No PPA1. By April 28, 2023, PPA3. In FY23, the PPA2. By April 28, 2023, the the Ministry of Finance Government will not enter into Government will approve and shall publish on its website any contractual obligations for publish a new SOE Fiscal Risks (i) an annual public debt new external public and Management Program for 2022- report for 2022, with terms publicly guaranteed non- 2026, aiming to strengthen the of credits and breakdown of concessional debt, except if the Ministry of Finance capacity for the debt stock by creditors; non-concessional debt limit is monitoring and assessment of and (ii) a fiscal risk adjusted by the World Bank to fiscal risks from the SOE sector statement for 2021, (a) reflect any material change and improve corporate covering all 27 state-owned of circumstances or (b) in governance in SOEs that are enterprises (SOEs) that are coordination with the IMF, in subject to monitoring by the subject to monitoring by the particular in line with Ministry of Finance. The Program Ministry of Finance. Public adjustments in the IMF Debt will be supplemented with a debt reports should be Limit Policy. medium-term action plan for the presented with and without implementation of the Program. government guarantees, taken from external and domestic creditors. Tanzania IDA-only Moderate No No PPA1. To strengthen debt PPA2. To strengthen efficiency of transparency, the Ministry Public Investment Management of Finance and Planning (PIM), the MoFP through the Pay (MoFP) and Bank of Master General’s Circular has Tanzania have: (i) expanded adopted the new criteria for the coverage of the Public prioritization and implementation and Publicly Guaranteed of public investment projects, (PPG) to include debt of the which includes climate and value major state-owned for money (VFM) considerations. enterprises (SOEs) and publish in the Monthly PPA3. To strengthen the - 69 - Country Country Characteristics PPAs Lending Risk of FCV Small Debt Transparency Debt Management Fiscal Sustainability Category Debt (Y/N) States Distress, (Y/N) May 2022 Economic Review (MER) efficiency and transparency of on the BoT website by VAT refund system and increase December 2022; and (ii) domestic revenue mobilization, published quarterly the Tanzania Revenue Authority domestic borrowing (TRA) has: (i) applied risk-based calendar on the BoT approach for the VAT refunds; website, with the first and (ii) strengthened E-filing calendar published by systems to speed up VAT refund. December 2022. Timor-Leste Blend Moderate Yes Yes PPA1. To strengthen fiscal sustainability, the Council of Ministers has approved and submitted to Parliament a new VAT Code that applies a uniform VAT rate of 10 percent on domestically traded and imported goods with limited exceptions. PPA2. To strengthen fiscal sustainability, the Council of Ministers has approved the submission of a revised Tax Procedures Code to the Parliament that provides for: (i) adoption of e-filing procedures; (ii) risk-based tax audit functions; (iii) establishment of a tax-payer service function. Togo IDA-only Moderate No No PPA1. To improve debt PPA2. To improve fiscal management, the Ministry of sustainability and enable effective Economy and Finance will tax policy reforms, the Revenue adopt a circulaire requiring that Office (OTR) will complete a the Annual Report on Public country-wide fiscal census of Debt (ARPD) includes an taxpayers in both formal and assessment of the informal sectors and will publish - 70 - Country Country Characteristics PPAs Lending Risk of FCV Small Debt Transparency Debt Management Fiscal Sustainability Category Debt (Y/N) States Distress, (Y/N) May 2022 implementation of the Annual on its website a report containing Borrowing Plan (ABP) with (i) the main results of the Census lessons learned for the debt and (ii) follow up actions on tax management strategy moving registration and tax collection forward, and will publish the based on the new data. assessment in the next ARPD in March 2023. PPA3. To improve fiscal sustainability and reinforce the authorities ability to evaluate the efficiency of tax expenditures, the Ministry of Economy and Finance will adopt an arrêté establishing a new framework for the periodic evaluation of the efficacy of tax and customs exemptions and other preferential tax regimes, including the division of responsibilities, the sharing of information, and methodologies used for these evaluations, and will publish a pilot impact study for selected tax exemptions in the 2022 Tax Expenditure Report. Tonga IDA-only High No Yes PPA1. To strengthen debt management and fiscal sustainability, Cabinet has approved a Public Financial Management bill for submission to Parliament that, among other actions, outlines key fiscal responsibility principles to guide fiscal policy and a numerical limit on the stock of government guaranteed debt. - 71 - Country Country Characteristics PPAs Lending Risk of FCV Small Debt Transparency Debt Management Fiscal Sustainability Category Debt (Y/N) States Distress, (Y/N) May 2022 PPA2. To improve debt sustainability, the Government will not enter into any contractual obligations for new external public and publicly guaranteed (PPG) non- concessional debt in FY23, except if the non-concessional debt limit is adjusted by the World Bank to a) reflect any material change of circumstances or b) in coordination with the IMF, in particular in line with adjustments in the IMF Debt Limit Policy. Tuvalu IDA-only High Yes Yes PPA1. To improve debt PPA2. To promote transparency sustainability, the Government on contingent liabilities, the will not enter into any Minister of Finance has issued a contractual obligations for new Ministerial Order requiring the external public and publicly annual disclosure of fiscal risks as guaranteed (PPG) non- a stand-alone report on the concessional debt in FY23, Ministry of Finance’s (MOF) except if the non-concessional website. debt limit is adjusted by the World Bank to: a) reflect any material change of circumstances; or b) in coordination with the IMF, in particular in line with adjustments in the IMF Debt Limit Policy (DLP). Uganda IDA-only Moderate No No PPA1. To improve debt PPA2. To improve fiscal sustainability, the Government sustainability, the Cabinet has limited the present value of approved a Public Investment - 72 - Country Country Characteristics PPAs Lending Risk of FCV Small Debt Transparency Debt Management Fiscal Sustainability Category Debt (Y/N) States Distress, (Y/N) May 2022 new external borrowing to Management Policy streamline to US$2,748 million in FY22/23, the processes for identification, except if this limit was appraisal, selection, financing, adjusted: (a) by the World implementation, and maintenance Bank to reflect any material of projects and, consequently, change of circumstances, or (b) MFPED has undertaken a review in coordination with the IMF, of the public investment program in particular, in line with (PIP) and exited non-compliant adjustments to the IMF Debt projects accounting for at least Limit Policy. 10% of FY21 stock of projects in the PIP to raise fiscal savings. PPA3. To raise Uganda’s revenue effort, Cabinet has approved and submitted to Parliament a VAT reform Bill that expands the tax base through removal of redundant tax expenditures and taxation of digital transactions, and introduces rules to clarify hitherto nontaxed special cases. Vanuatu IDA-only Moderate No Yes PPA2. The Government of PPA1. To improve debt Vanuatu has published on sustainability, the Government the website of the Ministry will not enter into any of Finance and Economic contractual obligations for new Management (MFEM) three external public and publicly quarterly reports that guaranteed (PPG) non- provide accurate and timely concessional debt during the information on the domestic period July 2022-June 2023, and external debt stock, except if the non-concessional including creditor debt limit is adjusted by the residency, currency World Bank to a) reflect any composition, repayment material change of profile, average maturity, circumstances or b) in on-lending and debt of coordination with the IMF, in statutory corporations. particular, in line with - 73 - Country Country Characteristics PPAs Lending Risk of FCV Small Debt Transparency Debt Management Fiscal Sustainability Category Debt (Y/N) States Distress, (Y/N) May 2022 adjustments in the IMF Debt Limits Policy (DLP). Zambia Gap High No No PPA1. To strengthen fiscal and PPA3. To improve budget debt management, the credibility and expenditure Recipient, through its control, the Recipient, through its Parliament, has enacted the Ministry of Finance and National Public Debt Management Act, Planning has (a) required that which aims to strengthen debt Ministries, Provinces and management, accountability, Spending Agencies (“MPSAs”) and transparency. submit annual cashflow plans for 2022, and (b) issued quarterly PPA2. The Government will cashflow ceilings to MPSAs for not enter into any contractual 2022, to enable strategic obligations for new external allocation of resources and service public and publicly guaranteed delivery going forward. (PPG) non-concessional debt in FY23, except if the non- concessional debt limit is adjusted by the World Bank to a) reflect any material change of circumstances or b) in coordination with the IMF, in particular in line with adjustments in the IMF Debt Limit Policy.