The World Bank Social Protection Project (P178973) Project Information Document (PID) Appraisal Stage | Date Prepared/Updated: 18-May-2023 | Report No: PIDC35790 May 18, 2023 Page 1 of 8 The World Bank Social Protection Project (P178973) BASIC INFORMATION OPS_TABLE_BASIC_DATA A. Basic Project Data Country Project ID Project Name Parent Project ID (if any) Sri Lanka P178973 Social Protection Project Region Estimated Appraisal Date Estimated Board Date Practice Area (Lead) SOUTH ASIA 18-May-2023 28-Jun-2023 Social Protection & Jobs Financing Instrument Borrower(s) Implementing Agency Investment Project Financing Democratic Socialist Ministry of Finance, Republic of Sri Lanka Economic Stabilization & National Policies, Ministry of Women, Child Affairs and Social Empowerment Proposed Development Objective(s) To support Sri Lanka in providing better targeted income and livelihood opportunities to the poor and vulnerable and improving the responsiveness of the social protection system. Components Cash Transfers Pilot to enhance opportunities for poor and vulnerable households Project Management and Strengthening the SP System PROJECT FINANCING DATA (US$, Millions) SUMMARY -NewFin1 Total Project Cost 200.00 Total Financing 200.00 of which IBRD/IDA 200.00 Financing Gap 0.00 DETAILS -NewFinEnh1 World Bank Group Financing International Development Association (IDA) 200.00 April 19, 2023 Page 2 of 8 The World Bank Social Protection Project (P178973) IDA Credit 200.00 Environmental and Social Risk Classification Substantial Decision The review did authorize the team to appraise and negotiate Other Decision (as needed) B. Introduction and Context Country Context 1. Sri Lanka’s longstanding structural weaknesses, which were elevated by several exogenous shocks and ill-timed tax cuts, plunged the country into a severe economic crisis. Poor governance, a restrictive trade regime, a weak investment climate, and episodes of loose monetary policy and an administered exchange rate contributed to macroeconomic imbalances in the last two decades.  The fiscal indiscipline, coupled with low revenue collections, led to high fiscal deficits and large gross financing needs. These weaknesses were masked by rapid growth, particularly after the end of the civil war in 2009, spurred along by a risky commercial debt-driven, increasingly inward-oriented economic model. Combined with these pre-existing imbalances, the tax cuts in 2019 further eroded weak fiscal buffers and led to a rapid growth in debt to unsustainable levels. Moreover, several external shocks contributed to the significant macroeconomic deterioration. The country experienced a political crisis in 2018 and then the Easter bombings in 2019, followed by a 4.6 percent economic contraction amid the COVID-19 pandemic in 2020. Sri Lanka lost access to international financial markets in 2020 in the face of significant external debt services, following credit rating downgrades. With reserves depleted, Sri Lanka announced an external debt service suspension in April 2022, pending debt restructuring. 2. In response to the deepening crisis, the government) sought support from the International Monetary Fund (IMF) and other International Financial Institutions (IFIs) in 2022 and announced several important structural reforms. In March 2023, the IMF Executive Board approved a 48-month Extended Fund Facility (EFF) of approximately US$3 billion to support the government’s reform program. This followed a Staff- Level Agreement (SLA) reached between the authorities and IMF staff in September 2022 and adequate financing assurances from all major official creditors. The EFF intends to restore macroeconomic stability and debt sustainability, while safeguarding financial stability and protecting vulnerable people. 3. Cascading effects of the ongoing crisis have exacted a heavy toll on the poor and vulnerable, adversely affected real incomes, food security, and living standards. A delayed response to the worsening macroeconomic imbalances allowed the crisis to spread to all key sectors of the economy. The economy contracted by 7.8 percent in 2022. Inflation peaked at 69.8 percent in September 2022 and the Sri Lankan April 19, 2023 Page 3 of 8 The World Bank Social Protection Project (P178973) Rupee (LKR) has depreciated close to 80 percent against the USD in 2022. Effects of severe foreign exchange liquidity constraints have been felt across the economy, causing severe shortages of essential household items and inputs needed for economic activity. Existing inequalities rapidly sharpened and, between 2021 and 2022, the poverty rate doubled from 13.1 to 25 percent ($3.65 per capita, 2017 PPP).1 Around 75 percent of households are estimated to have had their incomes reduced and 37 percent of households were facing acute food insecurity in November 20222. Sectoral and Institutional Context 3. Sri Lanka has an extensive but fragmented social protection (SP) system. The government’s main social assistance program is Samurdhi, a welfare program that provides cash transfers, microfinance, community and livelihood development activities. In 2020, the program covered 1.8 million families, approximately one-third of the population, with monthly cash transfers (CTs). In addition, there are three main categorical CT programs targeting low-income individuals over 70 (Elderly Benefit, or EB), persons with disabilities (Disability Benefit, or DB), and sufferers of chronic kidney disease of unknown cause (CKDU). The overall coverage of the categorically targeted programs prior to the pandemic was 514,387. In 2019, the total spending on social safety nets was 0.6 percent of GDP, of which 0.44 percent of GDP was spent on these 4 CT programs. The coverage of Samurdhi and categorically targeted CTs expanded from 2.3 million in 2020 (pre-pandemic) to 3.2 million beneficiary families and individuals in 2022. 4. Current SP programs are inadequate to tackle poverty and exclusion. The targeting performance of Samurdhi is weak and has worsened over time. An analysis of the 2013 Household Income and Expenditure Survey (HIES) found that Samurdhi had a minor and decreasing impact on poverty reduction between 2002 and 20131. The real value of the benefit amounts has been progressively eroded by inflation, making the already low benefit amounts even more inadequate, relative to the needs of the beneficiaries. 5. The proposed SP project, which builds on the ongoing Social Safety Net (SSN) project, seeks to operationalize the social protection reforms included in the EFF and the pipeline World Bank’s Resilience, Stability and Economic Transformation (RESET) Development Policy Operation (DPO), focusing on both short and medium-term interventions. On May 13, 2023, the Government of Sri Lanka approved a new Welfare Benefit Payment Scheme (WBPS) called Aswesuma, whose implementation will rely on the newly established social protection system. It will provide cash transfers to the about 2 million poor and vulnerable households. It also envisages top ups to these households for eligible elderly, persons with disabilities and patients with chronic kidney disease. The proposed SP project will finance a portion of this newly designed program Aswesuma. It will support the Government in its efforts to institutionalize the social registry, thereby contributing to the sustainability of the new social protection system. In addition, it will also contribute to build the resilience of poor households through the piloting of an economic inclusion program. 1Newhouse, David Locke; Suarez Becerra, Pablo; Doan, Dung. 2016. Sri Lanka Poverty and Welfare: Recent Progress and Remaining Challenges. World Bank, Washington, DC. © World Bank. https://openknowledge.worldbank.org/handle/10986/23794 License: CC BY 3.0 IGO. April 19, 2023 Page 4 of 8 The World Bank Social Protection Project (P178973) C. Proposed Development Objective(s) Development Objective(s) (From PAD) To support Sri Lanka in providing better targeted income and livelihood opportunities to the poor and vulnerable and improving the responsiveness of the social protection system. Key Results 1. Coverage of the poorest 20 percent of population receiving the new WBPS (Percentage) 2. Beneficiaries of economic inclusion interventions whose business remains viable (or who remain self-employed) (Percentage) 3. Shock responsive system to identify and target poor and vulnerable households (yes/no) D. Project Description 6. The proposed project seeks to mitigate the impact of the economic crisis on the poor and most vulnerable through the provision of income support and livelihoods opportunities, while strengthening the robustness and adaptability of the country’s SP system. The project will comprise the following three components: 7. Component 1. Cash Transfers: The objective of this component will be to support the government to provide targeted income support to poor and vulnerable households in a time of crises. This component will contribute to the financing of the WBPS Aswesuma. Benefits will be paid electronically into beneficiary accounts in Central Bank regulated banks, and only to beneficiaries registered and verified by the WBB as being eligible according to the newly established social registry.2 The WBB will generate eligible beneficiary lists for electronic payments to beneficiary bank accounts. The Department of Census and Statistics has provided extensive support to the WBB in formulating the regulation3 that provides guidance for the selection of beneficiaries. The payments will be processed based on the regulations relating to the WBPS. 8. Component 2. Pilot to enhance opportunities for poor and vulnerable households: The objective of this component will be to promote sustainable livelihoods among a selected number of Aswesuma beneficiaries, in order to enhance their self-employment and economic opportunities. This component will finance, on a pilot basis, the development and implementation of economic inclusion programs that strengthen resilience and opportunities for the poor and vulnerable. The component activities are expected to provide a pathway for poor and vulnerable beneficiaries to obtain skills and find employment that provides an adequate and sustainable income. The component will attempt as far as possible, to tailor interventions to the specific profile of beneficiaries and local conditions. 9. Component 3: Project Management and Strengthening the SP System: The objective of this component 2 The selection of beneficiaries in the social registry will be made following the recently approved by Parliament Welfare Benefit Payment Selection of Persons Eligible to Receive Payments Regulations No. 1 of 2022. 3 Welfare Benefit Payment (Selection of Persons Eligible to Receive Payments) Regulations No. 1 of 2022 April 19, 2023 Page 5 of 8 The World Bank Social Protection Project (P178973) will be to ensure effective project implementation, while also investing in strengthening the country’s social protection system and its key delivery systems. It will finance overall project management and capacity building for the Ministry of Finance and the Ministry of Women, Child Affairs and Social Empowerment (MoWCASE), the project’s implementing agencies. 10. Sub-component 3.1. Project Management and Strengthening SP system. This sub-component will finance the overall project management for MoF, including additional specialized human resources, capacity building, needed equipment, and incremental operating costs. It will also finance activities to strengthen the key building blocks of the SP system including technical assistance to develop and implement the social protection reforms program, strengthening of the WBB, strengthening and updating of the social registry, payment system, and social protection strategy. 11. Sub-component 3.2. Project Management for MoWCASE. This sub-component will finance the costs associated to the management and administration of the economic inclusion pilot, additional specialized human resources, capacity building, needed equipment, development of an information system to follow up progress, M&E activities including a robust impact evaluation, and incremental operating costs. This component will also finance technical assistance in defining a model and approach for integrated family . support. . Legal Operational Policies Triggered? Projects on International Waterways OP 7.50 No Projects in Disputed Areas OP 7.60 No Summary of Assessment of Environmental and Social Risks and Impacts . 12. Environmental and social risks. Interventions under this project are not expected to pose any adverse environmental impacts. On the social side, the Project is expected to have positive impacts and benefits. However based on the social assessment the following potential risks have been identified: (i) risk of exclusion of eligible households, (ii) possible social unrest created by non-project beneficiaries and other interested groups due to lack of understanding in the selection process and concerns over data protection, (iii) the limited capacity of the project implementing entities to mitigate these social risks, particularly risks related to the Stakeholder/Citizen's Engagement (CE/SE) process and respond to appeals/grievances; and (iv) potential Sexual Exploitation and Abuse/Sexual Harassment (SEA/SH) incidents due to risk of misuse of authority by officials engaging with beneficiaries and domestic violence linked to household decision making on spending of cash received. E. Implementation Institutional and Implementation Arrangements 13. The Project will have two implementing agencies (IAs). The project will be implemented by the MoF and April 19, 2023 Page 6 of 8 The World Bank Social Protection Project (P178973) the MoWCASE. The WBB under the MoF will manage the day-to-day operations for Component 1, while the Department of Samurdhi Development under MoWCASE will manage the day-to-day operations of Component 2. Under Component 3, sub- component 3.1 will be implemented by MoF and 3.2 by MoWCASE. 14. A Project Steering Committee (PSC) and a Project Technical Committee will be established to guide the implementation of the Project. The PSC will be chaired by the Secretary to the Ministry of Finance with representatives from the Departments within the MoF, WBB, Department of National Planning, Department of External Resources, MoWCASE, Ministry in-charge of Home Affairs, Department of Samurdhi Development, and any other partner agencies as per the needs of the Project. A technical committee will also be established. It will have representation from the MoF, MoWCASE, and any other stakeholders, the role of this committee will be to review and discuss the technical work undertaken as part of the project and to advise the PSC on any other technical matters during project implementation. . CONTACT POINT World Bank Francesca Lamanna Senior Economist Rene Antonio Leon Solano Practice Leader Srinivas Varadan Sr Social Protection Specialist Borrower/Client/Recipient Democratic Socialist Republic of Sri Lanka Implementing Agencies Ministry of Finance, Economic Stabilization & National Policies B. Wijeratne Chairman, Welfare Benefits Board commissioner.wbb@gmail.com Ministry of Women, Child Affairs and Social Empowerment Murugiah Ramamoorthy Director General, Planning ramm847@yahoo.com April 19, 2023 Page 7 of 8 The World Bank Emergency Social Protection Project (P178973) FOR MORE INFORMATION CONTACT The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 473-1000 Web: http://www.worldbank.org/projects APPROVAL Francesca Lamanna Task Team Leader(s): Rene Antonio Leon Solano Srinivas Varadan Approved By Practice Manager/Manager: Country Director: Chiyo Kanda 19-May-2023 Feb 28, 2023 Page 8 of 8