Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review MUNICIPAL SERVICES IMPROVEMENT 2 (P154464) Report Number: ICRR0023584 1. Project Data Project ID Project Name P154464 MUNICIPAL SERVICES IMPROVEMENT 2 Country Practice Area(Lead) North Macedonia Urban, Resilience and Land L/C/TF Number(s) Closing Date (Original) Total Project Cost (USD) IBRD-85610 31-Mar-2021 27,273,482.65 Bank Approval Date Closing Date (Actual) 11-Jan-2016 31-Jan-2023 IBRD/IDA (USD) Grants (USD) Original Commitment 28,038,000.00 0.00 Revised Commitment 28,038,000.00 0.00 Actual 27,273,482.65 0.00 Prepared by Reviewed by ICR Review Coordinator Group Katharina Ferl Vibecke Dixon Avjeet Singh IEGSD (Unit 4) 2. Project Objectives and Components DEVOBJ_TBL a. Objectives According to the Project Appraisal Document (PAD) (p.iii) and the Financing Agreement of January 14, 2016 (p.5) the objective of the project was “to improve transparency, financial sustainability, and inclusive delivery of targeted municipal services in the participating municipalities”. For the analysis in this ICRR, the PDO will be parsed as follows: 1. To improve transparency of targeted municipal services in the participating municipalities Page 1 of 14 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review MUNICIPAL SERVICES IMPROVEMENT 2 (P154464) 2. To improve financial sustainability of targeted municipal services in the participating municipalities 3. To improve inclusive delivery of targeted municipal services in the participating municipalities According to the PAD (p. 27) targeted services were to include, for example, water supply, sewerage, solid waste management, and energy efficiency. b. Were the project objectives/key associated outcome targets revised during implementation? No c. Will a split evaluation be undertaken? No d. Components The project included three components: Component A: Municipal Investments Sub-loans (appraisal estimate US$19.86 million, actual US$21.25 million): This component was to finance sub-loans to municipalities for investments in municipal infrastructure, including revenue-generating/cost-saving municipal infrastructure investments and other projects of high priority for the municipalities. Component B: Poverty/Social Inclusion Investment Grants (appraisal estimate US$5.30 million, actual US$5.04 million): This component was to finance investment grants to municipalities as an incentive for them to invest in infrastructure improvements in poorer and marginalized communities within their jurisdictions. Such communities were to be identified by geographic targeting of neighborhoods within participating municipalities. Component C: Project Management, Monitoring and Evaluation, and Capacity Building (appraisal estimate US$1.61 million, actual US$0.92 million): This component was to finance the operational costs of the Project Management Unit (PMU). Also, this component was to support project implementation and monitoring, and the relevant ministries and other agencies both at the national and municipal levels to strengthen institutional and financial systems and practices for sustainable municipal service delivery. e. Comments on Project Cost, Financing, Borrower Contribution, and Dates Project Cost: The project was estimated to cost US$28.04 million. Actual cost was US$27.27 million. Financing: The project was financed by a loan in the amount of US$28.04 million of which US$27.27 million was disbursed. Borrower Contribution: It was not planned for the Borrower to make any contribution. Dates: The project was restructured twice:  On August 5, 2020, the project was restructured to: i) extend the loan closing date by 18 months from March 31, 2021 to September 30, 2022 to allow for the completion of the already approved Page 2 of 14 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review MUNICIPAL SERVICES IMPROVEMENT 2 (P154464) subprojects, compensate for the delays during the first two years of project implementation and use of uncommitted financing to support communities during the COVID-19 pandemic; ii) increase the target values of several project indicators and revise the end dates of indicators.  On August 22, 2022, the project was restructured to: i) extend the project’s closing date by four months from September 30, 2022, to January 31, 2023 to allow for the execution of all remaining sub-loan and grant payments as planned. The project was approved on January 11, 2016, and became effective on July 14, 2016. The original closing date was March 31, 2021, while the actual closing date was January 31, 2023. 3. Relevance of Objectives Rationale Country and sector context. According to the PAD (p. 1) since 2009, the former Yugoslav Republic of Macedonia, a small, landlocked country in southeast Europe, had experienced economic growth above the regional average. However, economic growth had not yet translated into significant poverty reduction or improved welfare of the poorest 40 percent of the population. Poverty in the country had decreased from 26.8 percent in 2011 to 24.2 percent in 2013, but the country still showed a high-income inequality (with a Gini equal to 37) compared to its Western Balkan peers. According to the PAD (p. 2) improving the living standards of the population required more effective and efficient public service delivery. In 2005, the country went through a decentralization process and brought delivery of many of the basic public services to the municipal level. Better-performing municipalities were crucial to delivering this ambitious agenda. At the time of project appraisal, municipal governments controlled over 7 percent of public spending. While municipal revenue had increased rapidly overall, this increase did not result in higher levels of capital investments at the local level resulting in communal services suffering from delayed maintenance, rigid price control, and poor financial management (FM). Most local public services such as water supply and sanitation, solid waste management, and urban transit were provided by Communal Services Enterprises (CSEs) owned by municipalities. The CSEs usually operate based on informal arrangements with municipalities such as using infrastructure owned by municipalities or the state to provide services, and proposing tariffs approved by the municipalities. To reduce the burden on municipal budgets and free up resources to increase investments, operational and FM performances of the CSEs needed to be improved. Alignment with the Government Strategy. The objective of the project supported the government’s work program for 2020-2024, which focuses on: i) enhancing the delivery and quality of communal services to citizens by investing in municipal infrastructure and equipment; building municipal capacity in delivering communal services and implementing investments; iii) improving fiscal sustainability; and iv) encouraging citizen engagement. Furthermore, the project supported the country’s priorities in advancing the accession of the European Union (EU), by improving physical capital and quality of infrastructure and the energy efficiency of municipal buildings and facilities, under cluster 1 “fundamentals of the accession process” of the EU accession agenda. In addition, the project’s activities also contributed to chapter 27 “environment and climate change” of cluster 4 “green agenda and sustainable connectivity”. Page 3 of 14 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review MUNICIPAL SERVICES IMPROVEMENT 2 (P154464) Alignment with the World Bank Strategy. The objective of the project was in line with the Bank’s most recent Country Partnership Framework (FY19-23), especially with objective 4, “strengthen fiscal and public finance management,” and objective 5, “accelerate the transition to a more sustainable energy mix.” The objective of the project was pitched at an appropriate level. The ICR notes that the project built was a follow-up to the Bank-financed Municipal Services Improvement Project (MSIP, P096481), which was ongoing at the time of the Project appraisal that aimed to provide access to affordable investment funds to municipalities that could not yet afford to borrow from other sources. In this regard, this Second Municipal Services Improvement Project (MSIP2) represented the second phase with the aim to respond to the continued strong demand by the municipalities for local infrastructure finance and create incentives for the local governments to invest in infrastructure improvements. Overall, the relevance of objectives is rated as High. Rating Relevance TBL Rating High 4. Achievement of Objectives (Efficacy) EFFICACY_TBL OBJECTIVE 1 Objective To improve transparency of targeted municipal services in the participating municipalities Rationale Theory of Change: The project’s theory of change stated that project inputs/activities such as introducing a set of transparency and accountability criteria for local administrations, municipalities publishing information on sub-project progress information on their websites, and conducting consultation activities during sub- project preparation were to result in outputs such as a set of transparency and accountability criteria for administrations being implemented, information on sub-project progress information published on the websites of municipalities, as well as consultation activities during sub-project preparation being conducted. These outputs were to result in the outcome of improved transparency of targeted municipal services in participating municipalities. The theory of change was sound and logic. Outputs: The project introduced and maintained a set of transparency and accountability criteria for local administrations that wanted to access a sub-loan or a social inclusion grant. These criteria included: i) International Benchmarking network for Water and Sanitation Utilities (IBNET) data submission (including data on the performance of local water and wastewater companies in North Macedonia, including Page 4 of 14 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review MUNICIPAL SERVICES IMPROVEMENT 2 (P154464) benchmarkable information on tariffs, coverage rate, or share of non-revenue water); ii) disclosed annual budget and audit reports; and iii) established and maintained stakeholder feedback mechanism.  100 percent of participating municipalities regularly published sub-project progress information on their official websites or elsewhere (e.g., Facebook page, local newspapers, regional radio stations). This indicator lacked a target.  675,500 visits to websites that public progress information, exceeding the target of 500,000 visits.  2,468 of participants in consultation activities during sub-project preparation, exceeding the original target of 400 participants and the revised target of 1,600 participants. Of those participants, 871 were female, exceeding the original target of 120 females and the revised target of 500 females.  All 37 participating municipalities have set up at least one citizen feedback platform Outcomes:  37 participating municipalities (i.e., the municipalities that signed sub-loan agreements) regularly published sub-project progress information on their official websites or elsewhere, exceeding the original target of 20 municipalities and the revised target of 29 municipalities. The project was able to make significant improvements in improving transparency of targeted municipal services in the participating municipalities. Therefore, the achievement of this objective was High. Rating High OBJECTIVE 2 Objective To improve the financial sustainability of targeted municipal services in the participating municipalities Rationale Theory of Change: The project’s theory of change stated that project inputs/activities such as implementing of sub-projects that generate gains or savings in different sectors were to result in the output of gains or savings in different sectors being generated through the implementation of sub-projects. These outputs were to result in the outcome of financial sustainability of targeted municipal services in the participating municipalities being improved. The theory of change was sound and logic. Outputs:  95 sub-projects financed by sub-loans or grants were completed, exceeding the original target of 37 sub-projects and the revised target of 54 sub-projects. These sub-projects were implemented in the following areas: i) local roads and streets; ii) water supply; iii) storm water; iv) water supply and storm water; v) Energy Efficiency (EE) of public buildings; vi) vehicles and equipment for solid waste Page 5 of 14 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review MUNICIPAL SERVICES IMPROVEMENT 2 (P154464) management and public hygiene and other utility vehicles and equipment; vii) street lighting; viii) public pace arrangement; ix) sewerage network.  2,759 jobs were generated through the implementation of the subprojects, exceeding the original target of 1,500 jobs and the revised target of 1,800 jobs. Outcomes:  97 percent of completed sub-projects generated improved financial performance, including through increased revenue earnings or cost savings, exceeding the target of 90 percent. Financial sustainability was assessed at the sub-loan level through sub-project appraisal documents. All completed sub-loan-financed projects were supposed to generate savings/revenues if the parameters set in their sub-projects PAD were followed after the sub-project implementation. The project was able to achieve the outcome of sub-projects generating improved financial performance. The ICR notes that the project-supported municipal subprojects aimed at specific investment-related cost savings or revenue generation and could not be expected to achieve more ambitious targets, for instance enabling cost recovery or a significant improvement of the fiscal position of a municipality. Post-implementation data indicates that most subprojects continue to maintain the achieved financial gains or savings with some exceptions when the municipalities still need to do more to continue maintenance of the envisaged financial result. Overall, the achievement of the objective is rated as Substantial. Rating Substantial OBJECTIVE 3 Objective To improve inclusive delivery of targeted municipal services in the participating municipalities Rationale Theory of Change: The project’s theory of change stated that project inputs/activities such as providing social inclusion investment grants to municipalities, to incentivize local administrations to invest in infrastructure improvements in poor/vulnerable communities within their jurisdictions were to result in outputs such as local roads being improved, water supply networks/connections being rehabilitated or constructed, solid waste collection being improved, and energy efficient technologies being introduced. These outputs were to result in the outcome of inclusive delivery of targeted municipal services in the participating municipalities being improved. The theory of change was sound and logic. Outputs:  40 social inclusion grants signed, exceeding the original target of 17 grants and the revised target of 25 grants. These grants supported pro-poor investments in marginalized neighborhoods to directly benefit poorer households in need of better public services. Page 6 of 14 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review MUNICIPAL SERVICES IMPROVEMENT 2 (P154464)  Sub-loans delivered (these outputs did not have any targets): o 8.8 kilometers of rehabilitated/new storm water networks o 1,931 m2 of public buildings with energy efficiency improvement o 34 solid waste management vehicles o 145 new waste bins o 886 upgraded streetlights o 2,447 m2 of rehabilitated public spaces o 626m of rehabilitated water supply and storm-water networks o 3,422m of rehabilitated/new sewage networks  32.07 kilometers of roads were rehabilitated, exceeding the target of 20 kilometers.  24.4 kilometers of rural roads were rehabilitated, not achieving the target of 30 kilometers.  2,650 piped household water connections benefitted from rehabilitation works, exceeding the original target of 600 connections. Outcomes:  43 completed sub-projects focused on social inclusion, exceeding the original target of 17 sub-projects and the revised target of 25 sub-projects.  Of the 37 municipalities that accessed sub-loans, 35 municipalities completed the prerequisites for accessing the social inclusion grants and implemented grant-financed investment.  The PMU estimated that rehabilitated/modernized local roads and streets benefit 79,098 people; rehabilitated public buildings benefit 5,317 people; water supply investments benefit 45,590 people; new solid waste management vehicles benefitted 204,358 people; modernized streetlights benefit 6,167 people; rehabilitated public spaces benefit 21,853 people and rehabilitated/new sewage networks benefit 1,390 people.  In total, the project benefitted 425,589 beneficiaries, exceeding the original target of 100,000 beneficiaries, and the revised target of 120,000 beneficiaries. Of those beneficiaries, 50.88 percent were female, achieving the target of 50 percent. 12.98% of the beneficiaries were /from vulnerable /marginalized communities exceeding the target of 10%. The project exceeded the target of subprojects completed that focused on social inclusion. The project was not able to achieve all output targets. Overall, achievements made under this objective were Substantial. Rating Substantial OVERALL EFF TBL OBJ_TBL OVERALL EFFICACY Rationale Achievement of the first objective was High while achievement of the second and third objectives were Substantial. The overall efficacy is rated as Substantial. Page 7 of 14 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review MUNICIPAL SERVICES IMPROVEMENT 2 (P154464) Overall Efficacy Rating Substantial 5. Efficiency Economic efficiency: According to the PAD (p. 12) an ex-ante economic rate of return could not be estimated during project appraisal since the project was demand based. Instead, a review of 10 completed sub-projects under the Municipal Services Improvement Project (MSIP) was carried out to inform the current state of the assets rehabilitated or created, the maintenance of these assets, the economic benefits, and the satisfaction of beneficiaries, as applicable. Out of these ten sub-projects, four sub-projects financed the rehabilitation or construction of local roads, including one bridge; three sub-projects supported the rehabilitation or construction of water supply systems; and the remaining subprojects aimed at increasing the thermal insulation in primary kindergartens, improving street lighting, enabling solid waste collection, and preventing flooding through construction of storm water drainage systems. The ICR (p. 42) conducted an economic analysis of a sample of sub-projects. The sample selection reflected the five largest subproject categories. They were responsible for 92.90 percent of the previous project’s, MSIP, total subproject budget and 90.72 percent of the total number of subprojects. Applying a discount rate of five percent the analysis calculated an Economic Net Present Value of US$8.1 million, and an Economic Internal Rate of Return (EIRR) of 9.13 percent, indicating that the project was a worthwhile investment. Operational efficiency: The project disbursed 96 percent of its financing. A total of Euro 990,478 remained undisbursed primarily due to lower bids, than originally estimated, for some of the sub-projects during the last call for proposals. Project management costs were significantly lower than planned (Euro 830,000 vs. the originally estimate of Euro 1.5 million). According to the Bank team (October 30, 2023) these savings were a result of ‘economy of scale'. Between FY16 and FY21, same PMU was in charge of implementing both, MSIP and MSIP2 allowing for splitting operational costs between projects. The project’s implementation period had to be extended twice by a total of 18 months as a result of delays that had been caused by political instability and the COVID-19 pandemic. Overall, the project’s efficiency is rated Substantial. Efficiency Rating Substantial Page 8 of 14 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review MUNICIPAL SERVICES IMPROVEMENT 2 (P154464) a. If available, enter the Economic Rate of Return (ERR) and/or Financial Rate of Return (FRR) at appraisal and the re-estimated value at evaluation: Rate Available? Point value (%) *Coverage/Scope (%) 0 Appraisal 0  Not Applicable 0 ICR Estimate 0  Not Applicable * Refers to percent of total project cost for which ERR/FRR was calculated. 6. Outcome Relevance of the objective was High given the project's alignment with the latest CPF and Government strategy. The project was a logical follow-up of the previous Municipal Services Improvement project. The Efficacy was Substantial given the substantial or high achievement of all objectives and Efficiency was Substantial. Overall, the project’s outcome rating is rated Satisfactory. a. Outcome Rating Satisfactory 7. Risk to Development Outcome The project’s risks to development outcomes can be classified into the following categories: Government commitment: According to the ICR (para. 92) the government remains committed to the achievement of the objective as demonstrated by its continuous engagement with the Bank through the North Macedonia Sustainable Municipal Development Project (P174897, financing amount US$50.0 million) which aims to build on the project outcomes and envisages the financial and environmental sustainability of municipal services while improving overage and quality of services and their enhanced resilience. Technical capacity: For the preparation and implementation of future investments in municipal infrastructure, adequate technical capacity will be critical. According to the ICR (para. 92) municipal staff turnover is relatively high indicating a loss of technical expertise. Therefore, it will be important for municipalities to ensure in-depth onboarding of new staff and foster a culture of knowledge sharing among new and more senior staff. Financing: While the project introduced stronger financial assessment procedures, the setting of adequate tariffs for water and wastewater, public transport, solid waste management etc. will be critical for the financial sustainability and the long-term performance of targeted services. Therefore, the sustainability of the project outcomes will depend on the municipalities’ ability to maintain the financed investments. Page 9 of 14 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review MUNICIPAL SERVICES IMPROVEMENT 2 (P154464) 8. Assessment of Bank Performance a. Quality-at-Entry The PDO was realistic with well-structured components. The design of the project was built on the successful implementation experience of the first phase of the MSIP, and it put the municipalities in the driving seat. According to the PAD (p. 8), lessons learned included the need to improve construction supervision and quality of technical documentation prepared by the municipalities as well as the need to improve the rigor in the financial and economic analysis to appraise subprojects by adopting more standardized approaches in investment appraisals. The PAD (p. 11) identified the main risks to implementation associated with the limited institutional capacity of some participating municipalities, as well as political and governance risks due to the country’s volatile political situation. These risks were mitigated by a well-performing and fully staffed PMU which had gained experience in providing support to municipalities during the ongoing MSIP operation. Also, mitigation measures for the political and governance risks included the Bank monitoring the political situation and coordinating with key donors and partners in case adjusting the project scope and processing was deemed necessary. Mitigation measures were not sufficient and resulted in implementation delays. While the project became effective in January 2016, the Bank management informed the government that the project would not be declared effective and would not disburse funds until after the elections to avoid implementation just before an election. Since the timing of the elections was delayed, the project was declared effective in July 2016 to allow municipalities to implement basic infrastructure investments. However, the project experienced implementation delays as a result of political turmoil after the parliamentary elections. Also, local elections conducted in 2017 resulted in delays in starting the implementation of sub-projects resulting in the need to extend the closing date by 18 months during the August 2020 restructuring. The project’s Results Framework was adequate (see section 9a for more details). Quality-at-Entry Rating Satisfactory b. Quality of supervision According to the World Bank team (October 30, 2023) the World Bank conducted a total of 14 supervision missions ensuring continuous implementation support which allowed for emerging issues being quickly addressed. The ICR (para. 89) stated that the World Bank team had the appropriate technical expertise and collaborated closely with the Water, Urban, Social, Environment Global Practices within the World Bank. Also, during the COVID-19 pandemic the World Bank team continued to engage with the counterpart continuously. The project’s fiduciary performance was Satisfactory throughout implementation and the Results Framework did not require any substantial modifications. Page 10 of 14 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review MUNICIPAL SERVICES IMPROVEMENT 2 (P154464) Quality of Supervision Rating Satisfactory Overall Bank Performance Rating Satisfactory 9. M&E Design, Implementation, & Utilization a. M&E Design The objectives of the project were clearly specified. Also, the project’s theory of change and how key activities and outputs were to lead to the intended outcomes was sound and reflected in the Results Framework. The indicators included in the Results Framework encompassed all outcomes of the PDO statement. Finally, the selected indicators were sufficiently specific and measurable. The targets were defined well. For example, for financial sustainability, the provision of a single numerical target for all kinds and sizes of investments was not eligible under MSIP2 due to the framework nature of the project and, as such, was recognized as not feasible. There were no sectoral targets, given the demand-driven nature of the project. According to the PAD (p. 10), the Project Management Unit (PMU) was responsible for monitoring, evaluating, and reporting progress toward achieving the project’s objectives. b. M&E Implementation According to the ICR (para. 78), the project experienced challenges in collecting data and assessing the results of sub-projects due to the large number and diversity of the sub-projects and municipalities. While the project did not encounter any challenges for collecting data when it came to larger sub-projects, this was the case for smaller sub-projects, when the assessment of associated financial gains was less straightforward as distilling the data needed for the assessment of the investment’s result could be challenging or impossible (e.g. for infrastructure rehabilitation such as a short section of a road). When the project’s closing date was extended by 18 months in August 2020, the targets of selected indicators were increased to reflect the possible achievements to be made within the extended implementation period. According to the ICR (para. 80) the PMU collected project data from the municipalities on a regular basis to assess implementation progress. The Bank team stated (October 27, 2023) that M&E data was reliable and of good quality. Also, according to the Bank team, the PIU indicated their commitment to continuing M&E functions after the project closure. c. M&E Utilization The project’s M&E data was used to inform decision making. According to the ICR (para. 81) during the first three years of implementation, data on women participating in public consultations showed modest Page 11 of 14 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review MUNICIPAL SERVICES IMPROVEMENT 2 (P154464) progress towards achieving the target. As a result of the project’s monitoring activities, the Bank team and the PMU were able to address this issue by increasing its efforts to promote women’s engagement in consultations resulting in the achievement of the target for women’s engagement in consultation activities. Overall, the quality of M&E is rated as Substantial. M&E Quality Rating Substantial 10. Other Issues a. Safeguards The project was classified as category B and triggered the Bank’s safeguard policies OP/BP 4.01 (Environmental Assessment), OP/BP 4.12 (Involuntary Resettlement), and OP/BP 7.50 (Projects on International Waterways). According to the ICR (para. 83) the environmental Assessment and Management Framework (EAMF) that had already been in place for the MSIP was updated for the MSIP 2. The ICR (para. 84) stated that the municipalities regularly submitted environmental reports to the PMU and any issues were addressed adequately. For example, one municipality implemented a sub-project on road infrastructure which required the resettlement of people. As a result, the municipality prepared a Resettlement Action Plan (RAP). However, the sub-project ended up being dropped since it was not possible to solve the landownership issues. All sub-projects complied with the Bank’s safeguard policies and the environmental safeguard rating was Satisfactory throughout implementation. b. Fiduciary Compliance Financial Management: According to the ICR (para. 23) MSIP 2 built on the existing Financial Management (FM) and disbursement arrangements of MSIP. Also, the internal control frameworks of MSIP were continued under MSIP 2. Furthermore, the project complied with the FM covenants, submitted quarterly reports as well as project and audit reports in a timely manner and of satisfactory quality. While the audit report for 2021 was submitted with two months delay due to a low response rate from the audit firms to the request of proposal, the project’s overall FM performance was consistently rated Satisfactory throughout implementation. Procurement: The ICR (para. 86) stated that the project did not encounter any procurement related issues and followed the procurement guidelines as included in the loan agreement. The PMU supported municipalities during the tender process and implementation of sub-projects. Also, the procurement specialist organized regular Page 12 of 14 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review MUNICIPAL SERVICES IMPROVEMENT 2 (P154464) workshops for relevant staff of municipalities and provided technical support to strengthen the municipalities’ procurement capacity. Throughout project implementation, the project’s procurement performance was rated Satisfactory. c. Unintended impacts (Positive or Negative) NA d. Other --- 11. Ratings Reason for Ratings ICR IEG Disagreements/Comment Outcome Satisfactory Satisfactory Bank Performance Satisfactory Satisfactory Quality of M&E Substantial Substantial Quality of ICR --- Substantial 12. Lessons The ICR (p. 26-27) included several lessons learned which were adapted by IEG:  A demand-driven design allows for flexibility and limits the possibility to define indicator targets during project preparation. Therefore, ensuring that the Results Framework is being revised once the targets are known is important for being able to monitor progress towards achieving the project’s objective.  Making grants available to municipalities which do not access sub-loans allows to provide financing to poorer municipalities with lower borrowing capacity. This project made an effort to include poorer and vulnerable communities by requiring grant-financed investments to focus on their needs. In general, similar projects might benefit from also making grants available to municipalities with lower borrowing capacity if they meet some criteria such as, for example, capacity to cover subsequent operation and maintenance costs.  Carefully assessing political and governance-related inherent and residual risks on the national as well as the local level might positively impact project implementation. In this project, unplanned parliamentary elections and an extended period of political instability and clear leadership in the central government resulted in the Bank deciding to Page 13 of 14 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review MUNICIPAL SERVICES IMPROVEMENT 2 (P154464) postpone the project’s effectiveness resulted in a slowing down of the implementation pace and the need for an extension of the closing date. 13. Assessment Recommended? No 14. Comments on Quality of ICR The ICR provided an adequate overview of project preparation and implementation and included an appropriate economic analysis. The ICR was also sufficiently outcome-driven and provided an adequate evidence base to support the achievements reported. The ICR was well written, provided a comprehensive account of the project achievements, and candidly reported on implementation challenges. The ICR included useful lessons learned that can be applied to future projects. The ICR would have benefitted from being more concise. Overall, the quality of the ICR is rated Substantial. a. Quality of ICR Rating Substantial Page 14 of 14