Accelerating Governance Institutional Reforms for Sustainable Services (AGIR) (P177468) Technical Assessment Strategic Relevance and Technical Soundness of the Proposed Program 1. The Program is strategically relevant and technically sound for the following reasons: (i) it supports the PFM reform strategy that has recently been elaborated covering the period 2020 to 2029 with a rolling 3-year PFM Action Plan for its effective implementation through 2020-2022; (ii) it provides continuity and sustainability of the process of modernizing the management of public finance over the last years and aligns with CEMAC directives on PFM that have been recently transposed into the national legal framework; (iii) it integrates the challenges of change management in reform implementation, which will be at the core of the TA activities to achieve the DLIs; and (iv) it supports the RRI approach to achieve the DLIs and considers the institutionalization of the RRI approach under the leadership of the Ministry of Reforms. 2. Despite efforts, PFM performance has essentially remained unchanged in recent years. Weaknesses in public resource management are at the heart of the two biggest development challenges: the fiscal crisis and a lack of resources for critical investments in human and sustainable physical capital. Several PFM areas are limiting the effective delivery of services to citizens (low revenue mobilization, low allocations to social sectors, inefficiency of public expenditures, low levels of accountability and high perceptions of corruption). Weaknesses in budget credibility, execution and control are some of the major challenges making it difficult for service providers to execute plans or rely on budget allocations arriving, and in recent years cash management has been a major concern. The 2022 Public Expenditure and Financial Accountability Assessment (PEFA) highlighted these persistent weaknesses in key PFM areas see Table Annex 3.1, where the majority of the indicators are graded at “D�. 3. The persistent weak PFM is well documented, see additionally Public Expenditure Management and Financial Accountability Review (PEMFAR) undertaken in 2015, the 2006 and 2013 PEFA evaluations. There has been some progress in medium-term predictability and the quality of budget preparation, public procurement arrangements and controls, debt management and strengthening internal and external control capacity. However, progress has been slow in other areas, including reliability in the revenue forecast and expenditure budgets, insufficient oversight, weaknesses in controls, lack of timeliness for preparation of fiscal reports and audit and oversight, management and monitoring of budget implementation, administrative and financial accounting, and supervision of extra-budgetary entities. These limit the ability of the government to use fiscal policy as a tool for development, to control the budget and ensure a sustainable macro-fiscal outlook, and to provide services to citizens. 4. The 2020-2029 PFM reform strategy is based on a sound diagnostic of the PFM system and provides an operational framework to strengthen PFM institutions and systems. The rolling 3-year PFM Action Plan provides the implementation roadmap for PFM priority actions over 2020-2022 and consolidates improvements over the period 2023-2029. The actions adopted in the first PFM Action Plan were formulated to improve PFM efficiency and are mainly aimed at improving the technical capacity of entities to master the new procedures. The Plan incorporates lessons learned from implementing PFM systems modernization and was developed through a MOF-led consultative process. Table Annex 3.1: 2022 PEFA Indicators (Preliminary) Performance indicator 1 2 3 4 Ind. M I. Reliability of the budget PI-1. Total Actual Spending vs. Originally Approved Budget C C PI-2. Composition of actual spending M1 against originally approved budget D D Has D+ PI-3. Total actual revenue compared to the M2 originally approved budget D D D II. Fiscal transparency PI-4. Budget classification C C PI-5. Completeness of information contained in budget documentation C C PI-6. Central government operations M2 outside financial reports D* D* D D PI-7. Transfers to subnational governments D D D M2 PI-8. Use of performance information for M2 service delivery D D D D D PI-9. Public access to fiscal information D D III. Asset and Liability Management PI-10. Reporting on fiscal risks D D D D M2 PI-11. Public Investment Management C D D C D+ M2 PI-12. Public Asset Management C D D D+ M2 PI-13. Debt Management B Has B B+ M2 IV. Policy-based fiscal strategy and budgeting PI-14. Macroeconomic and fiscal forecasts B C D C M2 PI-15. Fiscal strategy D C D D+ M2 PI-16. Medium-term perspective of M2 expenditure budgeting D D D D D PI-17. Budget preparation process C B Has B M2 PI-18. Legislative scrutiny of budgets B B Has D* D+ M1 Predictability and monitoring of budget implementation PI-19. Revenue Administration C D D D D M2 PI-20. Accounting for Revenue D D D D M1 PI-21. Predictability of in-year resource M2 C D D C D+ allocation. PI-22. Expenditure arrears D D D M1 PI-23. Effectiveness of payroll controls D D D D D M1 PI-24. Public procurement management D D* D C D M2 PI-25. Effectiveness of Internal Controls M2 C C D D+ over Non-Salary Expenditures PI-26. Internal Audit C C D D* D+ M1 VI. Accounting and reporting PI-27. Financial Data Integrity D D D* D D M2 PI-28. In-year budget reports D D C D+ M1 PI-29. Annual Financial Reports D C C D+ M1 VII. External oversight and audit PI-30. Scope, nature and follow-up of the C Has C D D+ M1 external audit PI-31. Legislative Review of External Audit M2 Has C C D C+ Reports 5. To respond to identified weaknesses and bottlenecks in PFM, reforms are currently being implemented through a new comprehensive strategy with ownership at the highest levels. A PFM reform strategy (2020 to 2029) has been elaborated to consolidate, deepen, and sustain PFM reforms in the country with a view to enabling public finance efficiency and improved delivery of services. The PFM reform strategy is based on the sound diagnostics of the PFM system and provides an operational framework to strengthen PFM institutions and systems. Jointly developed by a cross-institutional team from the MoF, the MoP, the SAI and other institutions through elaborate, broad-based consultations, this reform strategy supports the improved governance cross cutting area mentioned in the 2022-2026 National Development Plan (NDP). The Strategy sets out the key goals and objectives of the PFM reforms and identifies the priority reform actions. 6. The Program oversight will be coordinated through a strengthened Monitoring &Evaluation (M&E) Reform Unit under the recently created Ministry of Reform with an inter-ministerial Program Steering Committee headed by the Minister of Finance, responsible for leading the implementation of PFM reforms. The current M&E unit under the Prime Minister’s office will be strengthened and institutionally migrated to the Ministry of Reforms. This unit will ensure the regularly monitoring and communication of reforms’ implementation. In addition, the inter-ministerial Program Steering Committee will ensure that the Program implementation is regularly monitored and provide policy direction as needed. The Program will also benefit from the small coordinating unit at the Ministry of Economy and Finance responsible for the implementation of the IPF component. 7. The problems in the PFM system are manifested in the social sectors. The World Bank’s Expenditure Review and Health and education sectors was carried out in 2019 and found that the absence of a cash management policy and a commitment plan led to accumulation of payment arrears. One of the major issues encountered by the ministries of Education and Health is the difficulty to receive the funds from the Treasury. Additionally, a significant part of budgetary resources available in the sectors is not recorded in the general state budget because several public entities (including schools and hospitals) collect revenues that are not transferred to the Treasury. The PER also points out that limited and fragmented tracking of resources in the sectors make it difficult to understand where the budget execution problems stand1. 8. On the revenue mobilization side, a TADAT assessment was conducted in 2019 as requested by the Director General of Taxes to ascertain the strengths and weaknesses of the Congolese tax 1 See The Republic of Congo Human Development PER P175408. administration and affirm priorities in tax administration reforms. The assessment is summarized in figure xx below and the conclusion is as follows: 9. Tax administration strengths: • The essential functions of a tax administration are in place, from registration to collection. • The banking system is used predominantly for the payment of taxes. • Source deduction mechanisms are in place. • A system of binding public and individual decisions is in place to clarify tax obligations. • A system for monitoring tax forecasts and revenues exists and there is adequate coordination between the DGID and the Directorate of Studies and Planning of the Ministry of Economy and Finance. 10. Tax administration weaknesses: • The central taxpayer register is not updated, is inaccurate, and is not connected to the management of the declaration and payment of taxes. • Tax administration is institutionally fragmented. The collection function is carried out by the Treasury and the DGID cannot follow the whole process until effective collection. • Key functions and operations such as tax filing and revenue accounting are not automated. • Approaches to encourage taxpayers' compliance with their obligations are not based on risk analyses. • Initiatives to keep taxpayers informed and reduce costs so that they can meet their obligations are very limited. • The rate of filing basic tax returns on time is low compared to good practice. • Systems for managing tax arrears and processing requests for VAT credit refunds are flawed. • The dispute settlement process is not independent, and disputes are not handled within the recommended timeframes. • The internal control function is not fully operational and documented. • Reporting to the line minister is undertaken but the reports are not made public Figure 1: TADAT breakdown of performance ratings 11. The Government’s PFM reform strategy and program (the PSRFP 2020-29) responds to the objective to improve governance, which is a cross cutting area in the 2022-2026 NDP which delineates the President’s strategic vision. Responding to the needs expressed in the NDP under improved governance, the PRSFP includes 4 priority areas: (i) modernization of PFM and implementation of budget programming; (ii) increase efficiency in domestic resource mobilization; (iii) rationalization of debt management and increase sustainability of public finance; and (iv)management of PFM reform. 12. The 4 priority areas area further defined in 8 strategic dimensions, including: (i) implementation of program budgeting; (ii) planning and budget preparation; (iii) budget execution; (iv) internal and external control and audit; (v) integration of information technology; (vi) strengthening domestic resource mobilization; (vii) debt management; (viii) governance and transparency in the management of public resources (including in ministries and public entities). 13. The government PFM reform program is defined in the three-year rolling action plans to support the effective implementation of the PFM Reform Strategy. This Action Plan provides the implementation roadmap for some priority actions with clear institutional responsibilities among key reform components, cost-benefit analysis of sub-activities, and results indicators to monitor the successful implementation. A first three-year rolling PFM action plan (2020 - 2022) was prepared to provide the implementation roadmap for priority actions in PFM over 2020-2022 and consolidates improvements over the period 2023-2029. The actions adopted in the first PFM Action Plan were formulated to improve PFM efficiency and are mainly aimed at improving the technical capacity of entities to master the new procedures according to the requirements of the LOLF. Programming of measures designed to improve accountability and performance will be done incrementally to allow the new system time to adapt to the new procedures and standards. The Plan builds on the lessons learned from the implementation of previous initiatives of PFM systems modernization and was elaborated through a consultative process led by the MoF. 14. The Program development objective (PDO) is to improve increase efficiency of domestic resource mobilization and expenditure management with a particular focus on health and education sectors. The following PDO level results indicators can be used: • Non-oil domestic revenue as a percentage of non-oil GDP to measure domestic revenue mobilization • Percentage of spending in health and education (as a percentage of total spending) to measure allocative efficiency • Percentage of public contracts (weighed by contract value) awarded through competitive processes to measure technical efficiency • Disbursement rate of service delivery units operating grants (schools or health centers) 15. Three Program result areas are designed to make significant contributions to two priority areas of the PFM Reform Strategy: (i) modernizing PFM and implementation of program budgeting and (ii) increasing efficiency in domestic revenue mobilization. The DLIs have been designed to incentivize results along the results chain and to maximize disbursements in the initial years of the four-year program. They are aligned with the indicators of the Government PFM reform program with data collected and provided by the MoB. Six DLIs have been selected to measure concrete achievements in each of these areas as indicted in the table below. Table 2: DLIs and DLRs for the proposed Program Explanation of Indicator Amount $m RA#1: Increasing efficiency in domestic resource mobilization DLI 1 Increased efficiency in mobilizing tax and This DLI was selected to capture the progress made 10.0 customs revenues in improving the efficiency of tax and customs administrations in mobilizing revenue. The first DLR • DLR 1: Reorganizations2 of tax and customs captures the institutional design changes at the tax administration (regulations and and custom administrations to implement new organizational charts approved and CEMAC instructions, better align the organizations adopted) with specialized areas (such as forestry, banking, • DLR 2: Reduction in the average number of etc.) and enable them to more effectively exchange days needed to resolve tax disputes information and mobilize resources. The second • DLR 3: Percentage of LTO payments (e- and third DLRs measure gains in efficiency in the payments) done through e-tax. tax administration in mobilizing revenue with the • DLR 4: Reduction in the average number of first one measuring the time reduction taken to days needed to clear customs resolve tax disputes. The third DLR captures the progress made in rolling out the e-tax system which would allow for electronic filing and payment of taxes starting with the large taxpayers3. The goal is to have this system used by close to all LTO taxpayers by the end of the Program. Digitization of the tax system would make it easier for taxpayers to pay their taxes, lowering costs of compliance and for the tax administration to attend to more taxpayers with fewer resources. The fourth DLR measures the efficiency gain by the customs administration by measuring the customs clearance time (these were areas identified as needed improvements in the 2019 TADAT see Annex 3). DLR2-4 will be scalable. The data will be provided by MoF using internal tax and customs systems. RA # 2A: Improving the efficiency of public spending and managing climate-related fiscal impacts DLI 2: Performance-oriented budgeting This DLI was selected to enhance the budget 10.0 implemented allocation process by providing clarity and reducing variability on allocations by sectors. The adoption • DLR 5: Establishment of framework to allow of the program budget classification is an initial 2 Along functional and specialty areas and including a repositioning of the IT department 3 for the implementation of program step toward the implementation of performance- budgeting based budgeting (a condition to comply with o DLR 5.1: MoB approval of the CEMAC directives) and is key to enhancing the conceptual framework and alignment of strategic allocation of budgetary resources in RoC. program budgets and the chart of Improved transparency of allocations to sectors, accounts monitoring of performance in sectors, is expected o DLR 5.2: Designation of program to be instrumental in improving a more consistent managers and heads of program budgetary allocation to, and therefore institutional operational units in line ministries performance of, sectors providing services to • DLR 6: Percentage of ministries that prepare citizens. This is a key improvement area identified the PAPs4 for the preparation of the n+1 in the 2022 PEFA see Annex 3. DLR 5 and DLR 6 finance law (first cohort including health and ensure the regulation and institutional reforms are education) in place. DLR 7 and DLR 8 reward the actual • DLR 7: Percentage of ministries that prepare implementation of the budget reform. DLR 7 is RAPs5 before the end of first trimester n+1 based on the percentage of ministries who are (first cohort including health and education) preparing the Performance Action Plans (PAPs) at the start of the budget cycle which indicate the performance orientation of services to be provided by the Ministry for the forthcoming year. DLR 7 rewards the reporting of actual performance achieved through the percentage of ministries submitting their Report on Annual Performance (RAP) documenting actual performance at the end of the fiscal year. This DLI aims also improve gender and climate considerations since the PAPs and the RAPs reporting structure requires the publication of annexes on gender impact and climate impact. DLR 7 and 8 measure the results in terms of utilization of the instruments and are scalable. The utilization of PAP and RAP is important to support more efficient budget allocations to priority and performing programs. The data will be provided by the MoB. DLI 3: Increased competition in public This DLI was selected as improvements in 9.0 procurement transparency and efficiency in public procurement. It’s necessary as part of the implementation of • DLR 8: Percentage of public contracts performance-based budgeting and ensuring that (weighed by contract value) awarded budget holders have the responsibilities and through competitive processes capacity to manage their budgets. It contributes to • DLR 9: Percentage (in number) of signed strengthen their accountability in the management public contracts approved within the original of their contracts. It is an important element for bid validity period the enhancement of expenditure transparency and efficiency. The two DLRs support improvements in procurement practices. The first DLR seeks to reduce the percentage (in value) of direct contracting by promoting competitive process in public procurement and it is scalable. The last DLR seeks to monitor the percentage (in number) of 4 PAP stands for Plan Annuel de Performance or the annual performance plan, prepared as the beginning of the year for budgeting purposes 5 RAP stands for Rapport Annuel de Performance or annual performance report, prepared at the end of the year to report on the performance of the program signed contracts approved within the original bid validity period to ensure efficiency in public procurement by increasing the number of signed contracts approved within the original bid validity period and it is scalable. DLI 4: Improved efficiency of public investment This DLI was selected as improvements in PIM as 10.0 they are necessary as part of the implementation • DLR 10: Approval of regulatory texts that set of performance-based budgeting. This DLI was also out the modalities in the preparation, selected to improve the efficiency of public formulation and selection of projects, taking investment as highlighted in the 2023 PIMA into account climate aspects exercise. This DLI promotes the use of improved • DLR 11: Percentage of new investment fiscal projections for planning and public projects in the Budget Law with studies investment, as well as better allocation of validated by CNEEPIP and screened for investment funding. It aims to strengthen PIM climate change mitigation and adaptation. portfolio selection and management by promoting better preparation of investment projects, including screening for climate change adaptation. The DLR 12 captures the progress made in the implementation of institutional measure to strengthen the investment project cycle. The DLR 13 measures the results with the implementation of the new reforms with respect to ensuring new projects are screened with appropriate studies undertaken for new budgeted projects. The DLT 13 is scalable. The data will be provided by MoP. RA# 2B: Improving the efficiency in public spending in health and education sectors DLI 5: Increased availability of operating grants to This DLI was selected to support the 8.0 front line providers in health and education implementation of performance-based budgeting in the health sector and to ensure upstream • DLR 12: Percentage of budget appropriation budget allocations translate into downstream available for the operation of service resources available at the facility level. This DLI delivery units (schools or health centers) focuses on the efficiency of budget execution for according to the formula spelled out in the better service delivery in health and education. decree notified to the This area rewards the receipt of budget allocations department/municipality by health centers/facilities to ensure that they • DLR 13: Disbursement rate of service have funding and equipment necessary for their delivery units operating grants (schools or operations, which is one key bottleneck identified health centers) in RoC in the 2022 PFR. The decree to ensure consistent budget allocations was recently adopted and supported under the Bank’s DPO series. According to the procedure in the new decree, the first DLR measures the notification and availability of budget for front line service provider to departments/municipalities and is scalable. The second DLR measures availability for use or release of to front line service providers from deparments/municipalities. DLI 6: Increased availability of financial execution This DLI was selected to support the 8.0 information from front line service providers in implementation of performance-based budgeting health and education in the education sector and thus support improvement to the effectiveness and efficiency of • DLR 14: Number of schools with financial budget execution for better service delivery in execution report (budget and own education. This area includes the promotion of resources) adopted by the school budget dialogs at the sectoral level and the receipt management committee and published of budget allocations by schools/educational • DLR 15: Number of health centers with facilities to ensure that they have funding and published financial execution report (budget equipment necessary for their operation, which is and own resources) adopted by the health one key bottleneck identified in RoC in the center management committee and 2022PFR. The first and second DLRs measure the published level of budget execution at the level of the service provider and its transparency and is scalable. The data will be provided by MEPPSA and METP. Program’s Expenditure Framework 16. The Program expenditure framework reflects the projections for the PFM reform strategy (PRSFP) . The table below shows the projected allocations by expenditure category and institutions over the next four years of the PFM reform strategy (PRSFP). A significant part of these projections represents incremental expenditures, while others represent the ongoing government expenditures for participating entities’ staff time and maintenance of facilities. 17. The Government Program identified investments necessary to achieve expected results, funded through annual budget allocations. For the proposed PforR operation, the Program Expenditure Framework will comprise expenditures included in the costed action plan of the government program that will facilitate the achievement of the PDO and DLIs. Most results under the PforR component will require the time of staff and temporary specialists (consultants), utilities, operating expenses and training and travel expenses. Therefore, the following eligible expenditure categories have been identified for the PforR component as the most impactful for achieving DLIs: • • Salaries and Wages of those staff working on the reform program • Furniture and equipment • Travel, transportation, and training • Utilities and operating expenditures • Current repairs and maintenance • Consulting and professional services Table 3: AGIR Program Expenditure Framework IBRD/ Ministries/Directorates Budget lines 2023 2024 2025 2026 2027 2028 2029 Total IDA GoC 2-661 Salaries 29.0 30.0 30.0 30.0 30.0 30.0 30.0 209.0 43.4 174.5 3-601 Furniture and 2.0 2.1 2.1 2.1 2.0 2.0 2.0 14.3 3.0 12.0 MEF equipment /DGID/DGD/DGCMP/DGRS 3-611 Transport and 0.6 0.6 0.6 0.6 0.7 0.7 0.6 4.4 0.9 3.7 MBCPP/DGB/DGCB missions MP/DGPD/CNEEPIP 3-614 Repairs and 0.4 0.4 0.5 0.5 0.5 0.4 0.4 3.1 0.6 2.6 MH/DGH/Dir.Contr maintenance MS/MEP/MET 3-617 0.8 0.8 0.8 0.8 0.6 0.6 0.0 4.4 0.9 3.7 Communication 3-618 Training 0.4 0.4 0.4 0.4 0.3 0.2 0.1 2.2 0.5 1.9 3-621 1.9 3.0 3.0 3.0 2.8 1.5 1.5 16.7 3.5 14.1 telecommunication 3-622 Consulting 6.8 11.0 11.0 11.0 11.0 4.7 4.5 60.0 12.5 50.4 services CCDB Titre 4 – Transfer6 1.2 2.0 2.0 2.0 1.9 1.0 1.0 11.1 2.3 9.4 ARMP Titre 4 – Transfer 1.0 1.5 1.5 1.5 1.5 0.5 0.5 8.0 1.7 6.6 CNEEPIP Titre 4 – Transfer 0.3 0.6 0.6 0.7 0.6 0.6 0.6 3.9 0.8 3.6 TOTAL 44.3 52.4 52.5 52.6 51.9 42.2 41.2 337.0 70.0 267.0 Financial Sustainability: Implications of the fiscal context on the PforR Program 18. Higher global oil prices spurred by the war on Ukraine are improving government revenues, but rising inflation and shortages have adverse impacts on businesses and households. Economic activity has picked up in 2022, with overall growth being driven primarily by the non-oil sector. The non-oil sector is expected to grow by 3.2 percent in 2022. Economic activity in the sector is benefiting from the complete removal of COVID-19 restrictions, which has enabled the recovery of the services sector, especially hotels, restaurants, accommodation, and transportation. RoC is expected to continue to gradually recover from its seven-year recession. GDP growth is projected at 3.7 percent in 2023 and an average of 3.4 percent in 2024-25. Oil sector growth (expected at 5.1 percent in 2023 and an average of 3.2 percent in 2024-2025) will be driven primarily by the resumption of investments by oil companies, including in asset maintenance, which had been postponed due to the pandemic, and negotiations on new production-sharing agreements with more limited tax concessions. 19. Future fiscal reforms could improve the level of resources and strengthen the implementation of the PfoR program. The fiscal surplus is projected at 4.3 percent of GDP in 2023 and an average of 2.2 percent during 2023–2025. In 2023, the impact of a decrease in oil prices will be partially offset by the increase in oil production and improved domestic revenue mobilization. This favorable fiscal situation builds on the positive macroeconomic outlook for 2023 and the medium term, the IMF’s ECF reforms and reforms supported by the Bank’s DPF series aiming at broadening the tax base and improving tax compliance. On the expenditure side, expenditures are set to increase to an average of 24.0 percent of GDP in 2023-2025. The government is expected to expand social spending partly due to improved budget execution in health/education and the implementation of the permanent safety nets program, both supported by the Bank’s DPF series. Financial Sustainability: Implications of the PforR Program on the fiscal context 20. The implementation of the Program should contribute to an optimization of the fiscal space. Strengthening the efficiency of domestic resource mobilization, along with reforms supported by the Bank’s DPF series, are expected to improve availability of public resources. According to 202 paying taxes published by PwC in collaboration with the World Bank, digitalization of tax services have to increased available resources in many countries. In addition, strengthening the efficiency of spending, especially in capital and strategic sectors for sustainable development (education, health) are key to the structural transformation process. According to the WB's Country Economic Outlook 2021 “Maximizing Public Expenditure Efficiency for Better Construction�, the implementation of certain fiscal policy options could generate up to 2 percent of GDP through spending efficiency gains. 6 Transfer includes financing for salaries, goods and services. 21. The proposed operation is expected to significantly increase the economic impacts of the government program on the economic growth and social welfare of the country. Through enhanced resource mobilization, and improved budget management and budget execution, the probability of stimulating economic growth and achieving development objectives is likely to increase. During the appraisal, the expected financial, economic and social benefits and costs of the proposed operation will be quantified. ▪ Direct and indirect financial, economic, and social benefits of the proposed operation can be estimated as follows: ▪ Public resources savings are likely to occur from streamlining planning and budget implementation procedures, including procurement, leading to improved efficiency of service delivery. The mobilization of new revenues is also expected to lead to economic growth through public spending in health and education. ▪ Human capital enhancement is expected in the long run thanks to improved service delivery in education and health. Human capital increase is also expected through improved technical capacity building of staff in administrations following the training envisaged by the project. This will concomitantly foster a positive authorizing environment for development reform in the country. ▪ The business environment in RoC will likely be strengthened through the modernization of tax and customs administrations and the creation of synergies between the tax, customs and treasury administrations, and through increased transparency in the extractive industry that will boost the generation of revenues from that sector, and strengthening debt management. Improved conditions for doing business will create an attractive investment environment for private investors, whose investments will ultimately support job creation and economic growth. ▪ Trust/confidence in the government and good governance will likely increase as the public sector management becomes more effective and accountable. Program’s Results Framework and Monitoring and Evaluation 22. The Results Framework captures the direct benefits linked with the Program. The theory of change explains the links between DLIs, intermediate outputs, the PDO, and the ultimate intended outcome. Economic and fiscal justification of the Program 23. The program gives value to a stream of economic benefits from reducing the costs of complying with the tax regulations and reducing the time it takes for taxpayers to file online (currently 600 hours a year), resulting in higher tax revenue mobilization. It also leads to lower costs for business’ clearing customs for the export and import of goods. By increasing the efficiency in the budget process, it is anticipated that more of the approved budget allocation will reach frontline service providers and lead to improved services to citizens; that there will be more value for money in public procurement and a greater efficiency in aligning public investments with national priorities yielding the biggest social benefits.. To undertake a cost-benefit analysis the stream of economic benefits is valued using some assumptions on the value of the time savings; the improved mobilization of tax revenues; and the improvements in value for money and efficiency in government spending. 24. The CBA model for the AGIR Program is based on the following assumptions: (i) the entire program cost is $337 million for the period of the Program4-years period (2023/2026) and expended as per the expenditure framework; (ii) The stream of economic benefits from the project will go beyond the program life, and an 11-year time horizon is considered for the economic analysis with benefits starting to accrue in the second year of the program; (iii) the streams of economic costs and benefits are discounted at a social discount rate (SDR) of 7 percent. Using the Ramsey formula, SDR is calculated through RoC’s growth rate of per capita real consumption; (iv) a 10 percent SDR is used for sensitivity analysis; (v) when assessing the benefits attributable to AGIR, the economic analysis considers the potential impact of the other WBG projects, the efforts of the government, and the activities of other development partners. Based on these assumptions, the estimation of the economic returns is detailed as follows: • Maximizing tax and customs revenues (DLI 1): the cost of these activities accounts for 14.3 percent of all the project costs. Mobilizing more tax revenue represents more resources available to finance social and productive infrastructures; the program targets a tax to GDP gain of 3 percentage points of GDP by the end of the program (see the PDO indicator and target of 12 percent of GDP) . The modernization of tax and customs administrations and the creation of synergies between the tax, customs and treasury administrations will improve tax performance by facilitating (a) lower costs of compliance for taxpayers and business’ importing and exporting goods; resolving tax disputes and paying taxes online. (See DLIs for results area 1). The cost of paying taxes is estimated to be 600 hours annually per taxpayer (Doing Business 2021); the program targets to initially move 5 percent of taxpayers to online payment and 90 percent by the end of the year. Thus, if targets are met, 90 percent of taxpayers will be expected to take significantly less than 600 hours (and the CBA assumed 90 percent of time saved). Clearing customs targets are to save up to 175 days per annum where goods are awaiting customs clearance (from 276 days to 100 days as per the Results Framework). Additionally, economic benefits from a more efficient tax and customs administration with lower administrative costs per $ of revenue collected is likely; (c) reforms to modernize the tax administration, use ICT systems to track taxpayers filling activity and cross reference and the ability to develop more sophisticated tax audits may reduce tax avoidance and evasion. . In order to use conservative estimates the economic benefits of the program are estimated to be based on the improved cost of compliance under the program due to the availability of on-line filing and paying leading to an estimate of a percentage reduction in the cost (number of hours) to business to file and pay taxes, as well as the time saved from customs clearances and the lower time spent resolving tax disputes. The net economic benefit of maximizing tax and customs revenues is estimated at about $442 million, with a high EIRR of 98.8 percent. • Maximizing share of oil revenues (PAP): the cost related to this component represents about 14.3 percent of all the project costs. Maximizing oil revenues can contribute to reducing the country’s reliance on debt, notably by allowing the accumulation of fiscal buffers to make the economy more resilient in recession times. Strengthening transparency in the oil sector enables citizens to effectively scrutinize the management of oil revenues and hold the government accountable for misuse. Transparency also contributes to improving trust in government, and tax compliance can increase as a result (spillover effect). On the basis of a modest assumption that the improvement in modelling and auditing of the oil sector will lead to an increase in the governments share of the oil revenues. Improvements in this area will increase the State's share of profit oil by generating substantial net benefits of about $440 million with a high rate of return of 101.4 percent. • Implementation of performance-based budgeting, Improvement of procurement practices, Improving the quality of health and education services (DLI 2, DLI 3, DLI 5 & DLI 6) : the cost of these activities represents 57 percent of all the project costs. Improving budget management, budget execution, and procurement practices will contribute to economic governance through improved public expenditure management. These activities will lead to more efficient use of financial and human resources, which is expected to improve service delivery to the citizen. Furthermore, increasing health spending and promoting better budget execution rates will provide RoC with the agility to respond to pandemics. Improved service delivery in the health sector will generate longer-term economic and social returns, including economic growth, which are not easy to quantify. Benefiting from better healthcare positively impacts human capital accumulation and wages. Concerning the education sector, improved service delivery in this sector will generate significant social and private benefits in terms of human capital accumulation and wages (Patrinos and Psacharopoulos, 2020) beyond the project life. A better budget allocation could reduce education inequality by bringing more children from low-income families to school and enhancing the quality of education provided. These activities are expected to generate about $ 177 million net benefits with an EIRR of 34.5 percent. • Increase in PIM efficiency (DLI 4): the cost of this component represents 14.3 percent of all the project costs. Enhancing Public investment efficiency can result in significant economic and social impact, especially as investment supports the delivery of key public infrastructure and reduces the bottle nexts to private sector development, and facilitates citizen access to markets and government services. Evidence shows that public investment is also key to economic growth and can help to generate jobs (Gaspar et al., 2020). Reducing cost overruns and time delays on public investment projects will help to fill the country's infrastructure gap, create a business-friendly environment, and promote private investment. The project activities7 could increase PIM efficiency (from 0.35 to 0.45) and generate a net benefit of $ 8 million attributable to AGIR with an EIRR of 10 percent. • Whole AGIR Project: the project is expected to generate about $1,067 million net benefits with an economic internal rate of return (EIRR) of 57.5 percent and a BCR of 4.1. The analysis based on more conservative assumptions estimated the NPV at $855 million with a Benefit Cost Ratio of 3.6 percent, using a social discount rate of 10 percent. Table 4: Economic Value Summary Costs (US$ Net Present Value Benefits- Economic Rate million) (discounted value, US$ Cost Ratio of Return million) DLI2, DLI3, DLI5 & DLI6 215 177 1.9 34.5% DLI 4 54 8 1.2 10.0% DLI 1 54 442 10.1 98.8% PAP 54 440 10.0 101.4% Whole AGIR Project 352 1,067 4.1 57.5% 7Jointly with the other WBG projects' activities, the efforts of the government, and the activities of other development partners. Costs (US$ Net Present Value Benefits- Economic Rate million) (discounted value, US$ Cost Ratio of Return million) Whole AGIR Project (SDR 10%) 352 855 3.6 57.5%