Page 1 PROJECT INFORMATION DOCUMENT (PID) APPRAISAL STAGE Report No.: 47378 Project Name Sierra Leone Public Financial Management Region AFRICA Sector General public administration sector (100%) Project ID P108069 Borrower(s) GOVERNMENT OF SIERRA LEONE Implementing Agency Ministry of Finance and Economic Development George Street Freetown Sierra Leone Public Financial Management Reform Unit Ministry of Finance and Economic Develop George Street, Freetown Sierra Leon Environment Category [ ] A [ ] B [X] C [ ] FI [ ] TBD (to be determined) Date PID Prepared January 15, 2009 Date of Appraisal Authorization January 29, 2009 Date of Board Approval April 16, 2009 I. STRATEGIC CONTEXT AND RATIONALE 1. Country and sector issues 1. Since the end of the civil war in January 2002, Sierra Leone has made strong progress in building peace, achieving macro-economic stability, re-establishing democratic institutions, strengthening core systems and bringing decisions and resources closer to citizens through a significant decentralization initiative. Growth averaged over 7.0% from 2004 – 2006 and moderated somewhat to about to 6.4% in 2007 and an estimated 5.5% in 2008. In September 2007, the APC, which had been in opposition, won the Presidential and parliamentary elections, which were followed by a peaceful transfer of power from the SLPP to it. This was a major achievement in the democratic development of the country. 2. The Government of Sierra Leone (GoSL) is in the process of finalizing a new poverty reduction strategy (PRSP-II 1 ) which will set the direction and priorities for the new administration. With the central objective of faster growth and poverty elimination, the PRS prioritizes investments in energy, transport, health and. The growth and poverty reduction strategy is based on a foundation of good governance that includes strengthening the civil service, decentralization and local government, fighting corruption and strengthening public 1 “The Republic Of Sierra Leone, Poverty Reduction Strategy 2008-2012: An Agenda for Economic and Social Empowerment, November 2008” currently in draft. Page 2 financial management. This requires a budget that fully reflects these and other GoSL priorities. In view of the importance of PFM to the effective implementation of the poverty reduction strategy, to reducing opportunities for corruption, and to attract budget support assistance from the development partners (DPs), the effective functioning of public financial management (PFM) institutions and systems at central and local levels of government in Sierra Leone has been identified as a high priority,. 3. Since 2002, the GoSL has made good progress in strengthening its public financial management framework and systems, and has implemented most of the recommendations made in the Country Financial Accountability Assessment (CFAA) of 2002 2 . This process has been supported by IDA through the Institutional Reform and Capacity Building Project (IRCBP) 3 and technical assistance from the European Commission (EC), UK Department for International Development (DFID), and the African Development Bank (ADB). Major achievements include establishment of the legal and regulatory framework for budgeting, accountability and procurement, implementation of a financial management information system (FMIS) in the Accounta nt General’s Department in 2005 with roll out to several ministries, departments and agencies (MDAs) by 2007 4 , removal of the backlog of annual financial statements (the 2007 accounts were produced within four months of the year end), and establishment of basic budgeting, procurement and accounting procedures in the local councils. 4. As a result, despite the very low starting point at the end of the civil war, the scores from the Public Expenditure and Financial Accountability (PEFA) assessment for Sierra Leone carried out in early 2007 were similar to the average for other countries in the region. While, since then, the timeliness of financial statements and audit reports has improved, budget credibility hit a low point in 2007 which was an election year. This and other analyses such as the IMF red cover report Sierra Leone: Implementing Public Financial Management Reforms , 5 indicate that areas of major weakness remain. The analyses identify lack of budget credibility and predictability, fiscal management challenges, weaknesses in expenditure control (including payroll), and low levels of transparency; and note that much remains to be done to move the system from one that is functioning at a rudimentary level to one that is able to direct resources to priority areas and support high quality expenditure outcomes. These weaknesses were highlighted by the major shortfalls in revenue and the disruption to expenditure that occurred during budget implementation in 2007. The challenges are compounded by the current reliance on DP-funded Sierra Leonean contract staff (Local Technical Assistance – LTA) for many line functions in the Ministry of Finance and Economic Development (MoFED). The DP-funded LTAs make up 30% of the total staff of the MoFED and at the professional level (grades 7 and above) they significantly outnumber the regular civil servants 6 . 2 These covered selected aspects of the legal and institutional setup and not the full range of system outcomes assessed by the PEFA Framework. 3 This project will close on March 31, 2009. 4 Starting with the Accountant General’s Department (AGD), the IFMIS has been rolled out to the Ministry of Finance and Economic Development, Sierra Leone Police, Ministry of Education Youths and Sports, Ministry of Works and Technical Maintenance, Ministry of Health and Sanitation, Ministry of Agriculture and Food Security, Ministry of Defense and the Prisons Department. In addition it is being used by the IRCBP. 5 D. Last, L. McKenzie, R.Tibana, and C. Karamaga, IMF FAD, June, 2008. 6 According to the report “Design of an Exit Strategy and Arrangements for Transitional DP Support for Remuneration of Contract PFM Staff ” (GHK in association with Positive Change HR Consultancy Services), of the Page 3 5. In order to build on the progress to date and to tackle these challenges, the GoSL has prepared a comprehensive program of PFM reforms for the period for 2009-2012 7 . This process is directed by the PFM Oversight Committee, chaired by the Financial Secretary of the MoFED 8 . In addition to the need to strengthen fiscal and budget management, accounting, reporting and oversight, payroll management and cross-cutting issues of capacity development and organizational strengthening, the program identifies the need for a phased reduction in the dependence on DP funding for key line positions in the MoFED. 6. The MoFED has emphasized the importance of the DPs providing space to the GoSL to develop its IPFMRP at its own pace and without major external involvement so as to ensure strong ownership. The exerci se has been led by the MoFED’s Public Financial Management Reform Unit (PFMRU), which is currently supported by the Institutional Reform and Capacity Building Project (IRCBP). The DFID/Bank PFM adviser, an EC budget specialist, a DFID- funded consultancy on phasing out DP funding of MoFED staff, and an EC-funded consultancy on capacity building have provided some technical assistance. 2. Rationale for Bank involvement 7. The institutions and systems of public financial management, including the effectiveness of the MoFED in its central role, have a critical impact on service delivery and on the implementation of the Poverty Reduction Strategy Paper (PRSP). Critical factors are whether (i) resources are available to public service providers on time and in accordance with the budget, (ii) resources are directed to stated government priorities, (iii) resources are used for the purposes intended, (v) resources are susceptible to misappropriation, (iv) the government can execute the budget without running up arrears and creating macro-fiscal instability, and (vi) whether the government can show its citizens how it spent resources on their behalf. The social and infrastructure sectors are dependent on reliable and well-managed finances and without this their ability to deliver key services and projects is fundamentally undermined. Building PFM from a rudimentary to a well-performing system is therefore a central element of the development and governance agenda in Sierra Leone. 8. So far, International Development Association (IDA) project support for good governance has principally been delivered through the IRCBP, which has supported the process of decentralization and the strengthening of PFM since July 2004 9 . Follow up support for the decentralization component of the project is being provided through a DFID and EC funded 66 staff in grades 7 and above, 39 were DP-funded LTAs and 6 others were on the GoSL payroll making a total of 45. 7 “An Integrated Public Financial Management Reform Program (IPFMRP)”, Ministry of Finance and Economic Development, Version 6, November 2008. 8 The other members include the Secretary to the President, the Auditor General, the chairpersons of the parliamentary Public Accounts Committee and Budget and Finance Committee, the Establishment Secretary, the Director of Research at the Bank of Sierra Leone, the Anti-Corruption Commissioner, National Revenue Authority (NRA) Commissioner-General, Executive Director of the National Public Procurement Authority (NPPA) Secretariat, the National Director of the Development Aid Coordination Office, or their nominees, and representatives of the development partners. 9 The IRCBP is due to close on March 31, 2009. Page 4 multi-donor trust fund (MDTF) managed by IDA. This project will pick up from the IRCBP on PFM reforms and will support a more comprehensive multi donor approach. 9. Through the IRCBP, the Bank has been o ne of the GoSL’s main partners contributing to the developments that have been achieved in PFM. However, the support provided by the Bank, EC, DFID and ADB for PFM has been fragmented and has lacked in coherence and comprehensiveness. At the request of the GoSL and the DPs, the Bank has taken the role of coordinating through this project joint DP support to the core components of the next phase of reform as defined in the GoSL’s IPFMRP 10 . The Bank is seen by the GoSL as a key partner in PFM reform with the required integrative and technical skills. This institutional and capacity building technical assistance project will complement policy engagement on PFM exercised through the Government Reform & Growth Credits and the Multi-Donor Budget Support (MDBS) programs. 3. Higher level objectives to which the project contributes 10. The project will contribute to the GoSL’s higher level objective of improving strategic allocation of resources and quality of expenditures required for the implementation of the PRS. 11. The project contributes to the FY06-09 Country Assistance Strategy (CAS)’s Strategic Priority 1: Governance, Decentralization and Public Financial Management, particularly those outcomes involving improved strategic orientation of the budget, transparency of resource envelope and allocation, accountability of spending units, transparency and accountability of procurement, and staffing. It falls under the Public Sector Reform/Capacity Building planned for FY09. II. PROJECT DESCRIPTION 1. Lending instrument 12. A technical assistance IDA grant will be used over a period of four years from June 2009 to May 2013. The IDA grant will be pooled with DFID and EC (referred to as “DPs”) grant resources to support the implementation of the GoSL’s IPFMRP. The DFID and EC resources will be channeled through a Bank-administered Trust Fund and will be pooled with IDA resources to finance project activities. The IDA contribution will be USD 4 million and commitments from DFID and EC are GBP 5 million and Euro 8 million, respectively. The estimated project size is approximately USD 20 million 11 . The African Development Bank (ADB) will use its budget support operation (currently under preparation) to support this project by using prior actions and triggers that complement the objectives of this project 12 10 The core components of the IPFMRP are those that are to be implemented by the Ministry of Finance and Economic Development (MoFED), the National Public Procurement Authority (NPPA) and the Parliament, and relate to the core budget management processes. Separate DP support will be provided to the IPFMRP components to be implemented by the National Revenue Authority and Audit Service of Sierra Leone. 11 The DFID and EC contributions have been estimated at current exchange rates less ad hoc estimates of TF administration fees (under negotiation). To hedge against exchange rate risks, actual amount that can be committed in the grant agreement will be less than US $ 21.0 million. 12 The ADB budget support is expected to become effective In June 2009. Page 5 13. The DP resource pool will jointly support the program described in this document. 2. Program objective and phases 14. The project is designed to support the Core PFM components of the GoSL’s IPFMRP. As noted in the GoSL’s IPFMRP, the long term vision of the GoSL is a PFM system that supports the achievement of fiscal discipline; strategic, efficient and effective allocation and use of funds; and value for money, and probity in the use of public funds. 15. The GoSL IPFMRP is a comprehensive sector program for PFM, which builds upon its existing National Action Plan for PFM reform and on the progress achieved to date. It includes three main parts, the first of which will be supported by this project: (a) Core PFM components relating to budget management, accounting and transparency in the use of public funds. The institutional responsibility for implementing these components is with the MoFED, the National Public Procurement Authority (NPPA) and MDAs, with the Parliament and Non-State Actors exercising oversight. This core part of the IPFMRP will be supported through this project, jointly with DFID and EU with the possibility of the ADB also joining the pool. (b) Strengthening of revenue administration, to be implemented by the National Revenue Authority (NRA). This part of the IPFMRP is supported by separate DP funding and will not be supported by this project. (c) Strengthening of external audit , to be implemented by the Audit Service Sierra Leone. This part of the IPFMRP is also being supported separately from this project by DFID. 16. While only the first part of IPFMRP will receive funding from this project, all three parts will be under the overall direction and scrutiny of the PFM Oversight Committee. 17. A number of strategic priorities for the core IPFMRP have been identified by GoSL, drawing in part from the analysis provided by the IMF Fiscal Affairs Department (FAD) mission of March 2008 as well as GoSL analysis and the PEFA assessment. The priorities identified are the need to restore budget credibility and supplier confidence, improve cash management, increase adherence to the legal framework (with amendments as needed) and build PFM capacity in MDAs (ministries, departments and agencies). Ongoing reforms supported by the IRCBP will continue to be supported by the IPFMRP so that the present momentum will be maintained and the benefits fully realized. These reforms include the rollout of the Integrated Financial Management Information Systems (IFMIS) to remaining MDAs, the verification of government payrolls, improved procurement, the extension and deepening of internal audit, strengthening local government financial management, and legal and regulatory reform. Page 6 18. The project adopts an integrated approach in that it provides joint DP support to the MoFED and other PFM actors in the implementation of the GoSL’s integrated reform program. 13 The project support builds on the developments made to date in the core areas of budget management, accounting and control, in a phased manner. It draws on the FAD report recommendations, the PEFA assessment and consultancies in budget management, capacity building and the phasing out of DP support for MoFED staff. The program in Sierra Leone has identified as a priority the need to improve budget credibility and the first phase in particular is geared towards delivering discernible improvement in this key area. The project also employs aspects of the platform approach to draw attention to a logical sequence of capabilities. 19. The desired initial platform (Platform 1) outcome is one in which budgets are credible and transparent so as to enhance the confidence of all stakeholders that the Government can translate an approved budget into actual revenue and expenditure, both in aggregate and at the agency level. 14 This will allow the government to stress the need for increased compliance with regulations and laws, and will remove many excuses for lackluster performance. Building on the budget discipline achieved in the first platform, Platform 2 activties focus on improved allocation of all available resources in accordance with the Second Poverty Reduction Strategy Paper (PRSP-II) and sectoral strategies, and reallocations arising from changes in cash flow projections. Platform 3 activities should see a strong effort to achieve greater efficiency and probity in resource use leading to improved service delivery . This outcome logically follows on from the predictable funding achieved in platform 1 and the improved allocation of resources achieved in platform 2.This is shown in figure 1. Figure 1: Sierra Leone PFM Platforms Drive for results Harden link between resources and results; push efficiency, reinforce probity Platform 3 Realign prioritization Comprehensive use of budget resources to achieve PRSP objectives Platform 2 Establish budget credibility Allow MDAs to plan for effective service delivery and remove excuses for non-delivery; stress compliance Platform 1 13 With the exception of the components for the National Revenue Authority and the Audit Service, which being funded separately (see para 15). 14 This draws on Peter Brooke (2003), “Study of Measures Used to Address Weaknesses in Public Financial Management Systems in the Context of Policy Based Support, and Emerging Country Practice”. Page 7 20. The lack of credibility of the budget has been identified as the source of multiple weaknesses and addressing this issue has been given the highest and first priority. Strengthening the macro- fiscal framework and budget management within this framework will establish an initial ‘platform’ and allow other reforms, such as those concerned with improved allocation of resources and greater efficiency in resource use, to be more effective. Activities under these succeeding platforms will be phased to build up gradually without detracting top-level management focus and attention to achieving budget credibility. 21. However, the phasing of activities is not dictated solely by their attribution to platforms. The programming over 2009-2013 takes into account the need to complete and consolidate ongoing reforms, and to initiate major reforms that have a long lead time, such as capacity building. Each sub-component outcome will be achieved by a logical sequence of activities and outputs, and all activities/outputs contribute directly or indirectly to the program objective as stated above. 15 Within each sub-component, the sequence of activities will be guided by the platform objectives, so for example priority will be given to the roll-out of the core treasury and purchasing modules of IFMIS to MDAs, as these are critical to support improved budget management, rather than focusing initially on expanding the functionality of the IFMIS. 22. The implementation of the core PFM components will be undertaken in two phases separated by a detailed mid-term review: (i) Phase 1: June 2009 – May 2011, and (ii) Phase 2: June 2011 – May 2013. Annual work plans will ensure that Platform 1 activities will be given priority in the initial phase. A mid-term review will take place at the end of Phase 1, to review progress and to develop and adapt the design of Phase 2 accordingly. 3. Project development objective and key indicators 23. The project development objective (PDO) is to support GoSL in sustainably improving the credibility, control and transparency in fiscal and budget management. The key recipients of the project benefits include many parts of MoFED, Cabinet, NPPA, the Parliamentary Budget and Finance and Public Accounts Committees, and other MDAs. 24. The project will adopt the following key indicators for measuring progress: o Variance between liabilities paid and commitments approved o Variance in expenditure composition for the 20 largest budget heads o Variance in budget deficit (excluding grants) o The share of actual to budgeted spending on HIPC/PRSP priorities compared to the ratio of actual to budget expenditures for all other discretionary primary expenditures o Payment arrears (excluding interest and donor-financed project expenditure) o Number of financial and procurement documents listed in PEFA 10 published through gazette and website. o Timely audited Public Accounts with no material qualifications concerning basic control system failures 15 The sequencing of sub-components and activities incorporates the recommendation of the Quality Enhancement Review, July 2008. Page 8 o Percentage of MDA contracts in compliance with plans/approved revisions For all results, whether at outcome or intermediate outcome level, care has been taken to relate the indicators to the PEFA measure to which they most closely relate. This establishes a link with PEFA without adopting directly the PEFA indicators which at times may have attribution and other issues. 4. Project Components 25. The logic of the platforms together with a desire to cluster a number of the smaller activities which are logically interconnected has informed the design of the Project. This structure should assist in reinforcing the underlying logic of the measures being undertaken as well as reducing the transaction costs of administration; this structure also fits well with the results framework and the underlying logic of the platforms. 26. The four main components of the project are closely aligned to the core PFM components of the GoSL’s Integrated Public Financial Management Reform Program (IPFMRP), 16 and cover macro-fiscal and budgetary management, enhancing the strength of core control systems, building capably finance functions and supporting non-State actors. The fifth project component covers project coordination and administration. Component 1 - Strengthening Macrofiscal Coordination and Budget Management (USD 2.07 million) 27. The key outcomes of this component will include improved budget credibility associated with a more appropriately developed and managed aggregate fiscal position, delivery by the MoFED of predictable funding in accordance with budgets, constrained MDA budgets and control of the in year position contributing to Platform 1 objectives, and improved strategic prioritization contributing to Platform 2 objectives. This component will finance consulting services, vehicles, office equipment, and operating expenses. Sub-component 1.1 – Macrofiscal Management and Budget Formulation (USD 0.98 million) 28. This sub-component will involve the replacement of the overly-complex and detailed multi- year budgeting that exists at present by a simple macro-economic and fiscal framework (MEFF) and a more strategic and participative MTEF/budget process, with a budget calendar that commences earlier in the year with greater cabinet involvement in budget decision-making, and revitalized analytical processes within MoFED involving coordination with other key players, such as the Bank of Sierra Leone. The formulation of the budget on the basis of a robust fiscal framework, with realistic revenue forecasts, is essential to meeting Platform One objectives. Sub-component 1.2. Budget Execution (USD 0.82 million) 16 Op. cit. footnote 7. Page 9 29. A more realistic budget developed in 1.1 above provides the basis for 1.2, which aims for predictable and orderly implementation of the budget as intended. This will involve MoFED providing more predictable allotments to MDAs, and timely payment of obligations, while exercising an increased control over the creation of commitments by MDAs, so as to avoid further build up of arrears.. Activities will include the streamlining and full application of commitment control procedures for all central government expenditures. In addition, a cash management unit in MoFED will be established to work with MDAs to prepare cash flow plans and procurement plan monitoring systems so as to improve the accuracy and completeness of those plans and inform orderly in-year budget adjustment. It will also involve strengthening the functioning of the Budget Committees to improve the management of budget execution in MDAs. These are Platform 1 activities. Sub-component 1.3 Debt Management (USD 0.27 million) 30. This aims to provide the legal, policy and institutional arrangements to enable a sustainable debt strategy to be developed and the debt level to be reduced. This will involve harmonization of the legal framework, adoption of cross-government coordination arrangements on policy and analysis, strengthening of the debt database, development of policy on the criteria and limits for debt and guarantees, and adoption of a timetable to reduce the current stock of domestic debt and expenditure arrears. It will also involve establishment of a system for regular analysis of the fiscal position and contingent risks arising from State Owned Enterprises (SOEs). All these underpin the flow of reliable data on financing flows and debt service and strengthening data on debt for cash management purposes and reducing the stock of arrears are priorities for Platform. Component 2 – Reinforcing Key Aspects of the Control System to Support Improved Service Delivery (USD 3.17 million) 31. The key outcomes of this component include an updated legal framework, robust public procurement practices, tightened payroll controls, strengthened internal audit, improved accounting procedures operating in the MoFED and MDAs, and further publication of PETS contributing to an effective control environment in MDAs. Striving for these internal controls will be reinforced through strengthened scrutiny of public finances by Parliament. More effective internal controls support Platforms 1 and 3 objectives. This component will finance consulting services, vehicles, office equipment, operating expenses, and workshop. Sub-component 2.1. Legal and Regulatory Framework (USD 0.24 million) 32. This sub-component will involve updating of the legal and regulatory framework that was substantially revised through the adoption of the Government Budgeting and Accountability Act 2005, to take account of the changes to procedures that are developed in the other components of the project and that are required through the implementation of IFMIS. It will also involve the finalization and dissemination of local government financial administration regulations, and development of local council accounting manual and budget guidelines. Sub - component 2.2 Public Procurement (USD 1.29 million) Page 10 33. The priority is to build the capacity in MDAs for procurement in accordance with the legal and regulatory framework, and in accordance with procurement plans (this is also covered under sub-component 3.3). In addition, it will require more complete adoption of the transparency and monitoring arrangements by NPPA to ensure that key information on tenders, awards, price surveys etc are provided on a website, and ensure adequate monitoring and regulatory oversight of MDAs. Sub-component 2.3 Accounting, Recording and Reporting (USD 0.21 million) 34. This will involve the further strengthening of accounting and reporting by the Accountant General’s Department (AGD) to maintain the timely preparation and publication of quarterly and annual financial statements. This sub-component includes the process re-engineering and documentation of accounting processes to take account of the changes brought by the Integrated Financial Management Information System (IFMIS), the introduction of stores and asset management systems, and substantial improvement of the management of accounting records so as to ensure a full audit trail. Sub-component 2.4 Payroll Strengthening (USD 0.33 million) 35. This ongoing sub-component from the IRCBP aims to strengthen the budgeting for payroll costs and the functioning of the payroll system, in order to increase the overall control of this critical area of government expenditure. Sub-component 2.5 Other Aspects of Internal Control (USD 0.87 million) 36. This sub-component will provide support to the Internal Audit Department in establishing effective internal audit functions in MDAs as well as MoFED, so as to contribute to the creation of an effective control environment, and support to the Public Expenditure Tracking Survey (PETS) system, a window on the effectiveness of internal control. Sub-component 2.6 Reinforcing Controls through Parliamentary Oversight (USD 0.23 million) 37. This sub-component will support Parliament to exercise increased oversight on the use of public resources, focusing on support to Budget and Finance Committee and Public Accounts Committee. Component 3 – Establishing and Maintaining Sustainable and Capable Central Finance Functions 17 (USD 11.36 million) 38. This component will undertake various cross-cutting activities including all aspects of training and HR capacity development that are required to support the main PFM functions that are being strengthened in the other three components. This component will be undertaken by the Capacity Building Sub-Committee of the PFM Oversight Committee. This component will 17 Central finance functions include the finance functions of MDAs. Page 11 finance consulting services, vehicles, office equipment, operating expenses, IT equipment, training, salaries, and workshops. Sub-component 3.1 Financial Management Information Systems (USD 5.27 million) 39. In the area of systems development, the main activity will be the consolidation and roll-out of the core treasury and purchasing functions of the Integrated Financial Management Information Systems (IFMIS) to the MDAs on the basis of a well-developed IFMIS roll-out plan. Roll-out of the core treasury and purchasing modules are necessary to support Platform 1 objectives. It will also complete the implementation of an accounting software package in the 19 local councils that can provide data in IFMIS classification. Sub-component 3.2 ICT (USD 0.86 million) 40. This sub-component will support the establishment of an effective Information Communication Technology (ICT) function located in MoFED to support systems development and maintenance in MoFED and MDAs. Sub-component 3.3 Organizational Strengthening and PFM Capacity Building (USD 2.23 million) 41. This will focus on the professional training for core PFM staff across government as well as within the MoFED. The outcome will be an increased cadre of trained and trainable PFM staff able to implement and further develop the procedures and systems being introduced. This sub- component supports a majority of the other subcomponents, and therefore contributes to all three platforms. Sub-component 3.4 Phased Exit and Transitional Support for Staff Remuneration (USD 3.0 million) 42. The support includes a phased exit from the DP funding of national contract staff in MoFED, with transitional funding provided for contract staff on a declining basis. This is a critical element of the project contributing to the sustainability of the reforms and the establishment of sustainable HR capacity in the MoFED. Component 4 - Assisting Non-state A ctors’ Scrutiny (USD 1.0 million) 43. This component will assist the development of the analytic and dissemination capacity of non-state actors in exercising scrutiny of the use of public resources, as well as building a constituency for reform of the PFM system across an array of non-state actors. This component will finance consulting services, training, workshops, and grants. Sub-component 4.1 – Provision of Supply Driven Support 44. Under this sub-component a Management Agent will be engaged who will implement a basic capacity development plan to develop the capacity within civil society institutions to carry out Page 12 activities envisaged under 4.2. An Operations Manual specifying rules of access and eligibility criteria for providing grants under 4.2 will also be prepared. Sub-component 4.2 – Grants to non-state actors (NSAs) 45. Under this sub-component grants will be provided to eligible NSAs to carry out monitoring and dissemination activities. Component 5 – Project Coordination and Administration (USD 1.5 million) 46. A project administration unit will be established within the MoFED within the Directorate of PFM Reforms and will be staffed with a Project Manager who will also have monitoring and evaluation responsibilities for the IPFMRP, a Procurement Specialist and a Project Accountant. The tasks of this unit will include administration of grant agreements, management of bank accounts, fiduciary management and monitoring and evaluation. The component will finance consulting services, office equipment, and operating costs. 5. Lessons learned and reflected in the project design 47. The design of the project applies a number of lessons drawn from experience in PFM and public sector management reforms in other countries and the PFM reforms undertaken so far in Sierra Leone. These lessons have been reinforced by the findings of the 2008 Independent Evaluation Group’s Evaluation of the World Bank’s experience in Public Sector Reform. 18 48. Building from the Foundations : A key lesson of public sector management reforms and PFM reforms in low capacity environments such as Sierra Leone has been that an incremental approach, starting with basics (e.g. strengthening credible budget and financial accountability), is more likely to be successful. In addition, experience has shown that a reform program that tries to pursue reforms across a wide front may lead to scarce managerial and financial resources being spread too thinly. In view of the fact that several of the activities are ongoing, the project design draws on the logic of the platform approach to focus attention on priority areas. 49. Government Ownership: Sustainable public sector reforms require strong government ownership. The experience of PFM reforms in Sierra Leone to date has been that externally driven reform initiatives may lead to short term improvements but that these need to be internalized if they are to be sustained. At the same time, expert external advice can help to identify relevant international experience and avoid re-inventing the wheel. The project supports the reform program which has been developed by the GoSL with only limited input from the development community, and which is selective in the use of international technical assistance. 50. Sustainable HR Capacity : The component supporting the phasing of out of DP support to MoFED staff in core positions is based on the lessons drawn from this experience in Sierra Leone over the past several years which has shown that the current situation is unsustainable and 18 Independent Evaluation Group. 2008. Public Sector Reform: What Works and Why? An IEG Evaluation of World Bank Support, Washington, DC: World Bank Page 13 not consistent with the development of sustainable HR capacity in the MoFED (and elsewhere in the GoSL as well). In the first instance, bilateral support will be converted to joint donor support, with the latter then being phased out over time. All staff, including any envisaged increase capacity, in the MoFED should be against approved positions. It also draws from MoFED’s experience to date regarding DP funding of contract staff by undertaking complementary activities to support substantial capacity building for permanent staff, linking the funding to program results, and pooling the funds from different DPs. 51. Support for Non-State Actors : Recent Bank projects supporting PFM reform have sought to stimulate not only the supply of better PFM systems but also the demand for better management of public resources. While still relatively new, several examples regarding challenge funds are emerging which allow innovative approaches to Non-State Actor (NSA) oversight (rather than pre-determined models) to develop. These examples have been very useful references, though it has been important to tailor these to the particular circumstances in Sierra Leone, and to take a phased approach which facilitates involvement of the NSA in the design of the fund. 52. Linkages to Civil Service Reform : PFM reform is central to reconstruction and development in Sierra Leone. Because of their interdependence, the long-term success of PFM reform very much depends on progress in civil service reform. The implementation of PFM reform in Sierra Leone must go hand in hand with advancement in civil service reform and capacity development in a broad public sector reform. The capacity development and sustainable capacity development components have been developed in consultation with the authorities responsible for the broader civil service reform program. 53. DP Coordination : A further lesson arises from the generally un-coordinated support for PFM provided by the DPs. This has required separate management and monitoring by the government and increased transactions costs and has led to gaps in support. As a consequence, the GoSL has requested and the DPs have agreed that support for core components of IPFMRP will be delivered through a joint support mechanism. The IRCBP provides an example of successful DP coordination in respect of the decentralization program. 6. Alternatives considered and reasons for rejection 54. The approach focused on providing joint donor support to a coherent PFM reform program developed and owned by the GoSL. The possibility of combining the support to PFM reform with other aspects of public sector reform, namely decentralization and civil service reform or with the Decentralized Service Delivery Program (“Basic Services”) currently under preparation were considered. The option of going with a stand alone project was chosen to better align with the GoSL’s comprehensive PFM reform program, and for the support to be more fully integrated into the MoFED than had been the case under previous PFM support through IRCBP. The earlier experience under IRCBP in which a component was added on to a decentralization project indicated that PFM needs the focused attention of the MoFED. In addition, the earlier start of the current project will meet some of the needs of the Basic Services project, in particular improving predictability of funding of decentralized services. The separation has also allowed for a focused project development objective. Page 14 55. Pooling of DP support is to be achieved through an IDA-administered Multi-Donor Trust Fund. The alternative of creating a “basket” fund for directly pooling the DP support was considered and dropped for the following reasons: (i) it would have take the DPs (in particular the EC 19 ) quite long to complete the required fiduciary assessments and this would have made it difficult to synchronize the DP support; and (ii) with the EC and DFID pooling through an IDA- administered MDTF, the government will face one set of disbursement, FM, procurement and reporting requirements. III. IMPLEMENTATION 1. Partnership arrangements 56. The project is jointly funded by the World Bank DFID and the EC. Based on the DPs’ strong commitment to maximize project impact and donor harmonization, a pooled funding mechanism has been agreed. DFID and EC resources will be pooled through an IDA-administered MDTF and these resources will be further pooled with IDA resources to finance the project 20 . Thus, all partners will support all aspects of the project and the GoSL will face one set of disbursement, reporting, FM and procurement requirements. With this objective, project preparation has been undertaken jointly. This arrangement responds to the strong direction provided by the MoFED on the need for the current fragmented support arrangements to be replaced with joint DP support, in order to provide comprehensive support to the IPFMRP, to reduce transactions costs for the GoSL, to avoid DP-driven priority setting and direction,. and allow joint reporting, monitoring and fiduciary arrangements. 57. The project activities will be supported by an IDA Grant of USD 4 million and an estimated USD 17.0 million contribution from DFID and EC 21 . EC and DFID resources will be provided through a Multi-donor Trust Fund (MDTF) administered by IDA. The project will be co- financed by IDA and the MDTF through a single pooled Designated Account. The ADB will use prior actions and triggers in its upcoming budget support to complement this project and to support the achievement of its objectives. 2. Institutional and implementation arrangements 58. This jointly funded project falls within the comprehensive set of reforms described in the IPFMRP. The oversight and monitoring of reforms will be undertaken by the PFM Oversight Committee which is chaired by the Financial Secretary (FS), and includes members from stakeholders across GoSL and the DPs. The PFM Oversight Committee will meet quarterly, or more frequently if required. 19 Stringent criteria must be met for EC project funds to be managed by the government. An alternative may be for the EC to provide their contribution through sector budget support, with agreement that the GoSL transfer the funds into the pool. 20 The agreed arrangement makes it possible for other partners to join the pool at a later stage if needed. TF Management fees will be charged as per IDA/World Bank rules. 21 This estimate is based on a commitment of GBP 5 million from DFID and Euro 8 million from EC and current exchange rates. Page 15 59. Within the MoFED the FS has been a driving force for reform. To sustain and accelerate the reform effort under this project, a Director for PFM Reforms will be appointed within the MoFED structure with responsibility for developing and implementing the PFM reform agenda and for advising the FS on PFM reform issues. The Director will also be responsible for coordinating across the components and overseeing daily project operations. The Director will be supported by staff that will be drawn from the Public Financial Management Reform Unit (PFMRU) which is currently being supported by the IRCBP and is to be fully or partially integrated into the MoFED from April 1, 2009. For project administration the Director will be supported by an appropriately staffed Project Administration Unit (PAU). 60. The PFM Oversight sub-committees (chaired by key staff in MoFED ) will be responsible for the implementation of relevant sub-components and their activities will be coordinated by Director for PFM Reforms. For each sub-component, a lead person will be assigned from among the MoFED management or the relevant implementing agency. 3. Monitoring and evaluation of outcomes/results 61. The GoSL has adopted the PEFA framework for the overall monitoring of PFM performance. The independent 2007 PEFA assessment was preceded by the GoSL self-assessment, which will be updated on a regular basis. It is expected that the independent PEFA assessment is to be repeated every two years. The PEFA indicators will guide the development of a common framework of objectives, indicators and targets to phase and monitor the IPFMRP. Consistency with the PFM dimensions of Multi-Donor Budget Support will be a key consideration. Furthermore, the IPFMRP includes monitoring and evaluation activities to strengthen the MoFED’s capacity to track and monitor impact of spending, including through regular Public Expenditure Tracking Surveys. IV. SUSTAINABILITY 62. Sustainability is a key concern in the design and implementation of this project. Achieving a balance between delivering results and creating sustainable capacity is particularly challenging in a low capacity post-conflict environment such as that in Sierra Leone. The improvements in PFM which have been achieved in the period since the conflict ended were in part supported by the funding of professionally-qualified Sierra Leoneans (“Local Technical Assistance” or “LTAs”) on contracts in key positions in MoFED by different development partners through different projects/instruments. This project supports an exit strategy which aims to gradually reduce the dependence of funding from DPs for these contract staff while maintaining and advancing the gains to date. The project includes substantial capacity building for new and current permanent PFM staff in MoFED and MDAs, directing the funding to program results, delinking individual contracts from individual DPs, and a declining value of support during the life of the project. This has been designed within the broader civil service reform and is a pilot bridging arrangement while those reforms are implemented. Page 16 V. SAFEGUARD POLICIES Safeguard Policies Triggered by the Project Yes No Environmental Assessment ( OP / BP 4.01) [ ] [X] Natural Habitats ( OP / BP 4.04) [ ] [X] Pest Management ( OP 4.09 ) [ ] [X] Physical Cultural Resources ( OP/BP 4.11 ) [ ] [X] Involuntary Resettlement ( OP / BP 4.12) [ ] [X] Indigenous Peoples ( OP / BP 4.10) [ ] [X] Forests ( OP / BP 4.36) [ ] [X] Safety of Dams ( OP / BP 4.37) [ ] [X] Projects in Disputed Areas ( OP / BP 7.60) * [ ] [X] Projects on International Waterways ( OP / BP 7.50) [ ] [X] VI. LIST OF FACTUAL TECHNICAL DOCUMENTS ADE in association with HELM Corporation Ltd. 2008. Budget Management and Budget Execution Expert . Draft Final Report. August 12, 2008. Crown Agents. 2008. A Comprehensive In-Service & Skills Development for the IPFMRP . Draft Report. GHK in association with Positive Change HR Consultancy Services. 2008. Design of an Exit Strategy and Arrangements for Transitional DP Support for Remuneration of Contract PFM Staff . Draft Report. Government of the Republic of Sierra Leone. 2008. Poverty Reduction Strategy 2008 – 2012: An Agenda for Economic and Social Empowerment. Independent Evaluation Group. 2008. Public Sector Reform: What Works and Why? An IEG Evaluation of World Bank Support, Washington, DC: World Bank Last, Duncan, Lynne McKenzie, Roberto Tibana, and Camille Karamaga. 2008. Implementing Public Financial Management Reforms. IMF Fiscal Affairs Department Technical Assistance Mission Report. March 2008. Washington, DC: IMF Ministry of Finance and Economic Development. 2008. An Integrated Public Financial Management Reform Programme (IPFMRP) . Government of the Republic of Sierra Leone. Public Expenditure and Financial Accountability (PEFA) Program. 2008. The Republic of Sierra Leone: Public Financial Management Performance Assessment Report . December 2007 (Published May 2008). Washington, DC: World Bank * By supporting the proposed project, the Bank does not intend to prejudice the final determination of the parties' claims on the disputed areas Page 17 Robinson, James A. 2008. Governance and Political Economy Constraints to World Bank CAS Priorities in Sierra Leone . A Draft Working Paper. World Bank. 2008. Sierra Leone: Second Government Reform and Growth Credit Project . Program Document. Report No. 45097-SL. Washington, DC: World Bank World Bank. 2005. Country Assistance Strategy for the Republic of Sierra Leone for the Period of FY2006-2009 . Report No. 31793-SL. Washington, DC: World Bank World Bank. 2002. The Republic of Sierra Leone: Country Financial Accountability Assessment (CFAA) . An Assessment of the Central Government. Final Report. March 30, 2002. Washington, DC: World Bank VII. FINANCING Financing Plan (US$m) Source Local Foreign 22 Total BORROWER/RECIPIENT 0.00 0.00 0.00 International Development Association (IDA) 0.00 4.00 4.00 UK: British Department for International Development (DFID) 0.00 7.50 7.50 EC: European Commission 0.00 10.70 10.70 Total: 0.00 22.20 22.20 VIII. CONTACT POINT Contact: Vivek Srivastava Title: Senior Public Sector Specialist Tel: (202) 458-4290 Fax: (202) 473-8368 Email: vsrivastava@worldbank.org 22 The DFID and EC contributions have been estimated at current exchange rates less ad hoc estimates of TF administration fees (under negotiation). To hedge against exchange rate risks, actual amount that can be committed in the grant agreement will be less than US$22.2 million. Page 18 IX. FOR MORE INFORMATION CONTACT: The InfoShop The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 458-4500 Fax: (202) 522-1500 Email: pic@worldbank.org Web: http://www.worldbank.org/infoshop