The World Bank ENHANCING SHARED PROSPERITY THROUGH EQUITABLE SERVICES (ESPES) Second Additional Financing (P176354) Program Information Documents (PID) Appraisal Stage | Date Prepared/Updated: 03-Apr-2021 | Report No: PIDA244192 Apr 01, 2021 Page 1 of 9 The World Bank ENHANCING SHARED PROSPERITY THROUGH EQUITABLE SERVICES (ESPES) Second Additional Financing (P176354) BASIC INFORMATION OPS_TABLE_BASIC_DATA A. Basic Program Data Country Project ID Program Name Parent Project ID (if any) Ethiopia P176354 ENHANCING SHARED P151432 PROSPERITY THROUGH EQUITABLE SERVICES (ESPES) Second Additional Financing Region Estimated Appraisal Date Estimated Board Date Practice Area (Lead) AFRICA EAST 15-Apr-2021 28-May-2021 Social Protection & Jobs Financing Instrument Borrower(s) Implementing Agency Program-for-Results Financing FEDERAL DEMOCRATIC Ministry of Finance and Economic Cooperation REPUBLIC OF ETHIOPIA (Channel One Coordination Directorate) Program Development Objective(s) The objective of ESPES program is to improve equitable access to basic services and strengthen accountability systems at the decentralized level. The program aims to improve service delivery for the whole population of Ethiopia by improving results in health, education and agriculture services in the most poorly performing woredas and strengthening the overall decentralized service delivery system. Building on almost 10 years of support for basic services delivery, the ESPES focuses on leveraging the government’s broadprogram of service delivery support to promote equity, enhance quality of and access to services, and institutionalize critical systems for service delivery, especially at the woreda level. COST & FINANCING SUMMARY (USD Millions) Government program Cost 3,850.80 Total Operation Cost 3,850.80 Total Program Cost 3,850.80 Total Financing 3,552.60 Financing Gap 298.20 FINANCING (USD Millions) Apr 01, 2021 Page 2 of 9 The World Bank ENHANCING SHARED PROSPERITY THROUGH EQUITABLE SERVICES (ESPES) Second Additional Financing (P176354) Total World Bank Group Financing 250.00 World Bank Lending 250.00 Total Government Contribution 3,290.80 Total Non-World Bank Group and Non-Client Government Financing 11.80 Multilateral and Bilateral Financing (Concessional) 11.80 B. Introduction and Context Country Context 1. Ethiopia has made significant investment in pro-poor sectors this has helped it expand the provision decentralized basic services (education, health, agriculture, WaSH, and rural roads) to advance human development. It has reduced child mortality, increased net enrollment rates (NERs) and the share of the rural population with access to clean water. Between 1990 and 2017, Ethiopian life expectancy at birth increased by 18.8 years, mean years of schooling increased by 1.2 years and expected years of schooling increased by 5.4 years. Between 2000 and 2017, Ethiopia’s Human Development Index value also increased from 0.283 to 0.463, an increase of 63.5% (UNDP, 2018). Coupled with improved accountability systems, increased access to public services has been a key driver behind improved human development outcomes and reduced poverty in the country. 2. The expansion of basic services was made possible through the Government’s continued commitment to financing basic services primarily through the Federal government’s block grant subsidy (aka General -Purpose Grant) to regions and woredas. This is complemented by the Government’s additional MDG/SDG Fund for capital expenditures in pro-poor sectors (education, health, agriculture, water and rural roads) and through the sectoral investments of the Government and sector specific programs financed by development partners. Large-scale public investments in health and education have both increased countrywide economic growth and improved the welfare of the poor. A Poverty and Social Impact Assessment (PSIA) for the PBS project (the predecessor to the ESPES PforR) found that Woreda-level spending was more effective in reaching the bottom 40 percent than national spending. 3. Despite these efforts, Ethiopia’s Human Development (HD) outcomes remain low. The World Bank (2018) Human Capital Index (HCI) measured that expected productivity of a child born in Ethiopia today as a future worker is only 38% of what it could be with full health and complete education. Ethiopia’s HCI is lower than the average for its region. The 2020 Ethiopia Poverty Assessment found that while the national poverty rate has declined, Less than 20% of children from very poor households finish primary school and less than 25% receive all basic vaccination indicating that children from poor households and children in rural areas have far worse access to key Apr 01, 2021 Page 3 of 9 The World Bank ENHANCING SHARED PROSPERITY THROUGH EQUITABLE SERVICES (ESPES) Second Additional Financing (P176354) services like education and clean water and are at risk of being left behind. If left unaddressed, this can be expected to drive up economic inequality sharply in the coming decades, negatively affecting inclusive growth. Sectoral and Institutional Context 4. Ethiopia’s decentralized administrative structure involves regions, zones, and woredas (districts), and the constitutional and legal framework commits the Government to maintaining the integrity and capacity of decentralized administration down to the woredas. As per the existing revenue and expenditure assignments, the revenue powers devolved to lower governmental tiers are not commensurate with their expenditure responsibilities. Specifically, sub-national governmental taxes and revenues account for about 29.9 percent of general taxes and revenues, but sub-national expenditures amount to 54.4 percent of general government expenditures. Consequently, sub-national governments are reliant on grants from the federal government, including the GPG, to meet their expenditure responsibilities. 5. All woredas in the country rely on these transfers to deliver basic services, defined as education, agriculture, health, water and sanitation and rural roads. This administrative and financial structure has supported a steady and impressive increase in basic services throughout the country. The federal government uses an allocation formula approved by the House of Federation to distribute GPG to regions, which regions then allocate to woredas also based on agreed formulae. Federal transfers to regions through the GPG have increased dramatically in recent years, from US$3.1 billion in FY15 to US$4.6 billion in FY20. All regions except the Addis Ababa city administration receive GPG allocations, which support the functioning of more than 1,000 woredas. In total, therefore, the GPG benefits an estimated 97 million people across Ethiopia. Roughly 80 percent of the GPG is consumed by salaries paid to service delivery staff, including teachers, agriculture extension workers and health extension workers (HEWs). Given the progressive nature of this spending, the basic services are considered the “pro-poor� sectors by Ministry of Finance (MoF). 6. Extensive research of this World Bank support for the Government’s decentralized service delivery agenda shows the investment is efficient, cost effective and equitable. The 2nd Additional Financing of ESPES is built on the success of the first additional financing, the original project, and the preceding Protecting Basic Services (PBS) Investment Project Financing series. A Poverty and Social Impact Analysis (PSIA) found that, for education, an increase of US$1 per capita in spending by each woreda is associated with a 3.7 percent increase in the net primary enrollment rate within that woreda1. Every additional US$1 of per capita spending by the woredas on health is associated with a 7.5 percent increase in the contraceptive prevalence rate and a 12.4 percent increase in deliveries by skilled birth attendants (two interventions that can reduce maternal mortality dramatically), as well as a 4 percent increase in antenatal care (which can reduce infant and child mortality significantly). And, for every additional US$1 per capita spent, the probability that a field in a given zone will benefit from extension services increases by about 0.2 percent. The PSIA assessed equity at two levels and found that: the relative distribution of spending on woreda-level services is pro-poor, and the geographical distribution of resources by poverty level of the region/woreda favors poorer regions. 7. A recent analysis2 by Faguet et al (2020) implies that decentralization is improving performance in 1 Khan, Q., Faguet, J-P., Gaukler, C., and Mekasha, W. “Improving Basic Services for the Bottom Forty Percent�, World Bank. 2014. 2 Jean-Paul Faguet, Qaiser Khan, and Devarakonda Priyanka Kanth (2020) Decentralization’s Effects on Education and Health: Evidence from Ethiopia. Apr 01, 2021 Page 4 of 9 The World Bank ENHANCING SHARED PROSPERITY THROUGH EQUITABLE SERVICES (ESPES) Second Additional Financing (P176354) Ethiopia’s public education and health sectors, specifically by raising enrollment rates in schools and increasing provision of antenatal care to pregnant women. Evidence for this comes from regional-level panel estimates, as well as national-level time-series regressions. Health and education outcomes improve as total resource expenditures increase, as one would expect. But there is a separate effect of decentralization on NER and ANC that arguably dominates the pure expenditure effect. The magnitudes are significant: the incremental effect of decentralizing health and education service provision to the mean woreda is an estimated 12.6 percent for ANC and 18 percent for NER. The main channel for these improvements appears to be institutional, related to local control over education and health services, as opposed to local expenditures per se. ESPES has supported this institutional capacity to improve outcomes in human capital, expand access to basic services, strengthen of front- line staff and build fiduciary, governance, accountability and environmental and social management systems. 8. The decentralization of service delivery is also evidenced as cost effective. A 2015 Value for Money Assessment estimated a benefit cost ratio for PBS of 1.43 and an internal rate of return of 23.1 percent3. The PSIA found that, for education, an increase of US$1 per capita in spending by each woreda is associated with a 3.7 percent increase in the net primary enrollment rate within that woreda. Every additional US$1 of per capita spending by the woredas on health is associated with a 7.5 percent increase in the contraceptive prevalence rate and a 12.4 percent increase in deliveries by skilled birth attendants (two interventions that can reduce maternal mortality dramatically), as well as a 4 percent increase in antenatal care (which can reduce infant and child mortality significantly). 9. However, this system is threatened by various challenges including financial constraints resulting from COVID-19. Poor quality of services, inequitable access, demand side barriers, limited/poor capacities at decentralized levels, lack of cross-sectoral collaboration, recurring droughts and more recently conflict and violence, and the COVID pandemic are among the factors generally known to affect HD outcomes in Ethiopia. The process of decentralization and positive outcomes resulting from it are still nascent and require continued reform and investment to ensure these gains are not lost. Reduction in revenues results from the pandemic, among other factors, could negatively impact the hard-won gains of these reforms to date. 10. In the face of these numerous challenges, the Government has requested donor support to complement its own efforts to prevent gaps in the provision of the basic services financed through the GPG. Following the onset of the pandemic and contrary to recent trends, the Government per capita allocation to the GPG increased in FY21, from 1,418 ETB in the previous year to 1,712 ETB. Moreover, the Government has shown commitment to basic service financing in the medium term with the GPG forecasted to increase on average by over 15 percent in the Macroeconomic and Fiscal Framework (MEFF). These actions signal the Government’s recognition of the importance of protecting the pro-poor basic services, and the human capital that they foster, in the face of the COVID-19 and other national shocks. In response to this request and based on the context outlined above, the ESPES 2nd AF will help maintain the GPG despite the fiscal constraints and building on the strong track record of the GPG’s pro-poor outcomes and cost-effectiveness in delivering these outcomes. Its design, as outlined below, will ensure that this influx of support to the GPG will continue demonstrable impacts for the lives of the poor and vulnerable now and introduce reforms to engender longer-term positive outcomes to build back better. 3 DfID/ITAD. “Value for Money Assessment of the Promotion of Basic Services (PBS) Programme, February 2015 Apr 01, 2021 Page 5 of 9 The World Bank ENHANCING SHARED PROSPERITY THROUGH EQUITABLE SERVICES (ESPES) Second Additional Financing (P176354) PforR Program Scope 11. The Government Program, the decentralized woreda GPG, remains unchanged and the ESPES 2nd AF will increase the IDA allocation within the existing Program Boundary, adjusted for recent and forecasted woreda block grant transfers. From FY2015 to FY2020, during the ESPES Program, the total woreda recurrent expenditure on basic services amounted US$10.4 billion. Of this, World Bank disbursement through the parent Program and 1st AF accounted for US$1.13 billion. Domestic investment will account for 82 percent of the GPG budget. IDA investment, including ESPES, this 2nd AF and other operations that contribute to the GPG, represents roughly 10 percent of the total GPG budget. Other donor partner investments in the GPG make up roughly 8 percent of its budget. By pooling funding with domestic resources, ESPES and the other World Bank and donor investments in the GPG contribute to the Government Program and help incentivize key reforms in the pro-poor sectors with widespread, national impacts. C. Program Development Objective(s) Program Development Objective(s) The objective of ESPES program is to improve equitable access to basic services and strengthen accountability systems at the decentralized level. The program aims to improve service delivery for the whole population of Ethiopia by improving results in health, education and agriculture services in the most poorly performing woredas and strengthening the overall decentralized service delivery system. Building on almost 10 years of support for basic services delivery, the ESPES focuses on leveraging the government’s broadprogram of service delivery support to promote equity, enhance quality of and access to services, and institutionalize critical systems for service delivery, especially at the woreda level. 12. Three new PDO indicators are introduced to reflect new priorities and opportunities in the delivery of basic services since the program’s original design. In terms of new priorities, two new indicators are added to measure, first, continuing education for adults and, second, improved functionality of water schemes. The pandemic has heightened the need for support to people to find good jobs, particularly informal sector workers. It has also heightened attention to the provision of water and sanitation for overall health and well-being. In terms of opportunities, national policies on citizen engagement has opened significantly and the Government has become more proactive in its work with civil society. The new indicators are as follows. • Increased number of adults participated in the adult non-formal education program – disaggregated by regions • Reduced number of non-functioning water supply schemes – disaggregated by regions • Increased number of woredas where local governments facilitate Social Accountability D. Environmental and Social Effects 13. An Incremental ESSA for the ESPES 2nd AF was carried out to ensure that environmental and social issues and risks are addressed in line with the Bank’s Operational Policy/Bank Procedure (OP/BP) 9.00, Program for Results Financing. The Incremental ESSA reviewed progress since the first Incremental ESSA and: (a) identified any changes or updates to the systems in place for environmental and social management against the Core Principles of OP/BP 9.00; (b) Apr 01, 2021 Page 6 of 9 The World Bank ENHANCING SHARED PROSPERITY THROUGH EQUITABLE SERVICES (ESPES) Second Additional Financing (P176354) assessed the capacity to operate the systems and systems performance; and (c) suggested actions for any necessary improvements to bring the operation of the system to the standard required to meet the Core Principles to be included in the Program Action Plan. After the preparation of the first Incremental ESSA in 2017, some of the major updates with regard to environmental and social management policies and legal frameworks include: Proclamation No. 1097/2018 regarding Labor Safety and Health Protection, Vulnerable and Disadvantaged Groups, Gender and Gender Based Violence; Sustainable Development Goals (SDGs); the Ten-Years Development Plan; Ten-Years Agricultural Plan and Land Acquisition. 14. In Ethiopia, environmental and social management and assessment institutions and legal frameworks are largely in place. However, inadequate human resources in environmental and social safeguards in the regular programs of some of the organizations, such as MOE and MOA, were observed. In addition, frequent turnover of technical staff is still a challenge. Coupled with this, the inadequate coordination and integration between basic service sectors and oversight bodies continues to limit progress and has remained to be a challenge for effective implementation of environmental and social management systems. In general, in relation to the practical implementation of environmental and social management systems (ESMS), the following were observed: Vertical coordination between the federal and regional oversight bodies has improved, they now meet annually to prepare joint plans and bi-annually to review implementation; all basic sectors with development projects have assigned safeguards experts for their respective projects; and in some federal ministries, directorate responsible for safeguard issues were established, for example, in the MOA, a directorate of Environment and Climate Change Coordination. 15. Despite the positive developments in, there are still areas that require further improvements . The enforcement and application of the policies and proclamations should be strengthened by developing or preparing appropriate enforcement laws, regulations and directives; EFCCC, MOLSA and MOWCY should strengthen collaboration on environmental and social management and assessment; there is need for a Capacity Building Plan for improved environmental and social management in the basic sectors in a participatory manner involving all stakeholders. the Plan should be informed by the ESIA capacity assessment and the ESMS OM; there is need for strengthening vertical and horizontal linkages between environmental and social oversight institutions and basic sectors; and the establishment and strengthening of information, communication and data management system is necessary. 16. Overall environmental and social risk is rated Substantial. The risk mitigation measures under the 2nd AF include: (i) DLR which focuses on the functionality of the ESMS at local level and (ii) specific PAPs to address the challenges in the ESMS performance. E. Financing Sources Amount % of Total (USD Million) Counterpart Funding 3,290.80 92.63 Borrower/Recipient 3,290.80 92.63 International Development Association (IDA) 250.00 7.04 IDA Credit 250.00 7.04 Cofinancing - Other Sources (IFIs, Bilaterals, Foundations) 11.80 0.33 Apr 01, 2021 Page 7 of 9 The World Bank ENHANCING SHARED PROSPERITY THROUGH EQUITABLE SERVICES (ESPES) Second Additional Financing (P176354) ITALY: Dev. Coop. Department (MOFA) 11.80 0.33 Total Program Financing 3552.60 17. Other donors’ contribution through the block grant comprise EU's parallel health budget support of US$217.2m for 2021 and 2022, 50 percent of AfDB's parallel COVID response budget support of US$160m for 2021, Austria's additional financing through ESPES MDTF of US$1.042 million for 2021 and Italian Development Cooperation’s potential MDTF financing of US$ 11.8 million for ESPES 2nd AF for 2021 and 2022. . CONTACT POINT World Bank Name : Emily Weedon Chapman Designation : Senior Social Protection Economist Role : Team Leader(ADM Responsible) Telephone No : 5358+6085 / Email : eweedon@worldbank.org Name : Belay Addise Cheffik Designation : Senior Social Protection Specialist Role : Team Leader Telephone No : 5358+6026 / Email : baddise@worldbank.org Name : Yoseph Abdissa Deressa Designation : Senior Social Protection Specialist Role : Team Leader Telephone No : 5358+6122 / Email : yabdissa@worldbank.org Borrower/Client/Recipient FEDERAL DEMOCRATIC REPUBLIC OF Borrower : ETHIOPIA Contact : H.E. Ahmed Shide Title : Minister Telephone No : 251111552014 Email : Ashide@mofed.gov.et Implementing Agencies Apr 01, 2021 Page 8 of 9 The World Bank ENHANCING SHARED PROSPERITY THROUGH EQUITABLE SERVICES (ESPES) Second Additional Financing (P176354) Ministry of Finance and Economic Implementing Cooperation (Channel One Agency : Coordination Directorate) Director, International Financial Contact : Abebe Tadesse Title : Institutions Department Telephone No : 251-111-13227 Email : abebe@ymail.com FOR MORE INFORMATION CONTACT The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 473-1000 Web: http://www.worldbank.org/projects Apr 01, 2021 Page 9 of 9