The World Bank Liberia Second Inclusive Growth Development Policy Operation (P175570) Program Information Document (PID) Concept Stage | Date Prepared/Updated: 25-Jan-2021| Report No: PIDC30891 Page 1 of 7 The World Bank Liberia Second Inclusive Growth Development Policy Operation (P175570) BASIC INFORMATION A. Basic Project Data OPS TABLE Country Project ID Project Name Parent Project ID (if any) Liberia P175570 Liberia Second Inclusive P168218 Growth Development Policy Operation (P175570) Region Estimated Board Date Practice Area (Lead) Financing Instrument AFRICA WEST May 06, 2021 Macroeconomics, Trade Development Policy and Investment Financing Borrower(s) Implementing Agency Ministry of Finance and SOE Financial Reporting & Coordination Unit Development Planning Proposed Development Objective(s) The program development objectives of these series are: 1) removing distortions in selected sectors and strengthening public-sector transparency; and 2) promoting economic and social inclusion. Financing (in US$, Millions) FIN_SUMM_PUB_TBL SUMMARY Total Financing 40.00 DETAILS -NewFin3 Total World Bank Group Financing 40.00 World Bank Lending 40.00 Decision The review did authorize the preparation to continue B. Introduction and Context Country Context Liberia’s economic performance has been weak since the Ebola outbreak in 2014, well before the COVID-19 pandemic. This slump followed an earlier decade of solid economic growth, over the 2004-2013 period, when Liberia’s GDP, after contracting for a quarter century, grew at an average annual rate of 7.4 percent, as the country reaped the peace Page 2 of 7 The World Bank Liberia Second Inclusive Growth Development Policy Operation (P175570) dividend1 in the context of a favorable global external environment marked by high commodity prices (rubber, iron ore) and strong financial and technical support from international community. However, since 2014, the country has been buffeted by successive exogenous shocks (the Ebola Virus outbreak, the collapse of iron ore and rubber prices, and the economic impact of the drawdown of United Nations peacekeeping forces) that resulted in economic stagnation during 2014-2019. With the COVID-19 pandemic, the economy weakened further with a contraction by 3 percent in 2020, largely driven by supply disruption due to the general lockdown, tight macroeconomic policies, and falling global demand for Liberia’s main exports. The weak economic performance has reversed the declining trend in poverty reduction. With the rapid growth in the first decade after the civil war, the poverty rate2 declined from 68.6 percent in 2007 to 38.6 percent in 2014. However, with the economic stagnation from 2014 to 2019, followed by the contraction in 2020, per capita GDP has declined by more than 20 percent cumulatively since 2014, causing the poverty rate to rise to 52.2 percent by 20203, erasing nearly half of the earlier gains. Non-monetary poverty indicators, including access to healthcare, education, and basic utilities, remain low by regional and international standards, with especially acute rural/urban and gender disparities driven by unequal access to productive assets, infrastructure and public services, and also to markets for both goods and labor. The COVID-19 pandemic has only worsened these negative trends. According to the High Frequency Phone Monitoring Survey’s report launched in August 2020, two out of three households were in dire food situation, three out of four households reported job losses, and two out of three households reported income losses because of the pandemic. Relationship to CPF The IGDPO series is fully aligned with the World Bank’s Liberia CPF for FY19-24. The CPF’s overarching goal is to support Liberia as it strives to achieve pro-poor, private-sector-led growth underpinned by human-capital development, institutional capacity-building, infrastructure development, and economic diversification. The CPF also seeks to support Liberia to effectively address key drivers of fragility and conflict, such as weak governance, inadequate economic and social inclusion, the breakdown of social cohesion, youth unemployment, gender inequality, and regional disparities. The three pillars of the CPF are: (i) strengthening institutions and creating an enabling environment for inclusive and sustainable growth; (ii) building human capital to seize new economic opportunities; and (iii) narrowing the infrastructure gap to foster more equitable nationwide development. Other World Bank Group operations targeting agriculture (STARP, P160945), land rights (Liberia Land Administration Project, P162893), energy (LACEEP P133445, LESSAP P173416, and CLSG P113266), trade, financial inclusion and the digital economy (MSME & Rural Finance post Ebola Reconstruction P157797), social protection (LSSN P155293), macro-fiscal management, and good governance (PFMIS, P172654) are linked to the proposed series and will provide valuable technical assistance and other forms of complementary support. C. Proposed Development Objective(s) The program development objectives of these series are: 1) removing distortions in selected sectors and strengthening public-sector transparency; and 2) promoting economic and social inclusion. To achieve these objectives, the proposed operation focuses on two strategic pillars and seven policy areas. The choice of pillars and policy areas reflects a combination of factors, including poverty-reduction potential, available analytical evidence to underpin reforms, current World Bank engagement (including complementarity with other World Bank projects), coordination with the IMF and other development partners, and the government’s expressed priorities and reform momentum. 1 Liberia’s second civil war ended in 2003 with the Accra Comprehensive Peace Agreement. 2 Liberia’s poverty rate is measured as percentage of population below the international poverty line of US$1.9/ day in 2011 purchasing-power-parity (PPP) terms. 3 https://www.worldbank.org/en/publication/macro-poverty-outlook/mpo_ssa p251 Page 3 of 7 The World Bank Liberia Second Inclusive Growth Development Policy Operation (P175570) Key Results The key results for this operation are to enhance inclusive growth. Policy areas supported under pillar 1 include agriculture, energy, trade, tax incentives, SOEs oversight and debt transparency. The policy and institutional reforms supported under this pillar will contribute to improving agricultural productivity, facilitate access to affordable and reliable electricity, reduce trade costs to thereby supporting private investment and service delivery. Establishing the proper legal and institutional framework for rationalizing and managing tax expenditures will increase transparency and reduce corruption and rent-seeking. Strengthening SOEs oversight and improving debt transparency will help Liberia to sustainably finance its development and promote prudent debt management. Policy areas supported under pillar 2 focus on institutional reforms in key areas as financial inclusion and social safety nets (SSNs). Strengthening the regulatory framework for financial inclusion, including for digital finance, will improve access to formal financial services among excluded and underserved groups, particularly women, facilitating economic participation, asset accumulation, and inclusive growth. Reforms that increase the efficiency and financial accountability of SSN programs will be necessary to create a sustainable SSN system and maximize its impact on poverty alleviation. D. Concept Description The program development objectives of the IGDPO series are: (i) removing distortions in selected sectors and strengthening public-sector transparency; and (ii) promoting economic and social inclusion. To achieve these objectives, the proposed operation focuses on two strategic pillars and seven policy areas. The choice of pillars and policy areas reflects a combination of factors, including poverty-reduction potential, available analytical evidence to underpin reforms, current World Bank engagement (including complementarity with other World Bank projects), coordination with the IMF and other development partners, and the government’s expressed priorities and own reform momentum. Pillar 1 of the programmatic series focuses on removing distortions in selected sectors and strengthening public-sector transparency to support inclusive growth. Policy areas supported under this pillar include agriculture, energy, trade, tax incentives, SOEs oversight and debt transparency. In agriculture, productivity growth is constrained by very low rates of access to improved seeds and other agricultural inputs, as weak incentives undermine the private sector’s participation in inputs market. Climate risks (especially higher temperatures and increased flooding) will also require the adoption of climate-resilient seeds and the dissemination of adaptive production processes. In energy, a costly and unreliable electricity supply inhibits private investment and growth, particularly in light manufacturing and agro-processing. Strengthening energy affordability and the financial viability of the energy sector will be essential to sustainably expand access as well as mitigate the threat that climate change poses to hydropower production (lower water levels, higher costs). With regard to trade, reducing trade costs can help increase export competitiveness outside the natural-resource sector and encourage investment in areas where Liberia has an underexploited comparative advantage and with a high poverty impact (e.g., agriculture and agro-processing). Streamlining tax incentives will reduce rent-seeking behavior and leakages and provide a level playing field for private investments. Finally, strengthening the oversight of state-owned enterprises (SOEs) and improving debt management and transparency would contribute to better governance and responsible borrowing. Together, these reforms can help improve productivity and economic diversification, improve transparency and efficiency of public sector, and expand employment opportunities and incomes for the poor. Pillar 2 of the programmatic series supports measures to promote economic and social inclusion. Reforms in this area are aligned with the government’s objectives for improving public service delivery, especially to the poorest households. Policy actions supported under this pillar focus on institutional reforms in key areas such as financial inclusion and social safety nets (SSN). Strengthening the regulatory framework for financial inclusion, including for digital finance, will improve access to formal financial services among excluded and underserved groups, particularly women, facilitating economic participation, asset accumulation, and inclusive growth. Reforms that increase the efficiency and financial Page 4 of 7 The World Bank Liberia Second Inclusive Growth Development Policy Operation (P175570) accountability of SSN programs will be necessary to create a sustainable SSN system and maximize its impact on poverty alleviation. The SSN programs can help low-income households cope with climate-related shocks, especially those caused by extreme weather events. The design of the IGDPO series integrates lessons learned from previous DPOs.4 The IGDPO is grounded in strong national ownership and supports reforms that enjoy broad political consensus as reflected in the PAPD. It is selective and takes into account the government’s limited institutional capacity, while providing technical assistance to ensure the sustainability of legal and regulatory reforms. The sequencing of prior actions is designed to facilitate incremental progress, with each supported measure laying the groundwork for subsequent actions. The first operation focuses on measures to strengthen the legal framework, while later operations concentrate on supportive regulatory provisions to support implementation. While several prior actions for the IGDPO-1 involve legislative action, they mostly support the promulgation of laws, rather than their submission for approval by the legislature, to reduce the gap between the drafting of the laws and their implementation. In some areas (e.g. the Modernized Customs Code5), the new DPO series picks up on reforms that were deferred under the previous DPO series due to vagaries of the political cycle, which had created unpredictable delays in the approval of the legislation. E. Poverty and Social Impacts, and Environmental, Forests, and Other Natural Resource Aspects Poverty and Social Impacts This operation is expected to have an overall positive poverty and social impact. The operation overall is expected to have a positive impact on growth, both through both indirect and direct channels. First, reforms in the seed market are expected to increase access to improved inputs (seeds) and create conditions for increased yields over the medium term; and promote private sector participation in the provision of these inputs as well as job creation which are expected to have significant positive impact on poverty. Second, the reduction in commercial losses and increased operational efficiency of LEC will allow for improved access and affordability of electricity. Not only will the lower tariffs have positive effects on disposable income of households, but better access might have positive effects on income growth, and in the medium-term spur SME growth and create employment. Third, the establishment of legal basis for the modern, efficient and transparent customs administration and trade facilitation through promulgation of new Customs Code will help reduce cost and improve trade growth in Liberia – which in turn will have a positive impact on poverty. Forth, the approval of e-payment regulations will support the implementation of the National Financial Inclusion Strategy (NFIS) and is expected to increase the percentage of adults with accounts at financial institutions, promote savings and access to credit, including by poor households. Fifth, the establishment of the National Household Social Registry (NHSR) constitutes early step toward putting in place an effective Social Safety Net system that will serve the poor. Six, a positive indirect impact on growth and jobs creation comes from improving public sector transparency with reforms that streamline tax waivers, strengthen SOEs oversight and debt transparency. Environmental, Forests, and Other Natural Resource Aspects Measures supported by the proposed operation are expected to have positive or neutral environmental effects. Prior action supporting the enactment of the Seed Development and Certification Agency Act, which in turn could support 4 World Bank (2019). Implementation Completion and Results Report on Three Credits, Five Grants and Three Recipient Executed Trust Funds in the total amount of US$ 126.34 million equivalent to the Republic of Liberia for the Poverty Reduction Support Operations I, II, III, IV and Supplementals for the Second and the Third Operations. Report No: ICR00004767. December 23, 2019. 5 The Modernized Customs Code of Liberia was submitted to the Legislature in June 2017 (prior action #4 PRSDPO-IV), but it was not approved under the previous administration. After some effort, the new administration re-submitted the code to the Legislature (April 2019), aided by the Bank’s policy dialogue engagement under the new Inclusive Growth DPO series (IGDPO-1, P168218). Page 5 of 7 The World Bank Liberia Second Inclusive Growth Development Policy Operation (P175570) better and timely availability of seeds and improved small-scale agricultural productivity, may have positive environmental effects. Increases in agricultural productivity resulting from improved seeds may in turn lead to less land used in agriculture, less deforestation, and a positive environmental impact. Prior action to reduce commercial losses at the LEC is expected to improve the financial situation of LEC and increase its capacity to provide better services. This has the potential to reduce reliance on charcoal and firewood which are the primary cooking fuel for Liberians resulting into a positive effect on the rate of deforestation and reducing health implications from using wood fuel as fuel source for cooking. Measures to reduce trade costs, rationalize tax expenditures, strength SOEs oversight and debt transparency, promote financial services and establish SSNs won’t directly affect Liberia’s environment, forests, or other natural resources, but contribute to economic development that is more conducive to ensuring effective environmental management and strengthen resilience. Overall, measures to strengthen public sector transparency may indirectly provide a more conducive fiscal environment that could lead to improved budgetary allotment to institutions tasked with managing the environment, forests and other natural resources. . CONTACT POINT World Bank Mamadou Ndione Senior Economist Borrower/Client/Recipient Ministry of Finance and Development Planning Augustus J. Flomo Deputy Minister for Economic Management ajflomo@mfdp.gov.lr Morris K. Togbah Senior Economist on Budget Support Relations mtogbah@mfdp.gov.lr Implementing Agencies SOE Financial Reporting & Coordination Unit Benedict G. Fully Director bgfully@gmail.com Page 6 of 7 The World Bank Liberia Second Inclusive Growth Development Policy Operation (P175570) FOR MORE INFORMATION CONTACT The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 473-1000 Web: http://www.worldbank.org/projects APPROVAL Task Team Leader(s): Mamadou Ndione Approved By APPROVALTBL Country Director: Khwima Lawrence Nthara 04-Feb-2021 Page 7 of 7