Page 1 PROJECT INFORMATION DOCUMENT (PID) APPRAISAL STAGE Report No.: AB376 Project Name Pension and Social Assistance Project Region EUROPE AND CENTRAL ASIA Sector Other social services (70%);Central government administration (30%) Project ID P049892 Borrower(s) GOVT. OF AZERBAIJAN Implementing Agency Ministry of Labor and Social Protection of Population House of Government Baku 370016, Azerbaijan Republic Contact Person: Dr. Azad Tagizade, Head of Department International Cooperation Department Tel.: (+994-12) 931203; 939472 Fax.: (+994-12) 939472 Mobile: (+994-12) 3005305 Email: tagizade@azerin.com State Social Protection Fund of Azerbaijan Republic 80 Zardabi Street Baku, Azerbaijan Republic AZ1122 Contact Person: Dr. Oktay Ibrahimov, Ph.D Tel.: (+994-12) 346590; 343862 Fax: (+994-12) 343862 Mobile: (+994-50) 388-6376 Email: ioktay.it.sspf@azerline.net Environment Category [ ] A [ ] B [X] C [ ] FI [ ] TBD (to be determined) Safeguard Classification [ ] S 1 [] S 2 [ X] S 3 [ ] S F [ ] TBD (to be determined) Date PID Prepared April 5, 2004, 2004 Date of Appraisal Authorization March 29, 2004 Date of Board Approval May 27, 2004 1. Country and Sector Background Since the beginning of the 1990s, Azerbaijan has implemented a number of structural and institutional reforms. As a result, macroeconomic stability has been achieved and economic growth has resumed. Significant advances in structural policies and public management of resources have taken place, especially during the last four years. Yet, poverty remains the overriding development issue in Azerbaijan, where some 50 percent of the population were found to be poor in 2001, and some 17 percent were classified as extremely poor. Page 2 In order to promote economic and social development and reduce poverty, the Government together with civil society partners adopted in 2003 the State Program for Poverty Reduction and Economic Development (SPPRED). The SPPRED is a comprehensive reform program, which recognizes that while diversified economic growth and the pursuit of reforms that will increase employment and raise productivity and incomes remain key to sustainable reductions in poverty, an adequate social protection system that provides meaningful protection to the poor and most vulnerable in Azeri society will also be needed. The social protection system in Azerbaijan comprises a range of benefits delivered to various groups of the population within the social insurance and social assistance systems. Annual public spending on those benefits averages 5-6 percent of GDP. The SPPRED, as well as a number of Bank’s and other donors’ reports have identified issues that have hindered efficient and effective use of these resources in protecting the poor and vulnerable. In the area of social insurance, including public pensions, the key issues include: (i) low benefits, due to lax eligibility criteria and low coverage, i.e. a low number of contributors to the system; (ii) a complex benefits system that is difficult to administer; (iii) a benefits system that is not linked to contributions; (iv) unsophisticated and weak record keeping capacity in particular with respect to employers, contributors and beneficiaries; (v) undeveloped and often opaque financial management systems; and (v) involvement of enterprises in benefits administration, which makes monitoring of benefit award and payment difficult. As far as social assistance, the key issues include: (i) poor targeting of benefits; (ii) fragmentation of benefits; (iii) low benefit levels due to insufficient resources; (iv) weak capacity to analyze, monitor and evaluate policies; and (v) weak administrative capacity to efficiently administer benefits. The Government recognizes the need to protect poor and vulnerable population groups. Its poverty reduction strategy envisages a comprehensive reform of the social protection system. Recently, a Presidential Decree, separating social insurance and social assistance benefits administration was issued. Based on the SPPRED, the Government is planning to undertake a range of actions aimed at increasing efficiency, effectiveness and sustainability of social protection programs. In the area of social insurance, the actions include modernization of the public pensions administration, modernization and strengthening of the financial management of the State Social Protection Fund (SSPF); moving the administration of all social insurance benefits from enterprises to the SSPF and a public pension system reform that would introduce parametric changes into the pension system and closer links between contributions and benefits. With regards to social assistance , the Government’s program includes: (i) targeting of social assistance benefits based on eligibility assessment taking into account the economic and social situation of the applicants; (ii) consolidating various benefits into a single targeted family poverty benefit in cash as of 2006 and a significant increase of resources allocated to its financing; (iii) modernizing the capacity of the Ministry of Labor and Social Protection of the Population (MLSPP) to administer social assistance benefits using a computerized management information system (MIS). 2. Objectives Page 3 The project development objective is to significantly improve the effectiveness and transparency in the provision of public pensions and social assistance to eligible beneficiaries. Key indicators Progress towards achieving project outcomes will be determined by the following (these will be further reviewed during appraisal ): • Evidence of improved financial viability of the social insurance system; • Evidence of significant increases in the number of participating contributors to the pension system; • Evidence that eligible beneficiaries for pensions and social assistance are receiving proper payments in a timely manner; and • Evidence of improved user satisfaction regarding service delivery. Page 4 Output indicators will include the following (to be further reviewed during appraisal): • MLSPP : • Comprehensive record-keeping of eligible households and payments; • Improved targeting efficiency in the provision of social assistance benefits; • Local social welfare offices have increased responsibility in determining eligibility and monitoring targeting efficiency; • Information sharing between agencies and offices occurs to promote better targeting; and • Policy analysis capacity is used for policy formulation and evaluation functions and better management of resources. • SSPF : • Comprehensive record-keeping of system participants and flow of funds; • Internal administrative processes are functioning as intended; and • Policy analysis capacity is used for policy formulation and evaluation functions and better management of resources. SPPRED : One of the “six key strategic aims” defined by the poverty reduction strategy is: “reform of the existing system of social protection to give more effective protection to the vulnerable”. In the area of social insurance, the SPPRED defines the following objectives: (i) reliable provision of pensions; (ii) increased role of pensions in welfare of the population; (iii) full collection and meaningful use of contributions; (iv) increased efficiency of pensions provision by improving its administration, and (v) linking pensions to social insurance contributions. The following actions are envisaged: (i) design of a new social insurance system; (ii) establishment of an effective administrative structure for an efficient management and delivery of pensions; and (iii) development of an automated social insurance and pension system based on individual records. The proposed project will support the Government in implementing actions (ii) and (iii). Concerning the social assistance, the SPPRED defines the following reform objectives: (i) improved benefits’ targeting and more efficient and effective policies; (ii) adjusting the system of social assistance to the developing market conditions, and (iii) increasing the efficiency of social assistance provision through improving the management and administration of the social assistance system. The actions to be implemented are: (i) establishment of an effective administrative structure; (ii) development of the legal framework for targeted social assistance policies; (iii) development of the Social Assistance Strategy; (iv) development of the social assistance targeting mechanism; (v) creation of a system of adequate compensation for the poorest against the impact of new public utility policies; and (vi) creation of a monitoring and evaluation system. The proposed project will support the Government in implementing actions (i), (iv), (v) and (vi). CAS : The proposed project is expected to contribute to one of the four interrelated strategic goals defined by the CAS: “improve access to services by reversing the decline in social services and infrastructure”, as well as to achieving its social agenda which among its priorities includes Page 5 “an improvement in social protection of vulnerable groups: children, pensioners and unemployed persons”. 3. Rationale for Bank Involvement The proposed Pension and Social Assistance Project will assist the Government to better administer social protection programs, make the pension system more sustainable and build capacity to better target social assistance benefits to the most vulnerable groups. In addition to the planned project, the Country Assistance Strategy (CAS) in social protection consists of: (a) reviewing with the government the possible mechanisms for targeting, and especially proxy means-testing work; (b) supervising the social protection and labor market components in the IBTA I and IBTA II projects; (c) assisting the work on designing a social safety net to protect the poor from the effects of energy sector and associated utility reforms; (d) continued strengthening of the State Statistical Agency; (e) monitoring the implementation of the relevant social protection actions in the SAC II (Structural Adjustment Credit II); and (f) undertaking a labor market study. The proposed project is a continuation of analytical work on pension and social assistance reforms that IDA has already engaged in with the Government for some time now. That work has served to underpin the Government’s strategic thinking on social protection as reflected in its poverty reduction strategy, and the stage has now been reached, where the Government can begin to implement the strategy. Here, IDA is best placed to support the Government: intellectually, drawing on its extensive international experience in supporting implementation of social protection reforms, as well as in light of its in-depth involvement in Azerbaijan, and financially, through the availability of IDA resources, which will enhance the likelihood that investment resources are put to their best use. In addition, the Government has specifically requested an IDA Credit for this purpose. 4. Description The proposed project would have three components: (i) strengthening the social assistance administration; (ii) strengthening the social insurance administration; and (iii) project management, monitoring and evaluation. Component 1: Strengthening the Social Assistance Administration (US$ 5.09 million) The implementation of this component will have provided the MLSPP with a good targeting mechanism with which to provide social assistance benefits to eligible families; MLSPP staff would have the requisite skills to use the targeting mechanism; and MLSPP would have the capacity to undertake knowledge-based policy formulation. The component would include civil works and the provision of equipment, materials, technical assistance and training to MLSPP staff in order to enable better targeting of social assistance beneficiaries and creation of a related policy planning capability in the Ministry. The following activities are envisaged: (a) Implementation of a Management Information System (MIS) to support means and asset testing of potential beneficiaries of social welfare programs: (i) Refurbishment Page 6 of MLSPP offices to accommodate the MIS in local social welfare offices; (ii) Installation of MIS-related hardware and voice and data communications at headquarters and in local offices; (iii) MIS-related software development and implementation at headquarters and in local offices; and (iv) Training of headquarters and local office staff in the use of the MIS system. (b) Implementation of Targeted Social Welfare Programs: (i) Implementation of pilot programs for the application of a targeted child allowance and later a targeted family poverty benefit in cash (to be introduced in 2006); (ii) Staff training in applying the targeting mechanism; (iii) Development of a monitoring and evaluation function in the MLSPP for targeted benefit programs; and (iv) Development and implementation of appropriate public information programs related to the introduction of targeted benefits. (c) Enhancing Policy Analysis Capacity in the MLSPP for Social Protection. Component 2: Strengthening the Social Insurance Administration (US$ 5.63 million) The implementation of this component will have provided the SSPF with an efficient and transparent pension administration, where the SSPF manages and administers its revenues and expenditures efficiently and effectively; and undertakes knowledge-based pension policy planning. The component would include civil works and the provision of equipment, materials, technical assistance and training for the following activities: (a) Implementation of a Management Information System (MIS) to support a client data base of individual records, including provision of hardware and voice and data communications, as well as applications software development : (i) Rehabilitation of SSPF offices to accommodate the MIS at central and local office levels; (ii) Installation of MIS-related hardware and voice and data communications at central and local levels; (iii) MIS-related software development and implementation at the center and in local offices; (iv) Training in use of the MIS system at central and local office levels; and (v) Establishment of an IT department (building capacity to operate and maintain the MIS). (b) Strengthening of Critical Processes in SSPF : (i) Identification and registration of system participants; (ii) Contributions collections, including revenue monitoring; (iii) Maintenance of earnings and contributions histories; (iv) Establishment of entitlements, payment procedures, post adjustments; and (v) Asset management, involving systems to ensure integrity in cash management, standardized financial management procedures, and timely and accurate management information. (c) Institutional Development of SSPF : (i) Development of an actuarial capacity; (ii) Development of an analysis and forecasting capacity; and (iii) Development of a public information function. Page 7 Component 3: Project Management, Monitoring and Evaluation (US$ 0.89 million) This component will have ensured professional implementation of the project by using appropriate mechanisms of project management, and proper tools of project monitoring and evaluation. The project management structure would consist of an inter-ministerial Steering Committee 1 and two Project Implementation Units (PIU) - one in the MLSPP and one in the SSPF. Each PIU would include a coordinator and technical specialists drawn from departments and units that are directly concerned by the project. They would be reinforced by a Procurement Specialist and a Financial Management Specialist. Following effectiveness of the IDA Credit, an Architect would be added to each PIU. The PIUs would also receive periodic technical assistance as needed. Since the MLSPP PIU currently lacks adequate procurement and financial management capabilities, these functions would initially be concentrated in the PIU for the SSPF, which has these skills. Once capacity has been built up in the MLSPP, they would take over full responsibility for all aspects of implementation of the MLSPP component. The main functions of the PIUs are to: (i) ensure implementation of the project components in their respective agency; (ii) prepare technical specifications and terms of reference for procurement of goods and services; (iii) evaluate bids; and (iv) plan project implementation schedules, review plans and issue progress reports. The PIUs would also ensure that the fiduciary requirements of the IDA are met (i.e. procurement and financial management procedures), and they would centralize information that will allow monitoring of progress on the project and disbursement of IDA funds. Major sector issues addressed The social insurance and social assistance components have been designed to address major issues in two critical areas – implementation of reforms in the principal public protection schemes; and policy analysis and strategic decision making in the two responsible agencies. \01fi Changes in the social insurance administration are expected to benefit program participants: workers through a better recognition of the linkage between contributions and benefits, and pensioners through regular payment of pensions. At the institutional level, the overall operational efficiency of the State Social Protection Fund (SSPF) would be strengthened, and its institutional capacity to perform key policy formulation and evaluation functions would be enhanced. Both should allow SSPF to manage resources better. 1 The inter-ministerial Steering Committee would consist of the Minister of Labor and Social Protection of the Population, the Chairman of the SSPF, and representatives of the Prime Minister’s Office and the Ministries of Finance and Economic Development. Page 8 \01fi Changes in the social assistance administration would benefit eligible poor and vulnerable households through increased targeting efficiency; and enhance policy formulation in the Ministry of Labor and Social Protection of the Population (MLSPP). 5. Financing Source: ($ million) BORROWER/RECIPIENT 3 INTERNATIONAL DEVELOPMENT ASSOCIATION 10 Total 13 6. Implementation While partnership arrangements have been sought, there are none envisaged under the project. See Section B.3., Component 3 above. 7. Sustainability The Government is well aware of the importance of a well-functioning pension system and a social safety net that is able to reach out to the poorest and most vulnerable families, and it is fully committed to address these challenges in a sustainable manner. As noted in Section A above, the Government has spelled out a set of critical policy aims in its Poverty Reduction Strategy that closely conform with the objectives and components of this project, and it has moved to enact legislation and regulatory changes that underpin and support the aims of the project. 8. Lessons Learned from Past Operations in the Country/Sector While this is the first IDA-supported project in the social protection sector, it draws on experience gained in related projects, namely the IBTA I and II projects, as well as directly building on analytical work that the Government has undertaken with IDA and other donor support in order to reform social protection. In addition, project design draws on IDA experience and lessons learned in developing social insurance and assistance administrations in other parts of the world. The following considerations have been particularly important in designing the project: Government ownership and active involvement by Government ministries and agencies in project implementation is crucial for project success and sustainability. Strong commitment and ownership needs to include both the technical and middle level management and staff. Government ownership over the project is reflected in the commitment of the MLSPP and SSPF in the design and preparation of their respective components. For complex programs, such as public pensions and social assistance, it is important to build abroad consensus for change. Experience from other countries underline the critical importance of public information and education campaigns in building support. An important element of the project is aimed at creating public awareness of benefits. Page 9 Implementation timetables need to be realistic and flexible to allow for limited agency experience in project implementation. Timetables will be reviewed carefully during appraisal, and the pace of implementation will be monitored during implementation.Monitoring and evaluation is a key to project success; therefore, the project places great emphasis on strengthening the MLSPP and SSPF policy analysis and data gathering capacity. 9. Safeguard Policies (including public consultation) Safeguard Policies Triggered by the Project Yes No Environmental Assessment ( OP / BP / GP 4.01) [ ] [x ] Natural Habitats ( OP / BP 4.04) [ ] [x ] Pest Management ( OP 4.09 ) [ ] [x ] Cultural Property ( OPN 11.03 , being revised as OP 4.11) [ ] [x ] Involuntary Resettlement ( OP / BP 4.12) [ ] [x ] Indigenous Peoples ( OD 4.20 , being revised as OP 4.10) [ ] [x ] Forests ( OP / BP 4.36) [ ] [x ] Safety of Dams ( OP / BP 4.37) [ ] [x ] Projects in Disputed Areas ( OP / BP / GP 7.60) * [ ] [x ] Projects on International Waterways ( OP / BP / GP 7.50) [ ] [x ] 10. Environmental Assessment Category [w6] : [ ] A [ ] B [X] C [ ] FI [ ] TBD The project is expected to include refurbishment of buildings. During preparation, the adequacy of treatment of eventual hazardous materials will be examined and provisions will be included in contracts for contractors with regard to compliance. Compliance would be monitored by the project implementing agencies and by the Bank during supervision. The Project Implementation Plan (PIP) would also include a monitoring plan. 11. Safeguard Policies Classification [w2) [ ] S 1 [X] S 2 [x] S 3 [ ] S F [ ] TBD (to be determined) 12. List of Factual Technical Documents Beneficiary Assessment SSPF – Detailed Description of the MIS MLSP – Detailed Description of the MIS Engineering Designs for Social Welfare Offices (partial) Engineering Designs for Pension Offices (partial) Institutional Assessment of the SSPF * By supporting the proposed project, the Bank does not intend to prejudice the final determination of the parties' claims on the disputed areas. Page 10 13. Contact point Contact: Aleksandra Posarac Title: Sr Economist Tel: (202) 458-5950 Fax: Email: aposarac@worldbank.org 14. For more information contact: The InfoShop The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 458-5454 Fax: (202) 522-1500 Web: http://www.worldbank.org/infoshop WBG User P:\AZERBAIJ\HD\Pension\2LENA\Decision Meeting\Decision Review\PID\Project Information Document - Appraisal Stage.doc March 9, 2004 5:45 PM