Sierra Leone - Public Sector Management Support Project

Document of The World Bank FOR OFFICIAL USE ONLY MICROFICHE COPY Report No. :P- 5880-SL Type: (PR) Title: PUBLIC SECTOR MANAGEMENT SUPPO' Author: GEORGE ALIBARUHO RqoNo P-s8so SL Ext. :34868 Room:J6-163 Dept. :A'4CO MEKORANDUM AND RECONENDATION OF THE PRESIDENT OF THE INTElR&ATIONAL DEVEOPNT ASSOCIATION TO THE EUTIVE DIRECTORS ON A PROPOSED CREDIT OF SDR 6.9 MILION TO THE REPUBLIC OF SIERRA LEONE IFO A PUBLIC SECTOR ANAGEMr SUPPORT PROJECT OCTOBE 27, 1992 Ths d_omet has a restricted distribtoD a_ may be wed by recipients only in the performance of their off duties. Its coents may not otherwise be disclosed witho World Bnk authizatio  CURRENCY EQUIVALENTS (As of September 14, 1992) Currency Unit = Leone (Le) US$1 = Le S1S (as of 9/3092)* Le 1 US$0.001952 ABBREVIATIONS ADB - African Development Bank AGD - Auditor General's Department AGO - Accountant General's Office BSL - Bank of Sierra Leone CCD - Coordination and Cooperation Division of DOF CFTC - Commonwealth Fund for Technical Cooperation CSRC - Civil Service Reform Committee CTB - Central Tender Board DESD - Department of Economic and Social Development of the United Nations DOF - Deparment of Finance, Development and Economic Planning EAD - Economic Affairs Division of DOF BC - European Community EPRU - Economic Policy Research Unit FMC - Fiscal Monitoring Committee ICB - Internaional Competitive Bidding IDA - International Developmezt Association IMP - Iternationl Monetary FRand IPAM - Institute of Public Admiuistration and Management OLA - Overseas Development Administration (United Kingdom) OED - Operations Evaluation Department PCR - Project Completion Report PE - Public Enterprise PEA - Project Executing Agencies PERDIC - Public Enteprise Reform and Divestiture Commission PPF - Project Preparation Facility PSMS - Public Sector Maagement Support Project PU - Petroleum Unit RAP - Rights Accumulation Program RIC - Reconstruction Import Credit SAPAU - Social Action and Poverty Alleviation Unit SAPDU - Structural Adjustment Program Disbursement Unit SAPSC - Structura Adjustment Program Steering Committee SPPAC - Social Policy and Poverty Alleviaton Commte TAG - Technical Advisory Group UNDP - United Nations Development Prgramme FISCAL YEAR July 1 - June 30 With effect from April 25, 1990, the exchange rate is dewmined freely between the commercial banks and their customers for each transaction. For assessment of customs duty and debt semrice payments, the exchange rate is dermined weeldy based on a weighted average of all transactions by the commercial banks during that week.  FOR OMCIAL USE ONLY SEERRA LEONE PU8LIC SECTOR MANAGEMENT SUPPORT PROJECT CREDIT AND PROJECT SUMMARY Bofrower: Republic of Sierra Leone Beneficiaries: Depament of Finance, Development and Economic Planning Accountnt General's Office Auditor General's Departmen Bank of Sierra Leone Structurrl Adjustment Ptogrm Steering Committee: Public Enterprise Reform and Divestiture Commission; Civil Service Reform Committee; Petroleum Unit Social Action and Poverty Alleviation Unit. Amount: SDR 6.9 million (US$10 million equivalent). Terms: Standard with 40 years maturity. Onlending Terms: Not applicable. Financing Plan: IDA US$10.00 million Government us$ 1.15 miion Total US$11.15 million Economic Rate of Return Not applicable. Staff Appraisa Report: None. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed. without World Bank authorization.  MMORANDUM AND RECOMMENDATION OF THE IDEN1 OF THE ITATIONAL DEVELOPMENT ASSOCUATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE REPUBIC OF SIERRA LEONE FOR A PUBLC SEOR MANAGEME L?RT PMOECT 1. I submit for your approval the following report and recommendation on a proposed deveopment credit to the Republic of Sierra Leone for SDR 6.9 million (US$10.0 million equivaleot) on stndard IDA terms with 40 years' marity to help finance a Public Sector Management Support Project. 2. Background. After a long period of economic decline caused by exten shocks, poor economic management and unsustained economic reforms, the Govemment has, in consultation with the Fund and the Bank, made substntial progss in addressing the country's economic problems by Implemetg a comprehensive reform program. However, implemetation capacity, particularly expenditure control, budgeting, accountig and audit, remains weak. Ihe near collapse of key public service institutions, the lack of capacity for divestiture of public enterpris, and the general scarcity of managerial and technical personnel are serious limitaons. Effective techical assismce is required to overcome these limitations. The proposed project seeks to address this need. 3. Project Objedves. The primary objecdve of the project is to strengthen the Government's capacity to implement its adjustment program and longer term growth strategy, focusing on fisca management which, in the past, was largely responsible for program failures. It addesses immediate needs for strengthening budgeting, expendire contol, accuntng, auditing and repordng. In addition, the project aims to increase public service productivity by supporting cvil service reforms; reduce the Government's role as owner and operator of public eteprises by supportig divestre and public enterpuise reform; support aid coordination; and assist in set up the instutional stucture for the disburement of donor program funds. It would aso address longer-erm issues trough preparatory work to identify areas where assistance is needed to support the Government's program of reforms. Achievement of these objectives would be reflected in the improved level of performance envisaged in the Government's strategy. 4. Project Desription. The project comprises emergency-type measures that need to be carried out speedily as a first step in addressing the most pressing constraints to the effective implementatIon of the Government's program of reforms. It: (a) focuses on agencies responsible for fiscal management : the Department of Finance, Development ad Planning (DOF) to strengthen budgeting, editure contol, aid coordination, procurement and policy analysis; (-d) Accountant General's Office (AGO) and Auditor General's Department (AGD) to strengthen accounting, auditing, and control; and (Hi) the establishment of capability in the Bank of Sierra Leone (BSL) to supervise disbWement of donor program support fumds and strengthens BSL accuting capacity; (b) provides instutional support to: (i) civil service reform to restore efficiency and capacity for delivery of services; viC) public enterprise reform to reduce govwernment ownersh of public enterprises and improve the efficiency of those remaining in the public sector; (III) build a capacity for supevision and regulation of the petroleum industry; and (lv) develop plans and work programs to address urgent social policy and poverty issues. 5. Project Costs. Total project costs including duies and taxes amount to $11.15 million with a foreign exchange component of $6.58 million (59 percent). The credit would finance $10 million or 95 percent of total project costs (excluding duties and taxes), of which  -2 - $1.04 miion would be for finacing of incremental recurrent costs including sales of local contract personnd so as to facilitate speedy Iplementaion as Government's weak budgetary position, after seve years of mis ment, constrains its ability to provide adequate cou tfnds. A breakdown of cos and financing are shown in Schedule A. Amounts and t methods of procure_ent and of di, and the disbursement schedule are shown in Schedule B. A tmetble of key project processing events and the Stats of Bank Group Operations in Sierra Leone are given in Schedules C and D, respectively. A detaied discussion of costs to be finced under the project is presented in the Tecbnical Annex. A chart of the project etities is given in Schedule 5 to the Technical Annex. 6. PlrJect Implementation and Administration. Responsibility for implemeion of project subcomponents woldd rest with the implementing agencies; overall an and coordinadon would be provided by a Project Adviser to be funded under this project, assisted by two middle-level officials, a Deputy Secretary and an Accountant, who are already in the service at DOF. The Project Adviser would be responsible to the Financial SecreWy. Agreemen has been reached with the Government on organizational terms of reference and staffing profiles for the: (i) Structral Adjustment Progr Disbursement Unit (SAPDU) at the Bank of Sierra Leone; (ii) Technical Committee cf the Central Tender Board (CTB); (ill) Petroleum Unit (U); (iv) Public Enterpse Reform and Divestture Commission (PERDIC); and (v) Social Policy and Poverty Alleviation Committee (SPPAC) and the Technical Advisory Group (TAG). Terms of reference have also been agreed for consultants and experts to assist with the folowing funcidons: I) budgeting, accounting and auditing; (ii) disbursement and procurement under donor assisted programs; and (nii) job itspections, salary review, and personnel information system subcomponents of the civil service reform program. Activities financed under the project would be based on annal work programs of implementing agencies to be reviewed and approved by the Stmctural Adjustment Program Steering Committee (SAPSC) and IDA. 7. Project Sustanbity. Project sustinability critically depends on government commitment, the caliber of the countepa staff and the success of the traning progam. Commitment has been amply demonstrated by the prior acionm takeW by the Government In the course of implementing the far-reaching reforms under the Reconstruction Import Credit (RIC), the preparatory acvities in civil service reform, and petroleun industry supevision supported by the Project Prepaation Facility (PPF) for the proposed project The succes with which Govrnet has implemented the ongoing technical assistance in budgeting and accunting, flnanc4d under UNDP/IMF and European Community (EC) projects also attests to its ammitment _ to the proposed project The progm of training and skills transfer built into the project will help develop a durable local public sector capacity in those agencies responsible for mang the economy and publc resources. 8. Leso from Past Expriene Key lessons from past experience taken into account In the project design and implementation strategy have been drawn from: an IDA-financed US$2.5 million technical assistance project in Sierra Leone (Cr. No. 970-SL) that dosed in December 1984, and Its Project Completion Report (PCR) issued in 1986; a 1990 Opetions Evaluatons Department (OED) Report on FreeStadg Tecnid l Asssanejbr Instond Devlopen In Sbaharan 4Arc past and ongoing technical ceperton progm of other mulItie and bilat agencies, particularly the UN, EC and Overs Development AdminIstratio (ODA) of UK, covering various aspect of public sector maagement; and the Bans 1991 publication, he Rejbnm of Publc Sector Management: Lessonsfi m &perl , Policy and Research Series No. 18. The lessons are that: weak political commitment, run-down public financial management insttutions, failure to enforce systems and procedures, and poor  .3- project managem sklls weo largely responsible for unsatisfactory program and TA project results. Government commitment to the proje is critcal to Its success and has been demonstrated by its undert of the tough adjus_tm progm whose implenton this project seeks to support; its carrying out of key start-up project activities ficed under the PPF and its successful implementation of the ongoing EC, UNDPJIMF technical assistne programs. Tis project focuses on finmcial management and adopts a consulting services firm approach to setting up tbe systems neesary in budgetig, counti, expenditue control and auiting and training Sierra Leoneans to acquire the requisite financial management skills, thus simplifying coordinton of related sub-components. This approach has been successfully used by the AGO. The Credit provides financing for a Project Adviser to help the governm4nt manage the project, thus addressing the weak management constraint. Donor coordination is important for the success of the project and has been ensured through regular consultations with agencies that have ongoing or planed progrms of technical cooperation, and strengtening of the Coordination and Cooperation Division (CCD) in the DOF would ensure strong coordination between Govenment, IDA and other agencies. Close Bank supervision would be enued by the progrming of adequate staff time for this activity (Schedule 3 of the Technical Annes). Bi-annual reviews and a mid-term review have been agreed with Government as part of the Implementaon mo ing process. 9. Rationale for IDA Involvement. After two years of intnsive discussions with the Fund and the Bank and implementing a series of difficult reforms in the areas of exchange and trade policies and fiscal management, the Government reached agreement with the Fund on a Rights Accumulation Program (RAP) in April 1992. The Bank supported the progrm by the Reconstruction Import Credit after Sierra Leone's payment ars with the Bank were cleared in April. The performance der both the RAP and the RIC has so far been ssatiacy and despite the change in the Government in April, the program remains on track The proposed project focuses on important areas and agencies essential to the effective implementation of the Governmet's reform program. The Bank is also supportig the Governmen's medium-term development objectives through projects in the social sectrs, agriculture, and economic infrtructure, particularly in rehabilitation of the power and road transport sectors. 10. Agreed Actions. Assurmces have been obtained that the Government would: maintain its Structural Adjustment Program Steering Committee (SAPSC) and the Economic Affairs Division (EAD) of the Deparuent of Finance, Development and Economic Planning in a form and with functions, m and staffing satisfcory to IDA; assign to EAD overall responsibility for the administain, coordination and carrying out of the project; assign to SAPSC for the responsibility for overseeing and monitoring the carrying out of the project, and reviewing the annual work progrm of each Project Executing Agency; assign countqet staff to the tehical assistance experts to asist in tie carrying out of assipments under the project. Agreement has been reached that: review of project implementation would be carried out biannually; a mid-term review would be undertaken in Jamnay 1995 with a focus on overall project implemtation, insttutional development strategy, trainig and skills transfer and correctve measures if needed. It has also been agreed that the following would be submitted to IDA for review and approval: the results of the studies and recommendations on civil service refom, and an action plan to implement the recommendations; a civil service training program and a strateg for carrying it out. There are no special conditions *f effectiveness. Conditions of disbursement against specific categories are: satisfacory review of annual work plans, including a t plan; satisfactory pefomance under the previous year's work plan; appointment of the Director of Economic Policy Research Unit; appointment of members and  -4 - staff of the Social Policy and Poverty Alleviation C-ommittee and the Thical Advisory Group under the SAPSC, and the Social Action and Poverty Alleiston Unit of DOF. 11. Enviro al Ilmpact. Category C. The project will have uo adverse envirmmental impac. 12. Program Objecive Category. lhe project seeks, initally, to assist the Government to implement the Government's structural adjustment progm supported by IDA (Credit No. 2352-ML). It also supports institutal development activities aimed at strengthening agencies responsible for managing the economy and public resources, and to prepare anti-poverty strategies. 13. Projet Benefits. The primary benefit expected from the pnjeat is the achievement of more efective budgetng and expendiur control and greater accountability, which are the focal points of the government reform program; higher standards of public administton; and a leaner, mora efficient public enterprise sector. Furthermore, the extensive speciaized and on-the- job tranng to be provided under the project, and the designation of local counMe staff to work with resident experts in targeted areas, will help ensure the development of technical skills and rebuilding ;-t instiutional capability necessary to achieve the Goverment's development objectives. 14. Project Risks. The main risks facing the prject are: weak project maagement skills, slow implementaon of the project due to tiy stafed departments in key areas and poorly paid amd vated officials; and inffecve slls ranser due to shortage of qualified countrpart staff. To minmize the risks the project focuses on key areas of financial management, where the govenment has already taken major steps to improve budgetig, accounig and auiting, and firther the reform of the public enterpise sector, financed by EC/UNDP and Japanese grant funds. These witl be complemend by a najor teical asita effort in the area of finana management. To ensure skills trsfer to local personmel, in addition to counterpart staff, contracts with consulting firm will emphasize hiring or subconting to local exet(s), includig those nadonals living abroad. To ensure coordiaton, a Project Adviser has been attahed to the DOF to oversee the actvies of various implementing agencies. 15. Recm en . I am satisfied that the proposed credit would comply with the Articles of Agreement of the Asociaon and recommend that the Executive Directors approve the proposed credit. Lewis T. Preston President Attachments Washington, D.C. October 27, 1992  -S- SkAiA PULIC SETR MANAGEMEN SUPPORT PROJECr ESrIEATED COSTS AND FINANCING PLAN (US$ milion) ESTIMATED COStS A. Finacil No, g- t 1. Sucigiting & expenditure control 1.57 0.58 2.15 2. Accousting 0.53 0.56 1.09 3. Auditing 0.49 0.29 0.78 4. Econmic policy & operatiom 0.11 0.16 0.27 S. Procurmnt 0.14 0.03 0.17 6. Ald coordination 0.13 0.07 0. 7. Dank of Sierra Leo 0.34 0.03 0.37 3.31 1.72 5.03 D. Strueturat Refor 1. Cvil service reform a. Civil Servcee Reform Coemittee 0.04 0.04 0.08 b. Management services & nmnpo r control 0.23 0.13 0.36 c. Remeration poliiefs & scufnistratfon 0.38 0.10 0.48 d. Personnel policy & _magammnt 0.30 0.07 0.37 *. Trafning 0.03 0.11 0.14 2. Pubifc enterpoises--PERDIC 0.03 0.37 0.40 3. Petrotea Unit 0.03 0.30 0.33 4. Socalt Policy & Poverty Action Program 0.23 0.24 0.47 1.27 1.36 2.63 C. Instftutimnst &wort & other studies 1.54 0.62 2.16 D. Taes & dities 0.00 0.58 0.58 Totat base cost 6.12 4.28 10.40 contingencies 0.46 0.29 0.75 TOTAL PROJECT COST 6.58 4.37 11.15 fI ANCImB PLAN Goversumnt 0.00 1.15 1.15 IDA 6.58 j 3.42 10.00 Total 6.58 4.57 11.15  - - ~~~~~6 -SchLedule 1B SERRA LEONF PUlBUC SECTOR MANAGEMENT SUPPORT PROJECr PROCURMENT MENOD AND DISBURSEMEM (lUS$ Million) SUNNRY OF PROPOSED PROCUREMIENT ARRANMGENTS Proreent method Not IDA- Tota I. Goods 1.1 Equipent. materslsa e supplies 1.12 0.77 0.87 2.81 . (1.12) (0.62) (0.69) (2.43) 1.2 Eiduattnut equipment & supplies 0.54 0.54 (0.47) (0.47) 1.3 Vehicles 0.51 0.51 (0.41) . (0.41) 2. Corsultents 2.1 St3 as 0.26 0.26 (0.26) (0.26) 2.2 Technical assistance 3.37 3.37 (3.37) (3.37) 2.3 Procuraeznt agents 0.09 0.09 - - (0.09) - (0.09) 3. Training 1.63 1.63 (1.63) (1.63) 4. Mfscelleoram 4.1 Incrmenlta salaries--local 0.34 0.34 contract persornel (0.34) (0.34) 4.2 tncremental recurrent costs 0.77 0.77 (0.70) (0.70) 4.3 PPF refinaming 0.30 0.30 (0.30) (0.30) 4.4 Taxes & datfes 0.58 0.58 - (0.00) (0.00) 1.12 0.77 8.68 0.5S 11.15 (1.12) (0.62) (8.26) (0.00) (10.00) Note: Figures in parentheses are the respectinv amounts financed by the IDA credit. SWUIAR DISBURSENENT SCHEDULE Consultant seriesllocal contract personnel A studies 4.06 100K Equipment, suppies aN veifeles 3.31 100X of foreign; 80X of local Training 1.63 100K Incremental recurrent costs 0.70 90