Tajikistan - Post-Conflict Rehabilitation Credit Project

Document of THE WORLD BANK FOR OFFICIAL USE ONLY Report No. 19317 IMPLEMENTATION COMPLETION REPORT REPUBLIC OF TAJIKISTAN POST-CONFLICT REHABILITATION CREDIT (Credit 30220-TJ) June 15, 1999 This documentation 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.  CURRENCY EQUIVALENTS (Exchange Rate Effective April 1999) Currency Unit = Tajikistan Rubles (TR) US$1 = TR1000 FISCAL YEAR January 1 - December 31 ABBREVIATIONS AND ACRONYMS CAS Country Assistance Strategy CIS Commonwealth of Independence States CNR Commission for National Reconciliation FSU Former Soviet Union GOT Government of Tajikistan ICR Implementation Completion Report IDA International Development Association IDP Internally Displaced Persons IMF International Monetary Fund LDP Letter of Development Policy MOF Ministry of Finance NBT National Bank of Tajikistan NGO Non-Governmental Organization PCU Project Coordination Unit PCRC Post Conflict Rehabilitation Credit SAC Structural Adjustment Credit UTO United Tajik Opposition Vice President: Johannes Linn Country Director: Ishrat Husain Sector Director: Pradeep Mitra Task Manager: M.R. Ghasimi  FOR OFFICIAL USE ONLY IMPLEMENTATION COMPLETION REPORT REPUBLIC OF TAJIKISTAN POST CONFLICT REHABILITATION CREDIT (PCRC) CREDIT NO. 30220-TJ CONTENTS Preface .........................................i Evaluation Summary ..........................................1 Part I. Project Implementation Assessment ..........................................5 A. Introduction ...................................5 B. Project Objectives and Evaluation of Objectives ....................................6 C. Achievement of Objectives ....................................7 D. Major Factors Affecting the Project ....................................7 E. Project Sustainability ....................................8 F. World Bank Performance ....................................9 G. Borrower Performance ....................................9 H. Assessment of Outcome ....................................9 I. Future Operations ................................... 10 J. Key Lessons Learned ................................... 10 Part II. Statistical Tables ..........................................11 Annexes: I. Mission's Aide-Memoire II. Borrower's Contribution to the ICR MAP IBRDNo. 25721 This documentation 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.  IMPLEMENTATION COMPLETION REPORT REPUBLIC OF TAJIKISTAN POST-CONFLICT REHABILITATION CREDIT (Credit 30220-TJ) PREFACE This is the Implementation Completion Report (ICR) for the Post-Conflict Rehabilitation Credit (PCRC) to Tajikistan, for which Credit 30220-TJ was approved by the Board on December 16, 1997, and made effective December 19, 1997. The closing date of the credit was December 31, 1998, the original closing date. The credit in the amount of SDR7.3 million (US$9.7 million) was fully disbursed upon effectiveness. The ICR was prepared in the Poverty Reduction and Economic Management Sector Unit of the Europe and Central Asia Region. The ICR was based on a mission conducted in February 1999, by Mr. Ghasimi (Task Manager) and Mr. Hurwitz (Consultant). It was also based on materials from the project files, including the President's Report, Letter of Development Policy, notes prepared for the initiation of the credit, and Back-to-Office reports from the three supervision missions. The ICR has been reviewed by Mr. Pervaiz Rashid (ECSPE). The Borrower also contributed to this ICR by providing information to the ICR mission, reviewing a draft of the ICR and its own evaluation of the project's preparation, implementation and impact.  IMPLEMENTATION COMPLETION REPORT REPUBLIC OF TAJIKISTAN POST-CONFLICT REHABILITATION CREDIT (Credit 30220-TJ) Evaluation Summary Introduction 1. Tajikistan, the poorest country in the Former Soviet Union (FSU), has been wracked by political instability and armed conflict since independence in 1991. In May 1992, civil war erupted among various political and regional forces and armed conflict continued for five years. The years 1992 and 1993 saw major upheavals, which caused 500,000 Tajiks to flee to other FSU countries, 60,000 went to Afghanistan, 600,000 were displaced within the country, and 50,000 died. Homes, health care facilities, schools and roads were devastated, and poverty increased. 2. Despite the unrest, Tajikistan undertook a program of economic reform in late 1995, with initial improvements in liberalizing prices and trade. However, in late 1996, increased defense expenditures, among other factors, caused an accumulation of considerable budgetary arrears, including those to beneficiaries of the social safety net. 3. On June 27, 1997, the Government of Tajikistan (GOT) and the United Tajik Opposition (UTO) signed a peace agreement which provided a foundation for security and increased prosperity. The agreement created a Commission for National Reconciliation (CNR) to oversee implementation of the peace agreement. UTO has representation of 50 percent in CNR, the Government has the other half, and UTO members serve in the Government. Political parties that were previously prohibited are now free to function. Project Objectives 4. Subsequent to the peace agreement, the Government was under heavy budgetary pressure and had reduced its support of the social sector. The GOT urgently requested balance of payments support from the World Bank to acquire critical imports and to help restore production, employment and consumption in Tajikistan's post-conflict economy. The World Bank promptly responded to the GOT request with the Post-Conflict Rehabilitation Credit (PCRC). This was a quick-disbursing adjustment operation and the GOT, in its Letter of Development Policy (LDP), was committed to using counterpart proceeds according to project objectives to: (i) reduce social compensation arrears; and (ii) finance expenditures related to the implementation of peace. 5. The PCRC objectives were clear, realistic and linked to monitorable performance indicators. These objectives were also appropriate for Tajikistan's situation because they supported establishment of conditions that were conducive to economic growth. To quickly demonstrate the benefits of the peace and support poor households, the GOT considered that 1  meeting social assistance obligations, particularly the family allowance, was critical. It was equally crucial to support CNR operations so that CNR could demobilize opposition forces and help them re-integrate into society as well as repatriate refugees and internally-displaced persons (IDP). 6. The PCRC was closely coordinated with other donors' activities in Tajikistan. While the project could not have been foreseen in the 1996 Country Assistance Strategy (CAS), its goals were completely consistent with the CAS. Implementation Experiences and Results 7. GOT achievement of objectives in the PCRC was substantial. Regarding the first objective, using US$6.8 million of the disbursement proceeds by March, 1998, GOT reduced social compensation arrears from 8 months to 3 months, and military pension arrears to zero, in accordance with the LDP. Going even further, GOT decreased social compensation arrears to zero by June, 1998. Pursuing the second main project goal, GOT used US$2.9 million from the disbursement proceeds to support implementation of the peace agreement. This effort included: (i) supporting CNR operations; (ii) repatriating and reintegrating refugees and IDPs; (iii) transporting refugees returning from CIS countries and rehabilitating their homes; and (iv) demobilizing and reintegrating ex-combatants, especially opposition fighters from Afghanistan. The assistance was successful in facilitating efforts to repatriate opposition soldiers, refugees and IDPs. 8. The entire US$9.7 million proceeds of the PCRC were disbursed upon credit effectiveness to a Treasury Account in the National Bank of Tajikistan (NBT). A first payment of US$4.4 million was disbursed from this account to the Ministry of Finance (MoF), which utilized the funds to support the activities described above. A joint report of the Prime Minister and CNR Chairman was provided to the World Bank affirming that the first payment had been used as planned, after which a second payment of US$4.4 million was disbursed. A similar procedure was used for the third payment of US$0.9 million. 9. GOT's cooperation in implementing the project was excellent. The program of informal monitoring was strong and independent surveys and studies confirmed that funds were being used appropriately and generally were achieving project objectives. Acceptable to both the Government and the CNR, an effective Project Coordination Unit (PCU) Director, an ex-Minister of Labor, was appointed. 10. Macroeconomic performance improved over the period of the PCRC. However, this improvement occurred unevenly. Real GDP growth improved, and progress on inflation was significant. The GOT's fiscal deficit declined from 5.8 percent of GDP in 1996 to 3.3 percent in 1997 and to around 3.8 percent in 1998. The exchange rate of the Tajik ruble, however, deteriorated from 340 TR per US$ at the end of 1996 to around 1000 TR at the end of April 1999. The devaluation of the Tajik ruble hampered Tajikistan's macroeconomic performance. The factors contributing to the devaluation of the Tajik ruble included: (i) a 20 percent decline in the world market price of cotton; (ii) a severe decline in the Russian economy and the Russian ruble beginning in August, 1998; and (iii) a continued uncertainty among potential partners concerning Tajikistan's security situation. 2  11. Project Sustainability is judged as likely. By March, 1998, social compensation arrears were reduced to 3 months and military pension arrears to zero. Project sustainability is ensured through Bank's dialogues and under Structural Adjustment Credit (SAC), which has supported Government's reduction of the social compensation arrears to zero by June 1998. Support to CNR was successful in accomplishing project goals. Conforming to the peace agreement, CNR will be dissolved and residual requirements, mainly reintegrating soldiers into civilian life, will be undertaken by Government utilizing its own resources. 12. World Bank performance was highly satisfactory. The World Bank responded by preparing the PCRC in little more than a month, then proceeded to credit effectiveness by December 19, 1997. The PCRC provided immediate support to the Government by furnishing additional resources to reduce social compensation arrears and support the peace process. The borrower regarded the World Bank team as highly competent and responsive. 13. Borrower performance was satisfactory. Most significantly, the GOT conformed fully with the policies stated in the LDP. The quality of the PCU management-and staff was high, and the Government's program of informal project monitoring was effective (e.g., two independent studies confirmed that social compensation arrears had been cleared). Outcome and Key Lessons 14. The Outcome is assessed as satisfactory. The PCRC helped Tajikistan in creation of a positive enabling environment for growth and poverty reduction and supported the peace process. The project achieved its objectives and those achievements are likely to be sustained. But to enhance economic growth, the enabling environment needs to be strengthened and extended, and the peace needs to endure. 15. Future Operations. The major objective of the project to reduce social compensation arrears was achieved, is being sustained by GOT and supported under the follow-up SAC. In addition, the World Bank is maintaining a dialogue with GOT in helping to obtain support from other donors and is planning to support the Government with another adjustment operation to sustain the Government's reform program. 16. Key Lessons included: * An Adjustment Operation with no Specific Conditionality, but Strong Government Commitment, can be Efficacious. The PCRC was a quick- disbursing adjustment operation with no specific conditionality. In its LDP, the Government committed itself to use counterpart proceeds for specific purposes the GOT believed would be beneficial. This was very successful, and fulfilled a critical need of the Government in a timely way. * Flexibility and Speed are Critical Elements for Post-Conflict Rehabilitation Operations. The June 1997 peace agreement was a landmark event. The conclusion of this political accord necessitated quick action to consolidate the peace and the GOT, under severe budgetary pressure, urgently requested balance of payments support from the World Bank. The World Bank responded by preparing the PCRC in little more than a month, relying on 3  Government commitment to utilize the funds in the manner agreed. The PCRC became effective less than six months after conclusion of the peace agreement and, hence, has proved to be extremely relevant to continued stability and progress in economic reform. * Timely World Bank Support Can Make a Major Contribution to Sustaining Peace. While the Government and the UTO had come to a political agreement, the PCRC provided timely financial resources which supported the initial phases of the peace process. In the words of one GOT official, "without World Bank support, peace could not have been sustained." 4  IMPLEMENTATION COMPLETION REPORT REPUBLIC OF TAJIKISTAN POST-CONFLICT REHABILITATION CREDIT (PCRC) (Credit 30220-TJ) Part I: Project Implementation Assessment A. Introduction 1. Tajikistan is the poorest country in the Former Soviet Union (FSU), with a 1997 per capita income of US$330. GDP declined about 50 percent in the first half of the 1990s, with the end of Moscow's budget transfers (around 40 percent of GDP). The population is large relative to arable land, with 70 percent living in rural areas. Only 7 percent of the mountainous country's land is arable. Agriculture contributes about 25 percent of GDP and 50 percent of employment, with the main agricultural products being cotton (half of the agricultural output), vegetables, grains and livestock. Industry accounts for 35 percent of GDP and 15 percent of employment. 2. Since independence in 1991, Tajikistan has been wracked by political instability and civil war. War erupted in 1992 and continued for 5 years with varying degrees of intensity. There was substantial destruction of schools, hospitals, and infrastructure. An estimated 50,000 people died (of a population of 5.8 million), 600,000 were displaced within the country, 60,000 fled to neighboring Afghanistan, and 500,000 to other FSU republics. The war had a severe impact on the country, disrupting economic activity and intensifying poverty. Military expenditures increased to the detriment of other more productive or socially oriented sectors. 3. In the midst of this turmoil, Tajikistan began implementation of economic reforms later than most FSU republics. It adopted a reform program in November, 1995, which concentrated on restoring macroeconomic stability, restructuring agriculture, privatizing state-owned enterprises, and protecting the most vulnerable groups. Initial results were promising, with extensive liberalization of prices and trade, and a substantial decline in inflation. Program implementation was satisfactory until late 1996, when defense expenditures expanded substantially in response to increased fighting. These increased expenditures were financed by a combination of monetary expansion and budget arrears, including accumulation of significant arrears to beneficiaries of the social safety net. 4. Peace Agreement. Lengthy negotiations between the Government and the United Tajik Opposition (UTO) concluded in a peace agreement signed on June 27, 1997.' The peace accord provided for the Commission for National Reconciliation (CNR) to oversee the ' However, armed gangs and military groups have emerged that have murdered, looted, and kidnapped Tajiks and foreigners. These groups represent a serious threat to implementation of the peace accord and to resumption of economic activity. 5  peace agreement, with 50 percent representation by the Government and 50 percent by CNR. Members of UTO are now represented in the Government and previously outlawed political parties are free to function. B. Project Objectives and Evaluation of Objectives 5. In the context of the situation described above, immediately following the peace agreement, the Government of Tajikistan (GOT) urgently requested balance of payments support from the World Bank to acquire critical imports. The Government was under severe budgetary pressure and had reduced its support of the social sector.2 The World Bank rapidly responded with the Post-Conflict Rehabilitation Credit (PCRC), a quick-disbursing adjustment operation, with no specific conditionality.3 In its Letter of Development Policy (LDP), the Government committed itself to use the counterpart proceeds of the credit according to project objectives to: (i) reduce social compensation arrears, and (ii) finance expenditures related to the immediate implementation of the peace process. 6. The objectives of the PCRC were appropriate and consistent with establishing an environment in which economic growth could take place. The GOT believed that meeting social assistance obligations, particularly the family allowance, offered the best chance to support poor households, and demonstrate early benefits of the peace. At the same time, it was considered crucial to financially support the operations of the CNR, so it could go about its difficult tasks of repatriating refugees and internally-displaced persons (IDP), demobilizing opposition forces and helping them re-integrate into civil society. The PCRC's objectives were very appropriate to creating a positive enabling environment for growth. 7. The objectives were clear, realistic, and were linked to monitorable performance indicators (see Table 5 in the Statistical Tables). While the PCRC could not have been foreseen in the 1996 CAS, its overall goals to facilitate peace and create an enabling environment for growth were completely consistent with the CAS. 8. The PCRC was closely coordinated with other donors' activities in Tajikistan. Most coordination was handled by the Government with support from the UN, World Bank, and IMF, as well as with NGOs and bilateral donors. In addition, a UN-led donors meeting was held in Vienna in November, 1997, at which time a number of donors indicated the assistance they would provide. 9. In terms of the World Bank's program in Tajikistan, the PCRC was preceded by three projects: (i) the Institution Building and Technical Assistance Credit; (ii) the Pilot Poverty Alleviation Project; and (iii) the Agriculture Recovery and Social Protection Project. The PCRC was closely followed by the Post-Conflict Emergency Reconstruction Credit, which assisted the GOT to repair and reconstruct physical and social infrastructures in the Karategin Valley region. 2 In 1997, the Government restructured its program to better target social assistance to society's most vulnerable groups. However, because nearly a quarter of the population was covered, the Government did not have the resources to remain current in its payments. Except for a negative list of items which could not be purchased. 6  C. Achievement of Objectives 10. Overall, the GOT's achievement of its objectives in the PCRC was substantial. Regarding objective (i) concerning the reduction of the social arrears compensation, the GOT used US$6.8 million of the disbursement proceeds of the credit to reduce arrears in social compensation payments and military pension payments.4 By March, 1998, Government reduced social compensation arrears from 8 months to 3 months, and arrears in military pensions to zero, in accordance with the LDP. Subsequently, under the Structural Adjustment Credit (SAC), social compensation arrears were reduced to zero by June, 1998 and have been maintained at this level since then. 11. Regarding objective (ii) concerning support for expenditures related to implementation of peace, the GOT utilized US$2.9 million from the disbursement proceeds of the credit to support the peace process, including: * Activities related to repatriation and reintegration of refugees and IDPs; * Costs for transportation of refugees returning from CIS countries and for rehabilitating their homes; * Costs for demobilization and reintegration of ex-combatants, especially for the return of opposition fighters from Afghanistan; and * Support to the CNR, including operational, transport, communications and office equipment. Appropriate Macroeconomic Framework for Stabilization 12. Tajikistan's macroeconomic performance improved over the period of the PCRC, but progress was uneven. Real GDP growth was -4.4 percent in 1996, 1.7 percent in 1997, and 5.3 percent in 1998. Progress on inflation was significant. From 2000 percent in 1995, inflation declined to 40 percent in 1996, 164 percent in 1997, and to less than 3 percent in 1998. The Government's fiscal deficit declined from 5.8 percent of GDP in 1996 to 3.3 percent in 1997, and around 3.8 percent in 1998. However, the exchange rate of the Tajik ruble deteriorated from 340 TR per US$ at the end of 1996 to 815 at the end of 1997 and around 1000 TR at the end of April 1999. The current account balance improved from -7.4 percent of GDP in 1996 to -5.5 percent in 1997, but then worsened to -10.3 percent in 1998.5 D. Major Factors Affecting the Project 13. The PCRC was approved by the Board on December 16, 1997, and made effective December 19, 1997, in accordance with the schedule in the Report and Recommendation of the President. The entire credit, equivalent to US$9.7 million, was disbursed upon effectiveness to a Treasury Account in the National Bank of Tajikistan (NBT). From this account, a first payment of US$4.4 million was disbursed to the Ministry of Finance (MoF), 4 Of the first disbursement of funds to settle safety net arrears, 79 percent went to children under eight, 6 percent to unemployed pensioners, and 15 percent to military pensioners. 5Data are from IMF reports. Note that part of the devaluation of the ruble and the worsening of the current account was caused by the decline in the world market price of cotton and the August 1998 Russian economic crisis. See para. 15. 7  and the proceeds used as stated in the LDP. A joint report of the Prime Minister and Chairman of the CNR was issued on March 28, 1998 to the World Bank affirming that the first payment had been used as intended, whereupon the second payment of US$4.4 million was disbursed. Finally, a second report to the World Bank by the same parties was issued on October 30, 1998, confirming that the funds had been used in support of the peace process, whereupon the final disbursement of US$0.9 million was made from the Treasury Account. Factors Not Generally Subject to GOT Control 14. Despite close cooperation between the Government and the UTO to support the peace agreement, the security situation has remained fragile. In November 1998, rebel groups (not connected to UTO) managed to take temporary control of several cities in northern Tajikistan. This uncertain security situation has undoubtedly had a negative effect on economic development. 15. Two additional external events adversely affected Tajikistan's economic performance during the PCRC: (i) the decline in the world market price of cotton, Tajikistan's main export product, by about 20 percent during 1998, and (ii) the severe decline of the Russian economy and the value of the Russian ruble beginning in August, 1998. The decline in cotton prices reduced the value of exports and tax revenues, while the Russian crisis was estimated to have had a negative impact on Tajikistan's balance of payments of about 2 percent. These events contributed to the devaluation of the Tajik ruble, and also hampered the modest improvement in Tajikistan's macroeconomic performance that occurred during this time (para. 12). Factors Generally Subject to GOT Control 16. GOT cooperation in implementation of the project was excellent. An effective Project Coordination Unit (PCU) Director, an ex-Minister of Labor, was appointed who was acceptable to both the Government and the CNR. Also, as noted above, funds were disbursed from NBT to the MoF after receipt of reports affirming that funds were being used in accordance with project objectives (as stated in the Government's LDP). The Government's program of informal monitoring was strong and independent studies confirmed that funds were being used properly and were generally achieving project objectives.6 E. Project Sustainability 17. Sustainability is judged as likely. As noted earlier, by March 1998, Government had successfully reduced its social compensation arrears to 3 months, and in military pensions to zero, in accordance with the LDP. By June, 1998, social compensation arrears were reduced to zero and have since been maintained at that level. Under the SAC, the Government is committed to keeping these payments current. Future adjustment lending operations and economic sector works should further support sustainability of reform. 18. Regarding support for the peace process, assistance to the CNR was successful in facilitating efforts to repatriate opposition soldiers, refugees and IDPs. CNR, as an organization, will be dissolved in accordance with provisions of the peace agreement, and any 6 In addition, the MoF received receipts for all expenditures made by CNR. 8  residual requirements, mainly reintegrating soldiers into civilian life, will be undertaken by the Government utilizing its own resources (as it is currently doing). There is also the possibility of donor support for these functions, which has been requested by the Government. F. World Bank Performance 19. Overall, World Bank performance was highly satisfactory. The most frequent term used by GOT and UTO officials in describing World Bank performance in relation to the PCRC was "extremely timely." After 5 years of civil war, the signing of the peace agreement on June 27, 1997 was a landmark event. However, the conclusion of this political accord necessitated quick action to repatriate opposition fighters, reintegrate them into society, build CNR into a functioning entity, and demonstrate early benefits of the peace by supporting poor households. In short, major economic resources were needed quickly to sustain the incipient peace process. 20. The World Bank responded to this need by preparing the PCRC in little more than a month, then moving forward quickly to project effectiveness by December 19, 1997. An efficient project structure was created, with a strong PCU Director, and an effective procedure by which funds were disbursed from NBT to the MoF in accordance with reports that funds were being used in accordance with project objectives. The PCU and the World Bank conducted two independent studies confirming that arrears had been cleared on social compensation payments. The borrower regarded the World Bank team as highly competent, and appreciated the Project Launch Workshop held in Dushanbe in January 1998 as an effective means to disseminate information concerning the credit. G. Borrower Performance 21. Borrower performance was satisfactory. First, it should be noted that the Government conformed fully with the intentions stated in the LDP on how to use the credit proceeds. Also, the NBT and MoF moved quickly to establish a procedure by which funds borrowed under the credit were disbursed upon receipt of evidence of satisfactory use of the funds. MoF also set up a mechanism by which funds were moved from Dushanbe to oblast and rayon MoF offices, and then from there to local distribution centers.7 The PCU and the World Bank conducted independent studies of the process by which the credit proceeds were used and in terms of what impact it achieved. The quality of the PCU management and staff was very high, and the Government's program of informal project monitoring was effective. H. Assessment of Outcome 22. The outcome is assessed as satisfactory. The PCRC has achieved its objectives and those achievements are likely to be sustained. The PCRC has made a real difference on the ground. It was a positive force for Tajikistan's movement toward peace and, hence, toward 7 It should be noted that a portion of the funds received at the oblast and rayon levels were not immediately disbursed. This was explained by the high costs of providing the necessary documentation and the failure of beneficiaries to apply. The World Bank is assisting the Government to conduct a household poverty survey and to use the results of this survey to develop a comprehensive reform of social compensation systems. 9  creation of an enabling environment for growth. However, the peace needs to endure and the environment strengthened before sustained growth can be expected. I. Future Operations 23. The major objective of the project to reduce social compensation arrears was achieved, is being sustained by GOT and supported under the follow-up SAC. In addition, the World Bank is maintaining a dialogue with GOT in helping to obtain support from other donors and is planning to support the Government with another adjustment operation to sustain Government's reform program. 24. With respect to the second objective, Government is now funding these functions through the budget. However, the World Bank has maintained a dialogue with Government on implementation of the peace process and has been assisting GOT in obtaining support from other donors.8 J. Key Lessons Learned 25. An Adjustment Operation with no Specific Conditionality, but Strong Government Commitment, can be Efficacious. As noted earlier, the PCRC was a quick- disbursing adjustment operation, with no specific conditionality. In its LDP, the Government committed itself to use the counterpart proceeds of the credit for specific purposes the Government believed would be beneficial. This worked out very successfully, and fulfilled a critical need of the Government in a timely way. Complementary World Bank operations provided a framework for key policy reforms. 26. Flexibility and Speed are Critical Elements for Post-Conflict Rehabilitation Operations. After a 5-year civil war, the Government concluded a peace agreement with the UTO. However, the GOT was under severe budgetary pressure and urgently requested balance of payments support from the World Bank to take measures to help implement the peace and create a positive enabling environment for growth. The World Bank responded by preparing the PCRC in little more than a month. The World Bank relied on Government commitment to utilize the funds in the manner agreed. The PCRC became effective less than six months after conclusion of the peace agreement and, hence, has proved extremely relevant to continued political and security situation and progress in economic reform. 27. Timely World Bank Support Can Make a Major Contribution to Sustaining Peace. While the Government and the UTO had come to a political agreement, the PCRC provided timely resources to implement the initial phases of the peace process. In the words of one GOT official, "without World Bank support, peace could not have been sustained." s The Vienna Donors Conference, noted earlier, was one aspect of this support. 10  PART II: STATISTICAL TABLES Table 1: Summary of Assessments A. Achievement of Objectives Substantial Partial Negligible Not applicable Macro Policies X Sector Policies X Financial Objectives X Institutional Development X Physical Objectives X Poverty Reduction X Gender Issues X Other Social Objectives X Environmental Objectives X Public Sector Management X Private Sector Development X B. Project Sustainability Likely Unlikely Uncertain Highly C. World Bank Performance Satisfactory Satisfactory Deficient Identification X Preparation Assistance X Appraisal X Supervision X Hiwy D. Borrower Performance Satisfactory Satisfactory Deficient Preparation X Implementation X Covenant Compliance X Operation (if applicable) X Highly H E. Assessment of Outcome Satisfactory Satisfactory Unsatisfactory unsatisfactory x  Table 2: Related World Bank Credits (million of US$) Credit FY Project Total Undisbursed Number 36810-TJ 1996 Institution Building/Technical Assistance 5.00 1.44 29460-TJ 1997 Pilot Poverty Alleviation 12.00 7.28 29170-TJ 1997 Agriculture Recovery and Social 50.00 0.00 Protection 30220-TJ 1998 Post Conflict Rehabilitation Credit 9.74 0.00 30370-TJ 1998 Post Conflict Emergency Reconstruction 10.00 8.07 Credit 31220-TJ 1999 Structural Adjustment Credit 50.00 30.86 31230-TJ 1999 Emergency Flood Assistance 5.00 4.80 Table 3: Project Timetable Steps in Project Cycle Date Planned Date Actual/ Latest Estimate Identification (Executive Project Summary) September 1997 September 1997 Preparation October 23, 1997 October 23, 1997 Appraisal /Negotiations November 7, 1997 November 3, 1997 Board Presentation December 16, 1997 December 12, 1997 Scheduled Board Approval December 16, 1997 December 16, 1997 Effectiveness December 23, 1997 December 19, 1997 Project Completion December 31, 1998 December 31, 1998 Table 4: Credit Disbursements: Cumulative Estimated and Actual (millions of US$) FY96 FY97 FY97 FY98 FY98 FY99 (Q4) (Q1/2) (Q3/4) (Q1/2) (Q3/4) (Q1/2) Appraisal estimate 10.0 Actual 9.74 Of which IDA Credit 9.74 Actual as % of estimate* 97% Date of final disbursement 12/98 *Difference from appraisal estimate is due to exchange rate fluctuation 12  Table 5: Key Indicators for Project Implementation Indicators Status (a) Improve performance of the social safety net for the Successfully Completed. most vulnerable groups in the country, particularly, children under the age of eight and pensioners by providing the counterpart of US$6.8 million from the disbursement proceeds of the credit. (b) Help meet near termn costs associated with the peace Successfully Completed. accord by providing the counterpart of the remaining US$2.9 million from the disbursement proceeds of the credit. Table 6: Studies Included in Project Study Status Impact of study First Social Safety Net Arrears Survey Complete Enabled disbursement of second payment; simplified administrative procedures Second Social Safety Net Arrears Study Complete Enabled disbursement of third payment Table 7: Project Financing Appraisal estimate Actualllatest estimates (US$ million) (US$ million)* Item Total Total IDA 10.0 9.74 Cofinancing Institutions 0 0 Total 10.0 9.74 *Difference from appraisal estimate is due to exchange rate fluctuation 13  Table 8: Status of Legal Covenants Tajikistan Post-Conflict Rehabilitation Loan Agreement Covenant Present Original Description of Covenant Comments Agreement Section Type Status Fulfillment Date PCRC 3.01 (a) 9 C Continuous The Borrower and the Association Exchange of views on shall from time to time, at the project implementation request of either party, exchange continues. views on the progress achieved in carrying out the Program .the project. PCRC 3.01 (b) 9 C Continuous Prior to each such exchange of The PCU has provided the views as reflected in Covenant Association reports on the Section 3.01 (a), the Borrower progress achieved in shall furnish to the Association for carrying out the program. its review and comment a report on the progress achieved in carrying out the Program, in such detail as the Association shall reasonably request. PCRC 3.01 (c) 9 C Continuous Without limitation upon the After disbursement of the provisions of section 3.01 (a), the credit, no action has been Borrower shall exchange views taken by the Borrower to with the Association on any reverse the objectives of proposed action to be taken after the program. the disbursement of the Credit which would have the effect on materially reversing the objectives of the program or any action taken under the Program. PCRC 3.02 (a) I NYD When requested Have the Deposit Account audited NYD by IDA in accordance with appropriate auditing principles consistently applied, by independent auditors acceptable to the Association. PCRC 3.02 (b) I NYD When requested Fumish to the Association as soon NYD by IDA as available, but in any case not later than six months after the date of the Association's request for such audit, a certified copy of the report of such audit by said auditors, of such scope and in such detail as the Association shall reasonably request PCRC 3.02 (c) I C When requested Furnish to the Association such NYD by IDA other information concerning the Deposit Account and the audit thereof as the Association shall have reasonably requested. Covenant types: 8. = Indigenous people Present Status: 1. = Accounts/audits 9. = Monitoring, review, and reporting 2. = Financial performance/revenue generation from 10. = Project implementation not covered C = covenant complied beneficiaries by categories 1-9 with 3. = Flow and utilization of project funds 11. = Sectoral or cross-sectoral budgetary CD = complied with after 4. = Counterpart funding or other resource allocation delay 5. = Management aspects of the project or executing agency 12. = Sectoral or cross-sectoral policy/ CP = complied with 6. = Environmental covenants regulatory/institutional action partially 7. = Involuntary resettlement 13. = Other NC = not complied with NYD= not yet due 14  Table 9: Compliance with Operational Manual Statements Statement number and title Describe and comment on lack of compliance All OM Statements complied with Table 10: World Bank Resources: Staff Inputs Actual Stage of project cycle Weeks US$ (thousand) Preparation to Appraisal Appraisal* 4.3 9.8 Negotiations through Board approval 5.2 14.1 Supervision 9.8 29.4 Completion Total 19.3 53.3 *A total of 2.5 staff weeks and US$5.5 was charged to the Post Conflict Emergency Reconstruction Project (TJ- PE-53386). Table 11: World Bank Resources: Missions Performance Rating2 Stage of project cycle Month/ No. of Days Specialization1 Implem. Developm. Types of Year Persons in Status objectives Field Through Appraisal. Appraisal through Aug/1997 1 23 TM Board approval* Supervision 1 . Jan/1998 1 10 TM S S N/A 2. March/1998 1 12 TM S S N/A 3. Oct/1998 1 13 TM S S N/A Completion Jan/1999 2 20 TM, C S S N/A Total 78 I - Key to Specialized staff skills: 2 - Key to Performance Ratings: 3 - Key to Types of Problems: F= Financial Economist S= Satisfactory etc. E= Economist A= Project Advisor S= Social Sector Specialist FI= Field Implementator TM= Task Manager C= Consultant *The August 1997 mission was charged to the Post Conflict Emergency Reconstruction Project (TJ-PE-53386). 15  Annex I IMPLEMENTATION COMPLETION REPORT REPUBLIC OF TAJIKISTAN POST-CONFLICT REHABILITATION CREDIT (PCRC) (Credit 30220-TJ) COMPLETION MISSION 'S AIDE MEMOIRE 1. An IDA mission consisting of M.R. Ghasimi (Task Manager) and Elliott Hurwitz (Consultant) visited Tajikistan during January 25-February 11 to assist the Government with and gather information for the Implementation Completion Report (ICR) for the Post-Conflict Rehabilitation Credit (PCRC). Members of the mission discussed the PCRC with representatives of the Ministry of Finance, National Commission for Reconciliation, and the PCU. The mission wishes to thank the Government of Tajikistan and the staff of the Resident Mission for their helpful cooperation and warm hospitality. 2. The mission discussed with the agencies and noted two areas in which the Government utilized counterpart funds from the credit: (1) the reduction of social compensation arrears; and (2) financing expenditures related to the immediate implementation of the peace process. The discussions included a description of what was accomplished under PCRC compared with the original scope and objectives (as described by the Government in its Letter of Development Policy), project sustainability and future operation, adequacy of IDA performance, and key lessons learned from the project. The IDA team will make detailed judgments regarding these points in the near future, which will comprise IDA's assessment of PCRC. 3. The mission also provided additional information to the Government on the Borrower Contribution to the ICR (which it is understood has recently been provided to IDA and to be included, unedited, as an appendix to the ICR). Finally, the mission explained that IDA will also send its own assessment of the project to the Government for comments. If the Government has any comments on IDA assessment, they will be included as an annex to the ICR. 4. It was the mission's preliminary judgment that the PCRC was successful in achieving the following objectives: * The Government reduced arrears in social compensation payments to 3 months and military pension payments to zero by March 1998. Social compensation payments were subsequently reduced to zero by June 1998. * The Government successfully used proceeds of the credit to support the peace process, including: (i) activities related to repatriation and reintegration of refugees and IDPs; (ii) costs of transportation and of rehabilitating homes of refugees returning from CIS 16  countries; (iii) costs for demobilization and reintegration of ex-combatants; and (iv) support to the Commission on National Reconciliation. 5. The mission concluded that the PCRC has been a positive force for Tajikistan's movement toward peace and, hence, toward creation of a positive enabling environment for growth. However, the peace needs to endure, and the environment for private enterprise strengthened and extended before sustained growth can be expected. 17  Annex II IMPLEMENTATION COMPLETION REPORT REPUBLIC OF TAJIKISTAN POST-CONFLICT REHABILITATION CREDIT (PCRC) (Credit 30220-TJ) BORROWER'S CONTRIBUTION TO THE ICR Introduction The collapse of the economic system and the ensuing civil war in Tajikistan have resulted in huge losses in all spheres of life of the population, especially persistent of budget deficits, which did not foster carrying out of the measures for rehabilitation of the country's economy. Upon signing of the General Peace Accord and implementation of the peace support process, supplementary resources have been required. At this very difficult stage, the World Bank has allocated to the Rehabilitation Credit the amount of USD 9.7 million for carrying out social security payments to vulnerable groups of the population, who have suffered as a result of the conflict, and also for the support and implementation of lasting peace in the country. Aims and Direction of the Credit The primary goal of this Credit was to decrease the deficit of the state's budget due to its indebtedness on social security payments to the poorer elements of the population as well as payments of short-term expenditures for execution of the Peace Agreement's terms and conditions. This Credit in the amount of USD 9.7 million is mainly used for the following: (a) Payment of debts to the republican budget through the social security system (compensatory payments, pensions, and allowances) .................................... USD 6.8 million (b) for support of peace process (repatriation and reintegration of refugees, demobilization and reintegration of UTO combatants, and CNR operations .................................................... USD 2.9 million Implementation Mechanism Striving for efficient use of this Credit, the Government of Tajikistan in coordination with the World Bank has established the following implementation mechanism for this Project. The National Bank of Tajikistan (NBT) has made payments of the tranches. The full amount was received in USD by the NBT. These proceeds were converted into Tajik rubles (TR) 18  through an established procedure and were placed in treasury accounts of the NBT. The Ministry of Finance (MOF) of the Republic of Tajikistan has made the payments in three tranches after receiving the Bank's no-objections certificates, which were given on the basis of approved reports for each tranche. The expenditures of the Project components to the social security network and support of the peace process were directly made through the Special Accounts of the MOF. The Project Coordination Unit (PCU) has been given the responsibility for control and supervision of Project implementation. On,the basis of reports submitted by the MOF on the Project expenditures, the PCU conducted an analysis and prepared reports on the progress of utilization of the proceeds of Credit tranches. Subsequently they were provided to the Prime Minister of the Republic of Tajikistan, the Chairman of the Commission on National Reconciliation (CNR) and the World Bank for their review. REMARK: During the reporting period, the PCU has prepared and submitted two reports on the utilization of the first tranche (dated 03/23/98) and the second tranche (dated 10/30/98) of the Credit to the Prime Minister's Office, the CNR Chairman and the World Bank. Project Implementation Results Summary of Third Tranche of the Credit: After approval of the report on the use of second tranche (dated 30 October 1998) and perrnission for the use of the third tranche for the purposes of supporting the peace process, the MOF has received funds for a total amount of TR 705.8 million (USD 936,100) at the exchange rate of USD 1 = 754 TR towards the cost of supporting the peace process. During the period from 1 November to 31 December 1998, a total amount of TR 342.9 million (USD 454,700) were utilized, including: i) Activities related to repatriation and reintegration of refugees and displaced persons (cost of transportation of refugees and their baggage - TR 13.5 million; allocation of micro-credits for repair and rehabilitation of households - TR 0.5 million; food aid - TR 5.3 million; supply of the houses of repatriates with fuel - TR 18 million; expenses of reception point for refugees - TR 3 million; and other expenditures for repatriation activities - TR 13.5 million). TOTAL: TR 53.7 million (USD 71,200); ii) Activities on reintegration and demobilization of United Tajik Opposition (UTO) ex-combatants (expenditures for repair and reconstruction of assembly sites of UTO battalions in Tajikabad district and other locations - TR 34.2 million; transportation and fuel - TR 78.1 million; food aid - TR 3 million; and other expenditures related to the certification of combatants and the purchase of hardware - TR 2 million). TOTAL: TR 50.2 million (USD 66,600); and iii) For coverage of operational cost of CNR (provision with vehicles, fuel and furniture - TR 111.4 million; communication charges - TR 1.3 million; repair of the office and major assets - TR 6.2 million; accommodation and boarding of security workers and members of various 19  sub-committees of CNR - USD 95.0 million; and logistics and utilities, etc. - USD 37.7 million). TOTAL: TR 238.9 million (USD 316,900). As of December 31, 1998, the balance of still unused Credit proceeds amounts to TR 362.7 million (USD 481,400). Final Report on the Use of the Credit Overall in 1998 an amount of USD 9,736,100 (TR 7,310.2 million) was wire transferred to the Special Account of the MOF and the following expenditures were paid as of December 31, 1998: 1 . Indebtedness of the republican budget regarding compensatory payments, pensions and allowances - TR 5,103.4 million ( USD 6,800,000), including: (a) Compensatory payments and allowances: In this regard, an amount of TR 4,482.9 million (USD 5,971,100) was used. This constitutes 61.3% of the total utilized amount. The proceeds were disbursed in two phases to the local Hukumats. The financial bodies at the sites were making payments directly in accordance with the recommendations of the Ministry of Finance. The total number of beneficiaries of compensatory payments amounted to 1,317,000 with major portion of these payments allocated for children of vulnerable citizens. For assessment of the work of local financial departments and efficiency of coverage of such expenditures, the PCU together with a group of specialists from the World Bank conducted a sociological investigation in 12 districts of the Republic. As a result, an aide-memoir was prepared and sent to the MOF. Consequently, the Ministry has taken practical measures for strengthening of control of the use of allocated proceeds (instructive materials were sent to all of the districts and, in some sites, seminars were conducted and responsible persons from the side of MOF were defined). Besides, the heads of several number of local financial institutions have been subjected to administrative penalties for the shortcomings and omissions that were encountered. BENEFIT: These payments have substantially enabled the Government to: - Decrease the accumulated indebtedness in the social sector; - Reduce financial tension on the budget; and - Assist vulnerable groups of the population. (b) Pensions As a result of the accumulation of debts on payment of pensions to the pensioners, workers of interior departments, defense and security systems, a total amount of TR 620.5 million (USD 820,400) was disbursed in two stages 20  for coverage of indebtedness of the republican budget. These payments were made through the accounts of the Ministry of Security, the Ministry of Interior, the Ministry of Defense, State Committee on Protection of Border, Customs Committee. In several Hukumats of the districts, pensions were paid to 6,600 pensioners. This was a very effective input for the support of this class of the population and serves as an important indicator of trust in the Government in strengthening the peace process. 2. For coverage of expenditures related to the support and strengthening of peace process and execution of terms and conditions set forth in General Peace Accord a total amount of TR 1,844 million (USD 2,454,700), which is equivalent to 25.2% of the total cost under this Project. Expenditures were made through three tranches on the basis of documentation certifying the utilization of the expenses. Out of the first tranche, the MOF paid all of the indebtedness related to repatriation and demobilization of the UTO combatants and expenses related to the negotiation stages of the peace process. Consequently, it has been determined that those documents certifying all of the indicated expenses will be considered for payments subject to the respective permission of the Government of the Republic of Tajikistan and the approval of the CNR). As a whole, the aforementioned mechanism of work has fostered efficient expenditures and has enabled a reasonable assessment of the needs for expenditures. The expenditures have been mainly addressed to the following: (a) Repatriation and reintegration of refugees and displaced persons A total of TR 495.6 million (USD 659,800) was used for these purposes from three tranches (27% of the total expenses for the peace process). These expenses were mainly related to transportation of refugees and their baggage, food aid, provision of fuel during the winter period and allocation of credit for rehabilitation of their damaged households (initially up to TR 100 thousand, and up to TR 300 thousand later in accordance with the concurrence of the Government). Furthermore, the expenditures of State Immigration Service at check posts and transit points as well as organization of repatriation of refugees from Afghanistan and CIS countries were also covered. OVERALL, these expenditures were an essential aspect ot ettorts and endeavors of the Government in the repatriation of refugees from other countries and promotion of their reintegration into the social life of the country as well as assisting internally displaced persons in relocating to their places of permanent residence. 21  (b) Demobilization and reintegration of UTO combatants For implementation of this essential condition of the Peace Agreement, a total of TR 570.2 million (USD 759,200) (equivalent to 31% from the total cost of support of peace process) was used. Expenditures related to transportation and purchase of fuel enhanced the return of more than 600 combatants from Afghanistan to their permanent assembly places in Gharm and Tajikabad districts. Besides, a total amount of TR 541.7 million was utilized for repair of assembly places of UTO combatants in Leninsky, Kofarnihon, Darband, Tavildara (Tavildara settlement and Childara village), Gharm, Tajikabad, Jirgatal, Vanj and Rushon districts as well as in Khorog and Dushanbe. All of these incurred expenditures were made in accordance with the instructions of the Government of Tajikistan and the requests of the CNR. It necessary to note that during payment of the above-mentioned expenditures, the PCU was periodically informing the Government of its activities. In the letter No. 191 dated 07/09/98, the PCU has submitted information to the Defense Secretary of the Republic of Tajikistan, Mr. Amirqul Azimov, with a request to authorize the controlling bodies of the Government to check for the proper and efficient use of the proceeds given to the district Hukumats. BENEFIT: These expenditures have facilitated establishment of steady peace and stability in the country and maintained security of the population. Problem: The process of integration of UTO ex-combatants into the power structures of the Government may increase the risk of various provocations and reduce the effectiveness of the Government's peace-making efforts. (c) CNR Operations The most important role in implementation of the peace process and rendering of assistance to institutional reforms belongs to the Commission on National Reconciliation, which consists of equal number of members from the Government and the UTO. Therefore, the supply of necessary inputs to and support of CNR operations constituted the core of implementation of the peace process. During the reporting period, a total of TR 778.1 million (USD 1,035,900), equivalent to 42% of total expenditures for peace support, was used. These expenditures include the following: Repair and reconstruction of CNR building - TR 155 million (USD 207,300); Procurement of vehicles, furniture and equipment - TR 161.2 million (USD 214,700); 22  Lodging and boarding of security workers and members of various subcommittees of the CNR in October Hotel (until March of 1998,) Vaksh and Governmental Dacha (until November of 1998) - TR 226.7 million (USD 300,700); Transportation and fuel - TR 132.3 million (USD 176,00); and Logistics (hardware) and utilities (communication charges, CNR building rental, repair of vehicles and other equipment, etc.) - TR 102.9 million (USD 137,200). All of these expenditures were incurred mainly through the accounts and structure of Governmental Dacha on the basis of written requests and confirmations from the CNR authorities. Especially, coverage of expenditures related to the boarding and lodging of various committees before the beginning of the CNR operations at October Hotel as well as to the security group (almost 100 persons) and the CNR members in the Vaksh Hotel and Governmental Dacha was required to guarantee the CNR operations. Achieved Results Post-Conflict Rehabilitation Credit has constituted the core of support of the Government's peace-making efforts and enabled the Government to: *: Remove indebtedness of the state's budget to the social sector that was created during the civil war; reduce the budget deficit and help suffering children and pensioners. This has reduced the negative impact of the war to the vulnerable classes of population; *: Provide final repatriation of the refugees, carry out partial demobilization and reintegration of UTO combatants and support the CNR operations, which has been an important instrument of stability in the country. Conclusions 1. Due to a number of objective and subjective constraints, the country is in a very difficult stage of the peace process. This requires the continuation of the CNR operations for a certain period as well as finalization of the repatriation and demobilization process of the UTO combatants. Furthermore, special attention should be given to the ultimate reintegration and support of repatriated and displaced persons. Therefore, utilization of the remaining balance of these proceeds in the amount of USD 481,400 during the first half of 1999 for the above-mentioned purposes shall be very beneficial and efficient for establishment of peace and national reconciliation. 23  2. For achievement of goals in the actual reintegration of refugees and demobilization of UTO combatants, we need to find supplementary sources of funding for their training and/or retraining as well as employment, such as creation of new work places, especially in rural and mountainous regions of the Republic. 3. It is necessary to note that World Bank personnel, especially Mr. Muhammad Reza Ghasimi, have provided significant assistance during the implementation phase of the Project with their recommendations and guidance. Government of the Republic of Tajikistan 24  ' t -' , VJ 1TAJIKISTAN *.~~~~~' \ To ~~~~~~~MAIN ROADS ,To Tashkent ./pTo Tashkent- MINROD e\\%, -i-t--' 9 t t~ss ,^/ g < pRAILROADS < ffis ;<, g I \ / ,