Moldova - Social Investment Fund Project

Report No. PID6963 Project Name Moldova-Social Investment Fund (@+) Region Europe and Central Asia Sector Human Development Project ID MDPA44840 Borrower Moldova Implementing Agency Moldova Social Investment Fund (MSIF) Mr. Boris Popadiuk, Executive Director Str. Stefan Cel Mare, 124, Chisinau Tel: 373-2-265320, 262410 Fax: 373-2-265-320 Environment Category B Date This PID Prepared Revised September 10, 1998 Date Initial PID Prepared March 11, 1997 Projected Appraisal Date September 28, 1998 Projected Board Date January 28, 1999 Country and Sector Background 1. Moldova is a small, densely populated country situated on the western rim of the Former Soviet Union (FSU), bordered by Ukraine, Russia, and Romania. Over 50t of the ethnically diverse population of 4.4 million lives in rural areas. Two-thirds are ethnic Moldovans, 14 percent Ukrainians, 13 percent Russians, 4 percent Gagauz (Christian Turkic), and 2 percent Bulgarian. Moldova is endowed with rich agricultural land, characterized by high-quality soils and a temperate climate. The country's role in the FSU was as producer and exporter of raw and processed foodstuffs, primarily grapes, wines, fruits, vegetables, grains and livestock. Agriculture and agroprocessing account for an estimated 60t of GDP. Moldova is almost completely dependent on imports for its primary energy requirements and for inputs to manufacturing industries. 2. Although as early as 1990 Moldova initiated a reform program to create a market economy, serious trade shocks, ethnic conflicts, and natural calamities combined to cause a rapid decline in national production. Living standards plummeted during the first half of the 1990s, and availability and quality of social services, such as primary health and education, have declined sharply. Between 1991 - 1994, output and real wages fell by 60 percent, and employment declined from 2 million to 1.3 million people. Today, poverty and income inequality are widespread and growing, particularly in families with children and in rural areas. The official per capita income is less than $US500. The post-Soviet transition period has had a particularly negative impact on rural areas, due largely to the financial problems encountered by large-scale collective farms. 3. Tight fiscal and monetary policy was able to bring down inflation from 1169 in 1994 to 24t in 1995 to less than 10t in 1997. Official GDP growth of 1.39 was recorded in 1997. However, the growth and low inflation figures mask large buildups of  inventories, and the accumulation of debt and payment arrears. 4. The sudden drop in GDP has led to a sharp fall in incomes, consumption, and living standards. Basic infrastructure, such as water, housing, and schools - particularly in rural areas -- are in dire need of rehabilitation. The social protection and social service systems have deteriorated considerably. The failure to restructure social services in line with tighter resource constraints has undermined Government efforts to protect the poor and vulnerable. Fiscal shortfalls have resulted in non-payment or late payments of wages, pensions, and other social assistance. Fundamental reforms are needed in the social sectors, including in pension and social benefit schemes, health, and education. For many families in rural areas, household gardening plots and relatives are the only safety net for survival. Public enterprises and collective farms (kolkhozes) undergoing restructuring are divesting health and educational facilities to local governments, who rarely have the financial resources to operate and maintain them. 5. The Government's overall strategy is to stabilize the economy and sustain economic growth. GoM's reform agenda covers three broad areas: i) macroeconomic stabilization; ii) private sector development; and iii) public sector reform and institution-building. Among other benefits, public sector reform will help the Government better reach out to the truly poor through restructuring of public expenditure priorities, improvement in targeting of social services, and longer-term social sector reforms. The proposed Social Investment Fund project will support these objectives by improving access and quality of services to the rural poor and other vulnerable groups, and by building local capacities and helping empower community-level institutions. Objectives 6. The two major development objectives of the Moldova SIF are to empower and build capacities within local communities and local government, and to improve the quality of basic social and economic services in rural areas. The SIF provides a new model of community-based development, and offers a modest, first opportunity to those who have suffered disproportionately from the economic transition. More specific project objectives include: i) assistance to poor and vulnerable groups through the rehabilitation of small-scale social and economic infrastructure; ii) community participation and skill-building of local level organizations, including NGOs and other associations, in implementing and maintaining microproject facilities and programs; iii) targeted assistance to disadvantaged children and families, including the introduction of community-based health and early childhood educational development programs, and support to alternatives for institutionalized children with special needs; iv) assistance to local governments in public finance and management, including social assets divested from collective farms; v) short-term employment creation; and vi) stimulation of a competitive market for private contractors. Achievement of these objectives should help broaden public support a for accountable local government, economic and social reforms, and the development of civil society. Project Description 7. The proposed SIF will include the following four components: I. Improved Delivery of Basic Services: The objectives of this component are - 2-  to improve rural social and economic services, particularly for the poor, and to build local community capacity and empowerment by using the microproject process as a vehicle. This major component entails the rehabilitation of village-level social and economic infrastructure in rural communities. Many of the infrastructure rehabilitation microprojects will be twinned with programs to improve services, such as early childhood development, primary health care programs, and public health and hygiene education. The Moldova SIF serves as a semi-autonomous, demand-driven financial intermediary which provides technical assistance and transfers small grants (average US$50,000-$65,000) to local community groups (called Implementing Agencies) to take the lead in implementing microprojects which are identified as highest priority by that community. Microproject types include, but are not limited to: kindergartens and schools, local health posts, water supply systems, gas distribution systems, roads and bridges, sewage and sanitation systems, and environmental projects such as reforestation, soil erosion control, and landslide rehabilitation. The community is requested to attend promotional meetings, organize into an elected body (Implementing Agency), complete a microproject application, raise 15t of total project cost, competitively procure works and services, and supervise the implementation and future operation and maintenance of the facility/program. The MSIF provides promotion and information on choices, technical assistance throughout the microproject cycle, supervision oversight, and monitoring and evaluation. The MSIF will enter into performance contracts with Implementing Agencies, or newly created Beneficiary Associations, to provide incentives (through a 2-year matching grant arrangement) to sustain the quality of the microproject services post- investment. II. Strengthened Children's Social Development: The objective of this component is to reach out to an identified vulnerable group in Moldova, institutionalized children, and to support alternatives to state-run institutionalization. In order to help prepare orphanage staff, teachers, parents/foster parents and social workers for smaller, more humane and community-based institutional arrangements, that would improve care and services to children with special needs, the program will support specialized training, technical assistance, small investments in "pilot" model orphanages, and an inventory and assessment of Moldova's institutionalized children that would benefit by living outside state-run orphanages if supported by alternative programs. III. Capacity Building for Community and Local Government: This component is closely linked to Component I and is essential in support of the project's development objective of local capacity-building and empowerment. The program will target community groups, local NGOs, local contractors, and local government, with the objective to build capacity, skills, confidence, and relationships, and foster new community-government partnerships in the management of social and economic infrastructure. The program will include local and foreign training and technical assistance, as well as workshops, seminars, study tours, and field visits. Local governments will receive specialized training in public sector finance and management, including the management of divested social assets, as well as the role of beneficiary associations and NGOs in civil society. IV. Project Management Unit: Support to the PMU or project management unit and its operations is critical to the success of the MSIF. The PMU has already gained experience and multiple skills during the pilot phase, and these will -3 -  be strengthened and broadened. The support program will include: foreign and local training and technical assistance, salaries and wages of PMU consultants, office equipment and supplies, furniture and fixtures, purchase of one vehicle, and operating costs/overhead such as communications, utilities, local travel, vehicle rentals and repairs, fuel, parking fees, insurance, printing costs, and project audits. Financing 8. Total project cost is estimated at $20.3 million. This includes an IDA credit of $US14.8 million, community funding of $US2.2 million, central Government counterpart financing of $US3.0 million, and co-financing by donors of $US300,000. Additional co-financing is being sought from the Swedish government (Sida) and the Dutch government, both of which have provided support during the pilot project. Implementation 9. The following arrangements are underway for the pilot phase which was launched in November of 1997 and is preparing the main project. A joint Government-non-Government National Steering Committee of 10 members, chaired by the Vice Prime Minister, provides the project with broad policy guidance and oversight. GoM established the Moldova SIF and Steering Committee by Charter in May, 1997. The SIF Project Management Unit (SIF PMU) is established under the Vice Prime Minister's office as a semi-autonomous, public organization with local, competitively recruited staff. A U.S.-based NGO in Chisinau, ACDI-Volunteers in Overseas Cooperation and Assistance (VOCA) has provided technical assistance to the SIF through a USAID grant during the pilot phase. An in-residence SIF Technical Advisor, with extensive experience in the region, has also provided technical expertise for the past year. The SIF Operational Guidelines have been drafted and substantially revised during the pilot experience to reflect lessons learned, and to specify detailed processes and procedures for all aspects of the project, including the separation of roles and responsibilities of various parties to minimize any misunderstandings or undue political interference. The SIF PMU maintains strict autonomy to carry out its primary role in day-to-day facilitation and supervision of microproject implementation, undertaken directly by community- based groups or implementing agencies. The PMU plays numerous roles, including: overall project management; promotion of microproject opportunities at the community level; training and TA to local community organizations; supervision of microproject implementation, carried out by implementing agencies (NGOs, microproject committees, parent's-teacher's associations); and monitoring and evaluation of all aspects of the project. A comprehensive, computerized Management Information System (MIS) developed by the Moldova SIF assists project management by tracking each step in the microproject cycle, as well as procurement, disbursement, financial management, and performance indicators. 10. Community groups, targeted by the SIF PMU based on proxy poverty indicators, are expected to organize and participate in the entire microproject cycle, including with a financial and/or in-kind contribution of 15% of total microproject cost. Active participation and community empowerment are a key development objective of the project. The community is responsible for identifying its top priority, and the elected implementing agency, acting on behalf of the community, assumes responsibility for implementing the - 4 -  microproject under the supervision of the SIF PMU. Training and technical assistance is offered to communities. Small, private contractors compete for contracts to undertake the design and rehabilitation works. The pilot phase will have implemented at least 20-25 microprojects in north, central and south Moldova, testing various approaches across sectors. A pipeline of additional microprojects. (estimated 15) will also be prepared during the end of the pilot phase in anticipation of the rapid scaling-up during the main investment phase. The main phase will entail an average of 50 microprojects each year for four years. Sustainability 11. In order to achieve sustainability of rehabilitated microproject facilities, issues of local level institutions, and operation and maintenance are addressed at the earliest design phase. Institutional commitments are required by both local and regional governments, in coordination with sector line agencies, and by community beneficiaries through their willingness to participate fully in the project. As part of the microproject application process, sustainability plans, which delineate financial, management, and institutional roles and responsibilities, are formulated jointly by the community-based implementing agency and the local government. In addition, beneficiary associations will be formed to help raise funds and work with local officials in overseeing the proper operation and maintenance of SIF- assisted facilities and programs. The SIF will mainly target the rehabilitation of existing infrastructure, which typically has an institutional framework already in place. Since the SIF process is demand- driven, with communities determining their own priorities, there are also strong built-in incentives for the community to remain involved in the project's implementation, facility maintenance, and supervision/monitoring. 12. It is anticipated that the majority of microprojects will rehabilitate educational facilities, water supply systems, gas distribution systems, or health posts in some of the country's poorest communities. Partial cost recovery can be initiated for economic infrastructure in particular, but cannot be expected in the short-term. However, an operation and maintenance (O&M) or sustainability plan will be elaborated as part of the microproject proposal before any microproject is approved. Also, MSIF will issue 2-year, post-investment performance contracts for SIF infrastructure to beneficiary associations and will offer a matching grant arrangement as an incentive to raise annual funds for capital repairs, O&M, and improved programming. Lessons learned from past operations in the country/sector 13. The Moldova SIF has benefited in particular from two ongoing SIF operations in Armenia and Georgia, both financed by the Bank. Lessons learned have underscored the importance of at least a one-year pilot phase to test a variety of microproject types and approaches and tailor processes and procedures to country context. To date, the Georgia and Armenia SIFs have guided the Moldova SIF preparation in terms of its institutional design (e.g. Steering Committee, organization and recruitment of SIF PMU), documentation (e.g. Operational Guidelines/Manual, microproject applications, other documentation), baseline studies (e.g. Needs and Capacity Assessment); and focus on upstream training and technical assistance to both the SIF project team and beneficiary communities. -5-  14. The design, preparation and implementation of other investment operations in Moldova indicate that the following factors can help facilitate project implementation: i) simplified project design, including clearly delineated institutional framework; ii) assurance of Government ownership and active participation in project design and preparation activities; iii) attention to Borrower's need for strong initial technical assistance (TA) in project management, including project management, procurement, disbursement, and financial management; iv) plans for intensive supervision efforts by the Bank, especially in the first two years. The SIF has been intensively investing in technical assistance and training, targeted to the PMU, during its grant- funded pilot year. Poverty Category 15. The project has a strong anti-poverty focus. It will specifically target the poor in rural areas, including women and children. Institutionalized children with special needs are also a primary beneficiary group of one of the project's components. Findings from the Bank-assisted Poverty Assessment and the Moldova SIF Needs and Capacity Assessment helped inform the decision on selection of six regions for the pilot project, and the methodology for regional funding allocations and village level targeting during the main project. Resource allocations will be calculated per district based on its percentage of rural population. An average microproject of about $50,000 will generate approximately 20t of project cost in labor opportunities for community residents. Environmental Aspects 16. The project has been classified as a "B" in terms of environmental impact. Projects are small in scale and typically focus on rehabilitation, not new construction. Each project will be subject to project-specific environmental review checklists during application and during appraisal by MSIF to ensure that any negative impacts are addressed by mitigation measures. Some of the microproject types, such as water, sanitation, reforestation, or soil erosion control will have small, positive impacts. Program Objective Categories 17. The proposed Moldova SIF falls primarily under the Bank's Poverty Alleviation program objective, and secondarily under Gender and Private Sector Development. The SIF will help to reduce poverty through improved quality of social services and local, short-term employment generation. The SIF will also specifically focus on disadvantaged women and children. In addition, the objective of capacity-building and empowerment of communities and local government will help future development and poverty reduction programs. To a moderate degree, the project will promote private sector development at the local level through private contracting of microproject design and civil works. Project Benefits and Risks 18. Social and economic infrastructure rehabilitation and improved programs and services will directly benefit local communities, with an emphasis on poor families and their children. The unemployed who can take advantage of short- term job opportunities generated by the SIF will realize cash benefits. - 6 -  Private contractors undertaking civil works will learn new project skills through competitive bidding and stimulate the local cash economy. Local government authorities will benefit from training in improved partnerships and public management (e.g. of divested social asset)s. With an estimated 225 total microproject investments during the pilot and four-year project life, the SIF could directly or indirectly benefit an estimated 450,000 or more rural residents. 19. The most important risks in the SIF are institutional in nature. The first involves the SIF PMU in terms of its proper orientation, technical expertise, project supervision capabilities, and capacity to greatly expand its scope of work to respond to demand. The pilot project has been invaluable in building the skills and capacity of the PMU, including with the assistance of ACDI-VOCA. However, continued technical assistance and training of the PMU, community groups, local government, and contractors will be required in the early years of the project. The second risk involves the willingness and capacity of poor communities to participate in the SIF opportunity. Communities are expected to organize on their own, reach consensus on their priorities, raise substantial funds, and implement microprojects of high technical quality. They cannot benefit from a well-developed local NGO network that could otherwise assist, and they need to work in partnership with local governments. The collection of the 15% community contribution is proving very difficult in many poor communities. The SIF PMU promotion team assesses community needs, motivation, and local government-community relations, and adapts its upstream TA and training accordingly. Pilot experiences have been useful in guiding the level and degree of TA/training needed for different communities. Finally, there is a small risk that the new Government, elected in May, 1998, will not fully understand the SIF, and/or will try to influence the targeting of villages and the microproject process. However, the Operational Guidelines serve as a tool for accountability and full transparency, detailing all the procedures to be carried out for promotion, targeting, implementation, and supervision. The Operational Guidelines will be approved by the National Steering Committee, chaired by the Vice Prime Minister, and will become the project's legal Operational Manual at negotiations. In addition, the SIF's Management Information System (MIS) tracks the overall project, as well as the detailed steps in each microproject cycle, thereby providing timely information for transparency and management decision-making. Contact Point: The InfoShop The World Bank 1818 H Street, N.W. Washington, D.C. 20433 Telephone No. (202)458 5454 Fax No. (202) 522 1500 Task Team Leader: Betsy A. McGean, ECSSD (202) 458-5576 (tel) (202) 522-0696 (fax) Note: This is information on an evolving project. Certain activities and/or components may not be included in the final project. - 7-  Processed by the InfoShop week ending October 16, 1998. These figures are estimates and will be refined during project appraisal. - 8 -  Annex Because this is a Category B project, it may be required that the borrower prepare a separate EA report. If a separate EA report is required, once it is prepared and submitted to the Bank, in accordance with OP 4.01, Environmental Assessment, it will be filed as an annex to the Public Information Document (PID) . If no separate EA report is required, the PID will not contain an EA annex; the findings and recommendations of the EA will be reflected in the body of the PID. 9