Business Case and Intervention Summary
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Business Case for Promotion of Basic Services In Ethiopia 2012 – 2017 7 November 2012 1 Table of contents Ethiopian terms, currency conversion, calendar List of acronyms Intervention summary Strategic case Appraisal case Commercial case Financial case Management case 2 3 6 10 29 71 80 89 Ethiopian terms KEBELE WOREDA Regional district Village Current equivalents (Exchange Rate Effective June 30, 2012) Currency Unit ETB ~17.5 USD 1.00 = = = Ethiopian Birr (ETB) USD 1 £1.58 Calendar Gregorian Calendar 1997/98 1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 Ethiopian Calendar EFY 1990 EFY 1991 EFY 1992 EFY 1993 EFY 1994 EFY 1995 EFY 1996 EFY 1997 Gregorian Calendar 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 Ethiopian Calendar EFY 1998 EFY 1999 EFY 2000 EFY 2001 EFY 2002 EFY 2003 EFY 2004 EFY 2005 2 List of acronyms ABE Alternative Basic Education AfDB African Development Bank ANRS Amhara National Regional State APR Annual Progress Report BG Block Grant BOFED Bureau of Finance and Economic Development CIDA Canadian International Development Agency COPCU Channel One Programmes Coordinating Unit CPIA Country Policy and Institutional Assessment CRC Citizens' Report Card CSA Central Statistical Authority CSO Civil Society Organisation DA Development Assistant DAG Development Assistance Group DBS Direct Budget Support DIP Democratic Institutions Programme DPs Development Partners DR Developing Region DFID Department for International Development (UK) DQAF Data Quality Assessment Framework DSA Decentralisation Support Activity EC European Commission EIO Ethiopian Institution of the Ombudsman EPRDF Ethiopian Peoples' Revolutionary Democratic Front EQ Evaluation Question ERA Ethiopia Roads Authority ESDP Education Sector Development Programme ESW Economic and Sector Work EFY Ethiopian Fiscal Year EMCP Expenditure Management and Control Programme EU European Union FBG Federal Block Grant FDRE Federal Democratic Republic of Ethiopia FEACC Federal Ethics and Anti-Corruption Commission FMOH Federal Ministry of Health FMR Financial Monitoring Report FTA Financial Transparency and Accountability FTAPS Financial Transparency and Accountability Perception Survey GBS General budget support GDP Gross Domestic Product GEQIP General Education Quality Improvement Programme GER Gross Enrolment Rate GoE Government of Ethiopia GPI Gender Parity Index GRM Grievance Redress Mechanism GTP Growth and Transformation Plan HEP Health Extension Policy 3 HEW Health Extension Worker HIV/AIDS Human Immuno-Virus/Acquired Immune Deficiency Syndrome HoF House of Federation HoPR House of Peoples' Representatives HRM Human Resource Management HRW Human Rights Watch HSDP Health Sector Development Programme IBEX Integrated Budgeting and Expenditure ICR Implementation Completion Report IDA International Development Association (World Bank) IFPRI International Food Policy Research Institute IHP International Health Partnership ILICR Intensive Learning ICR ISR Implementation Status and Results Report ITN Insecticide Treated Net JBAR Joint Budget and Aid Review JFA Joint Financing Agreement JGAM Joint Governance Assessment and Measurement JRIS Joint Review and Implementation Support KfW Kreditanstalt für Wiederaufbau (German development bank) LIG Local Investment Grant LG Local Government M4R Managing for Results M&E monitoring and evaluation MDTF Multi Donor Trust Fund MEDAC Ministry of Economic Development and Cooperation MEFF Macroeconomic and Fiscal Framework MIS Management Information System MTR Mid Term Review MCH Maternal and child health MDG Millennium Development Goal MOARD Ministry of Agriculture and Rural Development MOFED Ministry of Finance and Economic Development MOH Ministry of Health MOWA Ministry of Women's Affairs NBE National Bank of Ethiopia NER Net Enrolment Rate NGO Non Governmental Organisation NRM Natural Resources Management O&M Operation and Maintenance OFAG Office of the Federal Auditor General ORAG Office of the Regional Auditor General PAC Public Accounts Committee PAD Project Appraisal Document PANE Poverty Action Network Ethiopia PASDEP Plan for Accelerated and Sustained Development to End Poverty PBS Protection of Basic Services PBS1 Protection of Basic Services first phase (2006–2009) 4 PBS1-AF PBS1 Additional Financing PBS2 Protection of Basic Services second phase (2009–2012) PBS2-AF PBS2 Additional Financing PBS3 Promotion of Basic Services third phase PBSS PBS Secretariat PDO Project Development Objective PER Public Expenditure Review PFMC Public Finances Management Committee PFSA Pharmaceutical Fund and Supply Agency PFR Public Finance Review PIM Programme Implementation Manual POM Programme Operational Manual PPA Public Procurement Agency PRSC Poverty Reduction Support Credit PSCAP Public Sector Capacity Building Programme PSNP Productive Safety Net Program PTE Poverty Targeted Expenditures QSDS Quantitative Service Delivery Survey RED/FS Rural Economic Development/Food Security RPF Resettlement Policy Framework SA Social Accountability SAFE principles Sustainability in additionality, Accountability and fairness, Fiduciary standards, and Effectiveness SDP Sector Development Programme SDPRP Sustainable Development and Poverty Reduction Programme SLMP Sustainable Land Management Programme SNNPR Southern Nations Nationalities and Peoples Region SPG Specific Purpose Grant TOR Terms of Reference TT Task Team TVET Technical and Vocational Education and Training TWG Technical Working Group UNFPA United Nations Population Fund UNICEF United Nations Children's Fund UPE Universal Primary Education WASH Water, Sanitation and Hygiene Programme WB World Bank WCBS Woreda-City Government Benchmarking Survey WHO World Health Organisation WOFED Woreda Office of Finance and Economic Development 5 Business Case and Intervention Summary Intervention Summary Title: Promotion of Basic Services What support will the UK provide? 1. DFID will provide £510 million over 5 years to ensure continued access and improvement of decentralised basic services for education, health, water and sanitation, agriculture and rural roads in Ethiopia as part of the Promotion of Basic Services (PBS) programme; in the first three years of the programme where other development partner commitments are firm this would represent 33% of total development partner contributions and about 12.5% of the total regional recurrent spending on basic services. The proposed components of the programmes are as follows: Component 1: Block grant 2: Systems strengthening - public financial management - management for results - social accountability - trust fund secretariat 3: Results Enhancement Fund (REF) plus verification of REF results (£0.4m) 4. Trust fund management fee plus DFID evaluation (inc evaluation £0.5m) TOTAL Amount (£ million) 425.0 25.0 14 4.5 4.5 2 % of total 83 5 50.4 10 9.6 510 2 100 2. This represents the third phase of DFID support for PBS in Ethiopia.1 PBS 1 (2006-2008) disbursed a total of $1.2 billion of which DFID contributed 30% or £240 million (approximately $378 million). PBS 2 (Nov 2009-Dec 2012) disbursed a total of $1.7 billion of which DFID contributed £270 million (approximately $428 million) or 25%.2 If approved, a contribution from DFID of £510 million over the five years would mean that DFID would continue to play a key role in supporting decentralised services across the country. Further detail of the costs of PBS 3 and the various Government and development partner contributions to its funding is included below in the Strategic Case (see also Table 1.1). 1 The acronym PBS has stood for Protection of Basic Services in previous years. Under the proposed new programme, PBS 3, it stands for Promotion of Basic Services to reflect the increased confidence of development partners in Government priorities and a reduced need to ‘protect’ funding from competing claims. DFID’s contribution included additional financing of £90 million agreed in November 2010 and disbursed on the basis of an extended programme end date of December 2012. 2 6 Why is UK support required? What need are we trying to address? 3. Ethiopia remains one of the world’s poorest countries, with more than 25 million people living in extreme poverty. In the last five years, with substantial support from the UK and others, Ethiopia has: lifted 5 million people out of poverty and reduced child mortality by a quarter; rolled out an innovative social safety net to protect almost 8 million of the most vulnerable people; and put 4 million more children in primary school. 4. But progress has been from a very low baseline and the remaining challenges include: around three million children are still not going to school. Drop out rates remain high at around 49%, and girls’ participation reduces at higher levels of the education system with a gender parity rate of 83% in secondary school; nutritional levels remain low with 29% of children aged 5 years or less moderately or severely underweight female literacy rates are particularly poor for both youth (64% literacy among those aged 15-19) and adults (13% literacy among women aged 41-45) rural access to clean water at only 71% is below levels that might be expected even allowing for Ethiopia’s low overall levels of development access to decent sanitation facilities, a nurse or a midwife are all areas where Ethiopia scores below the average for Africa mortality rates for under-5 year olds at 88 in 1000 have virtually halved since 2000 but there is a long way to go maternal mortality rates (at 676/100,000) have flat-lined in recent years 5. Despite increases from both the Government of Ethiopia (GoE) and development assistance to basic services in recent years, the resources available are currently inadequate. Over the next five years, the government anticipates that an investment of $6.2 billion is required to cover recurrent costs of basic services. While Government and development partner contributions, including DFID if confirmed, would cover most of this investment, it still leaves a financing gap of $1.5 billion (25% of total needs) given development partners’ currently stated intentions. This gap is expected to fall in the short term once development partners have finalized their country strategies and, in the longer term (ie after three years), once IDA17 has been completed and other development partners enter into the next phase of their financial planning. What will we do to tackle this problem? 6. The GoE has demonstrated its ability to deliver real and rapid progress in expanding services, and is focussing efforts on ensuring as many people as possible have access to services at local level and is also committed to ensure gender parity. The UK’s financial support will help enable 2 million children to go to school (of which at least 50% are girls), provide 7.5 million people with access to basic health care, help half a million women to give birth safely, provide an additional ¾ of a million women with access to family planning services and provide an additional 1.4 million people with clean drinking water. This will be done through the support of basic services through PBS and through our direct support to health, education and WASH programmes. 7 Who will be implementing the support we provide? 7. The Government of Ethiopia provides a Federal Block Grant to regional authorities that are in turn mandated to provide basic services. Funds and systems are audited on a quarterly basis. PBS 3 funding will be channelled to sub-national authorities via the block grant. The appraisal concludes that the highest impact and the best value for money can be achieved by channelling UK’s contribution to PBS 3 via a World Bank managed trust fund. DFID will manage a DFID monitoring and evaluation contract (£500,000) and a verification contract (£400,000). The World Bank will be managing a second recipient executed trust fund through which it will channel funds to the Government in respect of the social accountability contract which will in turn be managed on a day-to-day basis through a managing agent. 8. An Assessment of the UK’s Partnership Principles in Ethiopia has been undertaken. We do not consider there to have been a breach in the partnership principles since the last PBS programme approval in 2009. We judge the Government’s commitment to its poverty reduction objectives and financial management to be strong; and some progress has been made in strengthening domestic accountably. However, we judge performance on human rights to be mixed. While the government continues to make progress on economic and social rights, we have continued to raise concerns about limitations on civil and political rights, especially with regard to the closing of political space around the 2010 election, allegations of abuses in the peripheral regions of Ethiopia, and with the Anti-terrorism and Charities and Societies Proclamations. 9. Following consideration of progress against the four partnership principles we have focused our high-level discussions with the government on civil and political rights. However, we do not judge there to have been a “significant violation of human rights or other international obligations” sufficient to warrant a breach. What are the expected results? What will change as a result of our support? 10. The impact of achieving the government’s basic services programme would be “faster progress” towards the health, education, water and poverty MDGs”. In particular, it is expected that over the next five years the following will be achieved The share of children completing primary school will increase to 57% for boys and 54% for girls from current levels of 49% and 46% respectively Nearly all children (96% up from 86%) will have received the penta vaccine (combination of diphtheria, tetanus, pertussis, hepatitis B, and inactivated polio vaccines) Access to potable water within 500 metres for 99% (from 92%) of people living in urban areas; the proportion of the rural population with access to potable water within 1500 metres will increase by nearly a third (from 71% to 92%) Crop yields for cereals, pulses and oil seeds will increase by almost 50 per cent(from 15 to 22 quintals per hectare) Household beneficiaries of agricultural extension services will increase from 8.5million households to 14.9 million 8 A two thirds reduction in the average time needed to reach an all weather road (from 4.5 hours to 1.5 hours) 11. PBS 3 will aim to achieve an outcome of “greater provision of quality basic services” by girls, boys, men and women and will be aligned closely with the World Bank’s Project Development Objective of “expanding access and improving the quality of basic services by funding block grants that ensure adequate staffing and operations, and by strengthening the capacity, transparency, accountability and financial management of local governments”. What are the planned outputs attributable to UK support? 12. There are four Outputs that the programme will deliver: 1. Quantity of recurrent resources (Staffing and Operational & Maintenance) at local levels increased. Increased number of staff and other resources to deliver services. 2. Better fiduciary oversight and operational and allocative efficiency of local level expenditure. This will involve improved public financial management and budget expenditure. 3. Well- functioning Information, Monitoring and Evaluation systems for basic services in place. Improved data and monitoring and evaluations. 4. Well-functioning citizen feedback mechanisms for basic services established. This will improve accountability and improve demand for services. 13. Together with parallel interventions in basic services PBS will help ensure that the UK deliver the following results by 2017: Support 2 million children in primary school (with at least 50% girls) Provide 7.5 million people with access to basic health care Help half a million women to give birth safely Provide an additional three quarters of a million women with access to family planning services Provide an additional 1.4 million people with clean drinking water How will we determine whether the expected results have been achieved? 14. Impact, outcome and output indicators will be monitored through a bi-annual multi-donor review throughout the lifetime of the programme. In a five year time frame, evaluations will take place after two years (ie before the end of GTP) and again after four years (allowing for refinement of the programme in its final year) and then once the programme finishes. 9 Business Case Strategic Case A. Context and need for a DFID intervention A1 The Ethiopian Context 15. Ethiopia matters to the UK for a range of development, foreign policy and security reasons. It is populous, poor, vulnerable but comparatively stable in the Horn of Africa. From a low base, Ethiopia’s growth and expansion of basic services in recent years have been among the most impressive in Africa. The UK Government has an opportunity to make our support more transformational and accelerate Ethiopia’s graduation from aid dependency. The Government of Ethiopia (GoE) is capable and committed to growth and development, and is a proven partner in making rapid progress towards the Millennium Development Goals (MDGs). But its approach to political governance presents both substantive challenges to sustainable development and reputational risks to partners. 16. Ethiopia lies at the heart of an unstable region that has experienced almost continuous conflict and environmental shocks in recent decades. Ethiopia and its neighbours – including Somalia, Sudan and Eritrea – languish at the bottom of the Human Development Index. Poverty and instability in the Horn of Africa are among the drivers of migration to Europe, and also contribute to an environment in which fundamentalism and radicalisation can prosper. UK interests in the region include progress towards the MDGs, resolving conflict, bolstering stability, accelerating sustainable growth and development, mitigating the impact of climate change, tackling migration, and countering terrorism. A stable, secure and prosperous Ethiopia is critical to achieving this. 17. Ethiopia has achieved a strong degree of political stability through decentralised regional government. Since it came to power in 1991, the Ethiopian People’s Revolutionary Democratic Front (EPRDF) has consolidated a capable government that is demonstrably committed to addressing poverty - with an impressive record of pro-poor spending, sound financial management and a strong commitment to fight corruption. The GoE play an important role on global and regional issues, including climate change, reform of the international financial architecture, and global health. Ethiopia has also made some progress toward establishing a functioning democracy, but there is still a long way to go. The UK government continues to raise concerns about limitations on civil and political rights, and the longer term sustainability of Ethiopia’s tightly controlled political model. 18. Ethiopia has made impressive progress towards the MDGs and its own development targets. In the last five years, with substantial support from the UK and others, Ethiopia has: lifted 5 million people out of poverty and reduced child mortality by a quarter; rolled out an innovative social safety net to protect almost 8 million of the most vulnerable people; and put 4 million more children in primary school. Macroeconomic leadership has helped Ethiopia achieve annual growth of over 7 per cent for the last decade although high levels of inflation over the past 12 months threaten future growth. GoE’s Growth and Transformation Plan (GTP) targets a doubling of the economy and achievement of the MDGs by 2015, and a greater (if still limited) role for the private sector and accelerated industrialization. The GTP provides a platform to align UK support with 10 GoE’s ambitions, make it more transformational, and accelerate Ethiopia’s graduation from aid dependency. 19. Despite recent progress, Ethiopia remains one of the world’s poorest countries, with around 25 million people still living in extreme poverty, and most social indicators are below average for Sub-Saharan Africa (see Figure 1.1).3 Ethiopia suffers from recurrent humanitarian crises – the frequency of which has increased in recent years due to deepening vulnerability and the impact of climate change. It is comparatively under-aided, ranking the fourth lowest of all DFID priority countries in SubSaharan Africa. Strong progress towards some of the MDGs is from a very low base, and will be difficult to maintain due to the impact of humanitarian shocks and as the needs of harder to reach populations are prioritised. Population momentum will see the 83 million population increase to around 120 million by 2030, accompanied by rapid urban growth. Ethnic nationalism and underdevelopment fuel instability and insurgency in parts of the Ethiopian periphery, threatening the delivery of Ethiopia’s development objectives. External shocks, including climate change and fluctuating commodity prices, threaten growth. Figure 1.1 Ethiopia lies below the 50th percentile in Africa on a range of social and economic indicators Net primary enrollment Infrastructure index U-5 mortality Primary completion rate Female youth literacy Rural access to better sanitation Undernourishment (% of population) GDP per capita $US Nurses per 000 Rural accesss to improved water 0% 10% 20% 30% 40% 50% Source: African Development Indicators, World Bank, 2011 Ethiopia Demographic and Health Survey, team analysis 20. Ethiopia can absorb more aid and use it well. Partly because of its low per capita GDP, the ODA that Ethiopia receives, while significant in relation to its economy, is less than the median amount in relation to African countries as a whole. On the other hand, as shown below in Section A5 (Figure 1.4) Ethiopia also has strong public sector management and institutions relative to other IDA countries and is thus able to receive and make relatively efficient and effective use of external funding. 21. We judge that financial aid is an appropriate instrument to consider, given Ethiopia’s performance against the UK’s Partnership Principles. An Assessment of the UK’s Partnership Principles in Ethiopia has been undertaken. We do not consider 3 Ethiopia is one of three countries prioritised for early action in the New Alliance for Food Security and Nutrition G8 initiative announced at Camp David this year. 11 there to have been a breach in the partnership principles since the last PBS programme approval in 2009. We judge the Government’s commitment to its poverty reduction objectives and financial management to be strong; and some progress has been made in strengthening domestic accountably. However, we judge performance on human rights to be mixed. While the government continues to make progress on economic and social rights, we have continued to raise concerns about limitations on civil and political rights, especially with regard to the closing of political space around the 2010 election, allegations of abuses in the peripheral regions of Ethiopia, and with the Anti-terrorism and Charities and Societies Proclamations. 22. Following consideration of progress against the four partnership principles we have focused our high-level discussions with the government on civil and political rights. However, we do not judge there to have been a “significant violation of human rights or other international obligations” sufficient to warrant a breach. A2 National policy context 23. The Government of Ethiopia’s overall strategy for boosting growth and reducing poverty, the Growth and Transformation Plan (GTP), 4 places particular emphasis on five sectors that it regards as crucial for poverty alleviation: education, health, agriculture, water and sanitation and rural roads. Delivery of services in these five poverty-central sectors at grassroots levels is the remit of sub-national government, in particular regions and woredas, which face markedly varying challenges depending on their overall level of development5 The overarching targets set out in the GTP (Growth and Transformation Plan), which drive overall government policy, have in turn been further developed in specific plans for each of the basic services. 24. Education. In line with the GTP, the Government has promoted an Education Sector Development Plan to reach MDG goals. Primary school (grade 1-8) net enrolment rose from 68 per cent in 2004/5 to 85 per cent in 2010/2011; and primary school completion rates for girls (grade 8) increased from 34 per cent to 46 per cent during this period. Secondary gross enrolments also improved, from 27% to 38% for grades 9-10, and from 3% to 8% for grades 11-12. Besides enrolment expansion, proxy indicators of education quality suggest some progress: the student-teacher ratio fell from 66:1 in 2004/05 to 51:1 in 2010/11 for primary education, and the ratio for secondary education fell from 51:1 to 36:1. 25. Education is making good progress towards the MDGs. However, despite considerable improvements in access to education and inputs made available for primary education delivery, significant efforts continue to be needed for the government to reach the MDG goal of universal primary education, especially with respect to quality. Despite increases 4 Since 2003/4 the Government has pursued a series of development plans: the Sustainable Development and Poverty Reduction Plan covering the period 2002/3-2004/5; the Plan for Accelerated and Sustainable Development to End Poverty (PASDEP) covering 2005/6-2008/09; and the Growth and Transformation Plan (GTP) covering the period 2010/11 to 2014/15. 5 In practice regions have retained responsibility for: setting standards for primary and secondary education and regional health; vocational and technical colleges, teacher training colleges, middle schools; construction and maintenance of hospitals; setting policy for regional water resource development and protection; the second cycle of secondary education; implementing civil service reform at regional levels. Woredas have generally been assigned responsibility for: provision of primary and secondary education up to 10 th grade; provision of primary health care (health posts and health centres); construction and maintenance of woreda roads and access roads to kebeles; drinking water supply; provision of agricultural extension services; woreda administration. 12 overall, progress on education access has slowed over the last three years. Differences in the level of educational services and outcomes differ markedly across regions and within regions. For example rural woredas that are relatively food secure exhibit gross enrolment rates in primary education of 80% while food insecure woredas exhibit average rates of 49%.6 One of the Government’s key instruments for responding to the challenges of improving the quality of primary and secondary education is the General Education Quality Improvement Programme, supported by DFID, along with the PBS programme. 26. Health. In line with the GTP and Health Sector Development Plans, the Government has been making strong efforts to provide health services for local communities, achieving impressive results in service expansion. Between 2005 and 2010, the number of health posts rose from 3200 to 14,416; the number of health centres increased from 519 to 2,689; and public hospitals rose from 79 to 111. It has also increased the number of health staff employing and training over 34,000 health extension workers and training 1,500 midwifes per year. 27. As a result of these expanded health facilities, Ethiopia has shown impressive improvements in key reproductive and child health indicators between 2005 and 2010, measured primarily through the Ethiopia Demographic and Health Survey (EDHS). Contraceptive prevalence increased to 29 percent from 15 percent and coverage of at least one antenatal visit reached 34 percent from a baseline of 28 percent. Remarkable improvements have been achieved in the under-5 mortality rate, with the rate declining from 123 (per 1000 live births) in 2005 to 88 per 1000 live births in 2010. Infant mortality dropped from 77 to 59. 28. Despite these improvements, the country faces challenges in maternal mortality. Skilled delivery is very low at 10 percent in 2011 (up from 6 percent in 2005 (EDHS)). Maternal mortality is high at 676 per 100,000 live births making achievement of the maternal mortality MDG very unlikely. Regional differences are stark: for example measles vaccination rates are 30% in Afar but 56% in the country as a whole; contraceptive prevalence rates in Somali are 9% but 29% in the country as a whole. Tackling regional differences and bringing down the rate of maternal mortality is a central objective of DFID’s support for the Health Sector Development Programme as well as its support for health basic services more generally. 29. Water and Sanitation. By 2010, the proportion of the rural population with access to potable water rose to 65.8 percent, from 46 percent in 2006. The GoE aim to achieve near universal access to water supply in urban areas at the end of its implementation period in 2017 and 92% in rural areas. 30. The slow pace of implementing the integration between water supply and sanitation institutions is due among others to capacity limitation at the local levels. The lack of a well-developed monitoring and evaluation system is also a constraint for acquiring reliable sector data for planning and effective monitoring. Continuation of the assistance provided to the establishment and rolling out of MIS for the Water Supply, Sanitation, and hygiene (WASH) sector is essential. The effect on women and girls is a key area that defines this but data has yet to fully realize its impact. 31. Agriculture and Natural Resources. The GTP continues the Government’s long6 Public Finance Review (2010),World Bank, p60 13 standing focus on agriculture and smallholder farming. The sector remains crucially important for the economy, especially employment, poverty reduction and food security and will be central to the implementation of the country's ambitious plans for a Climate Resilient Green Economy (CRGE). The GTP aims to maintain the improvements in agricultural productivity of the last years: yield per hectare rose to 17.6 quintals in 2011 from 15.0 in 2007. (Ethiopia has recorded rapid improvements in crop production over time. For example between 1991 and 2001 Ethiopia performance in improved crop production placed it in the top 20% of African countries.7) At the level of basic services ie at sub-national, and particularly woreda levels, the government’s growth strategy relies heavily on the system of development agents, ie agricultural extension agents providing advice to small-holder farmers. 32. Roads. As for the other basic service components of the five poverty-central sectors, in its GTP and Road Sector Development Plan Phase 4, the Government makes a strong commitment to improving access to rural roads, along with improvement and maintenance of the main and rural road networks. The average distance to an all-weather road decreased to 3.5 hours in 2011 from 4.5 hours in 2007. The Government’s plan provides an opportunity to transform the road sector by significantly increasing rural accessibility and improving the condition and standard of Ethiopia’s road network. The Government is embarking on a Universal Rural Road Access Program (URRAP), an ambitious program that aims to connect all kebeles by all-weather roads, providing yearround access to meet the needs of rural communities. 33. For this ambitious roads sector plan to provide sustained rural transport services, it will need to include a financing and administrative plan to maintain rural roads. That sustainable roads network will require local roads sector personnel, sustainable woredalevel resources for maintenance and upkeep, as well as improved woreda capacity to administer contracts for roads maintenance. 34. Gender. There are currently 10.4 million girls aged 10-19 in Ethiopia, of whom 6.9 million live on less that US$2 a day and an estimated 4 million are under the national poverty line. Being born a girl in Ethiopia is a major indicator of disadvantage. Within widespread and extreme chronic poverty in Ethiopia, when compared to boys in similar circumstances, girls in Ethiopia face high barriers to access services, assets and additional challenges to forging a route out of poverty. For example: Girls have less access to education and health services: While over 80 per cent of girls nationwide are now enrolled in primary school, only 16% are enrolled in secondary school. Girls have less access to legal services: Nationwide, 15% urban girls (12-24) who had been sexually abused sought medical care and 22% sought legal assistance. 7% of rural girls sought medical care and less than less than 1% sought legal assistance. Ethiopia continues to have one of the highest reported rates in the world of physical violence by male towards female partners. 74% of Ethiopia women have been circumcised. Ethiopian girls have a 63% chance of being married by the time they are 18. 35. Tackling these challenges will require a major effort. The Nike Foundation estimates that only 2 cents in every dollar of Official Development Assistance goes to adolescent girls and yet girls can play a central role in breaking intergenerational cycles of poverty. 7 World Bank, African Development Indicators, 2011 14 Investing in their health, education and welfare will deliver dividends for their children. The cost of not reaching adolescent girls is high, limiting progress toward development goals. For example, the 4.5 million girls who are denied an education are costing the Ethiopian economy an estimated $582 million per year. 36. The Government of Ethiopia (GoE) recognises in its Growth and Transformation Plan (GTP) (2011-2016) the potentially profound effect of supporting and harnessing the contribution of women and young people to the speed, equity and sustainability of national growth and development. Promoting gender and youth empowerment is one of the seven GTP strategic pillars. Policies are in place to support this aspiration and gender is mainstreamed in sectoral policies. The Government explicitly tracks progress toward gender specific targets in several of its poverty-central sectors including education, health and agriculture. A3 Decentralized government and funding and the role of PBS 1 and 2 37. Basic service delivery in Ethiopia reflects the decentralized nature of the country’s political structure. The 1995 Constitution stipulates that federal government is responsible, inter alia, for formulating and implementing the country's policies, strategies and plans in respect of overall economic, social and development matters. The constitution also requires that adequate powers be granted to the lowest units of government to enable the people to participate directly in the administration of such units and that any matters that are not expressly reserved to federal government are the responsibility of state or regional government. 38. With respect to the Government’s five poverty-relevant sectors, it is the regions and woredas that are responsible for delivering basic services in these sectors, funded through a combination of the Federal Block Grant, sub-national revenues and other external assistance. The corresponding federal ministries are responsible for developing overall strategic frameworks (translating the GTP into sector-specific actions), certain high level or complex interventions (eg universities, tertiary hospitals, etc), centralized procurement based on cost-efficiency considerations, and the administration of specific purpose grants, often externally funded, that are earmarked and provided to regions. Examples of sector specific grants include the General Educational Quality Improvement Programme, the Federal Ministry of Health MDG Performance Fund and the Agricultural Sector Development Programme. 39. The Federal Block Grant (FBG) has been the principal means by which GoE ensures that basic services are adequately funded. It provides resources to the regional and local governments (woredas) in a formula based allocation system, which enables the subnational governments to undertake the activities for which they have been given responsibility, including notably, the delivery of basic social services. This formula has recently been revised and is described further below in section A6. 40. The first and second Protection of Basic Services programmes, PBS 1 (2006-2009) and PBS 2 (2009-2012) played a very significant role in supporting the GoE through its contributions to the block grant, its support for local financial, fiduciary and local governance systems, and the opportunity it afforded for high level dialogue between the 15 GoE and development partners including DFID. 41. During 2006/7 to 2011/12 PBS 1 and 2 funded up to 65% of total recurrent expenditure at regional levels. Approximately two thirds of regional funds were transferred by regional governments to woredas to fund basic services particularly salaries of key workers such as teachers, health extension workers, agricultural extension agents and technicians working on roads and water supply. During the same period there was a remarkable improvement in welfare indicators at woreda level. To illustrate this Figure 1.2 below shows how a typical woreda of approximately 100,000 people saw a marked improvement during this period in the basic indicators most influenced by the services funded by PBS 1 and 2 , through the block grant, and delivered by woredas. The specific outputs of PBS 1 and 2 are further detailed in the Appraisal Case as evidence in support of a further contribution to the FBG together with systems strengthening. 42. PBS 1 and 2 also included important components aimed at strengthening sub-national financial, fiduciary and governance systems including a social accountability component that was included in the first phase of the PBS project (beginning in 2006) due to the uncertain political environment following the 2005 national elections and which is now the largest programme of its kind in Africa. Figure 1.2 During the life of PBS 1 and PBS 2 a typical woreda saw major improvements in welfare in areas directly affected by basic service provision 2005 21,148 2010 25,502 Change 4354 Skilled deliveries 207 587 380 Health centres 0.6 3 2.4 1894 1395 -539 23 20 -3 People accessing potable water 35,000 66,000 31,000 Living within 2km of a road 17,000 27,000 10,000 ca 0 55 ca 55 # enrolled in primary school U-5 deaths Mothers dying in childbirth Agriculture field advisors A woreda containing 100,000 people (about the average for the Ethiopia as a whole) would include the following social groups: •about 48,000 males and 52,000 females •15,400 children aged less than 5 years old •31,100 children of primary school age •11,000 adults aged over 44 years old Source: DHS 2011; MDGs, DFID Ethiopia, team analysis A4 Development partner-supported programs relying on the block grant 16 43. A number of government/ DP-supported programmes rely on block grant funding to pay the salaries and hire the workers needed to deliver basic services. As shown in Figure 1.3 there are a number of sector programmes to improve the quality of the basic services which are dependent on the resources that flow from the Federal block Grant to the regions and woredas to support recurrent expenditure especially salaries for key workers in the basic services. These include: General Education Quality Improvement Programme (GEQIP) The Federal Ministry of Health MDG Fund (MDG) Productive Safety Net Programme (PSNP) Agricultural Growth Programme (AGP) Urban and Local Government Development Project (ULGDP) Water Supply, Sanitation and Hygiene Programme (WASH) Public Sector Capacity Building Programme (PSCAP) Democratic Institution Programme (DIP) Figure 1.3 The federal block grant (FBG) touches on and enhances a number of existing programs FBG Description Description •targets improvement in overall quality of general education •pooled-funding from: IDA, Education for All – Fast Track Initiative Catalytic Fund (EFA-FTI CF), MDTF GEQIP* PSCAP* •WB funded programme •supports government’s capacity for planning, expenditure management and operational efficiency at various tiers of government •supports Health Sector Development Programme (excl salaries) •finances procurement of essential commodities, plus training, equipment and access to, and quality of, services MDG* DIP* •designed to strengthen the capacity of key Democratic Institutions (DI) •pooled into a single pooled fund •supported by several donors and coordinated by UNDP The PSNP provides resources to chronically food insecure households via payments to able-bodied members for work on laborintensive public works and via Direct Support to incapacitated households PSNP* SSCR* •supports Ministry of the Civil Service (MCS) •also intended to facilitate, coordinate and administer DFID’s programme of support to civil service reform (CSR) in Ethiopia •strengthens value chains of commodities •enhances farmer participation in planning and implementing investment programs •support to farmer organizations •strengthens enabling environment AGP ULGDP •supports improved performance in the planning, delivery and sustained provision of priority municipal services and Infrastructure by urban local governments •aims to provide universal integrated access to safe water, sanitation, hygiene by 2015 •on-budget funding to regions and woredas WASH* Roads •there are currently no donor-supported programs funding rural roads although AfDB and EU are funding highways * Supported by DFID 17 A5 Public sector expenditure management systems and institutions 44. Transparency, public financial management (PFM), monitoring and evaluation (M&E) and social accountability in Ethiopia have all improved but more remains to be done. The World Bank’s Country Policy and Institutional Assessment suggests that overall public sector management and institutions in Ethiopia is relatively strong (see Figure 1.4). 45. As shown in Figure 1.4 below the World Bank’s Country Policy and Institutional Assessment ratings suggests that in a number of areas that are core to basic service provision Ethiopia ranks above other IDA-eligible countries (ie those countries who are eligible to access concessional funding from the World Bank). Ethiopia scores particularly highly in terms of its public sector management and institutions notably the quality of public administration and of budget and financial planning, although there is work to be done in the areas of transparency and accountability. The country’s economic management is also highly rated particularly its fiscal and debt policy although its macroeconomic management is somewhat below average according to the ratings. The GoE’s policies for social inclusion and equity also score highly particularly in terms of the equitable distribution of resources although the country still lags in terms of gender equality. Figure 1.4 Country Policy and Institutional Assessment (CPIA) Ratings World Bank (CPIA) 2010 ranking of Ethiopia government policies compared with IDA = Ethiopia average = IDA average Economic management Policies for social inclusion and equity 4.5 Equity of Public Resource Use 4.0 Fiscal Policy 4.0 Building Human Resour. Debt Policy 3.5 Macro. Mgt. 3.5 0 1 2 3 4 5 Structural policies 3.5 Financial Sector 3.0 Trade 3.0 1 Pol. & Instit. for Environ. Sustain. 3.0 Gender Equality 3.0 0 1 2 3 4 5 Public sector management and institutions Bus. Reg. Env. 0 3.5 Social Protection & Labor 2 3 Quality of Public Admin. 3.5 Quality of Budget. & Finan. Mgt. 3.5 Effic.of Revenue Mobil. 3.5 3.0 Property Rights & Rule-based… 2.5 Transpar., Account. & … 4 5 0 1 2 3 4 5 46. Progress has not always been even however. From 1996 to 2007 under the government 18 designed Civil Service Reform Program (CSRP), the core financial systems of budgets, accounts, disbursements and financial information systems were transformed and seventy-two thousand staff trained in their use. By the end of 2007 the government had implemented two far-reaching and complementary reforms—second stage decentralization to woredas and financial management.8 Subsequently progress in the area of public financial management slowed for a range of reasons including reform programme design and capacity deficiencies in key administrative units in Government. To restore the pace of reform the World Bank’s evaluation of PFM in 2011, DFID’s own Project Completion Review for PBS 2, and other reviews of PFM, have proposed a number of policy changes and practical programme implementation, notably in the following areas: strengthening woreda-level fiduciary infrastructure, establishing woreda Support Units (WSUs) at zones to provide hands-on support to woredas on PFM issues, strengthening internal control and procurement systems at woredas, improving service delivery sectors, and developing woreda-focused action plans to strengthen that system ensuring that financial management automation is available for woredas and that the IBEX system (an integrated and computerized budgeting and expenditure system using standardized, nation-wide account codes and modified to meet the needs of the Ethiopian public sector) is the backbone of that automated system enhancing staff capacity within woredas: currently, there is high staff turnover, estimated to be 25 percent per annum, where PFM (and other) woreda staff frequently move into and out of their positions; often staff without fiduciary training take on financial management or procurement tasks strengthening external audit and increasing the coverage of woredas from its current level of 24 percent of woredas Strengthening the accountability committees of the Federal Parliament and the Regional Councils and empowering woreda councils so that accountability is entrenched at local levels. 47. In the area of planning and budgeting, the Government worked with DPs during PBS2 to produce Public Finance Reviews that examined the allocation of public expenditure and execution rates. Execution rates at regional levels have also been monitored as part of the regular JRIS process. But regional governments have themselves called for further support in improving their capacity to properly plan and budget regional expenditure programmes and there is clearly scope for additional measures to enhance performance in this respect.9 48. Progress has been made in recent years to improve the transparency of local government budgets and provide opportunities for citizens to give feedback. 100% of woredas have posted budgets in public places; more than 3,000 local government officials have been trained in tools to explain budgets and solicit citizen feedback and more than 80,000 citizens have received budget awareness training. However representation of women in this process has been low especially in the rural areas and in particular regions. 49. M&E systems have also improved in recent years. The design, and successful piloting, of 8 Petersen et al, The Performance of Financial Reporting of the Productive Safety Nets Programme and PBS 2 Programme, Report of World Bank Mission to Ethiopia. 9 May 2011 workshop of regional governments on woreda block grant 19 the Ethiopian Data Quality Assessment Framework (EDQAF) are assisting the sectoral Management Information Systems (MIS) to produce quality, timely and reliable data. Through the implementation of EDQAF, statistical information generated from line ministries can be assessed for quality, relevance, accuracy and timeliness, and thereby improve the evidence base for decision-making in the country. 50. However more remains to be done. At a decentralized level there is a need to strengthen M&E systems including both human resources (ie training on results-based management) and building organizational infrastructure for M&E (software design, M&E manuals, ICTs, etc). There is also a need to support utilization of facility information for planning purposes at regions (BoFEDs and sectoral Bureaus). At a central level there is a need to continue strengthening units where data is collated, organized, processed, analyzed, and reported to decision makers and stakeholders to ensure its quality and timeliness. This includes the Welfare Monitoring Unit of MOFED, which pools and coordinates information from the various sectors in monitoring progress toward GTP targets. The ability of line ministries to access, track, and utilize information on program budgets, expenditures, and overall financing is also compromised by limited access to central data storage facilities at MOFED. 51. A major effort was made during recent years to strengthen social accountability in Ethiopia and in particular to: strengthen the use of social accountability tools, approaches and mechanisms by (a) citizens, (b) civil society organizations (CSOs), (c) local government officials and (d) service providers as a means to make basic service delivery more effective, efficient, responsive and accountable. This involved a wide range of activities as part of a social accountability programme that is one of the largest in Africa. Key initiatives included: wide dissemination of social accountability International Best Practices among citizens, government officials & policy –makers, and citizens’ groups including CSOs, CBO, etc. development of Social Accountability tools with indicators of basic service delivery performance mobilisation of community groups and citizens and awareness raising about their constitutional rights to basic public services and accountability of service providers to them training of users and service providers in the use of social accountability tools interface meetings organized between service providers and users development of Joint Reform Agenda/Action Plans between citizens/community representatives and service providers 52. Progress in this area has not been without its setbacks. In January 2009, Parliament passed the Charities and Societies Proclamation, which provided a new legal framework for all CSO activities. The stated purpose of the law was to “aid and facilitate the role of charities and societies in the overall development of the Ethiopian people.” The law was widely criticized, however, among the DP and NGO communities because it restricts civil society organizations (CSOs) with foreign funding from activity in political governance and rights-based advocacy. To allay concerns about how the CSO law might hinder PBS social accountability activities, the Government furnished to DPs a letter in February 2009 assuring that the law would not impede implementation of PBS social accountability activities in the delivery of basic services. The Government and DPs also agreed that implementation of the CSO law would be reviewed regularly as part of the broader 20 Development Assistance Group’s High Level Forum. 53. The Government has continued to honour this agreement and social accountability activities under PBS have proceeded without hindrance from the CSO law. In addition, through the PBS Financial Transparency and Accountability work, the Government has taken significant steps to increase local citizen awareness and involvement in budgeting and feedback to service providers. A Grievance Redress Mechanism has also been instituted that is aimed at strengthening the impartial review of citizen complaints in cases of maladministration related to provision of public basic services and the provision of redress where appropriate. 54. Looking forward there is a need to intensify and deepen the progress made to date and scale up what has been achieved. In particular this would include: (a) increasing the geographic coverage incrementally to cover more woredas depending on resource availability, (b) adding to the number of social accountability tools used for the assessment of basic services, (c) expanding number of sectors covered, (d) making the program inclusive by increasing the number and range of stakeholders in the dialogue and implementation of the social accountability program, and (e) when feasible, sharing learning gained from implementation with non-SAP woredas and other programs. A6 Ethiopian fiscal context 55. Under the latest Medium Term Expenditure and Fiscal Framework, the Government faces a significant projected overall average fiscal deficit of 1.6% of GDP (after grants) during the life of PBS 3 which it expects to finance through a combination of internal and external borrowing (see Table 1.1 below). Table 1.1 21 Medium Term Fiscal Framework 2009/10 2010/11 Total revenue including grants Domestic revenue Tax revenue Non-tax revenue Grants DFID 1/ Total expenditure Recurrent Capital Poverty oriented Expenditure deficit incl grants Deficit financing External net Domestic net 70897 54561 43318 11243 16336 1484.2 73056 32994 40062 15117 -2159 2159 -229 2387 95305 70583 58986 11597 24722 1722.1 94585 41287 53297 19310 720 -720 -1351 631 Total revenue including grants Domestic revenue Tax revenue Non-tax revenue Grants DFID Total expenditure Recurrent Capital Poverty oriented Expenditure deficit incl grants Deficit financing External net Domestic net Memo: birr/$ GDP Real GDP growth Federal Block Grant Rec basic services (excl Addis Ababa)2/ Recurrent basic services (BS) as % of GDP Recurrent BS as % of total exp 3/ DFID as % of basic services 18.5% 14.2% 11.3% 2.9% 4.3% 0.4% 19.1% 8.6% 10.5% 3.9% -0.6% 0.6% -0.1% 0.6% 18.6% 13.8% 11.5% 2.3% 4.8% 0.3% 18.5% 8.1% 10.4% 3.8% 0.1% -0.1% -0.3% 0.1% 2011/12 2012/13 (millions of birr) 129504 151025 101223 121317 87132 107761 14090 13556 28281 29708 1769.0 2947.8 140110 164668 57755 69022 82354 95646 26087 32621 -10606 -13643 10606 13643 0 0 10606 13643 (percent of GDP) 21.6% 21.0% 16.9% 16.8% 14.6% 15.0% 2.4% 1.9% 4.7% 4.1% 0.3% 0.4% 23.4% 22.9% 9.6% 9.6% 13.8% 13.3% 4.4% 4.5% -1.8% -1.9% 1.8% 1.9% 0.0% 0.0% 1.8% 1.9% 2013/14 2014/15 2015/16 2016/17 182310 149700 134375 15325 32609 3095.2 196586 80961 115625 39043 -14277 14277 0 14277 215011 184930 166966 17964 30081 3250.0 231414 94591 136823 46066 -16403 16403 0 16403 253625 225509 205184 20325 274764 248210 226747 21463 28116 26555 3412.5 268996 111427 157568 54128 -15371 15371 0 15371 3583.1 292569 128021 164548 63982 -17805 17805 0 17805 21.6% 17.7% 15.9% 1.8% 3.9% 0.4% 23.3% 9.6% 13.7% 4.6% -1.7% 1.7% 0.0% 1.7% 21.7% 18.7% 16.9% 1.8% 3.0% 0.3% 23.4% 9.5% 13.8% 4.6% -1.7% 1.7% 0.0% 1.7% 22.0% 19.5% 17.8% 1.8% 2.4% 0.3% 23.3% 9.7% 13.7% 4.7% -1.3% 1.3% 0.0% 1.3% 23.7% 21.4% 19.6% 1.9% 2.3% 0.3% 25.2% 11.0% 14.2% 5.5% -1.5% 1.5% 0.0% 1.5% 12.89 16.11 17.77 18.66 19.59 20.57 21.60 22.68 382939 12.6% 19,556 7,591.6 2.0% 10.4% 19.6% 511157 11.2% 25,556 10,163.2 2.0% 10.7% 16.9% 598565 11.4% 30,556 14,332.2 2.4% 10.2% 12.3% 720104 11.2% 35,556 17,305.6 2.4% 10.5% 17.0% 843962 11.2% 48,556 20,774.6 2.5% 10.6% 14.9% 990812 11.4% 63,556 24,942.2 2.5% 10.8% 13.0% 1154295 10.5% 78,556 29,945.9 2.6% 11.1% 11.4% 1159249 10.5% 93,556 35,959.1 3.1% 12.3% 10.0% Source: GoE's 2012 Medium Term Fiscal Framework, PBS Secretariat, team analysis 1/ Comprises total DFID contribution to PBS3 ie £510m over 5 years 2/ PBS contribution by DPs taken from GoE's MEFF 3/ Calculated as general government minus federal expenditure on basic services less capital spend on basic services less Addis Ababa less approximately 25% for items such as Higher Education, TVET and hospitals 56. The projected deficit itself is premised on an average real GDP growth of 11% through to 2017. If growth were to fall below these rates the deficit facing the government could increase further as would the funding gap for basic services, other things being equal. 57. Based on these projections, the GoE has identified a significant funding gap in its plans to continue supporting basic services. Over the next five years (i.e. from December 2012 to January 7, 2018), the government anticipates that an investment of $6.2 billion (ETB 129 bn) is required to cover the recurrent costs of basic services delivered by regions and woredas. The funding gap for basic services reflects both GoE’s efforts to contribute what it can to the costs of basic services as well as the very significant challenges that remain and in particular the following key factors: 22 - a significant effort by Government both to improve its revenue performance as shown by a ratio of revenue to GDP (16.8%) that - according to the latest Medium Term Expenditure Framework – is improving strongly (up from 12% in 2008) although it is still low relative to comparator countries (35th percentile in Africa)10 a clear effort to prioritize poverty-central sectors: eg the share of government spending on health is high at 11.4% (65th percentile in Africa); spending on education at 23% is even higher (90th percentile for African countries): spending on basic services overall is projected to increase as a share of GDP from about 2.4% of GDP in 2011/12 to over 3% of GDP by the end of 2017 (see Table 1.1) and as a share of total expenditure from 10.2% in 2011/12 to 12.3% in 2017 the ratio of poverty related recurrent expenditure to defence spending has also steadily increased over time (see Figure 1.5). a level of basic service provision that is still far from being met suggesting that the Government’s proposed expenditure on basic services represents a ‘floor’ or minimum threshold: teacher pupil ratios at 1:51 are still poor (18th percentile in Africa) the ratio of nurses to population at 2 per 10000 population (2010 data) is very low (less than 5th percentile in Africa) 58. While Government and development partner contributions, including DFID if confirmed, would cover most of this investment (DFID’s potential contribution representing an increase in absolute terms over previous programmes but a broadly constant share of PBS and the Federal Block Grant in relative terms given the expanded size of the projected spent overall), it still leaves a financing gap of $1.5 billion (25% of the block grant) given development partners currently stated intentions. This gap is expected to fall in the short term once development partners have finalized their country strategies and, in the longer term (ie after three years), once IDA17 has been completed and other development partners enter into the next phase of their financial planning. 59. As part of the Government’s long-term goal to become a middle-income country and graduate from development assistance, the Government recognises that external support for decentralized basic services cannot continue in perpetuity. Over time as the fiscal base increases the Government intends to take on financing of these core government functions, without external assistance. To plan for and progress towards this sustainability, the Government is looking at a modelling and costing exercise in the five sectors to ensure that the current policies will remain affordable over the next fifteen years. Recognizing this limited capital budget available for woreda-level services, the Government has since FY12 (EFY04) put in place an “MDG fund” to support essential local-level infrastructure investments, primarily rural roads and water. In its first year, the MDG fund was allocated ETB 15 billion (approximately USD 900 million). The Government has allocated ETB 20 billion (~USD 1.1 billion) for FY13, ETB 22 billion (~USD 1.2 billion) for EFY06, and plans significant increases beyond that, e.g., ETB 5 billion (~USD 280 million) additional per year. Government’s ambitious aims to raise tax levels more closely aligned with international comparators is welcome: deepening the ‘fiscal contract’ between citizen and state, increasing the government’s internally generated revenues, and if implemented effectively replacing burdensome tax requirements with more efficient ones thereby assisting the private sector. At the same time, Governments’ targets risk deepening rather than widening the tax base as an easier win, and the efficiency and effectiveness of its revenue generation would benefit from: greater analysis to ascertain the true tax-gap and improve understanding on the impact on business of current procedures, in addition to systems strengthening to improve operational efficiency. 10 23 60. To ensure that external funding does not simply crowd out government contributions to the basic sectors the Government has, as set out in the Management Case below (paragraphs 293-4), followed a number of principles including sustainability and additionality. Under these principles the GoE has sought, and will continue to seek, to ensure over time that: the FBG comprises a non-declining share of total expenditure the FBG is non-declining in real terms the share of domestic funding in the FBG is non-declining . Figure 1.5: Ratio of poverty to defence recurrent expenditure 6 5 4 3 2 1 0 2008 2009 2010 2011 2012 2013 2014 2015 61. In practice the Government’s projections are ambitious and premised on projections for GDP growth that are significantly above those of the IMF. Although the downside risk that this represents is assessed as only medium in the risk matrix in the Management Case (reflecting the historic commitment of the GoE to basic services) the impact of a cut in Government support, were it to materialise, would be high. Annex A therefore explores two alternative fiscal scenarios. They are premised on more modest real annual GDP growth rates of between 6% and 8%. (A Joint Staff Advisory Note produced by the IMF and World Bank in October 2011 expressed clear reservations as to the credibility and sustainability of double digit real GDP growth rates as projected by the GTP. These reservations together with longer term assumptions reflected in the 2010 Debt Sustainability Analysis are reflected in the two alternative scenarios.) The scenarios explore the implications of a) maintaining expenditure levels at GTP levels resulting in wider fiscal deficits and b) maintaining the fiscal deficit to GDP ratio at GTP levels resulting in falling expenditure. In all cases (GTP and alternative scenarios) both PBS and DFID contributions represent a declining share of overall recurrent expenditure over time. These scenarios illustrate the likelihood that Ethiopia will continue to require support for its basic services provision in the medium term. While it is uncertain what form this support will take – eg recurrent or capital – the need for support will almost certainly not end in 3 or 5 years time. A further 5 years beyond that, at least, may be required. 62. With respect to external funding, as noted in the risk matrix in Table 5.1 in the Management Case below, the risk of development partners failing to extend their 24 commitments beyond currently stated intentions is assessed as ‘medium’ reflecting on the one hand the strength of donor commitment to PBS in particular and Ethiopia more generally and, on the other hand, a range of factors (fiscal pressures within most DPs, some shifting of priorities, the need to complete country strategies etc). Nevertheless there is a need for predictability of funding for PBS and the impact on poverty in Ethiopia of DPs failing to extend their commitments to PBS would be high. 63. The distribution of resources across regions is determined by a regional formula, revised during 2012 by the House of Federation. The new formula is based on an assessment of revenue potential, expenditure needs, and a disability factor (covering security, federal government related assignments undertaken by regions, weather conditions, cost of service and physical location). The result of the new formula is that developing regions with disproportionately great needs, and/or regions with significant disability factors, are eligible for a greater share of the block grant than suggested by their share of population alone as shown in Figure 1.6. Figure 1.6 Allocation of block grant across regions under 2012 formula compared with distribution of population Leading regions Developing regions City regions City regions: capital Name of Region % of population Regional formula Oromia 37.0% 32.5% Amhara 22.6% 23.3% SNNP 20.5% 20.1% Somali 6.1% 8.2% Tigray 5.9% 7.8% Afar 1.9% 3.2% Benshangul 1.1% 2.1% Gambela 0.4% 1.5% Dire Dawa 0.5% 1.0% Harari 0.2% 1.0% Addis Ababa 3.6% 0.0% Source: DFID Ethiopia meeting with the Speaker of the House of Federation H.E Ato Kassa Teklebirhan , May 2012, and team analysis 64. As noted above these measures have been reinforced with concrete steps to strengthen the fiduciary system stretching from the federal level through regions to woredas. It involves numerous mechanisms to obtain feedback that the standards for decentralized fiduciary probity are maintained and strengthened, including regular financial reports, audits and efforts to strengthen woreda-level fiduciary systems. There has also been an effort by Government to promote greater transparency of budgets and results at all levels. The posting of budget and service delivery standards and results at local levels is working well and the legal frameworks for formal grievance procedures are in place. However the processes need to be further integrated with existing and proposed new opportunities for community discussion and input into public decision making. 25 A7 Feasibility of intervening 65. It is feasible for DFID to support the Government’s drive to further improve basic services in Ethiopia for the following reasons: DFID’s Business Plan (2011-2015), commits to supporting actions to help achieve the MDGs. Given the size of the country and scale of the problem, achieving MDG targets – in health, education, water and food security - in Ethiopia will make a significant contribution to achieving the MDG targets in sub-Saharan Africa and globally. DFID Ethiopia’s operational plan sets out its vision to (i) protect the most vulnerable: by building the resilience of the very poorest by reducing food insecurity and improving livelihoods and security in fragile and/or conflict-affected areas; (ii) consolidate recent gains and help achieve the MDGs: by continuing to support, extend and improve proven programmes to expand access to quality basic services; and (iii) make the impact of the UK’s support more transformational. The GTP’s ambitious goals for growth and poverty reduction can only be achieved if it continues to make rapid progress across the five basic services: supporting basic services is a direct way for DFID to help the Government achieve the development goals set out in the Growth and Transformation Plan. DFID is a trusted partner of the Ethiopian government and a co-chair of a number of working groups under the ongoing PBS 2 programme including the Monitoring and Evaluation working group; continuing to support the Government through its block grant will deepen this relationship. A8 Consequences of not intervening 66. If DFID does not fund the provision of basic services within the five poverty focused sectors the Government of Ethiopia will either cut back on basic service provision or reallocate expenditure from other aspects of its programme. The Government has already articulated the funding gap that exists for basic services which suggests that there is little scope for further reallocation from non-poverty focused sectors. Consequently, unless there was a significant reallocation from within the five povertycentral sectors to fill the gap at basic service level left by DFID non-intervention, there would be a fall back in basic service provision. This would directly impact people at local levels throughout the country directly and indirectly through its impact on other initiatives that depend on regions delivering services funded by the block grant. DFID’s own interventions in the health, water and sanitation and hygiene (WASH) and education would themselves be negatively impacted and reduce the likelihood of meeting its operational targets. B. Impact and Outcome that we expect to achieve 67. Supplementing the core funding of regions and woredas, improving the efficiency of resource allocation within those services and the fiduciary systems underpinning them, and improving the extent to which decision making is informed by quality data and citizen feedback will improve the overall basic service offering of regions and woredas and encourage greater use of those services. Although block grant funding for the basic services is not the only source of funding – eg there are several important sector programmes that complement the block grant and provide non-wage recurrent and capital support – it is a necessary and fundamental input to the objectives of government 26 and development partners across the five basic services. 68. In education for example PBS represents an estimated 53% of total funding. In this respect DFID will build on the recent review by the Independent Commission for Aid Impact (ICAI) of DFID’s education programmes in East Africa which concluded that DFID should do more on quality and recommended that a revision of DFID’s education strategy to ensure learning outcomes are at the heart of programmes. Quality improvement has already been at the heart of DFID’s programming particularly in Ethiopia eg through the flagship General Education Quality Improvement Programme (GEQIP) 2009 – 2013. However DFID has accepted the ICAI recommendation in quality and measuring learning outcomes and has introduced a new indicator in its corporate results framework namely the number of DFID supported countries showing improvement in the proportion of children that can read with sufficient fluency for comprehension. DFID also plans to track reading progress through a USAID supported Early Grade Reading Assessment (EGRA) for which we have a baseline data from the initial assessment in 2010. Specific values for these indicators will be developed for PBS 3. 69. Overall, PBS 3 will expand access and improve the quality of basic services ensuring faster progress towards attainment of the MDGs in Ethiopia. By 2017 PBS 3 will help ensure (in addition to the proficiency indicators mentioned in the above paragraph): The share of children completing primary school will increase to 57% for boys and 54% for girls from current levels of 49% and 46% respectively Nearly all boys and girls (96% up from 86%) have received the penta vaccine (combination of diphtheria, tetanus, pertussis, hepatitis B, and inactivated polio vaccines) Access to potable water within 500 metres for 99% (from 92%) of people (males and females) living in urban areas; the proportion of the rural population with access to potable water within 1500 metres will increase by nearly a third (from 71% to 92% for both males and females) Crop yields for cereals, pulses and oil seeds will increase by almost 50 per cent(from 15 to 22 quintals per hectare) Household beneficiaries of agricultural extension services will increase from 8.5million households to 14.9 million A two thirds reduction in the average time needed to reach an all weather road (from 3.5 hours to 1.5 hours) Citizens who are informed about woreda budget would increase from 19% to 25% on average (with gender specific targets to be developed once a base line has been established) Citizens who report that woreda officials have actively sought the views of people in their kebele on improving quality of basic services would increase from 48% to 55% (with gender specific targets to be developed once a base line has been established) Woredas implementing prior period audit recommendations increased from 16% to 90% 70. Together with parallel interventions in basic services, PBS 3 will help ensure that DFID Ethiopia will deliver the following results by 2017: Support 2 million boys and girls in primary school Provide 7.5 million people with access to basic health care 27 Help half a million women to give birth safely Provide an additional three quarters of a million women with access to family planning services Provide an additional 1.4 million people with clean drinking water. 71. With a DFID contribution to the block grant (and related systems strengthening measures) of up to £100m per year, and assuming other development partners also maintained their contributions at the levels currently anticipated over three years, DFID’s contribution would amount to about 11% of the total Federal block Grant including GoE’s contribution (34% excluding GoE). This in turn would represent a very significant share of overall funding (including special purpose grants and other sector specific funding) and hence an equally significant share of the overall outcome and impact outlined above (estimating the precise share will be undertaken as part of the appraisal case). Thus while these results would not be exclusively attributable to funding for recurrent expenditures it is clear that without this block grant funding, and DFID’s contribution to it, progress across the basic services - including progress in DFID supported programmes would fall back drastically. 28 Appraisal Case A. What are the feasible options that address the need set out in the Strategic case? 72. As set out in the Strategic Case the central plank of the Government of Ethiopia’s plan to reduce poverty is a further major improvement in access to and quality of basic services in each of five sectors that are critical for poverty reduction. These services correspond to the services delivered at woreda level and comprise the following: provision of primary and secondary education up to 10th grade provision of primary health care (health posts and health centres) construction and maintenance of woreda roads and access roads to kebeles drinking water supply provision of agricultural extension services A.1 Theory of change 73. The logic of how the GoE’s poverty reduction objectives can best be met is set out in the following theory of change: In order to meet the GoE’s goal of poverty reduction in Ethiopia and faster progress towards achievements of the Millennium Development Goals (the desired ‘impact’) it will be necessary to bring about a significant increase in the usage of good quality basic services (the outcome). This in turn will require better quality services to be available at regional and woreda levels and, at the same time, data and feedback to enable good decisions about the level and allocation of resources. The most significant requirement to enable this will be substantial additional public spending. But making public spending more efficient and effective - so that the returns from this expenditure are optimised and improved upon - will require strengthened management systems, particularly at woreda level, for the planning, budgeting and delivery of services. In addition, in order to ensure that data and feedback inform decision making in an ongoing way a better disaggregated evidence base is needed to measure results and to learn lessons. Finally the needs of citizens have also to be reflected in how budgets are formulated and executed through the identification of priorities: processes and capabilities have to be established for this ‘voice’ to be heard and to be responded to by the respective delivery agents. Starting to establish a social compact between citizens and the state is an essential pre-condition to ensure that resources are well-managed, correctly targeted, and the intended results actually achieved. 29 74. This theory of change is summarized in the diagram below: Figure 2.1 Theory of change including transmission assumptions (external risks in management case) Inputs Financing for basic service delivery Financing for improved quality of PFM, planning and budgeting for basic services Outputs Quantity of recurrent resources (staffing and O&M) at local levels maintained 1/ Better fiduciary oversight and oper’l and allocative efficiency of local level expenditure •block grant financing results in more recurrent resources at local levels •financing improved PFM, planning and budgeting leads to more efficient expenditure Financing for basic service M&E system strengthening Well-functioning M&E systems for basic services Financing for social accountability [in basic services] mechanisms Well-functioning citizen feedback mechanisms for basic services •financing for fiduciary and M&E systems leads to better functioning fiduciary and M&E systems •financing social accountability mechanisms leads to better functioning citizen feedback 1/ Local signifies regional and woreda levels Intermediate Outcomes Outcomes Impact Better quality of basic services available at regional and woreda levels •appropriate quantity of recurrent resources and better expenditure management leads to better quality services Greater use of quality basic services •better services result in greater use of services Data and feedback inform revisions to level and allocation of recurrent resources at local levels. •better M&E systems generate data that is used by decision makers •stronger citizen feedback mechanisms result in better informed expenditure decisions Further progress towards relevant MDGs resulting in poverty reduction •greater use of basic services leads to improved MDGs and reduced poverty = transmission 3 to be assumptions evidenced A2. Assumptions Underlying the Theory of Change 75. The theory of change makes explicit assumptions at each stage of the chain of logic. These assumptions are detailed below together with underpinning evidence. Outcome to impact: “greater use of basic services leads to accelerated progress towards achievement of MDGs and reduced poverty” (evidence = strong) 76. Evidence from PBS 2 provides strong evidence that a large increase in basic service provision can lead to rapid progress toward the MDGs. For example during the period 2005 to 2010: the ratio of primary school pupils to teachers fell from 66:1 to 51:1 as the number of teachers increased by 100,000. At the same time net primary school enrolment increased from 78% to 85% and the gender parity index improved from 0.83 to 0.94 health centres increased from 519 to 2689 so that each woreda’s access to a centre went up from less than one to nearly three; the number of health extension workers increased by 32,000 and skilled births attended increased from 6% to 17%. During this period the 30 under-5 mortality rate fell from 123 per 1000 to 88 per 1000 these increases in basic services and social outcomes, together with others such as the increased share of population with access to improved water increased from 35% to 44% resulted in a fall in measures of poverty. In particular the share of children aged under-5 who is moderately or severely malnourished fell from 35% to 29%. 77. Other evidence is available in reviews of experience elsewhere. According to a survey of the literature conducted by ODI (2004) basic health, education and water as well as safety, security and justice services can contribute to protecting against three main kinds of vulnerability: forms of life cycle vulnerability for example affecting infants and children, pregnant women and older people; structural vulnerability for example based on gender, ethnicity or ability; and vulnerability to economic, environmental, health and political shocks. The extent to which basic services can reduce vulnerability depends on their accessibility to poor and vulnerable people and their effectiveness in serving them.11 78. There is also significant evidence that aims to demonstrate the importance of agriculture and rural roads for poverty alleviation in Africa. For example the World Bank (2008) state that “while raising agricultural productivity in Africa is hardly going to be sufficient for eliminating poverty in the longer term, it is arguably the most important problem to address at the outset, and may even prove to be necessary for sustained progress in other areas of economic and social policy … with the levels of poverty prevailing in SSA today, and the sub-continent’s (still) relatively abundant supply of (not too unequally distributed) land, an agriculture-based strategy must for now be at the center of any effective route out of poverty, just as it was in China during the early 1980s.” 12 Christianson and Demery (2007) have also argued that development strategy for Africa that is firmly grounded in agricultural and rural development can bring a larger and more sustained impact on poverty.13 79. So far as transport is concerned the World Bank (Zhu Liu) argues that transport contributes to poverty alleviation indirectly through its overall contribution to economic growth (resulting in higher incomes and more employment opportunities for poorer people) but also directly by giving the poor access to schools, health clinics and other social services. He argues that there is a growing body of empirical evidence that links transport to improved well-being of the poor.14 From intermediate outcomes to outcomes: Better services result in greater use of services (evidence = limited) 80. ODI (2004) argues that basic services need to be not only of sufficient quality but also accessible. Accessibility is in turn a function of cost, physical proximity, cultural factors and delivery effectiveness. In general therefore where these conditions are present, ie quality and accessibility, it may be assumed that usage will increase. However even where services are both good quality and accessible in general there may still sometimes 11 Marcus, Rachel, Quality of Basic Services and Poverty, ODI 2004 Revallion, Martin, Are there lessons for Africa from China’s Success against Poverty, World Bank Policy Research Working Paper 4463 13 Christansen and Demery, Down to Earth: Agriculture and Poverty Reduction in Africa, Washington DC, 2007 14 Zhu Liu, Transport Investment, Economic Growth and Poverty Reduction, The World Bank, Washington DC 12 31 be a need for specific social protection programmes to ensure that they are used by all potential users. For example cash transfers may be important to offset direct or indirect costs of accessing some services; patronage networks can exclude disenfranchised groups; and lack of information can mean that users are not even aware of services. 15 From outputs to intermediate outcomes: An appropriate quantity of recurrent resources and better expenditure management lead to better quality services (evidence = strong) 81. Table 1 below shows the increase in federal block grant spending, spending on basic services, and spending on recurrent basic services in real terms. The data for 2011/12 reflects budgeted spend rather than actual. As can be seen, real recurrent expenditure by the regions more than doubled during this period. Table 1: Basic services (BS) and use of Federal Block Grant (FBG), mills Birr unless stated otherwise 2005/6 2006/7 2007/8 2008/9 2009/10 2010/11 2011/12 Real FBG transfers 7071 8450 10445 9843 9472 11696 11442 Real recurrent spend 4926 4445 5012 6185 7840 10251 11523 Growth 2005-10 65% 108% Source: PBS secretariat and team analysis 82. This increase in spend coincided with a major increase in personnel available at local levels: an increase of 100,000 teachers 32,000 more health extension workers An increase in water technicians to about 6 per woreda with additional water technicians at kebele level An increase in the number of developments to 3 per woreda 83. An important aspect of ensuring that an increased quantity of resources leads to better quality services will be the continued strengthening of human resource management in each of the basic service areas. This includes meritocratic recruitment procedures, training, culturally appropriate performance management, retention policies and so forth. In this respect PBS relies on sector programmes such as the General Education Quality Improvement Programme (GEQIP), the Federal Ministry of Health FMoH MDG Performance Fund and the Agricultural Growth Programme where the latter have the remit and tools to undertake the training and management programmes needed, for example, to increase retention and boost quality among sector staff while PBS has the remit and tools to do the equivalent for staff working in planning, budgeting, finance and accounting. In other sectors it is less clear whether such capacity exists eg whether rural roads desk staffs are sufficiently well-trained and resourced to facilitate the efficient and effective use of MDG Fund resources to achieve rural transport results. In these cases the programme will rely on upward feedback through social accountability and assessment of resource allocation through the REF to identify gaps. 15 Wood, G “‘Staying secure, staying poor: the ‘Faustian bargain’’, World Development Vol. 31, No. 3. 32 Better Information, Monitoring and Evaluation systems generate data that is used by decision makers (evidence = medium) 84. There is ample evidence that the Government and development partners draw on a wide range of data and surveys to inform their decision making including targeting of regional priorities, gender and other dimensions. The Growth and Transformation Plan is firmly grounded in outputs and outcomes with indicators that are tracked drawn from surveys and studies. The PBS 2 logframe itself contained indicators that can only be measured using these surveys. Examples of these surveys include: The Welfare Monitoring Survey used to track poverty levels The Household Income, Consumption and Expenditure Survey The Education Management and Information Survey The Demographic and Health Survey The Ministry of Water and Energy’s surveys The Agricultural Sample Survey The Woreda City Benchmarking Survey 85. Confirmation of this strong position is provided by the PARIS 21 Secretariat. The Secretariat chose to feature the Central Statistical Agency in Ethiopia as one of 10 “success stories” at the March 2012 Annual Paris21 Meetings as follows: “The Ethiopian Central Statistical Agency (CSA) has done a tremendous job over recent years in documenting, archiving, and disseminating its surveys and censuses, building a strong partnership with the Accelerated Data Program (ADP). CSA utilised the Data Documentation Initiative (DDI) standard to systematically document and archive more than 100 of its surveys conducted since 1995, which are now disseminated through the CSA website.”16 86. A review of the use of evidence in policy making in a range of developing countries carried out for the Results for Development Institute in 2010 by Lyn Squire concluded that: “The scorecard reads as follows: strong incentives are in place for generating new knowledge; much weaker ones for ensuring research relevance and for reaching decision-makers; and very few for realizing actual impact on public action.” He continues that: “countries are deliberately building capacity, especially on the research-end of the spectrum, to encourage the production and use of more research specifically directed towards health issues. Typically, however, they pursue the traditional approach of making more resources available for these purposes and stepping up training without necessarily changing incentives.”17 The thrust of Squire’s report is thus that building in incentives for policy makers to make use of evidence is crucial and cannot be taken for granted. This will in part be addressed in the PBS program by having involved policy makers in the choice and design of M&E initiatives. Stronger citizen feedback mechanisms result in better informed expenditure decisions (evidence = medium) 16 Progress Report for the Partnership in Statistics for Development in the 21st Century (PARIS21) Secretariat 17 Squire, Lyn “Promoting Evidence Based Policy – It’s the Incentives Stupid”, The Results for Development Institute, 2010 33 87. The evaluation of the pilot social accountability initiatives under PBS 2 contained evidence that they had resulted in improved public basic services. According to the evaluation report: “the EDC team encountered evidence in several pilot areas that basic and social services such as education, health, water, sanitation and agriculture have improved as a result of implementation of the Joint Service Improvement Action Plans developed at interface meetings.” There was some evidence from the pilot initiatives that the effectiveness of regional and woreda officials had been enhanced by the programme: “CSOs have also organized sensitization workshops at the Woreda level for woreda and kebele officials, service providers as well as the community at large. The EDC team however, has noted need for more training and capacity building of all [those involved] to effectively engage in social accountability initiatives. For instance, focus group [participants] and key informants in Fantalle Woreda, Hakim and Dire Dawa indicated that woreda and kebele officials, service providers and the community at large require more training on social accountability concepts and practices and that a onetime awareness creation workshop was insufficient.”18 From inputs to outputs: Block grant financing results in more recurrent resources at local levels (evidence = strong) 88. Table 1 above provides strong evidence that an increase in block grant funding results in more recurrent resources at local levels. During the period 2005 to 2010 the block grant increased by 65% in real terms; over the same period, real recurrent expenditure grew by 108% even though it already represents a large share of overall regional spending. These increases are closely monitored as part of PBS through the six monthly JRIS meetings. Financing improved PFM, planning and budgeting leads to more efficient expenditure (evidence = medium) 89. The Bank’s Independent Evaluation Group (IEG) report on PFM found that some positive outcomes that it identified from PFM programmes could be attributed to the work of the Bank itself. This suggests a concrete link between increased intervention in support of PFM and improved PFM capabilities. According to the report: “The overall statistics on country PFM performance in Section 3 indicate many instances where the presence of Bank PFM projects was associated with measurable improvement in PFM. Yet there were many other factors at play, including policy loans, conditionality, ESW, technical assistance, and policy advice from other donors, and debt relief, greater aid harmonization and alignment.” 90. With respect to public expenditure management an assessment of the impact of the Taddesse et al, Evaluation Report – Final, Evaluation and Design of Social Accountability Component of PBS Programme in Ethiopia June 2010 18 34 PEFA framework suggests that it has had a positive impact on PFM systems in the presence of particular circumstances notably: “(i) active government engagement in the assessment; (ii) the quality of the PEFA assessment process, including a participatory methodology (as distinct from, but related to, active government engagement); (iii) a genuine openness to reform by governments, involving both an openness to self-criticism and the willingness and ability to reform; (iv) a framework of on-going government-DP dialogue, which can set the framework for defining, redefining and/or supporting such reforms, including active stakeholder preparation in advance (perhaps over a number of months and involving more than simply holding a stakeholder workshop).” 91. The Independent Evaluation Group at the World Bank concluded that “the Bank’s increased PFM lending and analytical work can be linked with encouraging PFM improvements among borrowers, usefully adapting PFM tools from other jurisdictions, and carrying out effective monitoring with robust assessment tools accepted by major donors. However, Bank performance might have achieved greater success with deeper institutional and governance analysis, greater attention to addressing basic systems before moving to advanced PFM tools, and improvements in the Bank’s procurement practices.”19 Financing for improved M&E systems leads to better functioning M&E systems (evidence = medium) 92. A thematic study of Support to Statistical Capacity Building was commissioned as part of the evaluation of the Paris Declaration on Aid Effectiveness and to inform the discussions at the High Level Forum on Aid Effectiveness in Accra, Ghana, September 2008. The study identified significant progress in the following areas: Statistical production had improved in the countries studied. More statistics are available to national policymakers, citizens in partner countries and around the world, and bilateral and international organisations. Many countries now had national statistical development strategies that help to strengthen alignment, planning and coordination. Statistics had become more important to policy debates in most countries. 93. The study concluded that support from donors, including DFID, through providing funds and equipment, investment in training and skills development, and support to the preparation of comprehensive national statistical strategies, had been fundamental to this progress.20 Financing social accountability mechanisms leads to better functioning citizen feedback (evidence = medium) 94. There are strong examples from Africa and around the world of the potential for social accountability to empower local people and enable citizen feedback. For example: 19 World Bank Support for Public Financial Management: Conceptual Roots and Evidence of Impact, Clay Westcott, 2008 20 Support to Statistical Capacity Building, High Level Forum on Aid Effectiveness in Accra, Ghana, September 2008 35 The Tanzania-based group HakiElimu employs human-rights based approaches to education, emphasizing quality of learning, equity, governance and active citizen engagement. HakiElimu is widely recognized for its effective nationwide engagement on democracy, governance, and quality of education. The organisation has mobilised a grassroots network of over 35,000 Friends of Education, whose members include community based organizations and individuals who want to make a difference in their local schools and communities. Their strategy revolves around facilitating community engagement in transforming schools and influencing policy making and practices, providing space for citizens to engage, stimulating imaginative dialogue and collaborating with partners to advance participation, accountability, transparency and social justice. The Open Government Partnership is a new multilateral initiative that aims to secure concrete commitments from governments to promote transparency, empower citizens, fight corruption, and harness new technologies to strengthen governance. Several experts note that it is the wider political context that determines the effectiveness of social accountability mechanisms. Ringold et al (2012) find that “The existence and strength of civil society and an independent media can influence the potential for social accountability mechanisms”; Joshi (2011) concludes “… context matters. Political economy factors, the nature and strength of civil society movements ... the ability of cross-cutting coalitions to push reforms, the legal context, and an active media all appear to have contributed in varying degrees to the successful cases” and suggests this was important to the HakiElimu case discussed above; McGee and Gaventa (2011) claim that “…vital issues underlying accountability work are about power and politics, not methodological technicalities….”21 95. In Ethiopia the Woreda City Benchmarking Survey plays a major role in reporting public perceptions of government services. This has helped raise local awareness of rights and responsibilities. The evaluation of the social accountability initiatives under PBS 2 sought to test whether the pilot had increased citizens’ awareness of their rights, responsibilities and entitlements to the selected basic services. Although some aspects of the evaluation were inconclusive the evaluation found that “interface meetings between community representatives and service providers were organized to jointly review the service delivery performance scores and discuss service delivery deficiencies. Out of these discussions emerged (a) common performance indicators, (b) a consensus-based service delivery performance score, and (c) Joint Service Improvement Agendas/Action Plans countersigned by the service providers and community representatives. Such participatory performance evaluations were missing from non-pilot areas.” A3. Selection of feasible options 96. DFID could in principle provide support to meet the needs of the GoE, in line with the intervention logic above, in a number of ways. In particular DFID could: et al “Citizens and Accountability: Assessing the Use of Social Accountability Mechanisms in Human Development”, World Bank, 2012; Joshi et al, “Review of Impact and Effectiveness of Transparency and Accountability Initiatives – Annex 1 Service Delivery”, IDS, 2011; McGee and Gaventa, “Shifting Power? Assessing the Impact of Transparency and Accountability Initiatives”, IDS, 2011. 21Ringold 36 Provide general budget support, as was done before the civil unrest of 2005, to help fill the funding gap for basic services as identified in the Growth and Transformation Plan. This would allow the government to support basic services by allocating between federal and regional levels differently from the current mix if they saw fit, potentially in higher return investments. Provide sector budget support, ring-fencing specific amounts to each poverty-central sector. This would provide access to sector policy at federal level although not necessarily additional to what is already available in sectors where DFID-funded programmes already exist, eg in health and education. It would constrain government in the allocation of funding across the sectors funded (ie ‘horizontally’) but without the security of ring-fencing funding to basic services (‘vertically’). Provide block grant support, via MOFED, that constrains the use of funding to subnational levels (‘vertically’) and, because sub-national government primarily delivers services in the five poverty-central sectors, effectively constrains it to specific sectors also ie horizontally. Top up existing sector programmes such as GEQIP and support for the government’s health programme Provide block (or sector specific) grants directly to regions, again based on the credibility of individual regions’ overall priorities. This would allow the targeting of specific regions but would be offset by MOFED and undermine the regional formula. Deliver via non-governmental implementing partners: operate outside of government to support a sub-set of activities through NGOs and UN agencies. Do nothing: Provide no support to the block grant and do not increase funding for other programmes. 97. There are a number of conditions that should be met when determining which approach can best meet the need identified in the Strategic Case. These feasibility criteria vary in importance and have been assigned a weight between 5 (most important) and 1 (least important). They consist of the following: Leverage and results Provides access to policy making (weight = 3) Can specifically target basic services, including salary outlays at woreda level (weight = 5) Development effectiveness Ensuring additionality, sustainability and equity (weight = 4) Reinforcing the social compact and supporting the country’s decentralized system of government (weight = 4) Providing synergies with DFID’s other programmes (weight = 2) Costs and risks Minimizing transaction costs and maximizing VfM (weight = 3) Mitigating fiduciary and reputational risks (weight = 5) 98. Financial aid options are deemed possible given our assessment of performance against HMG’s Partnership Principles. Two criteria weigh more heavily than others namely the ability to target basic services and the extent to which the options provide fiduciary as well as political and reputational security. With respect to fiduciary risk a key feature that distinguishes the block grant from more classical forms of ‘budget support’ is its ability to enable closer tracking or “receipting” of funds. The mechanisms that enable this are 37 further detailed in Part E of the Financial Case below. 99. The extent to which each of these options meets the feasibility criteria is summarized in Figure 2.2 below. Each option has been assigned a score between three (most closely meets the condition) to 0 (does not meet the condition). The weighted sum of the scores for each option thus provides an indication of which options are most feasible namely: Option 1: Delivery via Federal Block Grant channels Option 2: Delivery directly to regional governments Option 3: Delivery via NGOs or UN agencies Option 4: Do nothing: the counterfactual Plus a common sub-option: “Results Enhancement Fund” The common sub-option ring fences a portion (10%) of the overall financing for an innovative, results based facility, known as a Results Enhancement Fund, which will award a financial prize to federal and regional governments for the delivery of tangible improvements in the effective use of resources. This common sub-option is therefore also evidenced and appraised below the results of which supplement those of Options 1-3. 100. Key factors weighing against those options not appraised are: neither general nor sector budget support specifically targets the recurrent needs of basic services; general budget support (GBS) represents a fiduciary, political and reputational risk that has not significantly diminished since GBS ceased in 2005, failing to take account of our current assessment of HMG’s Partnership Principles, which notes concerns about limitations on civil and political rights. topping up existing projects would not allow for the funding of salaries as part of recurrent expenditure needed to increase access to basic services Figure 2.2 38 A long list of options has been assessed against feasibility criteria to determine which are susceptible to appraisal Long list of options (3=strong; 2=medium; 1=limited; 0=absent) Leverage and results Development effectiveness Costs and risks Weighted score Feasibility criteria provides access to policy making Weight (0 to 5) GBS 1/ 3 3 SBS 1/ 3 Block Top up Regional grant 1/ projects 1/ grant 2/ 2 2 1 NGOs/ UN 3/ 0 Do nothing additional 0 can target recurrent needs of basic services 5 0 0 3 1 3 3 0 ensuring additionality, sustainability and equity 4 2 2 3 2 2 1 0 reinforcing the social contract/ decentralized government 4 2 2 3 1 2 1 0 providing synergies with DFID’s other programmes 2 3 3 3 2 2 2 0 minimizing transaction costs and maximizing VfM 3 3 2 3 2 1 1 0 mitigating fiduciary and reputational risks 5 0 1 2 1 2 3 1 40 42 70 38 51 45 5 1/ Working through federal government systems 2/ Circumventing federal systems, but working through regional government directly 3/ Circumventing government systems altogether 1 101. Note that DFID already has a number of programmes under way which would in principle continue in parallel to each of these options. Some of the larger or more important of these programmes include: Public Sector Capacity Building II in the area of governance General Education Quality Improvement Programme in education Support for the Ethiopian Health Sector Development Programme Girl Hub Ethiopia Multi-year support to World Food Program emergency response Productive Safety Nets Phase 2 Water Sanitation and Hygiene Programme Private Enterprise Programme Ethiopia UK climate finance to Ethiopia, via the 'Climate High-Level Investment Programme' 102. The overall distribution of forecast funding by DFID across sectors is shown in Figure 2.3 below. Figure 2.3 Distribution (in %) of forecast spending by DFID Ethiopia in 2013 39 across sectors (excluding PBS) Health Poverty Education Humanitarian Governance and security Climate change Wealth creation 0% 5% 10% 15% 20% 25% 103. Notes that even the do nothing option does not mean that all programmes stop: it simply means that nothing additional is funded. In practice however other programmes have depended on the block grant in recent years for the outlays on wages and salaries necessary to expand the scale of basic services. Note also that the ideal option may adopt elements of more than one of these feasible options: eg one type of delivery mode might be more suitable for core service delivery and another mode for delivering outputs related to public financial and expenditure management, M&E and social accountability. B. Assessing the strength of the evidence base for each feasible option Option 1: Block grant support to complement sector support programmes What would it consist of? 104. This option, following the general format of PBS 2, would consist of continuing to support the Government’s commitment, alongside the World Bank and others including the EU, AfDB, Italy and potentially others, to strengthen decentralized service delivery, PFM and enhance local transparency and accountability mechanisms by providing: a rapid-disbursing, results delivery sub-program that finances recurrent expenditures (through the block grant) for basic services at sub-national levels a system strengthening sub-program comprising PFM, managing for results (M4R), Social Accountability) to improve transparency and accountability systems at woredalevel 105. The systems-strengthening sub-programme comprises three inter-related components that would maintain and strengthen the Government’s fiduciary systems, its information systems and its responsiveness: Local Public Financial Management and Procurement. The PBS Program relies on a robust, decentralized PFM system that allows public resources to flow reliably from the federal treasury, through regional and zonal administrations, to woreda-level and front40 line basic service providers that generate results. The Government, with Development Partner support, is developing a comprehensive governance, public sector capacity and Public Financial Management action plans to ensure that the overall Ethiopian system to generates improved results, retain quality staff and maintain accountability. The PBS Local PFM will be embedded within that comprehensive reform strategy, with a specific focus on woreda-level PFM strengthening. Managing for Results (M4R). Reliable, timely and available data and results analysis are jointly essential for meeting PBS Program objectives. Together they allow mutual monitoring of progress towards GTP and PBS goals and analysis of why progress is particularly strong in some regions or sectors and could be improved in others. The overall aim of the M4R Component is to enhance the effectiveness of the PBS III project by ensuring that data, systems, and analytic capacity are strengthened to deliver results throughout the project implementation period. Citizen engagement. The Citizen Engagement programme, in turn, is made up of three thematically related sub-programmes that aim to strengthen the system and capacity of local users in an increasingly transparent, responsive and accountable manner: (i) Social Accountability (ii) Financial Transparency and Accountability and the Grievance Redress mechanism. - The Ethiopian Social Accountability sub-component, implemented by an independent Management Agency contracted by the World Bank, on behalf of the Government and supervised by a multi-stakeholder Steering Committee, supports the "demand side" of citizen’s engagement, providing citizens, as public service users, with the means to assess and monitor the planning, delivery and quality of services, and voice their needs and preferences. More effort will be made to ensure that marginalized groups join interface meetings with service providers to discuss and agree appropriate actions in improving public services. As in PBS II, The management agent puts out a call for proposals to CSOs, regional development organizations and faith based organizations who will implement the 40-50 subprojects in around 170 woredas. Results will be verified through an impact evaluation which will be aligned to the overall evaluation of the programme. - The Financial Transparency and Accountability (FTA) Sub-component, implemented by the Ministry of Finance and Economic Development through its decentralized system, supports the "supply side" of citizen’s engagement, promoting information and communication activities with citizens on expected service standards, budgets and budget use, and public education on budget processes. In PBS 3, the SA and FTA component will work closer together, including planning to co-operate on a system for the definition of service standards for each sector. - Thirdly, the Grievance Redress Mechanism will aim to strengthen the impartial review of citizens complaints of maladministration related to the provision of public basic services and the provision of redress where appropriate. This will be done through technical assistance to develop a common standard of grievance redress procedures; training grievance officers and sensitization of citizens on the opportunities and procedures for grievance handling in the regions. 41 How would it work? 106. The Block grant support will finance recurrent expenditures (salaries, operations and maintenance) in the sub-national basic services (education, health, water& sanitation, agriculture and rural roads) under a pooled fund arrangement. Donor funds would be transferred to a World Bank managed multi-donor trust fund and channelled through Treasury systems and accounts to augment the federal block grant (FBG) aimed at ensuring that basic services are adequately funded. Figure 2.4 107. The federal block grant provides resources to the regional and local governments (woredas) on the basis of a formula-based allocation system which enables them to undertake the activities for which they have been given responsibility, including the delivery of basic social services. Using the FBG channel thus enables donors to ensure that funds are used for basic services while applying aid effectiveness principles in using country systems, and reinforcing the GoE system of decentralisation. An additionality principle ensures that the total FBG would continue to increase, so there would be no substitution of donor funds for those provided by GoE. The support to the FBG is intended to protect the funding for basic services provided by sub-national governments. 108. Regions and woredas are responsible for ensuring that the functional and economic allocation of funds meets the strategic priorities of the country as a whole as well as their specific requirements. With respect to the functional distribution of funds, ss shown in Figure 2.4 above (which covers 2010/11) the bulk of basic service recurrent expenditure (nearly 5.7 billion birr or about 56% of the total) comprises spend in the education sector of which about 85% consists of salaries. Health and agriculture both account for a further 36% of total recurrent spend on basic services. Because PBS supports recurrent expenditures for woreda-level basic services, it will have greater impact on those sectors 42 that require more recurrent expenditures, such as health and education, and relatively lower impact on sectors that require more capital expenditures, such as roads and water. It is thus appropriate that the proportion of PBS funding is biased toward the more labourintensive sectors, where the number of staff (e.g., teachers, health extension workers, and agriculture extension workers) is higher. 109. With respect to the economic allocation of funds by BOFEDs and WOFEDs, resources provided by the Federal Block Grant are supplemented by additional special purpose grants that often target non-wage recurrent expenditure and/or capital spending. Capital expenditures in these sectors would continue to be financed from Government sources. Government will report on both types of expenditures as part of Joint Budget and Aid Reviews (JBARs). This option would have a coordination mechanism led by a Secretariat and has rigorous field-based supervision from the World Bank and other PBS donors, as well as an active joint planning and supervision framework with the Government. Planning bureaus take all these resources into account when allocating FBG funds. In sectors where there are fewer such complementary sources of funds, such as rural roads and water, it may be that there is a greater shortage of non-wage recurrent resources than in other sectors. Establishing that the overall allocation of expenditure is optimal in light of the strategic functional and economic needs of their localities, and rewarding effective and efficient allocations, will be an objective of the REF (see further below). 110. The overall design of Option 1 would be configured in such a way that it contributes fully to DFID Ethiopia’s operational priorities not least its prirorities around women and girls. The first of DFID Ethiopia’s operational priorities is:“putting girls and women front and centre of all we do. Across the programme we will work to build assets, create economic opportunities and promote voice and political empowerment of women. We will also support specific initiatives to reduce violence against girls and women, and stop early marriage“ 111. A key vehicle for realizing this objective is DFID’s partnership with Girl Hub Ethiopia. Girl Hub seeks to transform the lives of adolescent girls, with girls themselves at the centre. Girl Hub will work with the PBS, for example: to communicate compelling evidence on when, where and how investments in adolescent girls deliver the greatest development dividend to communicate the realities of girls lives and catalyse conversations between girls and policy makers to provide girl expertise to improve the ability of PBS to reach girls and monitor the impact of PBS investments on them. 112. In addition PBS would continue its existing focus on development priorities, and monitoring the outcome of the programme, with specific reference to women and girls as follows: a large part of the outreach programme delivered by the health extension workers funded under PBS relates to maternal and infant health completion rates at grade 8 will be monitored separately for girls and boys 43 work to reduce the time taken to fetch potable water is likely to have a disproportionately large impact on women and girls Strength of evidence for Option 1 (overall assessment = medium) 113. The most direct evidence for the suitability of the block grant as the primary vehicle for financing basic service delivery in Ethiopia is the ongoing second phase of Protection of Basic Services programme, PBS 2, the initial budget for which was £190 million for the period November 2008 to December 2011. (Additional financing of £80 million was also approved and the end date for the programme extended to December 2012.)DFID’s contribution thus represented around a quarter of overall donor funding of around £820m which augmented GoE’s contribution of £1.5bn. PBS 2 and before it PBS 1 was subject to 6 monthly process of Joint Review and Implementation Support which reviewed in depth the progress of the PBS programme against its targets and generated in-depth discussion, lesson learning and fine tuning of the programme. With the output available from up to 12 of these JRIS exercises and a number of other reviews of the PBS programme, Option 1 is very well grounded in specific, relevant practice. 114. According to its Project Completion Report, the expected Impact of PBS 2 was “Accelerated progress towards the health, education, water and poverty MDGs”. The Outcome was “Increased access, quality and accountability of basic services”. There were 5 outputs: Output 1: Increased Funding for Basic Services Output 2: Strengthened Public Financial Management Output 3: Strengthened Financial Transparency Output 4: Enhanced Social Accountability and Citizen Engagement Output 5: Strengthened Monitoring and Evaluation (M&E) systems 115. The overall conclusion of the project completion report with respect to PBS 2 was:22 “At the Outcome level, PBS 2 achieved its objective in relation to increasing the supply of basic services and thereby improving access with the resulting impact on key MDG indicators. However, performance was not equal across Regions and between Woredas. The dimension of ‘quality’ captured in the Outcome statement did not receive the same focus during implementation as did the measurement of ‘quantity’. 116. Key outputs achieved under PBS 2 are summarised in Figure 2.5 below. Notable achievements included a substantial increase in the total level of funding available for basic services, an increase in financial transparency and specific achievements in the areas of PFM, M&E and social accountability. (The slight shortfall with respect to the social accountability target reflects delays in the early stages of this component with the result that implementation failed to commence following the completion of the pilot phase during PBS1. Much of the delay resulted from the time and effort required for the procurement of the Management Agent. In addition the training as Certified Internal Auditors started much later than planned with the result that the current batch of trainees will not finish their studies before the end of PBS2. Regarding the procurement audits, these did not take place as originally envisaged fore a range of reasons including overly 22 Project Completion Report, Protecting Basic Services II, June 2012 44 complex requirements and insufficient capacity.) Areas offering opportunity for substantial further strengthening under Option 1 include a) the introduction of incentives to improve the efficiency and effectiveness of expenditure; and b) a more systematic and rigorous evaluation process as described above. Figure 2.5 Main outputs of PBS 2 (2009- 2012) Output Output indicator Baseline Target (2011/12) Funding for basic services Total funding for basic services $1.1bn $1.4bn Actual EFY03,$1.55bn Budget EFY04, $1.9bn % of FBG financed domestically 63% 75% Actual EFY03, 65.6% Budget EFY04 65.5% Regional governments prioritise spending on basic services 53.3% ≥53.3% Actual EFY04, 63.8% Government officials qualify as Certified Internal Auditors 0% 80% 0% Proportion of entities with procurement inspection undertaken 0% 50% Not available 20% 50% 52% 60% Proportion of woredas posted templates 0% 75% 84% Proportion of citizens informed about woreda budgets 2% 15% 9%-37% Proportion of woredas introduced to, and utilising, improved participatory woreda planning systems 0% 15% 21%-84% Social accountability Number of Woreda’s covered by CSO accountability programmes 90 ≥90 86 M&E systems In-depth analytical studies conducted 0 3 3 Number of Data Quality Assessments (DQA) conducted 0 3 3 PFM Coverage of audits • ORAGs • OFAG Financial transparency Source: PCR for PBS 2 Achievement 117. In addition to these more quantifiable achievements and outputs PBS 1 and 2 gave development partners a platform for strategic dialogue with the GoE on a range of issues that would not otherwise have been possible including: macroeconomic management, particularly the impact of inflation on the goals of the PBS programme as a whole and its impact on poverty in particular (and potentially in a more open, direct manner than might have been possible under the constraints of a formal General Budget Support programme given the additional conditionality that that would have entailed) fairness in the distribution of resources across regions as reflected in the revised regional formula (see Figure 1.5) greater accountability for the quality of service delivery through the citizen’s engagement component of PBS credibility of results due to the collaboration between DPs and the government on M&E improved efficiency and effectiveness of resource allocation through the implementation of annual public finance reviews and discussion of these with the government the establishment of a Grievance Redress Mechanism aimed at strengthening the impartial review of citizen complaints in cases of maladministration related to provision of public basic services and the provision of redress where appropriate 118. Additional evidence in support of the block grant as a mode of delivering basic 45 services is provided by the ODI (2004) which in a review of basic service delivery concluded: “where the state is the dominant service provider, the priority to achieve this will be investing in state services – probably through sectoral or general budget support in the context of PRS or sector strategies that prioritise improving quality and poor people's access. This is particularly likely to be the case in education and health services. It must be noted that the fact that a sector is prioritised or is receiving increasing allocations in a PRS is no guarantee that expenditure will actually be pro-poor – pro-poor intra-sectoral distribution is essential to achieving this. Beyond financing, this includes sector reforms to improve the quality of delivery – which may involve enhanced coordination, in some cases through a SWAp.” 119. The option of providing support for the block grant could, in turn, be delivered in a number of ways including: directly by DFID via a World Bank managed trust fund through an alternative management agency such as an NGO or commercial organisation by the Government on its own 120. The relative advantages and disadvantages of adopting each of these modes of delivery are summarized below: DFID on its own Management and sectoral 1 expertise Lowest financial costs to 1 or 2 DFID23 Minimal DFID effort 1 Minimal fiduciary risk 1 or 2 Greatest Government 1 support Optimal harmonisation of 1 DPs Total 6 to 8 Scale: Most likely to be present/evident = 3 Neutral or not possible to assess = 2 Least likely to be present/evident = 1 121. Trust Fund Managing Agent Government on its own 3 3 1 2 1 3 2 3 3 3 3 2 1 1 3 3 2 2 16 14 11 A number of conclusions emerge from this analysis: the trust fund option has a strong and still improving track record that demonstrates its ability to safeguard fiduciary and other priorities. It is also likely to enable DFID to demonstrate its commitment to joint donor working while a private managing agent option might be viewed by other DPs less favourably 23 If DFID assumed responsibility for direct payment to Government of the support to FBG outside of the Trust Fund, the Trust Fund costs would be significantly lower 46 the management agent option is marginally less preferred for cost reasons as well as preferences of DPs and Government Relying on Government’s own systems is still less preferred since government systems are insufficiently robust to provide real confidence DFID acting on its own would increase the political and reputational risk to which it is exposed and place a greater direct fiduciary burden on it Balance of advantages and disadvantages of Option 1 122. As shown in Figure 2.2 Option 1, providing support through a block grant with systems support, has a number of advantages including its ability to: target recurrent resources needs of basic services including salaries ensure additionality and equity via the application and tracking of a number of expenditure principles reinforce the social contract since it supports government’s delivery of services to citizens align with DFID’s other projects which cannot provide the level and nature of recurrent resources or the systemic strengthening of which Option 1 is capable minimize transaction costs since it builds on existing federal mechanisms for cascading large amounts of resources through to sub-national levels it is immediately ready to deliver results whereas alternatives could delay delivery by at least a year 123. The major disadvantage of Option 1 is that although PBS benefits from multi-faceted safeguards, any perception that resources are being diverted from intended beneficiaries could potentially expose DFID to reputational risk. Option 2: Delivery through a block grant awarded directly to regions What would it consist of? 124. Under this option DFID would support the strategic programmes of the eight non-city regions: Afar, Amhara, Benishangul, Gambella, Oromia, Southern Nations Nationalities and Peoples Region (SNPPR), Somali, and Tigray by allocating an un-earmarked Block Grant through the respective Bureaus of Finance and Economic Development (BoFEDs) in line with the regional allocation formula determined by the Federal Government. Although in theory it would be possible to deliver funding to a smaller number of regions in practice it would in all likelihood be necessary to operate in all regions simultaneously to avoid the federal government taking off-setting measures to maintain the principle of equity across regions. This option would again comprise two main components: a high-volume sub-program, comprising eight separate regional block grants, that finances recurrent expenditures for basic services at sub-national levels: a local system strengthening sub-program with modified versions of the four components described under Option 1 to improve transparency and accountability systems at woredalevel: How would it work? 125. The Bureau of Finance and Economic Development (BoFED) for each region would assume responsibility for the overall implementation and management of the partnership 47 with each region on behalf of the Regional Governments. The BoFEDs are responsible for the preparation of the Regional annual plan in each region with the active involvement of the respective Bureaus based on the Five Year Development Plan of each Region (currently 2011-2015). Accordingly, the BoFED would provide periodic Regional Reports (annual) to DFID as per the Government system. The report would cover outputs and outcomes based on the regional annual plan and the regional five year development goals. 126. The performance of planned activities would be discussed regularly at different junctures. DFID would hold quarterly meetings with the BoFEDs, as well as hosting annual meetings with all partners. 127. DFID would work with the BOFEDs to develop region specific accountability and transparency initiatives mirroring those under Option 1. The Results Enhancement Fund would remain an important component of Option 2 but would be managed directly by DFID. Strength of evidence for Option 2 (overall assessment – limited) 128. The most direct evidence for Option 2 consists of a single regional block grant programme funded by Irish Aid in the Tigray Region. Although Irish Aid has been involved in Tigray region since 1994, its direct budget support began from about 2003.24 129. The support was based around mutually agreed targets derived from the country’s Poverty Reduction Strategy programme (and thus linked to the achievement of the Millennium Development Goals), and the Region’s ambitious strategic plan (‘by 2011, 70% of people in Tigray earning one dollar per day with 30% earning at least two dollars per day’). The programme was thus designed to contribute to poverty alleviation and economic growth. It also gave special attention to the transfer of skills and knowledge, enhanced policy dialogue, building the capacity of the Region, and the integration and harmonisation of Irish Aid’s support with Government systems and plans. However in early 2011, Federal Government made it clear that 2011 would be the final year in which it would be possible to disburse an un-earmarked block grant to the region without it being offset, due to the enforcement of the national policy on equitable resourcing at regional level. 130. Irish Aid’s share of overall spending in Tigray fell from 10.5% to 4.3% between 2005/6 and 2008/9 and the overall share of funds spent on basic services also fell from 70% to 66% (albeit in the context of a large – 78% - nominal increase in spending on basic services). Although relatively small in financial terms, Irish Aid’s support was welcomed for its predictability, timeliness and alignment with government systems and priorities. It has also been accompanied with technical support and constructive engagement which has contributed to the overall performance of the regional government programme. 131. As noted above Irish Aid’s traditional approach is now subject to offsetting measures by federal government which will require Irish Aid either to accept this or to consider different modalities for delivering its assistance. For these reasons Option 2 would adopt “Now we are listening!” – a review for the partnership of Irish Aid and the Regional Government of Tigray, August 2010; Support to Tigray Regional State Programme Document for Phase 4 (March 2011–December 2012) Ethiopian Financial Year 2003-2004 24 48 a comprehensive approach targeting eight regions and aligning the allocation of spend with the government’s regional allocation formula. There is no precedent in Ethiopia of a multi-region block grant scheme of the sort that would be envisaged under this option. Balance of advantages and disadvantages of Option 2 132. The main advantage of supporting the delivery of basic services through a series of regional grants together with systems support would be the opportunity to target recurrent resources needs of basic services including salaries. The main disadvantages would be: less access to policy making than would be the case under Option 1: although this option would provide excellent access at regional levels there would be little or no interaction on issues of country-wide significance at national levels of government notably the introduction of strengthened fiduciary standards and infrastructure and improved expenditure planning and budgeting both of which require a national level lead to be effective higher transaction costs since there would be a need for fiduciary and quality assurance in each of the regions in which resources were delivered potentially undermine federal government it would not start to deliver results for at least another year if not two Option 3: Delivery outside of government channels via NGOs or UN agencies of £510 million (evidence = medium) What would it consist of? 133. Under this option DFID would deliver services to regions and woredas through one or more UN agencies and non-governmental organizations that could be for profit organisations or charitable agencies. Such an approach would be particularly attractive in the event that political or other risks made working through governmental channels impossible but where DFID still wished and was able to continue supporting basic services. (In principle DFID could also pursue a strategy of making cash transfers to households, directly or indirectly, who would then use these resources to purchase basis services from private providers. However such a strategy would require a network of providers, a market culture among users, and an endorsement by government that are unlikely to exist in the event that DFID chose to deliver outside of government channels in the first place. A related approach could in principle involve the GoE paying user costs for a mixed market of private and public providers. However this would require funds to pass through government channels in ways that are by assumption excluded under this scenario.) How would it work? 134. DFID would directly contract NGOs or UN System or a combination to provide support to service delivery in partnership with the government. Funding through NGOs and UN System would be off budget support and the activities of the contracted NGO or UN System would continue to come under government coordination as part of the consolidated planning process at federal level, but would not be contracted directly by the government. 49 Strength of evidence for Option 2 (overall assessment –medium) 33. 34. NGOs: 135. The most direct example in Ethiopia of delivery through non-governmental delivery partners is the USAID programme of aid. USAID’s annual program in Ethiopia comprises around $850 million (disbursement) including humanitarian assistance; the programme excluding humanitarian aid amounts to about $550 million. 136. USAID’s reliance on non-governmental delivery partners reflects the US government’s assessment of democracy and governance and transparency issues in Ethiopia which prevents USAID from using government systems.25 Programmes are often large-scale with ambitious targets on a national scale. Examples of the type of programmes undertaken by USAID in Ethiopia include: in education: working with PACT to train 20,000 primary school teachers and support 2615 primary schools; working with Save the Children USA to improve the sanitation facilities for 900,000 school children and improve access to drinking water for 550,000 children in agriculture: to work with CARE to hep 50,000 households graduate from the safety net program in management: to work with International City/County Management Association to undertake a wide range of assessments and strategic assessments and other capacity building exercises across sub-national government. 137. USAID’s delivery partners operate across a wide range of sectors including technical areas like public finance management and include not just training and capacity building but also purchase of equipment and materials. USAID cannot directly fund salaries due to their own US-specific restrictions although, due to fungibility of public resources, paying for eg textbooks could indirectly mean that resources are freed up at regional level for salaries. In principle a non-governmental body could fund salaries by providing eg block grants directly to regions. In practice it is unclear how feasible this would be given its potentially corrosive impact on national civil service pay norms.26 25 26 USAID, May 2012 USAID, May 2012 50 Figure 2.6 Summary of USAID programmes and delivery partners in Ethiopia Category •Education •Health •Humanitarian assistance •Economic growth •Democracy and governance Total Investment ($millions, 2011) $21 $310.35 $301 $204.6 $7.61 Delivery partners (examples) Save the Children USA, FHI 360, PACT, World Learning Inc, US Peace Corps, International Foundation for Education, and Self Help, Pathfinder International, John Snow Inc, JHP/EGO Corporation, WHO, Core Group, Marie Stopes, Family Health International, FHI 360 Mercy Corps, Catholic Relief Services CARE, Catholic Relief Services, Food for the Hungry, Relief Society of Tigray (REST), Save the Children US, Save the Children UK PACT Ethiopia, Freedom House $844.56 Source: USAID Ethiopia Summary of Major Programs 2011 138. The Agency typically either enters into a mix of implementation contracts with delivery partners (in cases where it is sufficiently clear what the deliverables and modes of delivery are to be) or ‘cooperative agreements’ which are higher level and generally call for proposals and further detail. An obstacle faced by USAID in delivering off budget is the GoE’s 70:30 rule which limits the share of overheads to 30% of any one program. However this restriction does not apply to implementation contracts.27 The 70:30 rule could however pose an obstacle should DFID wish to use NGOs to pay salary supplements since these would be likely to be included within the 30% overhead limit. 27 In November 2011, the Ethiopian Charities and Societies Agency issued the Guideline on Determining the Administrative and Operational Costs of CSOs, which is applicable to all charities and societies (international and domestic). Retroactive to July 2011 when approved by the Agency, the “70/30” regulation limits administrative costs for all charities and societies to 30% of their budgets. 51 UN systems: 139. An example of how DFID can deliver programmes through UN agencies is the programme in Zimbabwe. The UK ended direct support to the Government of Zimbabwe in 2002, putting its regular country assistance programme on hold, but remains the country’s second largest donor after the USA. According to the operational plan for Zimbabwe: “the political context for our work in Zimbabwe restricts our current choice of aid instruments. At the moment all DFID resources are channelled through third parties: multilateral organisations, the private sector and NGOs. We anticipate that following a successful political transition our choice of aid instruments would widen. We are investing now in activities which prepare the ground for the day when we can consider alternative delivery options, such as improving public financial management systems. We could then consider channelling money through Government systems and once the conditions were right, to provide budget support either generally or by sector”.28 140. In the health sector during the period 2004/5 to 2010/11 DFID spent just over 40% of its bilateral health sector support through UN partners; just under 60% was spent in collaboration with other bilateral donors (including through UN joint funds); and just under 70% was ultimately spent through local and international Non-Governmental Organisations (NGOs). An evaluation of DFID’s support to the health sector through these intermediaries found that: “DFID was willing to respond swiftly to emerging issues in a rapidly-changing economic and health crisis: for example, in financing the import and distribution of vital medicines to health facilities when there were serious shortages; or stepping in to supplement health workers’ salaries when other donor funds fell short.” 29 141. A key aspect of DFID’s work in Zimbabwe of relevance for this Business Case was its ability to supplement salaries of key workers in the health sector even while operating through intermediaries. The program, called the Health Worker Retention Scheme, provided eligible workers with a monthly allowance, with basic salaries paid by government. In 2008, DFID contributed £650,000 for retention payments to staff in areas affected by the cholera epidemic. It provided a further £1.3 million in 2009. The scheme is now nationwide, targeted on the higher-skilled grades most likely to leave the public service. Other donors are also contributing. 142. The scheme has recently been evaluated and shown to have contributed to reduced vacancy rates for nurses. However the cost of the scheme escalated in 2010 to £18 million due to an unanticipated growth in staff eligible for payment. Some donors have phased out their support resulting in progressive cuts in the monthly allowance. The cut in the monthly allowance as the cost of living continues to rise is causing discontent and the proposal that the Government of Zimbabwe take over the cost of the scheme over the next five years looks, in current circumstances, to be overly optimistic. 30 Balance of advantages and disadvantages of Option 3 143. Supporting the delivery of basic services outside of government systems ie through UN agencies and non-governmental delivery partners would enjoy two main advantages 28 29 DFID Operational Plan for Zimbabwe 2011-2015 DFID’s Support to the Health Sector, ICAI Review, Report 4 November 2011, p 6 30 Ibid. 52 notably: the ability to specifically support the recurrent resource needs of basic services including potentially through the payment of salary supplements much higher protection of DFID from the reputational and any substantive risks of association with a government which, under a political downside scenario, could become the subject of increasing criticism for human rights and other negative practices 144. However this option also has several disadvantages notably: the opportunity to engage in meaningful policy dialogue would be significantly curtailed or eliminated altogether it would be much harder to ensure additionality since government could simply offset the contribution made by DFID it would not build on the social contract between government and people as it would not be using government systems to the same degree as other options it would result in high overheads due to the administrative costs associated with international non-governmental delivery partners Common sub-option: Results Enhancement Fund (REF) (evidence = limited) 145. This pilot initiative complements the PFM system strengthening component of Options 1-3, which primarily targets fiduciary systems, with a focus on strengthening the allocation of expenditure across economic and functional categories by regional BOFEDs. It thus responds to regional governments’ acknowledgement at a workshop held in May 2011 of the need to strengthen planning and budgeting capabilities. This pilot would be the first cross-sectoral, incentives based scheme targeting the efficient and effective allocation of expenditure by regions. The initiative also strongly responds to the recommendations of the recent ICAI report that all “budget support operations should include explicit strategies for tackling constraints on efficient public spending” and in so doing enhances the transparency and visibility of regional government expenditure, two areas where Ethiopia scores below average according to the World Bank’s CPIA ratings (see Strategic Case). What does it consist of? 146. The REF comprises a fund whose core purpose is to incentivise improvements in delivery performance, focused specifically on budgetary planning and execution, through the introduction of an annual performance prize. It is proposed that £10m per annum of funds be retained and awarded to the best performing regions on the basis of improvements against the following budgeting principles: - Effective controls of the budget totals and management of fiscal risks (eg lower than expected revenue, unexpected claims on spend) as a mainstay of maintaining overall fiscal discipline Planning and executing the budget in line with government priorities as a key component of implementing federal and regional objectives. 53 - Managing the use of budgeted resources in a way that contributes to efficient service delivery and value for money. 147. Given the size of regional budgets, the relative size of public sector bonus schemes in other countries, and the relatively egalitarian nature of Ethiopian work culture, it is expected that a prize of between 2% and 10% of total expenditure would be sufficient for it to represent to a BOFED a genuine incentive to change and improve practice. With an average regional budget of approximately $100 million this could suggest, for example, prizes of $7.5, $4.5million and $3million for the top three performers in a year (ie $15 million or about £10 million). Over 5 years this would suggest a total fund of £50 million. How would it work? 148. The precise design of the REF, including ensuring that due weight is assigned to budget execution and payroll, will be finalised following approval of this business case. The overall proposed approach follows the framework established by the multi-agency programme, PEFA (Public Expenditure and Financial Accountability) and will track and measure performance in the following respects: Credibility of the budget: is the budget realistic and implemented as intended Comprehensiveness and transparency: are the budget and the fiscal risk oversight comprehensive and fiscal and budget information accessible to the public Policy-based budgeting: has the budget been prepared with due regard to federal and regional policy Predictability and control in budget execution: is the budget implemented in an orderly and predictable manner and are there arrangements for the exercise of control and stewardship in the use of public funds 149. The initiative will be implemented by government structures within the finance sector in Ethiopia including at federal, regional and woreda (district) levels. DFID will issues a contract through a competitive process for the verification of performance. However the exact methodology of judging/awarding this prize is still to be determined with Government, as are arrangements to measure its efficacy. Notwithstanding it is expected to form an important tool in further driving efficiency improvements with PBS 3. C. What is the likely impact (positive and negative) on climate change and environment for each feasible option? 150. Ethiopia is one of the most vulnerable countries in Africa to the impacts of climate change, with limited capacity to cope with shocks and adapt to trends 31. Its climate will get significantly hotter and wetter over the next fifty years. How much hotter will depend on the outcome of efforts to control greenhouse gas emissions. As things stand, Ethiopia can expect to be at least 3ºC warmer by 208032. Farmers who already struggle to cope with Ethiopia’s unpredictable climate will have to deal with increasingly erratic rainfall, damaging crops and reducing yields. Prolonged droughts will reduce water supplies for communities and for electricity generation from hydropower. Flash floods will wash away roads and homes. Vector-borne diseases, in particular malaria, will spread to the 31 Conway, D., Schipper, L.E.F. (2011) ‘Adaptation to climate change in Ethiopia: opportunities identified from Ethiopia’, Global Environmental Change 21(1): 227-237. 32 UNDP Climate Change Profile : Ethiopia (McSweeney et al) 54 highlands. If these impacts are not mitigated, the changing climate will reduce Ethiopia’s Ethiopia’s GDP by up to 10% by mid-century33, and push millions further into poverty. These pressures, combined with fast population growth, are likely to drive conflict in the Horn of Africa. At the same time, climate models also predict that Ethiopia will see an increase in annual rainfall[1]. It is likely that the increased rain will fall in more intense bursts – resulting in increased flooding, with increased periods of intervening drought. Much of Ethiopia’s overall increase in rainfall will come from short heavy episodes of rain in the south and southwestern parts of the country. Globally, events such as El Nino are likely to become more frequent, with a knock-on increase in climate variability in countries like Ethiopia. 151. As a result of this prognosis the country stands to receive international financial support for both adaptation (coping with climate change) and mitigation (payments for activities which reduce global carbon emissions such as planting new forests and foregoing dirty technologies). Climate change is also likely to prompt Ethiopia to re-visit some of its most intractable problems, such as water resources management, land reform and chronic vulnerability. Low carbon development may even offer Ethiopia the chance to accelerate poverty reduction, by leapfrogging old technologies in areas such as energy, transport and urbanisation and to avoid a conventional, high-carbon development path which already accounts for more than 4% of GDP and would increase to around 7% of GDP in 2030. 34 152. In addition, DFID Ethiopia’s proposed Climate High-level Investment programme (CHIP), whose business case is currently being finalized, includes £6m out of a total £30m that will help mainstream climate change into future iterations of the PSNP. It is likely that some of this mainstreaming will include climate-smart training for agricultural extension workers (e.g. alterations to the crop varieties to be recommended to farmers, given increasing weather variability, or the priority to be attached to better water resource storage/ management, given the likelihood of increasingly erratic rains). 153. During PBS 1, donors agreed that World Bank’s environmental safeguards would address all their environmental concerns. PBS 2 included a component, the Local Investment Grant that funded capital investments. In this context the programme’s Environment Screening Note was an important part in helping to screen environmental risks. That component is no longer proposed as part of PBS 3. PBS funds are spent on salaries and operations and maintenance, which include stationery, telephone calls, petrol, and maintenance. Capital investments are not carried out with PBS 3 funds. 154. According to the World Bank35, PBS 3 does not trigger any of the Bank’s environment and social safeguards for the reasons stated in Figure 2.7. 33 World Bank Economics of Adaptation to Climate Change – Ethiopia Country Study (2010), p.xvii et al (2008) UNDP Climate Change Country Profiles 34 Federal Democratic Republic of Ethiopia (2011) CRGE : Green Economy Strategy, p.17 [1]McSweeney 35World Bank. Integrated Safeguards Data Sheet (Concept Stage) Report No.: ISDSC279 (prepared/updated on 05 June 2012). 55 Figure 2.7: Explanation from World Bank about environment and social safeguards Safeguard Policies Triggered Explanation (Optional) Environmental Assessment OP/BP 4.01 No Safeguard Policy for Environment Assessment is not triggered in the context of support through PBS III which involves only recurrent cost for local basic services and strengthening Local Accountability and Transparency Systems. The project is not undertaking any works that would have environmental and social impacts. Natural Habitats OP/BP No 4.04 PBS III will not support any sub-project that involves the significant conversion or degradation of critical natural habitats. Therefore, the Safeguard Policy for Natural Habitats is not triggered. Forests OP/BP 4.36 No PBS III will not support any sub-project that involves the significant conversion or degradation of natural forests or related natural habitats. Therefore, the Safeguard Policy for Forests is not triggered. Pest Management OP 4.09 No This project is not supporting any activities which trigger this policy. Physical Cultural Resources OP/BP 4.11 No This project does not affect Physical Cultural Resources. Indigenous Peoples OP/BP 4.10 No This policy is not triggered in the project. PBS 3 provides resources only to cover recurrent cost for local basic services and strengthening Local Accountability and Transparency Systems. Involuntary Resettlement OP/BP 4.12 No This project does not involve land acquisition leading to involuntary resettlement or restrictions of access to resources or livelihoods. 56 Safety of Dams OP/BP 4.37 No This policy is not triggered because Dams will not be financed under PBS 3 which involves only recurrent costs at local level for basic services. Projects on International No Waterways OP/BP 7.50 N/A Projects in Disputed Areas OP/BP 7.60 This project is not being implemented in any disputed areas. No 155. However while the basic services programme funded by PBS 3 is not deemed to pose significant threats to climate change or the environment clearly there are opportunities for furthering the climate and environment agenda. For example: some of Ethiopia’s most serious health problems have close links with climatic variability. In the future increased climate change could result in increased outbreaks of vector and water-borne diseases such as malaria, typhoid and cholera. Climate variability might also impact on farm productivity, with an expected increase in food insecurity and therefore under nutrition. Water is also at the heart of the climate agenda and most obviously subject to changes in rainfall patterns. However many water points are constructed with little consideration for the sustainability of the water resources they rely on. Therefore all future water investments in Ethiopia should be ‘climate smart’ and prepared for future changes in the climate. Roads are also an excellent way of building climate resilience. By giving communities access to markets, jobs and other opportunities, roads enable people to diversify their livelihoods making them more resilient to climate shocks. Ethiopia’s current programme to develop its rural road network is therefore an important step in preparing for climate change. Finally there is an opportunity to raise the awareness of health and agriculture extension workers on climate change and environment issues. 156. These opportunities can be realised through the range of projects and programmes that complement PBS 3 (see Figure 1.3). PBS itself, however, lacks the instruments (training, programme design etc) that will be needed to achieve this. This is true for each of the three options considered above (apart from the counterfactual of do nothing). In each case therefore the options for PBS 3 discussed in this business case are assessed as Category C in terms of both impacts and opportunities. Option Climate change and environment Climate change and environment risks and impacts, Category (A, B, C, opportunities, Category (A, B, C, D) D) 1 C C 2 C C C C 3 D. What are the costs and benefits of each feasible option? 57 157. This section summarizes the economic costs and benefits of each of Options 1-3 relative to the counterfactual Option 4 ie do nothing. Note that the ‘do nothing’ counterfactual could itself have a negative value since withdrawing the support for salaries and other recurrent expenditures hitherto provided by PBS 2 would have a serious negative impact on the effectiveness of existing sector programmes. The estimates below of the net benefits of Options 1 to 3 are therefore likely to represent an underestimate. Overall approach 158. Although each option has been separately appraised there are a number of aspects of the economic appraisal which are common to each option. 159. First each option is appraised based on an overall level of resource potentially available from DFID for this investment of £510 million. This has been derived on the basis of the following logic: The government has identified a funding gap for basic services that reflects best efforts on its own part as shown by: a ratio of revenue to GDP (16.5%) that - according to the latest Medium Term Expenditure Framework – that is improving strongly (up from 12% in 2008) although it is still low relative to comparator countries (35th percentile in Africa) a clear effort to prioritize poverty-central sectors: eg share of government spending on health is high at 11.4% (65th percentile in Africa); spending on education at 23% is even higher (90th percentile for African countries) Despite these efforts it is clear that the level of basic service provision is far from being met suggesting that the Government’s proposed expenditure on basic services represents a ‘floor’ or minimum threshold: teacher pupil ratios at 1:51 are still poor (18th percentile in Africa) the ratio of nurses to population at 24 per 1000 population is very low (5th percentile in Africa) The government has also shown it can absorb and use aid well as shown by results during PBS1 and 2 and as evidenced by its ranking in the World Bank’s CPIA scores (see Figure 1.4) Given the existence of a clear funding gap for basic services the factors that constrain DFID’s contribution are as follows: a) DFID’s overall budget constraints b) DFID’s desire to ensure burden sharing between development partners and the Government and among development partners such that its contribution does not exceed one third of DP contributions or a maximum of 15% of total regional recurrent expenditure on basic services; and c) the need to maintain a diversity of funding instruments including sector programmes that provide access to sector policy making. 160. Second each option is expected to result in two main types of benefit: better services and hence better social and economic outcomes more services per money spent ie allocative and operational efficiencies 161. Third the appraisal recognizes that there are many interventions and programmes, several of them already funded by DFID, which together combine to deliver the functional and economic mix of activities necessary to meet the Government’s overall targets. 58 These interventions are mutually dependent: clinics cannot operate without medical staff and medical staff are idle without medicines and supplies. Therefore the appraisal of all options rests on the following approach: estimate the net benefits of achieving the GoE’s overall targets for 2015 extrapolated to 2017 to coincide with the proposed 5 year duration of the programme attribute a share of these benefits to total development partner investments in basic services attribute a share of these total DP benefits pro rata to DFID based on the size of its intervention adjust the size of the benefits depending on the option in light of a) variations in the benefits that can be expected from the option and b) variations in the cost of delivering the option and hence the resource that is actually available for improved service delivery and/or efficiency gains. Option 1: block grant support of £510 million (including £9.9 million fees for administration of the programme) over 5 years 162. The benefits: as noted above the benefits under Option 1 comprise two main categories namely benefits arising from improvements in services for a given level of resources; and efficiency gains, both allocative and operational, resulting in additional resources. The key benefits arising from improvements in services are summarized below. Education: Investment in education benefits at primary level is assumed to provide a 10% return on investment in line with estimates made in the economic appraisal of the DFID funded GEQIP programme. These returns reflect the impact of human capital improvements on the overall growth prospects of the economy: those students who complete school who would not otherwise have done so enjoy a return on their foregone earnings of 10%; also those students who are already in school will also benefit since it is assumed that the increase in completion rates reflects an improvement in quality of education that will also benefit existing students. Assuming a 12% discount rate, the total discounted benefits of better education attributable to DFID are expected to equal approximately £134 million. Health: the block grant will provide funding for services delivered at woreda level. The bulk of woreda funding for health services - as for other basic services – consists of salaries. These outlays on wages and salaries will result in increased levels of health extension workers, nurses, midwives etc, as well as improved water and sanitation facilities, which will in turn work through to a range of mortality and morbidity improvements. A frequently used measure for estimating the returns to investment in health is the value of Disability-Adjusted Life Years (DALYs) saved as a result of the intervention, ie sum of additional years that a person whose life has been saved will live and the reduced years of living with ill-health of disabilities. DALYs saved can then be converted to monetary terms using per capita income measures in purchasing power parity (PPP) terms. In this appraisal we have not used DALY estimates for Ethiopia by the WHO to monetize the health benefits. Rather we tried to monetize the additional productive years due to greater life expectancy and the gain from fewer years spent ill. Based on World Bank data showing improvements over the last 10 years, life expectancy is assumed to increase gradually from its current level of 49 years to 52 years by 2017 59 and the number of years lost to ill health is expected to decline from eight in 2012 to 7.1 in 2017. With a 12% discount rate the total discounted benefits of better health attributable to DFID - a significant share of which is due to clean water programmes - are expected to equal approximately £119 million. Water: in addition to its impact on improved health and sanitation, improved access to water facilities will save on time spent walking to water outlets. Government targets, reflected in the log frame, anticipate an increase in the share of the population within 1.5 km of a clean drinking water source from 71% currently to 96% by 2017. This improvement is assumed to save an hour of time per day, on average, for the 25% of the population affected. Based on these parameters as well as core labour market assumptions, the discounted benefits resulting from improvements in water for the entire appraisal period that are attributable to DFID are estimated to amount to £9 million. Agriculture: Agricultural output is projected to increase significantly under the Government’s GTP. Some of this improvement will be due to improved basic services, such as the guidance provided by development agents paid for by the woredas, but by no means all can be. Dercon S et al (2007), in their study of 15 Ethiopian villages, estimate 7% increase in the growth rate of household consumption from increased access to agricultural extension services.36 Adopting this estimate as a proxy for growth in household income, the discounted benefits for this sector attributable to DFID amount to approximately £31.2 million. Figure 2.8 36 Stefan Dercon, Daniel O. Gilligan, John Hoddinott and Tassew Woldehanna, The impact of roads and agricultural extension on consumption growth and poverty in fifteen Ethiopian villages, CSAE WPS/2007-01 60 Key drivers of economic appraisal and summary of sensitivity scenario (NPV = 0) Key driver Source/ evidence Change in value Explanation Scenario: NPV=0 Healthy life expectancy, years World bank Africa Indicators database. Component of DALY. Increasing at 0.5 years/ year to 52 years by 2017 Extrapolated from average gain in life expectancy 2000-2009. Comprises additional life earnings. Increases at only 0.4 years per year Years spent ill in a lifetime WHO Health Situation Analysis in the Africa Region 2011 Decreasing at 0.15 years per year to 7.1 years by 2017 Comprises cost of care and loss of earnings. Decreases at only 0.086 years per year Grade 8 enrolment rates Targets and milestones from GTP plus DFID sector estimates. Increasing from 46% to 54% by 2015 and beyond Higher life earnings for existing student cohort from quality improvements plus additional students now completing. Plateaus at 47% Beneficiary HH of ag extension services Targets from GTP. Impact on consumption growth rates from Dorcan et al (2007). Increasing from 8.5 million HH to 3.8 million HH in 2017 Beneficiary HHs taken from GTP; access to extension services increases HH consumption growth rates by 7%. 55% fall in # of beneficiary HH Road Access Index RAI from government road sector plan plus team extrapolations. Impact on HH consumption from Dorcan et al (2007). Increasing from 27% currently to 89% in 2017 Increased access to roads generates increase in growth rates of HH consumption of 15%. Plateaus at 27% % pop'n access to safe water within 1.5 Km Based on logframe targets extended to 2017 Increases from 71% to 96% by 2017 Time savings in accessing water resulting in higher incomes. Plateaus at 75% Efficiency DFID Ethiopia analysis reflecting Malawi experience Efficiency gain of 1 % Comprising allocative and operational efficiency gains and based on range in comparator countries of 0.4% to 1%. Efficiency is 24% less 1/ Stefan Dercon, Daniel O. Gilligan, John Hoddinott and Tassew Woldehanna, The impact of roads and agricultural extension on consumption growth and poverty in fifteen Ethiopian villages, CSAE WPS/2007-01 Roads: The government expects to build approximately 70,000 km of roads by 2015 which, if it continues apace, would increase to over 100,000 km by 2017. This in turn will improve the road Access index (RAI). Dorcan et al (2007) find a relatively strong impact on the growth rates of household consumption as a result of greater access to roads amounting to 15 percent. Again adopting this as a proxy for the growth rate of household income there is a discounted benefit attributable to DFID for the roads sector of £31 million. 163. In addition to the benefits arising from improved outcomes for every pound of service delivery, it is expected that there will be efficiency gains as a result of systems strengthening. Working through the Government system and through the envisaged performance-based elements of Option 1 aimed at recognizing and rewarding good regional and sub-regional performance in service delivery, public financial management, accounting and reporting, and transparency and accountability, the PBS programme would help to increase the efficiency of public expenditure on basic services resulting in tangible efficiency gains. 164. In fact there is evidence in support of this at the global level. According to the Joint Evaluation of Budget Support37, budget support will generate efficiency gains in public expenditure, depending on whether an increase in discretionary funds is actually made available to the government budget or not. It was reported that in some cases general 37 Joint Evaluation of General Budget Support 1994-2004 – Effects Of General Budget Support (2007) IDD, Birmingham. 61 budget support clearly improved allocative efficiency by enabling the governments to complement earmarked resources. The same evaluation also highlighted the positive contribution of General Budget Support to operational efficiency of public expenditures by facilitating a better balance between capital investment and recurrent spending in government budgets. 165. Quantifying the possible gains through efficiency improvements is subject to widely varying estimates. A recent PER in Pakistan which focused on sub-national governance found a potential efficiency saving of up to 2.5% of public expenditure (0.5% of GDP) as a result of a wide range of measures comparable to those anticipated under PBS 3. 38 On the other hand in the Africa region an estimate of one percent of Government expenditure is often assumed to be a fair reflection of the efficiency gains arising from budget support programmes. In Malawi’s General Budget Support Programme efficiency savings of 0.4% were assumed. In the current appraisal it is assumed that efficiency savings are at the top end of the range ie 1% by virtue of the range of systems-strengthening measures (PFM, accountability). The discounted benefits resulting from these measures, estimated over the lifetime of the programme only, amount to £89 million. 166. Overview of net benefits attributable to DFID (before REF) Taking account of all discounted benefits and costs from investment in basic services as described above, the total NPV of benefits under Option 1 is positive (£329 million). With discounted costs of £230 million there is a benefit cost ratio of 1.43, ie the programme yields £1.43 for every £1 invested, and an IRR of 23.1%. Option 2: Regional grant 167. There is a high likelihood that because this option would be delivered through eight separate regional block grants, rather than one federally administered block grant, the administrative costs of delivering this programme would be substantially higher than under Option 1. This option would still be delivered through a multi donor trust fund with costs comprising WB central unit feeds and management unit fees as well as a secretariat. Some elements of transaction costs would be fixed eg office costs, but some would vary with the number of transactions eg multiple grant agreements, multiple supervision requirements including increased fiduciary compliance work for eight different administrations. Under this option we assume up to one half of TF administrative activities vary directly with the number of counterparts and are 50% higher. Hence fixed costs for 8 regions would be 1.5% of total programme costs; variable costs would be up to 8*1.5%*0.5 = 8%. Hence total cost would be 9.5% of the overall programme. 168. The benefits under Option 2 would be similar to those under Option 1 ie: block grant and systems support funds service delivery improvements plus allocative and operational efficiency improvements through ‘learning by doing’ (ie managing funds through own channels), PFM, REF, M&E and social accountability. However efficiency gains would tend to be less because there would be less scope for nation-wide improvements in fiduciary and allocative systems. In particular federal level efficiency gains would be absent in this option. Hence efficiency gains are assumed to fall to 0.5% of expenditure from 1% in the base case ie option 1. 169. The combined implications of these higher costs and reduced benefit would be a 38World Bank (Islambad) Public Expenditure Review 2010 62 reduction in the NPV of gross service delivery benefits by 9.5%-3%=6.5pp to reflect reduced resources available for purchasing outputs and hence outcomes. It would also imply a reduction in efficiency benefits by 0.5pp = 1.0%-0.5%. As a result the IRR of Option 2 is 19.6% and the cost benefit ratio is 1.30. Option 3: Delivery via NGOs or UN agencies 170. Estimating the cost of delivery via non-governmental channels is not straightforward not least because the definition of what is included in management and administration varies. 171. The recent appraisal of the Ethiopian Health Sector Development Programme reported the estimated unit costs of procuring condoms in three different countries (Nigeria, Vietnam and Cambodia) via Government channels, UN agencies and NGOs as follows: Funding Source UNICEF Canadian International Development Agency Ministry of Health UNFPA UNDP Global Fund International Planned Parenthood Federation Marie Stopes International USAID Cost ($) per 100 condoms 2.30 2.33 2.36 2.39 2.42 2.48 2.81 3.72 4.47 172. As shown in the table, procurement via Government channels offered considerably better value for money than some NGOs. 173. A recent study estimated the average administrative and management costs of over 900 US-based NGOs working in the area of international development at around 11.5% of total budgets.39 Another study of 26 Bangladesh non-government organizations (NGOs) providing family planning services under a US Agency for International Development-funded umbrella organization found the following: “56 per cent of total expenditures in the two-tiered umbrella's organizational structure are incurred in management operations and overheads. Of the remaining 44 per cent of project expenditures, 39 per cent is spent on the CBD program and 5 per cent on the MCH clinics. Within the CBD program, most resources are spent providing 4 million contacts (two-thirds of the annual total) which do not involve contraceptive re-supply. The clinics devote more resources to providing MCH services than to providing family planning services. The findings suggest that significant savings could be generated by containing administrative costs, improving operational efficiency, and reducing unnecessary or redundant fieldworker contacts. The magnitude of the potential savings raises a 39 Nunnenkap et al, US-based International NGOs involved in International Development Cooperation: Survival of the Fittest? 63 fundamental question about the continued viability and sustainability of this supply-driven CBD strategy.”40 174. Finally USAID in Ethiopia estimates that overheads as a share of total budget for its main delivery partners are between 15% and 30% depending on the program. An examination of the websites of some of USAID’s main delivery suggests a similar average overhead. However it is unclear if these data include overheads associated with individual projects also. 175. Given the above range of estimates this appraisal assumes that administrative overheads in using NGOs as delivery partners in Ethiopia are likely to be at least 15% of total programme costs ie approximately 5 times the administrative costs associated with a WB-administered MDTF. Delivery via UN agencies when employed as trustees of bilateral donor funds is typically about 7% of programme costs. Assuming (based on the experience of DFID in Zimbabwe) that 40% of DFID’s support for basic services is delivered by UN agencies and 60% by NGOs then a weighted average cost is about 11.8% of programme costs. 176. As discussed above as evidence for this option, USAID and other donors that use non-governmental delivery partners are capable of delivering very large programmes in all the sectors covered by basic services as well as systems strengthening initiatives. Experience in Zimbabwe also demonstrates that it is in principle possible to transfer very large amounts of resource as salary supplements. The benefits under Option 3 for the purposes of this appraisal are therefore assumed to be similar to those under Option 1 (block grant and systems support funds service delivery improvements plus allocative and operational efficiency improvements). However this assumption should be considered as at the very upper bound of what would be feasible and there is clearly a very significant risk of under-delivery relative to Options 1 and 2. In particular it is clear that if the payment of salaries was compromised to any significant degree that this would have a negative impact on basic services country –wide. In addition there would be no efficiency gains by ‘learning by doing’ estimated at 1/4 of efficiency gains = 0.25 pp. 177. Given these caveats the implications for the economic appraisal would be first a reduction in the NPV of gross service delivery benefits by 11.8%-3%=8.8pp to reflect reduced resources available for purchasing outputs and hence outcomes. Second it would also involve reducing efficiency benefits by 0.25pp. Under this scenario, the IRR is estimated at 19.4% and the benefit cost ratio at 1.29. Results Enhancement Fund 178. The design of the REF shares a number of features with the Cash on Delivery Aid instrument developed by the Centre for Global Development (CGD) the key feature of which is to improve recipient country institutional capacity to deliver services as distinct from many other approaches designed to better align incentives for development results.41 In this respect the REF consciously steers away from more traditional results 40 Fiedler J, Day L, A cost analysis of family planning in Bangladesh, International Journal of Health Planning Management, 1997, 1997 Oct-Dec;12(4):251-77 41 Birdsall, N. and Savedoff, W. (2010) Cash on Delivery: A new approach to foreign aid. Centre for Global Development, Washington DC 64 based mechanisms – which would require a) mechanistic setting of expenditure allocations and b) tenuous links between expenditure allocations and specific outcomes – and in favour of a PEFA-type assessment of expenditure management capabilities. In promoting the CoDA instrument, the CGD undertook a review of other similar instruments although unfortunately the CGD’s review did not reveal any systematic evaluations of the impact of such initiatives. Two initiatives that were positively reviewed and similar in concept to the CoDA were: UNIDO business environment capacity building in Morocco. The IRIS Center at the University of Maryland and UNIDO initiated a competitive performance-based allocation of credit for technical assistance, in which local governments would choose reforms to improve the local investment environment from a menu. GAVI. GAVI’s Immunization Support Services program funds countries as a part of a funding package on an application basis. ISS is intended to build country capacity for immunization. Countries present a plan for increasing childhood immunization rates, and if approved receive both an initial payment and ex post reward shares on the basis of their progress. 179. There are also a number of evaluations of incentive schemes in the public sector more generally. In the UK, for example, Lockwood and Porcelli (2011) look at the impact of the Comprehensive Performance Assessment (CPA), an explicit incentive scheme for local government in England. By comparing the performance of local government in England with local government in Wales (where CPA did not apply) they find a 4% increase in an index of best value indicators of service quality as a result of CPA although only limited evidence of administrative efficiencies. Other studies such as Propper (2008) and Besley et al (2009) look at the impact of school league tables and hospital star ratings and find similar strong effects on targeted outputs.42 180. Given the range of positive experiences cited in the above reviews it is expected that the REF will provide an incentive for sub-national levels of government in particular to achieve additional results over and above what they would achieve without such incentives. In particular it is expected that the gains from the REF would be over and above those achieved through strengthened fiduciary and social accountability alone since they relate to distinct areas of planning and budgeting. The impact evaluations of incentive schemes from the UK suggest that REF could deliver a significant improvement in the quality of planning and budgeting in regional BOFEDs in Ethiopia. This in turn would have a positive impact on service delivery outputs and outcomes although there is little evidence that the REF would result in administrative cost savings within the BOFED itself. 181. Given these findings, and erring perhaps on the side of caution, it is therefore anticipated that the REF could deliver an additional 1% efficiency gain over and above that achieved by PFM, M&E and social accountability systems strengthening. This would still leave the overall efficiency gain well within the estimated ceiling for these gains of 2.5%. Based on these assumptions the REF results in an overall positive NPV of benefits of £46.7 million, a benefit cost ratio of 1.30 and an IRR of 37%. 42 Lockwood, Ben and Pocelli, Francesco, Incentive Schemes for Local Government: Theory and Evidence from Comprehensive Performance Assessment in England, University of Warwick; Propper, C., Sutton, M., Whitnall, C., Windmeijer, F., (2008), "Incentives and Targets in Hospital Care: Evidence from a Natural Experiment" CMPO Working Paper Series, No. 08/205. 65 182. In addition to the above, the REF would also help provide information and insight to help DFID monitor and assess value for money of its own resources in terms of economy, efficiency and effectiveness as set out below. Option 4: Do nothing: the counterfactual 183. Doing nothing is likely to have a damaging effect on existing sectoral programmes that depend on the staff employed by woredas to deliver services, the non-wage aspects of which are supported by these programmes. Consequently under the do nothing option although costs would be zero there are likely to be negative benefits resulting in a negative net present value. E. Summary of costs and benefits 184. The estimated IRRs and benefit to cost ratios of the option appraisals are summarised below: Sensitivity analysis 185. The results of the economic appraisal are of course sensitive to variations in the underlying assumptions. In particular the NPV of Option 1 would fall to zero, and the investment would no longer be worthwhile, if the following combination of variations in the underlying assumptions were to take place: the annual increase in life expectancy fell from 0.5 years each year to 0.4 years the reduction in years spent in ill health was only 3 days (0.086 years) per year rather than 0.15 years the grade 8 enrolment rate plateau’ed at 47% rather than reaching 54% the number of beneficiaries of agricultural extension workers fell by 45% the rural access index plateau’ed at 45% rather than reaching 89% access to potable water peaks at 76% rather than achieving 96% efficiency gains are only 90% of their base case level The impact of these lower outcomes for the IRR and benefit cost ratios of the three options appraised would be as follows: 66 Social appraisal 186. Equity is a fundamental objective of the GoE, enshrined within the Constitution and the driving motivation for the decentralised system of fiscal administration and service delivery. The overriding issue of equity recognised by official policy is that of differing levels of welfare across the regions. Four regions in particular are classified as developing regions: Afar, Benshangul, Gambela and Somali. Together these regions comprise 10% of the country’s population but are also the locations with the greatest level of social need. The Social Inclusion and Gender Equality Analysis for the Protection of Basic Services programme highlighted the determining role of residence in terms of access to service with indicators for the lowland areas of Afar and Somali being the worst, and rural areas faring worse than urban areas. The poorest section of the population is typically less able to access health and education services compared with the wealthiest.43 187. A recent report commissioned by DFID Ethiopia, Gender and Social Exclusion in Ethiopia (GSEE), further identified a number of groups that suffered from unequal access to basic services including: child labourers, disabled people, female victims of domestic violence, sufferers from HIV/AIDs, older people, pastoralists.44 Specific barriers identified by the report included the following: Gender: as already noted in the Strategic Case above (see detail in paragraph 30), girls in Ethiopia experience significantly worse access than boys across a range of basic services. The Social Inclusion and Gender Equality Analysis for the Protection of Basic Services programme also highlighted inequalities in access to services based on gender (males have better access to education, health, employment and decision-making). Disability: both the health and education sectors are often inaccessible to people with disabilities due to a lack of sign language interpreters or poor design of clinics, health centers and schools with respect to those with compromised physical mobility. Women with physical disabilities may face additional obstacles in the health sector as examination tables and stirrups are not accessible for women in wheelchairs. The Education Sector has a policy statement on the rights of children with special needs, and there is some evidence that woreda education bureaus require schools to undertake assessments of children with special needs with the aim of enrolling them into elementary Hughes, Kerr-Wilson, Mussa and Johnson (2008). ‘Protection of Basic Services: Social Inclusion and Gender Equality.’ Social Development Direct. September 2008. 44 Teferra, Sehin and Gebremehin, Liyousew, Gender and Social Exclusion in Ethiopia, July 2010 43 67 school. Older persons Older persons are eligible for free medical service if they can provide proof of poverty to obtain a ‘free’ certificate. However, as reported elsewhere the process of obtaining a ‘free’ certificate from the kebele is not easy and older people are often deterred by physical immobility and isolation, or their lack of a kebele ID Card which is a prerequisite for entitlement to free medical service. Even where they have obtained ‘free’ certificates, health centers may pose obstacles of physical access for physically impaired older persons. In addition, specialized geriatric medicine is not widely available in Ethiopia, with a generally low level of attention given to older people’s specific health issues such as diabetes, heart disease and cancer. Pastoralists Formal education may be seen in some pastoral households as a threat to the future contribution of children to the household and to the pastoralist way of life.45 Girls’ access to education in pastoralist communities may be particularly constrained by parents’ perception that going to school furnishes girls with the opportunity to interact with boys. With respect to health services these are often ill-suited to the mobile way of life of pastoralists46. The health services that do exist in pastoralist communities are sometimes underutilized because of a local distrust of external organizations. Eg according to the GSEE one aid organization operating in Dollo on the joint border between Ethiopia, Kenya and Somalia found that despite reported needs, women were not utilizing the health center to give birth in or for ante-natal care perhaps because of a distrust of outsider institutes. Implications of different options 188. The block grant, regional grant and non-government channel options would help improve the access of socially excluded groups to basic services in differing degrees depending on their scope for: influencing national policy on access implementing national policy on access by deepening and widening its application 189. PBS programme has progressively drawn in line ministries responsible for each of the 5 basic services as part of the 6 monthly JRIS review process. This involvement, together with the clear complementarity between the block grant and sector programmes, provides a platform for influencing national policy on issues of access. An example of other programmes specifically aiming to address the issue of regional disparity is the Peace and Development Programme which aims to strengthen the basic service provision of health, education and water in the developing region of Somali region where human development indicators are considerably below the national average. By operating on a national scale the block grant option would also maximise the scope for deepening and broadening the implementation of national policy. In particular the block grant formula (illustrated above in the Strategic Case) for distributing resources across the regions plays a major role in redistributing resources to less advantaged regions: thus Brocklesby, Hobley and Scott-Villiers (2010). “Raising Voice – Securing a Livelihood: The Role of Diverse Voices in Developing Secure Livelihoods in Pastoralist Areas in Ethiopia.” IDS Working Paper 340. March 2010. 46 CARE (2010). “Underlying Causes of Poverty Analysis for Pastoralist Girls’ Situational Analysis.” Addis Ababa, April 2010. 45 68 the four developing regions with 9.3% of the country’s population receive 15% of block grant resources. 190. The regional grant option would have less scope for influencing national policy as by definition it operates directly at the sub-national level. However it would enable implementation of existing policy to broadly the same degree as the block grant option. The option of delivery via non-governmental channels would provide little or no scope for influencing national policy. However it would allow for specific targeting of socially excluded groups and their needs although it is unlikely to result in the permanent institutionalisation of change at regional levels. Institutional appraisal 191. In Ethiopia, public sector reform initiatives evolved in the late 1990s and early 2000s in response to pervasive institutional weaknesses and capacity deficits across the public sector including: Outdated legislation governing the civil service, ineffective personnel management, inappropriate grading and appraisal systems, inadequate civil service wages, and insufficient focus on modern management approaches to service delivery Ineffective financial management in areas of budgeting, accounting, auditing, cash management, property management and procurement; Insufficient and unpredictable revenue flows, resulting from outdated tax policy, and from structural and operational inefficiencies in the tax system Weaknesses in the justice system, around law making, execution and enforcement, the functioning of courts and the development of legal professionals Lack of alignment between GoE’s development priorities, resource constraints and the functions, systems, structures, and work practices of ministries, agencies and bureaus at the federal and regional levels. 192. A public sector capacity building programme (PSCAP) was launched in 2004 and a second phase started in 2010 with the following focus: establishing systems of HRM that attract and motivate qualified professionals, including an effective performance management system; strengthening the civil service college, the management institute, the tax institute, the urban management institute, the judicial training centre; establishing an auditing and accounting professional training centre. support for further reforms around budgeting, accounting, audit, procurement, cash management and property administration including deepening and scaling up the use of IT and performance budgeting establishing service delivery standards and improving public access to government information; strengthening ethics and anticorruption efforts at all levels of government improving services of community policing; strengthening crime investigation capacity; integrating justice information systems; training justice staff (judges, lawyers, prosecutors and police); strengthening alternative dispute resolution (ADR) and social court practices; improved application of ICT in the court system strengthening the newly introduced ICT applications around revenue collection; conducting a revenue potential study; staff development base mapping and related hardware and software for 150 selected towns will be delivered. Urban management education will continue to roll out and scale up through the Urban Management Capacity Building programme networking of government departments; online service delivery; facilitating access to 69 information; ICT park and portal development; ICT human resource development scaling up the federal professional support to the regions; strengthening inter-regional cooperation through experience sharing; increased support to professionalization of civil servants in these regions Implications of different options 193. While the future of the PSCAP reform has been subject to considerable uncertainty the issues that it seems to address remain highly pertinent to increasing access to and the quality of basic services. Given the systemic, nationwide scale of the challenge of strengthening public sector capacity it is clear that Option 1 (block grant) with its links into federal levels of government as well as regional and woreda levels offers the most complementary approach to the objectives of PSCAP in terms of programme design and scale. Option 2 (regional grants) would allow for considerable complementarity but without the access to federal levels provided by the block grant. Option 3 (NGOs and UN agencies) would have considerably less capability of delivering nation-wide system strengthening than either Options 1 or 2. The Results Enhancement Fund would be highly complementary to the GoE objective of strengthening regional level performance, exchange of best practice etc. Decision 194. This business case has appraised 4 options plus a common sub-option: Option 1: Block grant support to complement sector support programmes Option 2: Regional grant Option 3: Delivery via NGOs or UN agencies Option 4: Do nothing: the counterfactual Common sub-option: Results Enhancement Fund 195. The economic appraisal shows that Option 1 will deliver £119 million discounted health benefits, £133 million discounted benefits from education, £31 million discounted benefits from rural roads, £31.2 million discounted benefits from agriculture, £9 million discounted time saving benefits from WASH and £89 million discounted efficiency benefits from system strengthening. Subtracting the discounted input costs of £230 million from discounted benefits of £329 million results in an overall incremental net benefit of £99.3 million. This incremental net benefit is significantly higher than the £71.2 million under option 2 and £69.7 million under option 3. These results in turn translate into benefit cost ratios of 1.43 for option 1, 1.30 for option 2 and 1.29 for option 3. The REF has a benefit cost ratio of 1.30 and an IRR of 37% and adds a further £10.7 million in discounted net benefits. The social and institutional appraisals both conclude that supporting the block grant offers the greatest scope for influencing and implementing policy with respect to both access and capacity building. 70 196. Taking into account the above results, Option 1 ie delivery via the block grant with additional support for local systems, with the addition of the REF, is the preferred option. D. What measures can be used to assess Value for Money for the intervention? 197. The PBS programme represents a key opportunity not only to assess and track but to actively improve the operational and allocative efficiency and the effectiveness of public expenditure at federal, regional and woreda levels in Ethiopia. The establishment of the REF, if approved, would be an important instrument for enabling this. The REF would also help DFID to track value for money of its own investment as detailed below. Economy 198. The main costs of the programme (see financial case for detail) relate to: sector investments through the block grant to cover recurrent expenditure (83% of total) support for local systems strengthening comprising public financial management, the £50 million Results Enhancement Fund, funding for monitoring and evaluation, and citizen engagement (15% of total) management fee (2% of the total) 199. In line with the relative weight of these components, and as summarized in Figure 2.8 below, the key indicators required for monitoring the continued economy of Option 1 comprise the unit costs of key recurrent resources notably annual salaries of a primary school teacher, a health extension worker and a development agent. Other unit costs relevant for the systems strengthening components of Option 1 include, for example: annual salary of PFM contract employees hired, unit cost of person trained, and audits completed; cost per data collected, person trained, manual completed under M&E; cost per budget published, hour of airtime purchased, etc. 200. Overhead costs for option 1, which will be working through the multi-donor fund administered by the World Bank, are approximately 2% of programme costs. Indicators for monitoring the continued economy of this management approach would include: cost per interim financial report, cost per item prior reviewed and post reviewed, cost per audit. Efficiency 201. The efficiency of PBS 3 relates to the rate at which inputs funded from the programme are transformed into the intended outputs (quantity of recurrent resources, better fiduciary oversight and allocative efficiency, well-functioning M&E systems, and well-functioning citizen feedback mechanisms). Key indicators for monitoring this transformation, summarized in Figure 2.8, could therefore include: change in the ratios of teachers to pupils, health workers to population and development agents to farmers increase per PFM technician of the quantity and accuracy of various fiduciary outputs such as IFRs checked, errors identified and others number of improved indicators and improved feedback from decision makers per item of 71 M&E funded increased citizen participation per woreda, increased amendments to plans and budgets per instance of participation Effectiveness 202. The effectiveness of PBS 3 relates to the rate of transformation of its outputs as summarized above into the key outcome of the programme namely greater use of quality basic services. To help track this the following indicators could be used: % increase in school enrolment per teacher hired % increase in attended (skilled) births per health worker hired hour of advice dispensed/ per farmer % increase in share of clean water drunk per new standpipe increased use of new roads per hour per citizen per reduced time to roads D.5. Measures to Assess the VfM: 203. Indicators have been developed to enable tracking of value for money throughout implementation of the programme at the levels of economy (cost of inputs), efficiency (transformation of inputs into outputs) and effectiveness (transformation of outputs into the outcome). Figure 2.8 * = essential Value for money indicators (subject to data availability) Components Economy Efficiency Block grant •level of salary of*: - a primary school teacher - a health extension worker - a development agent •ratios of: * -primary pupils to teacher -population to health worker -farmers to development agent PFM and PEM •cost per: -contract employee (annual) -person trained/informed (day) -office to connect to woreda network or to install IBEX * -woreda audit -woreda of publicising budget information -region of assessing performance for RIF •increase, per technician, of: -goods and services procured -procurement process steps completed -IFRs checked/ submissions chased - accurate period end financial statements prepared •increase, per technician, of : -errors identified -fraudulent activities spotted M&E •cost per: -gigabyte of data collected -manual produced -training day -survey/study/report per day •# of improved indicators per gigabyte data collected •% improvement in feedback from sample of key decision makers on data availability per survey Citizens engagement •cost per: -simplified budget or expenditure template -hour of airtime purchased -training per citizen per hour -salary per contracted stafff •increased participation registered by citizens per woreda •Increased amendments to a planning or budget provision resulting from citizen feedback * Effectiveness -% increase in school enrolment per teacher hired * -% increase in attended (skilled) births per health worker hired * -hour of advice dispensed/ per farmer -% increase in share of clean water drunk per new standpipe * -increased use of new roads per hour per citizen per reduced time to roads * 72 204. Figure 2.8 above summarizes a range of indicators at each of these levels for the block grant, PFM and Results Enhancement Fund, M&E and social accountability. Not all indicators are equally important. Those marked with an asterix are priorities, however, given the large share of the overall programme that they represent. It is proposed that these should be the eight indicators, depending on data availability, used to track value for money over time. E. Summary Value for Money Statement for the preferred option 205. The analysis in the strategic case and appraisal cases support the investment by DFID of £510 million in support of basic services in Ethiopia for the following reasons: basic services is a strategic priority for DFID due to its impact on poverty the overall national return on investment in basic services is high there is a funding gap the overall allocation of spend within basic services between wage and non-wage does not require further ring fencing there are non-quantifiable reasons for DFID maintaining a balance of instruments (eg access to policy dialogue vs building on government systems) DFID’s own budget constraints (see financial case) 206. The above analysis suggests that the nation-wide return on supporting basic service delivery is high at the levels of investment proposed under the government’s Growth and Transformation Plan. The GTP identified a funding gap which under this proposal DFID will help fill. From DFID’s perspective, supporting the block grant dominates delivery of basic services through NGO and UN delivery partners because of the higher overheads associated with the latter and the likely loss of strategic reach and provision that would come with operating outside of government systems. The continued economy, efficiency and effectiveness of this approach will be tracked using a subset of the indicators developed above. Commercial Case Summary of the commercial approach A. Clearly state the procurement/commercial requirements for intervention 207. DFID will provide £510 million over 5 years (which in the first three years of the programme where other development partner commitments are firm would represent 33% of total development partner contributions and about 12% of the total Federal Block Grant) to ensure continued access and improvement of decentralised basic services for education, health, water and sanitation, agriculture and rural roads in Ethiopia. These resources will be used to finance: Block grant funding of basic service delivery 73 Improved quality of public financial management and planning and budgeting for basic services Monitoring and evaluation system strengthening Social accountability mechanisms 208. DFID will undertake a hybrid procurement process to purchase the required inputs comprising the following: a direct procurement process for (i) the evaluations proposed within the Evaluation Strategy and (ii) the verification of the achievements delivered by regional administrations through the use of grants paid out by the Results Enhancement Fund (REF). The contract for the evaluations, estimated to be valued at around £500,000 in total over 5 years, will require the service provider to design a detailed evaluation approach, establish the baselines for the key indicators in the programme, and to measure impact every year. The contract for the verification exercise is likely to be in the region of £400,000. DFID would look to see if the two pieces of work could be delivered under the same contract thus potentially obtaining better value for money. The contract(s) would be awarded within 4 months of the start of the programme. an indirect procurement process through two Trust Funds administered by the World Bank on behalf of DFID and other participating DPs. DFID’s spending through the main, programmatic Trust Fund will approximate to £458 million with the major part (£425 million) supplementing the Federal Block Grants for basic services. The remaining £25 million will be DFID’s contribution to the other components in the PBS programme. £9.1 million will be set aside for payment of the World Bank’s administrative fees and for paying DFID’s share of the costs of the Secretariat. The administration fees include the cost of enhanced supervision (to supervise all PBS components) including fiduciary safeguards, the cost of Trust Fund team leader and other technical assistance. Other costs include legal costs of managing the framework and general set up costs of the multi-donor trust fund. The fees are predictable over the five years and there will be no further costs levied by the Bank. Direct procurement B. How does the intervention design use competition to drive commercial advantage for DFID? 209. The selection of service providers will primarily be on the basis of ability to deliver a specified set of services to an adequate standard at a reduced budget. However, selection will not be on the basis of cost alone; additional considerations such as quality, relevant expertise, and proposed approaches to delivering the required products will also be considered, in order to ensure that optimal value for money is obtained. 210. The use of Ethiopian based organisations will be explored during the procurement process (including possible partnerships between organisations in Ethiopia and elsewhere). Potential benefits of using Ethiopian based organisations include: greater knowledge of the programme and the environment in which it is implemented; strengthening of local capacity; and reduced costs. We will encourage applications that include both a mixture of Ethiopian and international experience. 74 211. These contracts will be results based, linked to a set of agreed time bound deliverables that will be agreed annually in advance by DFID through a detailed work programme for each contractor. These deliverables will be related mainly to the submission of reports following analytical work and investigations completed within the agreed work plans. 212. Contracts will be agreed for a period of 5 years with the necessary safeguards to ensure that cost increases over the period are subject to agreed limits. VFM reviews of suppliers’ performance by DFID Ethiopia will be completed annually using criteria that will be elaborated by DFID in consultation with the service providers. These criteria will be related primarily to the quality and timeliness of the reports submitted by the service providers. Where VFM is not being achieved, there will be scope for early termination of a contract. 213. The decision to adopt direct procurement for these contracts, rather than to include them in the Trust Fund arrangements, was influenced by the perceived benefits to DFID of having greater control over the selection and supervision of the service providers in these areas. Service providers will require strong evaluation skills; they will need to be able to focus the analytical work in areas of particular interest to DFID and to capture the lessons learned from this innovatory work in such a way as it best feeds back into the DFID, and other DPs, evaluation processes. The technical nature of this work plays to DFID’s strengths. For this reason, the opportunities for collaboration with other DPs outside the Trust Fund mechanism, with the primary motivation of reducing costs, is not seen as practical option. C. How do we expect the market place will respond to this opportunity? 214. There are a number of UK based suppliers with strong experience in the area of evaluation of development programmes and verification of results of the sort proposed under PBS. These include Oxford Policy Management, Adam Smith Institute, Coffey International, Mekora. Telephone contact with these organizations suggests that they would be interested in principle in tendering for this opportunity and have the skills, experience and capacity to respond to the tender.47 By contrast the market for evaluation consultancies locally based in Ethiopia is thin. Those that have the capacity tend to be small or single person consultancies. Most are already well known and overstretched. 215. The number of potential international suppliers is sufficient to expect a reasonable degree of competition which would impact favourably on value for money. This includes suppliers with experience of working in countries experiencing conflict or that are fragile. Indeed several of these organizations tend to specialize in working in these environments. 216. It is possible that due to the multi-sectoral nature of PBS some potential suppliers may choose to come together as consortia in order to ensure that they have the necessary breadth of skills and expertise required. This would be particularly likely in the event that suppliers chose to bid for both the evaluation and verification opportunities 47 The following UK-based firms were contacted on 3 July 2012 to ascertain interest and discuss potential challenges they might face: Oxford Policy Management, Coffey International, Mekora. 75 under one contract. It is anticipated that the tenders for these contracts will be let within 4 months of the start of PBS 3 thus allowing time of suppliers to form consortia if required. 217. Based on conversations with interested suppliers it is likely that the large majority of work would be undertaken in-house with little if any sub-contracted. Suppliers would seek to work with local partners, corporate or individual, although the supply of qualified personnel locally is strictly limited. D. What are the key underlying cost drivers? How is value added and how will we measure and improve this? 218. The direct procurement comprises the provision of consultancy services required to complete evaluations studies and the independent verification of the improved governance and service delivery performance of regional administrations. Therefore, professional fees will form the main cost; other costs will be incurred, such as the costs of employing research/survey staff, transportation to the field plus accommodation and living expenses. Fee rates, and the mechanism for review during the 5 years of the programme, will be agreed during contract negotiation. 219. The main cost drivers will relate to the number of visits, content and location of the work as well as the breadth and depth of surveys that are carried out. Given the high current rate of price inflation in Ethiopia, the unit cost rates associated with these contracts will be kept under regular review; if needed, work plans will be amended to match the proposed activities and intended deliverables with the available budgets. 220. The service provider, for the verification work in relation to the REF, will be expected to complete an ‘operational audit’ each year of a sample of service delivery improvements and good governance initiatives claimed to be have been achieved by those regional administrations in receipt of REF funding. 221. Addition of value to the programme will be ensured by the use of accredited contractors with sufficient capacity to perform the tasks required to a high standard. Terms of Reference will be used to define the framework (including key performance indicators such as performance in meeting the milestones detailed in agreed work plans, timeliness in reporting, ability to form professional and delivery-focussed links with a range of stakeholders in difficult operating environments, and budget control) within which contractors will be expected to work. These will provide the benchmark against which satisfactory performance is measured, and payment will be made upon their fulfilment. Regular work plans will detail the expected levels of input required to deliver agreed results. E. What is the intended Procurement Process to support contract award? 222. DFID is currently in the process of developing a Framework Agreement that would cover the evaluation and verification needs of PBS 3. This will be in place by October or November 2012. The two pieces of work are expected to commence by no later than February 2013. There is thus a possibility that the Framework Agreement will be in place and ready in time for its use under PBS 3. Although the Framework Agreement would in principle be a cost effective approach due to the shorter time required to actually procure a supplier, the ultimate decision whether to use such an arrangement would depend on 76 the rates and value for money represented by suppliers with the Framework as well as whether it is ready in time. 223. In the meantime the alternative approach would be to use an OJEU procedure. The activities, and indicative timelines, for the procurement of the two service providers under such an OJEU approach are shown below. 224. The high level selection criteria for these contracts will be as follows with weights to be determined in due course in conjunction with the commercial adviser: Competency of key personnel Expertise Use of national expertise Proposed methodology, including monitoring framework and VFM indicators Cost F. How will contract and supplier performance be managed through the life of the intervention? 225. Contracts will be awarded for 5 years with annual performance reviews carried out by DFID Ethiopia. If performance is assessed as unsatisfactory, as measured against indicators detailed in the respective contracts (including VFM indicators), then break clauses will be executed. Payments will be linked to results and will be made subject to the required level of performance being achieved. 226. As part of contract negotiation, service level agreements and key performance indicators will be agreed with service providers. Service providers will be expected to be aware of their roles and responsibilities, including the targets and baselines that form the 77 performance based contract. During this post tender negotiation, it will be important for all parties to establish a shared understanding of the expectations from these contracts. 227. Payments will be made by DFID Ethiopia on the basis of satisfactory service delivery measured against agreed quality standards and delivery times detailed in the work plans. Poor performance will result in reduced payments to the contractors. There will be no additional payments for when performance exceeds expectations. These payments will be authorised by the budget holder, using Aries to initiate payment following acceptance of the deliverables. 228. Variations to contracts will be managed directly with the contractor concerned and with notification to PrG of any potential changes to be made. 229. DFID’s Programme Manager, with the assistance of the Commercial/Procurement Adviser, will ensure that annual reviews of contractors’ performance are carried out. Continued delivery of VFM through these contracts will be verified through these reviews. Indirect procurement A. Why is the proposed funding mechanism / form of arrangement the right one for this intervention, with this development partner? 230. The bulk of the PBS 3 funding will be channelled through two Trust Funds: the main programmatic Trust Fund that will administer £458 million. 231. The programmatic Trust Fund is a ‘hybrid’ in the sense that it contains components which are World Bank executed as well as components that are Government executed. The major part of the spending is Government executed, using Government procurement, treasury and accounting procedures. The World Bank executed components relate to the Secretariat and the Social Accountability component. 232. The proposed funding through the two World Bank administered Trust Funds enables DFID to invest in a process as a partner without needing to take a lead role in it development and operational management. Also, the adoption of multi-donor Trust Funds facilitates the achievement of increased harmonisation amongst the participating DPs, though acknowledging that several DPs have opted for direct funding through traditional project-based interventions. 233. The World Bank is the preferred choice as the fund administrator. It has been assessed by DFID as an organisation that delivers value for money. 48 It has a successful track record in administering the Trust Funds used in PBS 1 and 2. It has a strong cadre of technical expertise required to undertake the enhanced supervision that the DPs require; this pool of expertise is available largely in-country and is able to respond promptly to particular needs and problems and informed by a detailed knowledge of the local operating environment. ‘Multilateral Aid Review - Ensuring maximum value for money for UK aid through multilateral organisations’, DFID, March 2011 48 78 234. The Bank also has in place a set of procedures for sanctioning corrupt and fraudulent practices in connection with Bank-funded Bank-executed projects. It takes the issue of fraud and corruption very seriously and its anticorruption policies are of great relevance for procurement. The Bank requires from both the borrower and from the bidders “the highest standard of ethics” during the procurement and execution of contracts. The Guidelines determine ‘ethics’ as referring to ‘corrupt and fraudulent practices’. If mis-procurement based on fraudulent or corrupt practices is detected, the Bank will act not just within the funding agreement to cancel the portion of the loan related to the contract, but can also declare a firm ineligible under its debarment procedures. To enable the Bank to act against private companies, the Guidelines require a provision to be included in the contract giving the Bank full access to the contractor’s accounts and records related to the performance of the contract. The Guidelines define what is meant by fraud and corruption (in section 1.16 of the Procurement Guidelines and section 1.23 of the Consultant Guidelines). These definitions go well beyond the definitions used by other development banks and so evidence the commitment that the Bank has to reducing corruption. 235. The programme contains specific interventions to strengthen procurement practice, especially at the woreda level. The World Bank, with its in-country procurement expertise, will oversee and support this capacity building in Government. It will also draw on the results of the Country Procurement Assessment Report (CPAR). The key functions of the CPAR are to assess the efficiency, transparency and integrity of a country’s entire procurement system and to promote dialogue with governments on how to strengthen their public procurement systems. The CPAR thus provides a key input to the CAS for the Bank to support public procurement reform as part of an agreed implementation strategy. At a practical level, the main purpose of the CPAR is to establish the need for and guide the development of an action plan to improve a country’s system for procuring goods, works, and consulting services.49 In addition one of the four cornerstones of WB procurement policies is the development of domestic industries. DFID Ethiopia will work with the WB to ensure opportunities for the local market are available through local and international competitive bidding. 236. While some other multilateral agencies enjoy some of these advantages the World Bank’s track record in Ethiopia and cost effectiveness as a Trust Fund administrator weigh in the latter’s favour. 237. The procurement mechanisms to be adopted will be dependent on the nature and size of individual contracts for the supply of goods and services. There will be limited capital works procured in PBS 3. The procedures to be followed will be in line with Government’s own procurement rules but with additional safeguards administered by the WB in line with its published guidelines and standard operating procedures. Eg design materials, bidding documents, the bidding process, and contracts may all be Government products but will also be subject to World Bank review and no objection in light of Bank minimum requirements. The WB country office procurement team will oversee the procurement processes to ensure their propriety and appropriateness. The WBs role in 49 Where countries do not have sound systems the ability of those responsible for expenditure is strengthened by instruction in Bank-funded procurement rules and procedures but this will also depend on their familiarity with sound procurement practices. If these are not in place then the Bank may resort to the use of project implementation units (PIUs) to implement projects using resources from outside the government (often from the private sector) rather than relying on government officers. 79 GoE's procurement includes the use of WB procedures for its ICB (International Competitive Bidding). It will use its own procedures for National Competitive Bidding which are overseen and supported by the WB. 238. Although there are many positive features of channelling DFID’s investment through these Trust Funds, this mechanism does present some possible risks. These risks might include: the risk of paying too much for goods and services which are over specified or above comparable market rates, or too little for goods and services which are not fit for purpose; the risk of not getting the services or goods required; and/or the risk of delays arising from completing aspects of the procurement process to a high enough standard to obtain a ‘no objection’ from the Bank’s technical and procurement experts.50 The semiannual review process will provide a regular opportunity for these and any other risks to be monitored and for immediate remedial action to be taken, if required. All key decisions and key documents will be stored in Quest so that reliable audit trails are available for the funding processes that are followed. B. Value for money through procurement 239. The overall impact of the PBS programme comprises faster progress toward achievement of Ethiopia’s MDGs. Entrusting the World Bank with the administration of DFID’s contribution to PBS is intended to ensure the overall level of fiduciary care and quality assurance that will help achieve the programme’s intended impact. The Bank has estimated its administration costs in line with published schedules and taking into account the requirements of PBS. The management fees charged by the World Bank for administering a Trust Fund is in the region of 2% depending on the level of services required; enhanced supervision by the World Bank is a higher cost. At 2%, this cost is significantly lower than that charged at commercial rates by a consultancy firm. Typically, this cost is between 10% and 15% of the programme budget. The World Bank provides a well established, and technically proven, set of procurement guidelines and procedures51 for Government compliance. In addition, it is able to support Government through the provision of its procurement expertise located in its country office. Furthermore, its policy for corporate social responsibility mirrors best international practice in terms of commitment to sustainability, ethical trading, diversity, and a strong commitment to anticorruption and climate change issues. 240. Processing the programme’s procurement activities through the World Bank’s guidelines and procedures will ensure that VFM is achieved through the use of competitive bidding, ranging from the use of international competitive bidding for major purchases through to ‘local shopping’ for goods and services of low value. Economies of scale will be achieved where procurement ‘packages’ can be bundled together and follow 50 A review of bottlenecks in the procurement of energy-related contracts in Vietnam at the Bank found that 70% of delays occurred at the design stage of projects and in the bidding and preparation of bid evaluation reports by borrowers. No objections by the Bank accounted for only about 5% of the overall time taken. 51 These include (i) "Guidelines: Procurement of Goods, Works, and non-Consulting Services Under IBRD Loans and IDA Credits & Grants by WB Borrowers" dated January 2011; (ii) "Guidelines: Selection and Employment of Consultants Under IBRD Loans and IDA Credits & Grants by WB Borrowers" dated January 2011; and (iii) “Guidelines on Preventing and Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA Credits and Grants” dated October 15, 2006; and (iv) introduction of Exceptions to National Competitive Bidding Procedures. 80 a single procedure. Similarly, the potential costs resulting from uncoordinated purchasing, such as the supply of different IT equipment over time, will be avoided. 241. The major share of the programme spending is targeted on funding recurrent costs which are dominated by salary costs of Government employees and particularly teachers’ salaries. Salary scales are determined nationally with no local discretion to exceed the agreed pay scales and rates of pay. Payments are processed through standard Government payroll mechanisms. Therefore costs to the programme are kept to a minimum, in line with Government’s own affordability levels for public sector pay, and the transaction costs are minimised through the use of national systems. 242. DFID’s Programme Manager, with the support of the Commercial/Procurement Adviser, will take the lead in managing this relationship with the World Bank. At the outset of the programme, a Memorandum of Understanding (MoU) will be signed by DFID with the World Bank. This MoU will set out the roles and responsibilities of the parties to this agreement. it will confirm that potential risks are managed through a formal Risk Strategy. Any changes to the roles during the life of the programme will result in an amended funding arrangement. This funding arrangement and supporting MoU will be used to monitor the successful delivery of goods and services, with payments, where possible, being linked to time bound deliverables. DFID’s relationship with the World Bank is open enough to enable questions on performance to be raised based on the requirements and measures specified in the MoU. Reporting on aspects of savings and VfM initiatives will be required in the MoU along with the delivery of services. Key decision points on the funding process and the related documentation will be stored in Quest to maintain an effective audit trail. As well as this process, DFID will continually monitor progress through regular reports and regular meetings with the WB. DFID are co-chairs for many of the different components ( PFM, M4R, SA). The Management Section refers to the monitoring of results through the JRIS processes. Financial Case 81 A. What are the costs, how are they profiled and how will you ensure accurate forecasting? 243. The expected cost of the programme is £510 million over five years. With an expected programme start date of October 2012, the programme will cover six financial years. Table 4.1 gives the cost breakdown by DFID financial year and Table 4.2 gives the cost breakdown by programme component. Table 4.1: Approximate breakdown of PBS 3 costs by financial year 2012/13 to 2017/18 2012/13 £61m 2013/14 £102m 2014/15 £102m 2015/16 £102m 2016/17 £101m 2017/18 £42m TOTAL £510m Table 4.2: Approximate breakdown of PBS 3 costs by programme component Component 1: Block grant 2: Systems strengthening - public financial management - management for results - social accountability - trust fund secretariat 3: Results Enhancement Fund 4. MDTF management fee plus DFID evaluation and verification TOTAL Amount (£ million) 425.0 25.0 14 4.5 4.5 2 50.4 % of total 83 5 10 9.6 2 510 100 244. By far the greatest cost component is that for Output 1 which comprises DFID’s annual contribution to the payment of the Federal Block Grant made to the regions for onward transmission to the woredas to meet the recurrent costs of delivering basic services. The major element in these recurrent costs relate to the salaries of staff working in the service delivery units such as the health care staff, teachers and development agents. This will be paid out on a biannual basis following the JRIS. Output 2 includes the costs of improving the public financial management systems through meeting the cost of contract workers with specialist skills in financial management and IT systems plus associated running costs and the purchase of IT equipment. The programme also includes a Results Enhancement Fund of £50m (with £0.4 for verification). The intention of this Fund is to supplement the efficiency gains expected under systems strengthening measures by directly incentivising regions to strengthen their public expenditure management processes through better planning and budgeting. Well performing regions will benefit from greater efficiencies and effectiveness and in addition be rewarded with funds that they can use to supplement their annual recurrent budgets. The remaining costs of the programme relate mainly to the provision of consultancy services, training of Government staff mainly at the region and woreda levels, sensitisation of citizens to budget and planning processes, commissioning of studies and research and the purchase of small items of equipment. 82 245. Output 4, citizen engagement, includes a contribution to both the financial transparency and accountability and social accountability sub components in the overall PBS 3 programme. This funding will help finance the ongoing budget sensitisation workshops, the dissemination of budget and service standard information and the payment of grants to civil society organisations involved in the strengthening of community ‘voice’. 246. The total programme cost over a five year period, and proposed contributions from Government and DPs, is summarised in Table 4.3. Table 4.3: Indicative funding (£) of PBS 3 over five years Contributor Total (£) % GoE Development partners: World Bank (IDA 16 only) DFID EC AfDB Italy Austria Sub total Funding gap 2,000 51 360 425 40 100 8 2 935 980 9 11 1 3 0 0 24 25 Total 3,915 100 247. At this stage, it is difficult to be accurate about the DPs’ full contribution to PBS as contributions are subject to various resource mobilisation and planning exercises: IDA 16 has been allocated (three years) while IDA 17 has yet to be allocated in the case of the World Bank, a new strategy at the end of 2013 for the EU, and a process within the AfDB that has potential for commitment to years 4 and 5 of PBS 3 and even potentially an uplift during the first three years over current commitments. What is clear is that there will be an increased contribution from the Government of Ethiopia and a reduced number of partners (from eleven to possibly six). However, the core partnership of the World Bank, African Development Bank, European Commission and DFID will remain and continue to contribute over 80% of the DPs’ total contribution ie broadly in line with previous generations of PBS. In the first three years of the programme where other development partner commitments are firm DFID’s contribution would represent 33% of total development partner contributions and about 12.5% of regional recurrent expenditure on basic services (see also Table 1.1). 248. As part of the Joint Review and Implementation Support (JRIS) process, annual budgets, work plans and procurement plans will be agreed by DFID, with participating DPs, and with Government. Plans for the coming year will be agreed at the JRIS in May; progress to date will be monitored at the October JRIS and, if necessary, plans will be adjusted for the remainder of the year. Definitive proportions of financing between Government and the DPs will be established semi-annually. 249. In terms of forecasting, DFID and participating DPs will provide multi-annual projections of their commitments; verify that these are accurately reported on budget; and 83 report annually on variations between commitments and disbursements. The DPs will also work to improve the alignment to the Ethiopian fiscal calendar by concentrating disbursements in the second (October to December) and fourth (April to June) quarters of the Ethiopian Fiscal Year following the successful conclusion of JRIS missions in October and May. The semi-annual JRIS will continue to serve as the principle benchmark for triggering DP disbursements. The triggers for the release of funds by DFID are described in Section C below. 250. The PBS 3 Core Principles will continue to form the overarching framework for assessing progress and overall programme performance. These Core Principles are explained in the Management Case. Disbursements will be affected only in those instances where one or more of the Tests are not met and one or more of the Principles are obviously disregarded. Donors reserve the right to determine individually the amount to be retained. In the spirit of mutual accountability and predictability in resource allocation, the decrease in disbursement will be executed in the following year/disbursement period. B. How will it be funded: capital/programme/admin? 251. The programme will be funded from programme resources, and for the first three financial years has been budgeted for in the country operational plan for DFID Ethiopia. The total value of the programme is beyond DFID’s delegated authority of £150 million; approval will therefore be sought from Her Majesty’s Treasury. There are no contingent, or actual, liabilities. C. How will funds be paid out? 252. PBS 3 is a joint funding arrangement between the Government and a total of six DPs. Following an assessment that the UK’s Partnership Principles are still in place, DFID’s funds will be channelled through Trust Funds administrated by the World Bank on behalf of the DPs as well as directly to government for the operation of the Results Enhancement Fund. The funding channels are depicted in Figure 4.1 below. DFID will directly manage the REF with MOFED and issue an evaluation and verification contract. 253. The main activities in Trust Fund 1 will be Government executed which means that Government will be responsible for managing the flow of funds to meet the costs associated with each output. The necessary funds will be deposited in designated bank accounts by the Trust Fund administrators based on agreed forecasts of cash requirements. Government’s claim for replenishment of spent funds will be on the basis of detailed statements of actual expenditures submitted quarterly. Figure 4.1: Flow of funds 84 DFID Programmatic Trust Fund 1 Output 1- Federal Block Grant Output 2 – PFM/PEM Output 3 – M&E Output 4 – Citizen engagement PBS Secretariat WB management & supervision Social Accountability Trust Fund 2 Output 4 – Social accountability WB management & supervision 254. The funds flow in respect of Output 1 and the contribution to the Federal Block Grant will be as shown in Figure 4.2 below. Figure 4.2: Output 1 funding Trust Fund 1 US$ designated bank account Government Consolidated Fund Account in Birr at MoFED Regional BoFED Woreda WoFED 255. The release of funds from Trust Fund 1 will be triggered by the results of the semiannual joint assessment of the Government’s compliance with the Core Principles: 85 Development effectiveness and results achieved measured through an assessment of the following: adequate inter-sectoral resource allocation; balanced intra-sectoral allocation; and the results achieved in the basic service sectors in terms of access, quality and inclusiveness Sustainability which will involve an examination of the sources of financing for basic services as well as the costs of basic service delivery Additionality whereby there is a non-declining allocation of FBG to regions and a nondeclining share of basic services in sub-national spending Fairness in the sense that there is a rules-based allocation of resources and that Block grant disbursements are close to allocations Equity in access to basic services among the different regions, genders, and socioeconomic groups with the view to identifying possible interventions to fill gaps Fiduciary probity and transparency whereby programme funds are used for the purposes intended as set out in the agreed work plans and budgets and financial performance is reported promptly and openly Predictability of Government’s funding as well as the DPs’ timely release of their funding in line with commitments. 256. For Trust Fund 2, which finances the Output 4 social accountability activities, the Management Agent, rather than Government, will execute the funds and be responsible for all expenditures. The release of funds will be triggered by the successful completion of work plans and achievement of the agreed results. Performance will be assessed six monthly as part of the JRIS process. 257. The Results Enhancement Fund will be managed by DFID with technical support provided by a sub contractor. D. What is the assessment of financial risk and fraud? Government systems 258. DFID’s 2012 assessment of fiduciary risk52 is ‘moderate’ which remains unchanged from the previous assessment in 2007. Overall, this rating reflects the view that Ethiopia has a sound Public Financial Management and Accounting system, except for weaknesses in the areas of accountability, transparency and procurement. Despite these weaknesses, which PBS 3 intends to address, the 2012 assessment concluded that “we believe that there is a reasonable confidence that DFID’s money would be used by the Government of Ethiopia for the intended programmes and projects”. 259. The results of the 2010 Public Expenditure and Financial Accountability (PEFA) review assessed Ethiopia’s performance as third in Africa behind South Africa and Mauritius. The difficulties experienced by Government in complying with the financial reporting requirements during PBS 2 have been overcome and is now at an acceptable standard for the DPs as they move into funding PBS 3. Some weaknesses do remain; most notably in the areas of audit (internal and external), the partial coverage of IBEX to provide computerised expenditure control and accounting, and the weak financial management capacity especially in the woredas. These weaknesses have been 52 Ethiopia: Fiduciary Risk Assessment, DFID April 2012 86 recognised and PBS 3 contains a local financial management component comprising: strengthening woreda-level financial management performance sub-component, support for IBEX roll-out, regional public expenditure and financial management support systems sub-component, support for external audit, and support for the Federal Parliament, Regional and Woreda Councils in their oversight roles and to strengthen the accountability framework. 260. The prevalence of corruption in Ethiopia, when measured against international benchmarks, is about average in Africa. The World Bank’s African Development Indicators (2011) suggests that Ethiopia is at the 44th percentile in Africa for ‘control of corruption’. Transparency International’s (TI) Corruption Perception Index for 2010 places Ethiopia 20th in the Africa rankings (close to Tanzania and Uganda) and 116 th in the World rankings. 261. However, this ranking has been improving over the last three years. Furthermore, on this positive front, TI’s Global Corruption Barometer highlights that, in comparison to other countries in the region, Ethiopian citizens have a relatively favourable impression of their government’s anti-corruption credentials – and a concomitant high level of trust in government commitment to fight corruption. Also, according to a study that mapped corruption in eight sectors of the country (Joint Governance and Monitoring Programme, 2010), corruption in the delivery of basic services such as primary health, basic education, rural water supply and justice is lower than in similar low income countries, and mainly takes the form of petty corruption. Compared to most other countries in the region, the government stands out for its active commitment to the fight against corruption, not only in terms of having the necessary institutions are in place to accomplish its objectives, but also actual enforcement action. PBS programme 262. Given the scale of the proposed funding, and the complexity of the funding mechanisms, there are potential financial risks during implementation. At the most strategic level, there is the risk that the total programme funding might not be available. The continued high levels of domestic inflation, or an economic downturn, may reduce the available Government funding. This risk has been acknowledged and measures have been taken by Government to reduce inflation and to increase domestic revenue mobilisation. The situation will be kept under review through the six monthly JRIS/JBAR reviews. 263. Similarly, economic pressures on the DPs, especially the bilateral agencies, may reduce their ability to deliver on their funding commitments. In the past, when DPs’ funds have been delayed, Government has stepped in to fill the funding gap on a temporary basis. Again, performance will be kept under close review as part of the compliance with the predictability principle. 264. The programme funds are being administered through three mechanisms: two trust funds and the REF with the involvement of the World Bank and two Management/Fund Management service providers. The bulk of the spending is being administered by the World Bank so that financial risk is minimal. The financial risk of working through two service providers will be addressed through the rigorous selection and contracting process as well as the stringent accounting and audit requirements. 87 Conclusion 265. Based on the weaknesses in the public financial management systems and the low ranking in the international corruption indices, the assessment of financial risk and fraud is ‘moderate’. However this risk will be mitigated during implementation through a package of interventions, including but not limited to: the component to strengthen regional and local financial management, the efforts to improve financial accountability and transparency, the increased engagement of citizens in the planning of service delivery and the role of the DPs in monitoring actual performance through the JRIS mechanism and the operation of the Trust Funds. E. How will expenditure be monitored, reported, and accounted for? Accounting 266. Government’s accounting policies and procedures will be used to account for the programme expenditures executed by Government, including the grants paid through the REF. These policies and procedures have proved to be satisfactory, in line with international standards, for both PBS 1 and 2. The World Bank executed expenditures in respect of Trust Fund 1 will be accounted for using the World Bank’s standard interim financial reporting mechanisms including periodic supervision missions by Financial Management staff from Washington. Unaudited statements of expenditures will be available on the Bank’s web-based donor portal on a quarterly basis. For Trust Fund 2 activities, the Managing Agent will maintain accounts in a format and compliant with standards agreed by the World Bank. 267. Assets acquired under this programme cannot be attributed to DFID nor can they be tracked or monitored by us given that this is a joint programme and our funds will be pooled with other DPs and the Government of Ethiopia. Therefore, the assets such as the IT infrastructure and the equipment for IBEX, will be owned by Government. Financial reporting 268. Financial reporting by Government, of Government executed funds, will be provided through two mechanisms: quarterly consolidated unaudited interim financial reports (IFRs) prepared on the basis of expenditures and annual, audited financial statements. The IFRs for Output 1 expenditures (the Federal Block Grant) will be submitted to DPs within 90 days of the end of the quarter; all other expenditures (excluding social accountability spending and REF grants) will be reported by MoFED within 60 days of the end of the quarter. The content and format of the IFRs will be agreed with Government. 269. With respect to the block grant the IFR will enable tracking or receipting of funds through the following means: (a) a statement of sources and uses of funds, opening and closing balances for the quarter and cumulative; (b) statement of sources and uses of funds that shows actual expenditures. These are appropriately classified by main project activities (categories, components and sub-components). They will also include an actual versus budget comparisons for the quarter and cumulative and explanations for changes; (c) a statement of cash forecast/ requirement- for six months (d) notes and explanations (e) a statement on the movement of project's Designated Account including opening and closing balances and the movements (inflows and outflows) (f) other supporting schedules and documents as needed. 88 270. The Management Agent of the social accountability programme will prepare and submit an IFR 45 days from the end of the quarter. For the REF, the Fund Manager will submit to DFID quarterly financial statements within 30 days of the period end. 271. Financial reporting of the Trust Funds operations by the World Bank will be in line with the World Bank’s standard reporting guidelines. This will include the detailed expenditures, compared with budgets, for the operation of the PBS Secretariat. Audit 272. There will be continuous (interim) audits of the funds passed through regions to woredas to finance the recurrent costs of basic services. These audits will be carried out by the Office of the Federal Auditor General either directly or through the audit staff of the respective Offices of the Regional Auditor General. Reports (summary of findings) of this continuous audit will be submitted, on a quarterly basis, to DPs within 60 days of the end of the quarter. As part of the JRIS process, the results of these audits will be reviewed with a special focus on the prompt follow up and implementation of remedial actions. Satisfactory implementation of audit recommendations will be a factor in the overall assessment of Government’s compliance with the fiduciary principle and the decision to approve the continued release of programme funds. 273. MoFED will be responsible for having the financial statements of the programme audited annually and for submitting the audit report (audited annual financial statements and Management letter). Annual audited financial statements will be submitted to DPs within six months of the end of the government fiscal year. MoFED in consultation with OFAG will select auditors acceptable to the DPs. The auditor will express an opinion on the programme’s financial statements; and as part of the audit also examine and report on the IFRs used as the basis for disbursements, and the activities of the designated bank accounts through which Trust Fund monies have been channelled. The auditor will also issue a Management letter highlighting internal control, compliance and other weaknesses. 274. With respect to payroll GoE operates decentralised payroll and personnel management systems. A standard system applies across the country with nominated budget organisations having the responsibility for maintaining the personnel records for all employees and for processing payment of the monthly payrolls through the Bank of Ethiopia. The personnel records are maintained by the respective Human Resources Department and salary payments are made by the Financial Administration and Property Management Departments. 275. Recent assessments of these systems at the federal and regional levels 53 confirm that they are operating well and provide adequate fiduciary safeguards. Performance was assessed against four dimensions: (a) degree of integration and reconciliation between personnel records, (b) timeliness of changes to personnel records and the payroll data, (c) internal controls of changes to the personnel records and the payroll and (d) existence of payroll audits to identify control weaknesses and/or ghost workers. Consistently regions are assessed as ‘A’ for dimensions (b) and (c). This accords with accepted good practice, in that records are accurate, maintained up to date and any amendments are 53 In 2010, several Public Expenditure and Financial Accountability assessments were completed. 89 made only after satisfactory approvals having been obtained and evidenced. 276. Performance across the other two dimensions, namely (a) and (d) have been rated as ‘B’, indicating some room for improvement. In terms of dimension (a), the personnel and payroll data are not directly linked (which is the accepted good practice). However, the payroll is supported by full documentation for all changes made to personnel records each month and checked against the previous month’s payroll data. This provides sufficient internal control. 277. With regard to dimension (d), the practice of regular audits to identify control weaknesses and/or ghost workers is in existence but not yet with the frequency required to reach the highest rating. Steps have been taken in the regions to increase internal audit staffing and capability. PBS 3 will continue to provide support in this area as part of its strengthening of the broader financial management systems. 278. The Management Agent will be responsible for the audit and will have the financial statements of social accountability activities under Output 4 audited annually and submitting the audit report (audited annual project financial statements and Management letter). Annual audited financial statements of this component will be submitted to DPs within six months of the end of the fiscal year of the Management Agent. 279. For the REF, DFID will transfer funds directly to MOFED in accordance with procedures and processes to be agreed. MOFED will prepare annual financial statements within 30 days of the period end. These statements will be audited by an audit firm acceptable to DFID. This audit will have a performance component to verify that the regions receiving grants from the Fund have not only used the funding for the agreed purposes but also have reached and sustained the standards claimed in their submissions for REF financing. 90 Management Case A. What are the Management Arrangements for implementing the intervention? Summary 280. PBS 3 is a joint funding arrangement between the Government and a total of six Development Partners (DPs). The World Bank is the lead donor and their Programme Appraisal Document (PAD) governs the overall programme and includes the detailed programme management arrangements from which the following description is summarised. In addition to the PAD, there is a detailed Project Operation Manual which sets out the key project management processes, including the respective roles and responsibilities of the main DPs. 281. The Ministry of Finance and Economic Development (MoFED) is the Government counterpart responsible for planning and reporting, coordinating with sectors and all levels of government and overall financial management of PBS 3 resources including funds released, procurement, accounting and financial reporting. The Office of the Federal Auditor General, with support of the Offices of the Regional Auditor Generals, will complete both interim (‘continuous’) and final external audits of the PBS expenditures by Regional, Zonal and Woreda administrations. Government’s arrangements 282. MoFED is the Implementing Agency for the PBS programme. Within the Government system, it has overall responsibility for managing the financial flows from the federal to more decentralised levels through the Federal Block Grant mechanism and for ensuring that public financial management systems work to the required fiduciary standards. 283. Within MoFED, the Channel One Programmes Coordinating Unit (COPCU) is responsible for coordinating daily PBS activities across the basic service ministries and sub-national government entities and for ensuring compliance with agreed implementation arrangements. The Head of COPCU reports to the State Minister of Development Planning and Economic Management of MOFED, and works closely with other State Ministers and directorates involved in PBS. 284. In undertaking its full range of activities, COPCU collaborates closely with other directorates in MOFED to ensure timely and efficient implementation of programme activities. This includes the: Government Accounts Directorate54; the Macro Economic Policy and Management Directorate55; the Treasury Department56; and the Expenditure Management and Control Programme (EMCP) Coordinating Office57. 54 The Government Accounts Directorate within MOFED assists in monitoring and tracking financial flows to lower levels of Government and is responsible for preparing quarterly IFRs, ensuring that expenditures and revenues are reported in IBEX, and ensure that annual audits are conducted and reported on in a timely manner. 55 This Directorate is responsible for consolidating and preparing regional and federal fiscal reports, and transfers from regions to woredas. 56 Treasury is responsible for submitting withdrawal applications with the necessary supporting documentation, and for transferring block grants to the Regions’ Bureaus of Finance and Economic Development (BoFED). 91 285. Other agencies involved in implementation will include (i) the Office of the Federal Auditor General (ii) the Offices of the Regional Auditors General (iii) other sector programmes and (iv) key line ministries and their respective regional and woreda sector offices. The key line ministries and agencies are the (i) Ministries of Education, Health, Agriculture and Rural Development, Works and Urban Development (together with its Ethiopian Roads Authority as well as Regional and Rural Roads Authorities), and Water Resources and (ii) Central Statistics Agency and Public Procurement Agencies 286. At the regional government level, Bureaus of Finance and Economic Development (BoFEDs) will continue to have similar responsibilities at the regional level as MoFED has at the federal level. In late 2011, all BoFEDs created new positions for Channel One Coordinators at the regional level. This structure will continue under PBS 3 and will help to strengthen the overall system’s capacity for PBS 3 implementation and follow-up. At local level, WoFEDs and Urban Administration Offices of Finance have similar responsibilities as those of the BoFEDs. 287. Councils at regional, woreda and kebele levels: (i) provide general oversight of those sub-national government organisations involved in the PBS Programme’s implementation; (ii) review and approve annual development plans and budgets; and (iii) facilitate information sharing and harness the involvement of citizens in the planning, budgeting, and management of delivering basic services. 288. The management and oversight structure for the programme is illustrated in Figure 5.1 below. DFID’s arrangements 289. The Deputy Programme Manager within the Human Development unit will be responsible for the programme management of the PBS Programme. A PBS core group has been set up with membership comprising of advisory inputs from the health and education sectors, governance, economics and social development. Specific advisors have been tasked with the oversight of specific aspects of the programme DFID will participate in the semi annual JRIS/JBAR meetings. In addition the programme will be subject to two independent evaluations per year over the JRIS period and will undertake an annual review in line with normal DFID practice. Donor group 290. Participating DPs, under the leadership of two co-chairs (the World Bank and one other), will continue to work jointly as a PBS Donors Group. This Group is intended to improve coordination, communication and alignment between the donors and between the donors and Government. The deliberations of the Group will be informed by the detailed analyses carried out by its technical working groups. For PBS 3, these groups will be Fiduciary Development, inter governmental fiscal transfers (IGFT), monitoring and evaluation (M&E) and social accountability. DFID currently co-chairs all of these groups. 57 The EMCP will be responsible for all activities to strengthen public financial management. 92 PBS Secretariat 291. The functioning of the PBS Secretariat to the Donors Group will continue from PBS 2 and have the following strategic objectives: High-level coordination and facilitation leading to improved dialogue and follow-up on agreed actions. Ensuring the successful planning and execution of the PBS Project’s semiannual JRIS missions as well as other joint monitoring exercises (e.g., pre-JRIS field visits and one-off joint supervision/diagnostic exercises). Analytical work. Providing high-quality analysis and inputs to inform programme-specific and policy dialogue between PBS donors and the Government of Ethiopia. This includes the analysis of fiscal/budgetary data to inform the application of the core principles, as well as other analytical pieces managed by the Secretariat and that involve Secretariat staff 93 directly. Customised training, technical assistance, and support. This includes providing support in the areas of financial reporting, audits (annual, continuous and internal), monitoring and evaluation/results reporting, as well as procurement. 292. An innovation for PBS 3 will be the inclusion of a Gender Specialist, resourced from Girl Hub, to strengthen the programme’s focus on this important area. 293. In addition to the functions listed above, the Secretariat will contract out the M&E activities for the programme. The total cost of the Secretariat is estimated at around £1 million per year. Civil society engagement 294. The main mechanism for civil society involvement in the programme is through the social accountability component under Output 4. There will be opportunities for individual citizens to be involved but the structured engagement will be achieved through the deployment of Social Accountability Implementation Partners supervised and supported by the Management Agency contracted by Government to lead this work. 295. There is a Steering Committee (SC), chaired by MoFED, with its membership drawn from Government, the DPs and civil society. Whilst the regions will not be directly involved in the implementation and operation of this component in their regions, the SC will keep them informed through MOFED. MOFED, through its BOFEDs, will inform other relevant regional bureaus, woredas and sub-city administrations about the implementation of the social accountability programme, its achievements and progress. Joint supervision and performance review 296. As is the case under PBS 2, the programme’s semi-annual Joint Review and Implementation Support (JRIS) missions will continue to be the primary mechanism by which Government and DPs undertake a joint review of programme progress and challenges. Joint Budget and Aid Reviews (JBARs) will remain part of the JRIS missions. Prior to each JRIS mission, joint field missions will continue to be undertaken focusing on two of the programme’s five sectors and to better understand implementation and management challenges at the sub-national levels. 297. To track progress towards common objectives and agreements, the programme is based on a set of interrelated “Core PBS Principles” that guide programme implementation. These core principles derive from Government commitments reflected in its Constitution, its current Growth and Transformation Plan (GTP), as well as sectoral and multi-sectoral plans: Additionality. The Additionality Test ensures that government priority to the MDGs are expressed in medium-term commitments to increase overall financing for the federal block grants and hence to basic service at sub-national level and that allocated resources for basic services are flowing in a predictable manner. Fairness. The Fairness Test ensures that resource allocations from the federal government to the regions and from regional governments to woredas are rules-based 94 and transparent, and that block grant disbursements to the regions, as well as from regions to woredas, are executed as planned in budget allocations. Effectiveness. The Effectiveness principle focuses on how to maintain effective service delivery with a view to identifying ways to further improve. Although effectiveness is influenced by a broad range of issues, the PBS program considers adequate intersectoral resource allocation, balanced intra-sectoral allocation, and results achieved as it reviews the Effectiveness principle. Sustainability. The PBS programme seeks to ensure that financing of basic services can be sustained over the long-term even without the PBS Programme. When reviewing sustainability, the PBS programme considers financing sources for decentralised basic services, and the unit costs of basic service delivery. Equity. The objective of this Equity Review will be to track and assess any discrepancies in access to basic services among the different regions, genders, and socio-economic groups with the view to identifying possible interventions. Transparency. A core principle of the PBS programme’s contribution to the access and quality of basic services is to provide stakeholders with more information about resource flows, standards and results. Fiduciary Probity. The PBS programme relies on a robust fiduciary system reaching from the federal level through regions to local administrations. It involves numerous mechanisms to maintain the strength of that system. Predictability. The predictability principle seeks to ensure mutual accountability by predictable resource flows for basic service delivery results. DP contributions need to be based on longer-term commitments, so that agreed disbursements can be made on time. Likewise, the Government has a responsibility to accurately reflect these DP contributions for PBS in yearly government budgets. 298. By providing a single platform for dialogue and review, the JRIS missions will be important to the programme’s overall compliance with aid effectiveness principles by ensuring harmonisation and coordination. JRIS missions serve as a central mechanism for evaluating program achievements, shared and ongoing challenges and then triggering donor disbursements to the Federal Block Grant. The outcome of the JRIS’ will be outlined in Aid Memoirs which will be discussed and agreed upon with Government. The Aid Memoirs will feed into the independent evaluations that will take place after two years (ie before the end of GTP) and again after four years (allowing for refinement of the programme in its final year) and then once the programme finishes (see below). 299. Under PBS 3, an even stronger, more consistent, and more rigorous attention will be given to understanding the programme’s results. At the two JRISs in April/November, the Government will present a comprehensive picture of the programme’s overall results to date. This will draw upon data captured in the joint Results Framework as well as any relevant analytical works (surveys and studies) supported through Output 3. Where possible, the JRIS will feature data disaggregated by region as well as gender to better understand evolutions in structural and social inequities that affect the programme’s overall development effectiveness. 300. Through the latter half of PBS 2 (starting in late 2010), the PBS Secretariat had aggressively engaged the relevant sector working groups and line Ministries to strengthen their interest and participation in both pre-JRIS field missions as well as the JRIS itself. This has helped to enrich the quality of dialogue in the JRIS, while also helping the sectors better understand the role and value of the PBS programme. These efforts will continue 95 under PBS 3 through stronger and more consistent technical engagement with sectorspecific interlocutors. B. What are the risks and how these will be managed? 301. The programme is assessed as medium risk. The major threats to the programme are summarised in Table 5.1 below, together with the mitigation measures that have been incorporated into the programme’s design. Table 5.1: Risk assessment and mitigation # Risk Mitigation Project Implementation Risks Narrowing space for citizen’s formal political engagement limits scope for PBS 3 to help strengthen ‘voice’ effectively Limited discretionary spending available at woreda level restricts the scope for (a) citizen engagement to influence spending priorities and (b) regions to reallocate between salary and non salary costs and between recurrent and capital costs Operating Environment Risks Political instability around the period of national elections Implementation of GoE programmes in areas where PBS is operational, Promoting improved local transparency and accountability mechanisms. Adoption of a grievance redress mechanism. Stronger M&E including citizen perception/ satisfaction surveys will provide feedback and evidence base for action Adoption of the ‘Results Enhancement Fund’ to incentivise good performing regions and woredas Emphasis in PBS 3 on strengthening expenditure management, resource allocation and budgeting processes in the BoFEDs Stronger DFID and independent monitoring and evaluation Stronger DFID and independent monitoring and evaluation Independent evaluation and review to be undertaken in 2014 Five year programme extends beyond elections Six monthly reviews Engagement with government partners, Probability Low/ Medium/ High Impact Low/ Medium/ High L M M M L M M H 96 where we either have concerns about the policies or the way they are implemented e.g. GoE’s Development Programme. , Fragility of the macroeconomic situation, especially with regard to high inflation, may reduce real value of DFID’s investment (as well as GoE and other DPs) and therefore the results of PBS 3 that are attributable to DFID Fragility of the economic situation in the DPs’ home countries may result in funding commitments not materialising Insufficient coordination of PBS 3 activities in relation to quality with sector programmes Inadequate coordination between the basic service sectors and the regional, zonal and woreda levels of Government administration creates an institutional environment where it is including using PBS as platform Dialogue with GoE to raise and seek redress on areas of concern Macro-economic performance and projections monitored through the semi annual JRIS/JBAR discussions which will be informed by IMF assessments the Government and DPs have committed to establish a separate DAG macroeconomic group, cochaired by the Government and a representative of DPs the Government has committed to discussions of outstanding macroeconomic issues related to financing of the GTP as part of regular meetings of the High Level Forum. Semi-annual discussions around PBS 3 funding will highlight if this situation is likely to arise and provide opportunity for reprioritisation of the PBS programme in line with any reduced funding Semi-annual JRIS missions will bring together a broad range of Government stakeholders, including those from different sectors and regions. These reviews will highlight areas where coordination can be improved. Stronger M&E and PFM systems will provide information on where the priority needs are (complemented by increased citizen engagement in the planning M H M H L L L L 97 difficult to manage resource flows across these several levels and sectors. process) and how well funds have been used. Strengthened skills in public expenditure management in the BoFEDs, informed by better information on costs, will improve resource allocation across levels and sectors and within sectors GoE has agreed to prepare a comprehensive, updated strategy for PFM and civil service reform, indicating how PBS 3 activities link Lack of engagement and coordination with other reform and capacity building programmes, such as PFM and civil service reforms (PSCAP) Humanitarian disasters JRIS/JBAR discussions will and subsequent provide early opportunity to reallocation of Government discuss budget implications funding away from PBS to and to identify possible help fund emergency relief solutions Governance and Fiduciary Risks Weak financial PBS 3 emphasis on management capacity (in strengthening woreda and areas such as regional level PFM procurement, audit and performance including financial reporting) may procurement. slow down implementation Role of COPCU to oversee and if seriously and support operation of deteriorates, may PBS 3 processes undermine DPs’ confidence in relying on GoE’s systems Significant instances of Multi-layered ‘checks and fraud and corruption may balances’ will continue to be undermine DPs reliance on applied in PBS 3 including GoE’s systems the continuous and yearend audit arrangements, the quarterly financial reporting through the IFRs and the enhanced supervision arrangements by the WB through the Trust Fund mechanism Environment and Climate Risks No safeguards triggered in na World Bank’s Integrated Safeguards Data Assessment L L L M M H L M L L 98 VfM Risks Rising unit costs of service delivery through impact of hyper inflation including possible public service pay awards Sustainability threatened through GoE’s inability to fund the increasing recurrent and capital costs of delivering basic services JRIS/JBAR discussions will provide an early signal with the opportunity to revise the programme budget, if needed GoE has steadily increased its domestic revenue share of financing for the Block Grants. To further promote sustainability and independence from aid, the Government is placing high priority on increasing domestic savings and increasing tax revenues to 15% of GDP in its Growth and Transformation Plan (GTP). The ‘additionality’ principle will continue to be monitored through the JRIS process and enforced by the DPs M M M H C. What conditions apply (for financial aid only)? Overall assessment 302. Ahead of disbursements of PBS, DFID will assess performance against the UK’s four partnership principles (necessary for the continuation of financial aid), the ‘Core PBS Principles’ and the PBS programme results framework. The four partnership principles are: (i) poverty reduction and the Millennium Development Goals; (ii) respecting human rights and other international obligations; (iii) improving public financial management, promoting good governance and transparency and fighting corruption; and (iv) strengthening domestic accountability. Monitoring & Evaluation 303. Monitoring results and provision of information on PBS operation will continue to be a critical consideration in ensuring the overall effectiveness of the programme. To ensure this is done through a robust process, the Monitoring and Evaluation of PBS III has been stepped up to have six monthly independent reviews (DFID contracted and will be 99 integrated into the JRIS) and independent multi stake holder evaluations after two years, four years and at the end (contracted out by the Secretariat). This will be complemented by the Managing for Results (M4R) Component (see below). 304. PBS Sub-program B on decentralized system strengthening includes the Managing for Results (M4R) Component. The overall aim of the M4R Component is to enhance the effectiveness of the PBS 3 project by ensuring that data, systems, and analytic capacity are strengthened to deliver results throughout the project implementation period. The M4R component will contain 3 sub-elements: • • • Results monitoring, System strengthening Demand driven, collaborative, analytical works Results monitoring 305. The key monitoring tool will be the results framework (see Annex 2) which has been agreed jointly by development partners and all government counterparts including MoFED and the Central Statistics Agency along with the relevant sector line ministries. 306. The results framework draws heavily on the framework for PBS 2 but has been improved in a number of ways. The framework is consistent with the overall GTP policy matrix although the five year planning horizon has allowed creation of a more realistic and achievable set of milestones and targets against the agreed indicators. The framework also includes explicit reference to disaggregating data by sex and region where relevant to facilitate more granular performance monitoring and drive progress on delivering equitable outcomes in basic services. 307. All of the identified indicators will be collected through existing government monitoring and evaluation systems through a combination of national surveys and line ministries management information systems. The quality and timeliness of the available information has been significantly enhanced through investment in national and regional level M&E systems strengthening through earlier phases of PBS although further improvements are planned (see below). 308. Progress against the results framework will be formally reviewed every six months as part of the broader JRIS process which includes joint field visits and qualitative assessment of progress to supplement and complement measurement of progress against the key performance indicators. The JRIS process will be strengthened from that undertaken during PBS 2 to include greater participation of sector representatives and improve followup to recommended actions points made in field mission reports. 309. In addition to six-monthly review through the JRIS it is envisaged that the results framework will be formally revised at the two year review. System strengthening 310. M4R system strengthening priorities will be informed through implementation of the Ethiopian Data Quality Assessment Framework (EDQAF). The EDQAF was developed 100 during PBS2 as a key deliverable under the Ethiopian National Statistics Development Strategy (NSDS) and serves to provide both a framework to measure formally data quality and to identify key priority areas for improvement. Statistics which are deemed to meet a minimum set of requirements under the framework will gain a formal kite-mark of recognition from the Central Statistics Agency. It is envisaged that each of the five sectors will attain the necessary standard during the lifetime of PBS 3. 311. While continuing to support federal capacity building, PBS 3 will also focus more heavily on strengthening regional and woreda level Monitoring and Information systems. PBS 3 will support relevant including, for example, rolling out an improved health management information system (MIS) to all health posts and ensuring that the improved education and WASH MIS are also operational in all woredas. 312. In addition to investing in system and process capacity PBS 3 will also prioritise greater analysis and utilization of relevant management information to further enhance overall programme, and broader government, effectiveness. PBS 3 will support the Development Planning and Research Directorate of MoFED and the Central Statistical Agency to develop training programmes and tools for data managers and statistical coordinators to strengthen their policy analysis capability. Demand driven, collaborative, analytical works 313. PBS 3 will continue to encourage beneficiary feedback as a key monitoring tool building on the success of the Woreda and City Benchmarking Study funded through PSCAP. The continued investment in the social accountability and financial transparency and accountability sub-components provides the opportunity to more actively engage with citizens and to obtain their feedback in a structured way. Design of the required feedback mechanisms is underway currently to allow early implementation during PBS 3. 314. PBS 3 will also consider in line with broader sector programmes the need to support interim national surveys to develop a more timely measure of progress against key poverty indicators captured by the five-yearly Welfare Monitoring and Demographic and Health Surveys. There are clear benefits in providing indicative measures of progress during the life-time of the programme to help identify the need for possible corrective action. But these surveys are massive logistical exercises and it remains unclear whether the costs of a more timely survey would outweigh these benefits. 315. Nevertheless PBS 3 will seek to supplement regular management information through additional research and analysis to help further inform ongoing planning decisions on programme effectiveness. A sub-component of the M&E component will support a range of studies, assessments and evaluation activities that will help improve measurement of issues around equity as well as the effectiveness and quality of basic services. 316. These studies will be demand driven with priority determined through dialogue between government and development partners including via the JRIS process. The overall schedule of study will also be informed by a broader evaluation framework to be developed independently of the main programme (see below) but will include a series of activities to improve measurement of service quality, for example, through facility surveys as recommended by the PBS 2 review. Studies will also be complemented by the information derived through the Results Enhancement Fund. 101 317. The overall cost of the Managing for Results component of PBS3 is estimated at $27million of which DFID will contribute about $7.2 million. An indicative summary of costs is shown below: Table 5.2: Summary of costs Sub-component Cost($m) Strengthening M&E systems Results based management capacity Analytical works Total 14.3 7.0 5.7 27.0 Of which DFID 4.0 2.0 1.2 7.2 318. Given the enhanced support to Monitoring and Information through PBS 3, the PBS Secretariat will be restructured to ensure a more results focus and sector bias. In addition to the existing M&E specialist two additional posts will be recruited to provide sector expertise to help improve links with parallel sector working groups, identify key data quality and capacity priorities and agree the focus of additional demand-led studies. 319. In addition to the PBS Secretariat there will be a regular forum of discussion between development partners and government (CSA, MOFED and line ministries) to help ensure delivery. This will be supplemented by a PBS donor M&E group which DFID will co-chair. Independent Evaluation 320. While the overall monitoring arrangements, particularly through the JRIS process, sets a sound basis for accountability and on-going lesson learning a key recommendation of the PBS 2 review was the need for an enhanced approach to evaluation in any successor programme. PBS 3 thus proposes to enshrine the principle of independent evaluation from the outset and to establish an ex-ante evaluation strategy with a clear baseline. This approach is consistent with DFID Ethiopia’s evaluation strategy recognising that PBS is a crucial component of its overall operational plan and that a rigorous approach to evaluation here is appropriate. 321. The key purpose of the independent evaluation will be to determine the on-going relevance of the PBS instrument as the primary mechanism for funding basic service delivery in Ethiopia with a view to informing the shape of longer term support in the 5-10 year time horizon and beyond. The evaluation will also supplement on-going monitoring arrangements and contribute to in-lifetime lesson learning. 322. The main users of the evaluation will be the Government of Ethiopia and development partners. Given the size and design features of the programme the findings of the various stages of the evaluation are likely to be of considerable interest to DFID and the development community. 323. The key evaluation questions will be based on the terms of reference of the PBS 2 review exercise and the findings of the review report. The primary aim of the evaluation will be assess the extent to which the programme has met its high level objective i.e.to answer 102 the question: “To what extent has PBS contributed to expanding access and improving the quality of basic services and strengthening the capacity, transparency, accountability and financial management of local governments?” 324. The overall evidence base for the intervention is reasonably strong given the successful implementation of earlier phases of PBS but there are some specific assumptions underpinning the theory of change where evidence is weaker, particularly on system strengthening. These assumptions will form the focus of the some of the more detailed questions to be addressed by the evaluation e.g. To what extent has PBS improved PFM including through influencing broader PFM reforms? To what extent have better management information systems delivered through PBS led to improved use of data in decision making? 325. The evaluation will also: look to identify any differences in the answers to these questions at a sub-national level and the reasons behind any variation; seek to address the overall sustainability of the programme by examining the capacity of woredas and regions to carry the recurrent cost implications of investments in social service infrastructure and expansion of social service staff and; consider the overall coherence of PBS by looking at the complementarity of the components in delivering the overall objective of the programme. 326. The evaluation is expected to draw heavily from the regular monitoring data emerging from national and sector survey and administrative sources. Investment in data quality improvements and system strengthening is expected to yield enhanced information over the life-time of the programme. As noted previously a range of additional studies are also planned which will increase the depth of the evidence base including a formal impact evaluation of the social accountability component. 327. PBS is only one contribution to funding of basic services in Ethiopia. DFID is also investing heavily in education, health and WASH sectors in Ethiopia to drive further improvements in quality in addition to the core support provided by PBS. This funding includes additional investment in evaluation which will complement and contribute to any PBS specific evaluation. 328. As described above the 3rd sub-component of the PBS 3 M4R programme includes budget provision for a range of additional studies to complement the existing evidence base. An indicative summary of the main current planned studies which will feed into the PBS 3 evidence base is provided in the table below. This programme will be finalised over the coming months in light of emerging findings from outstanding PBS 2 research activities. 103 Table 5.3: Indicative programme of additional studies planned under PBS 3 Study Teachers tracking survey Education service facility /delivery survey Health staff tracking study Health facility survey Patient satisfaction survey Water facility survey Effectiveness study (linking financing with results) on agriculture Sustainability study Study on innovative mechanisms of effective service delivery Equity in access to basic services through Socio-Economic Study Cost $200,000 $350,000 $200,000 $300,000 $200,000 $300,000 $250,000 $200,000 $200,000 $300,000 329. Given this it is not envisaged that the evaluations will need to undertake significant additional data collection. Rather the evaluations will be expected to draw heavily on existing data and the JRIS process supplemented with additional stakeholder interviews. But where the evaluations identify gaps in the evidence base we would expect that to feed into further improvements in the regular monitoring systems and/or suggest additional ad hoc studies or research to be funded under the main M4R component. 330. The evaluation contract will be tendered (by the secretariat) soon after the approval of this business case to ensure a baseline can be established by early 2013 at the latest in line with the formal implementation of the programme. The budget is included in the Secretariat costs and it is estimated that the three independent evaluations would come to about £500,000. 331. The PBS 2 review identified the need to improve data on the quality of basic service provision and the availability of sub-national data. Both these issues have been addressed through revisions to the overall results framework. The review also recommended to improve the provision and use of information from administrative sources to reduce the need for costly additional surveys. Investment in sector information systems has been a key focus of PBS2 and related programmes and data quality has improved markedly in education and health in particular. The final phase of the PBS2 programme will also see further enhancements to the roads and agriculture system and formal baseline studies in these sectors are planned for early in 2013. The PBS 2 review also suggested a more detailed analysis of the existing capacity of woredas and regions to carry recurrent cost implications to establish a more precise baseline for this particular evaluation question. 332. The PBS3 baseline will use the JRIS planned for October/November 2012 to address these main gaps. The official sector results for 2011/12 will also be published in the next few months to provide further information. The findings of a range of additional studies carried out under PBS2 to address key data gaps will also be available soon including a wide reaching socio-economic study on the effectiveness of PBS2 in reaching vulnerable and poor social groups and an assessment of the quality of education through practices relating to recruitment and attendance of primary school teachers. 104 333. It is envisaged that two interim evaluations will take place in 2014 and 2016 as well as a final evaluation at the programme end in 2017. The first evaluation is planned to coincide with the results of the parallel impact evaluation of the social accountability component described above. It will also be informed by and inform the post GTP planning strategy. 334. The evaluation will be contracted through the PBS secretariat with Terms of Reference agreed jointly between Government and contributing donors. It is envisaged that the PBS secretariat will be responsible for the day to day management of the evaluation although overall governance will be through a steering committee arrangement involving government, development partners and other key stakeholders e.g. from civil society. As noted abovethe Secretariat function will be strengthened to ensure appropriate management capacity for the evaluation. The Secretariat’s analytical capacity will also be strengthened to synthesise findings from all relevant works and this resource will provide further input to the evaluation. 335. The evaluation will be contracted through full open international competition to ensure a high calibre of suitable candidates. The specific contract will have an overall budget for the evaluation of around £500,000 over the 5 years (three evaluations in that period) of the programme drawn from overall funding for the Secretariat. This figure does not include the cost of additional Secretariat capacity, planned parallel evaluations of social accountability and the REF not additional studies to be carried out under the analytical works subcomponents of the M4R sub-programme. We expect the baseline and interim evaluations to influence the shape of future studies under this programme. This suggests that the overall evaluation budget for the programme is of the order of £5m over the lifetime of PBS3. 336. A clear communications strategy for dissemination of evaluation findings will also be developed. In addition to dissemination around the JRIS sessions, we will also use the findings to encourage broader and greater use of evidence at all levels of government within the relevant sectors and more broadly. Given the size of the programme the findings are also likely to be of significant interest to DFID and the wider development community and we will look ensure access to the findings through a range of media. Additional DFID monitoring and review arrangements 337. DFID will adopt an annual formal review of contractors’ performance including a VFM assessment as part of a structured examination of VFM performance using the indicators highlighted above in the Appraisal Case. Annual reviews will re-assess and update the risk analysis and consider the effectiveness of the mitigation measures that are in place. 338. In addition to the overall programme results framework DFID will monitor progress against a tailored logframe which will incorporate headline measures most relevant to DFID in addition to tracking progress against specific indicators. DFID will also supplement the regular six-monthly review process with its own peer review using contractors and advisers from outside Ethiopia to provide a further level of independence. The relevant advisers will join the JRIS process and complete a formal review of progress in addition to the agree aide-memoire. The outputs of this work will form the basis of DFID’s formal annual review process. This will be contracted out and a budget of £500,000 has been put aside for this purpose. 339. The overall success of PBS is critical to delivery of DFID Ethiopia’s operational plan. 105 DFID Ethiopia is currently developing plans for a formal mid-term evaluation of its Operational Plan to be completed by March 2013. As such the role of PBS in supporting overall delivery will be examined here too. Figure 5.2 PBS 3 will implement a range of reviews and evaluations and build upon and inform work conducted in parallel by other programmes 2013 Activity 2014 2015 2016 2017 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 PBS 3 biannual reviews using national sector MIS data (DHS, WMS, HICES) JRIS DFID review: additional to and separate from JRIS PBS 3 Independent evaluation Other PBS planned evaluations and studies will contribute to/be informed by independent evaluation: Baseline 1st mid-term 2nd mid-term Final PBS2 study reports PBS2 follow up studies Sector facility surveys Phase 2 social accountability impact evaluation PEF verification Other sector reviews and evaluations will contribute to evidence base: GEQIP 1 GEQIP 2 Health Sector Development Programme Ongoing donor review (to mitigate donor reputational riskseg from villagisation programme Source: DFID Ethiopia, PBS Secretariat 106 ANNEX 1: SCENARIO 1 (low GDP growth, lower revenue effort, same deficit, lower expenditure) FY ending July 2010 2013 2014 2015 (billions of birr) Total revenue including grants 1/ 70.9 70.7 78.1 84.2 88.7 94.1 Domestic revenue 1/ 54.6 51.6 58.2 62.6 66.3 70.8 Grants 1/ 19.9 19.1 19.9 21.6 22.4 23.3 DFID PBS 1.5 1.7 1.8 2.9 3.1 3.2 Total expenditure 2/ 77.6 70.2 85.0 92.1 96.1 101.8 Recurrent 35.0 30.6 35.1 38.6 39.6 41.6 Capital 42.6 39.5 50.0 53.5 56.5 60.2 Poverty oriented 16.1 14.3 15.8 18.2 19.1 20.3 Expenditure deficit incl grants 3/ 2.2 0.5 6.9 7.9 7.4 7.7 (percent of GDP) Total revenue including grants 1/ 19.7% 18.9% 20.0% 20.3% 20.2% 20.2% Domestic revenue 1/ 14.5% 13.8% 14.9% 15.1% 15.1% 15.2% Grants 1/ 5.2% 5.1% 5.1% 5.2% 5.1% 5.0% Total expenditure 2/ 20.3% 18.8% 21.8% 22.2% 21.9% 21.9% Recurrent 9.2% 8.2% 9.0% 9.3% 9.0% 8.9% Capital 11.1% 10.6% 12.8% 12.9% 12.9% 12.9% Poverty oriented 4.2% 3.8% 4.1% 4.4% 4.3% 4.4% Expenditure deficit incl grants 3/ -0.6% 0.1% -1.8% -1.9% -1.7% -1.7% Deficit financing 0.6% -0.1% 1.8% 1.9% 1.7% 1.7% SCENARIO 2 (low GDP growth, lower revenue effort, same expenditure, high deficit) 2009/10 Total revenue including grants 1/ Domestic revenue 1/ Grants 1/ DFID PBS Total expenditure 3/ Recurrent Capital Poverty oriented Expenditure deficit incl grants 4/ Deficit financing Total revenue including grants 1/ Domestic revenue 1/ Grants 1/ DFID PBS Total expenditure 3/ Recurrent Capital Poverty oriented Expenditure deficit incl grants 4/ Deficit financing Memo: birr/$ 5/ GDP GDP deflator 1/ Real GDP growth 2/ DFID as % of total exp (base case & scen. 2) DFID as % of total exp (scenario 1) - 70.9 54.6 19.9 1.5 73.1 33.0 40.1 15.1 2.2 2.2 2011 2010/11 70.7 51.6 19.1 1.7 94.6 41.3 53.3 19.3 23.9 23.9 2012 2011/12 78.1 58.2 19.9 1.8 140.1 57.8 82.4 26.1 62.0 62.0 19.7% 14.5% 5.2% 0.4% 19.1% 8.6% 10.5% 3.9% -0.6% 0.6% 18.9% 13.8% 5.1% 0.5% 25.3% 11.0% 14.2% 5.2% -6.4% 6.4% 20.0% 14.9% 5.1% 0.5% 35.9% 14.8% 21.1% 6.7% -15.9% 15.9% 11.7 383 14.5 374 -10.3% 8.0% 1.8% 2.5% 17.2 391 -3.1% 7.5% 1.3% 2.1% 2.0% 1.9% 2016 2017 99.7 75.0 24.7 3.4 106.3 43.4 62.8 21.2 6.6 - 105.7 79.5 26.2 3.6 113.7 46.5 67.2 22.6 8.0 20.2% 15.2% 5.0% 21.5% 8.8% 12.7% 4.3% -1.3% 1.3% 20.2% 15.2% 5.0% 21.7% 8.9% 12.9% 4.3% -1.5% 1.5% 2012/13 2013/14 2014/15 2015/16 2016/17 (millions of birr) 84.2 88.7 94.1 99.7 105.7 62.6 66.3 70.8 75.0 79.5 21.6 22.4 23.3 24.7 26.2 2.9 3.1 3.2 3.4 3.6 164.7 196.6 231.4 269.0 292.6 69.0 81.0 94.6 100.3 106.3 95.6 115.6 136.8 145.0 153.7 32.6 39.0 46.1 48.8 51.8 80.5 - 107.9 - 137.4 - 169.3 - 186.9 80.5 107.9 137.4 169.3 186.9 (percent of GDP) 20.3% 20.2% 20.2% 20.2% 20.2% 15.1% 15.1% 15.2% 15.2% 15.2% 5.2% 5.1% 5.0% 5.0% 5.0% 0.7% 0.7% 0.7% 0.7% 0.7% 39.7% 44.8% 49.7% 49.7% 49.7% 16.6% 18.4% 20.3% 20.3% 20.3% 23.1% 26.3% 29.4% 29.4% 29.4% 7.9% 8.9% 9.9% 9.9% 9.9% -19.4% -24.6% -29.5% -34.3% -35.7% 19.4% 24.6% 29.5% 34.3% 35.7% 19.6 415 -0.8% 7.0% 1.8% 3.2% 21.6 439 -0.7% 6.5% 1.6% 3.2% 23.5 466 0.1% 6.0% 1.4% 3.2% 25.4 494 0.0% 6.0% 1.3% 3.2% 27.3 523 0.0% 6.0% 1.2% 3.2% Notes: 1/ IMF and IDA Debt Sustainability Analysis 2010; PBS assumed to remain at 2012/13 levels 2/ Lower revenue but same deficit:GDP as base case implies lower expenditure 3/ As in base case (ie MEFF figures) 4/ Same expenditure levels as base case plus lower revenue implies higher deficit 5/ IMF WEO database and team analysis 107 Impact Indicator 1 Percentage of the population (male and female) below the national poverty line: (a) national average; (b) poorest region (Afar) 01-Jul-12 29.6 36.1 Planned ANNEX 2: LOGFRAME 01-Jul-14 28 34.3 01-Jul-15 26.4 32.3 01-Jul-16 24.7 30.3 01-Jul-17 23.0 28.2 01-Jul-16 511 01-Jul-17 470 01-Jul-16 52.0% 55.0% 01-Jul-17 54.0% 57.0% 01-Jul-16 90 98 01-Jul-17 92 99 01-Jul-16 92.0% 90.0% 91.0% 01-Jul-17 93.0% 92.0% 93.0% 01-Jul-16 52.0% 01-Jul-17 58.0% 01-Jul-16 97.0% 01-Jul-17 98.0% 01-Jul-16 tbd 01-Jul-17 tbd Achieved Source Impact Indicator 2 Maternal mortality per 100,000 births HICES Baseline 676 Planned Achieved 01-Jul-14 594 01-Jul-15 552 Source DHS Impact Indicator 3 Primary school completion rates (grade 8): (a) male; (b) female Planned 01-Jul-12 46.2% 49.4% 01-Jul-14 48.0% 51.0% 01-Jul-15 50.0% 53.0% Achieved Source Impact Indicator 4 % of population with access to potable water supplies (a) in rural areas within 1500 m and (b) in urban areas within 500m (to be reviewed and updated in line with WASH inventory findings) Planned Ministry of Education, EMIS 01-Jul-12 71.3 92.5 01-Jul-14 80 95 01-Jul-15 86 97 Achieved Source Ministry of Water and Energy, Annual Survey Outcome Indicator 1 Net enrolment rate for grades 1-8: (a) male and (b) female; (c) overall Planned 01-Jul-12 87.0% 83.5% 85.3% 01-Jul-14 89.0% 86.0% 87.0% 01-Jul-15 90.0% 88.0% 89.0% Assumptions Better services results in greater use of services Achieved Source Outcome Indicator 2 % of women who give birth with the assistance of skilled attendants Planned Achieved Ministry of Education, EMIS 01-Jul-12 28.0% 01-Jul-14 40.0% 01-Jul-15 46.0% Source Outcome Indicator 3 % of children vaccinated with Penta 3 Planned Achieved Ministry of Health, HMIS 01-Jul-12 86.0% 01-Jul-14 94.0% 01-Jul-15 96.0% Source Outcome Indicator 4 Number of people asssited in holding decision-makers to account Planned Achieved Ministry of Health, HMIS 01-Jul-12 tbd 01-Jul-14 tbd 01-Jul-15 tbd Source DFID £510 Survey commissioned by Managing Agent for Social Accountability Govt (£0) Other (£0) Total (£) DFID SHARE (%) DFID (FTEs) 108 Output Indicator 1.1 Student (girls and boys) to teacher ratio (grades 5 to 8) Planned Achieved 01-Jul-12 1:51 01-Jul-14 1:45 01-Jul-15 1:43 01-Jul-16 1:42 01-Jul-17 1:41 01-Jul-12 1:2578 01-Jul-14 1:2500 01-Jul-15 1:2500 01-Jul-16 1:2500 01-Jul-17 1:2500 01-Jul-12 3.5 Source Ministry of Health, HMIS 01-Jul-14 01-Jul-15 1.6 1.5 01-Jul-16 1.4 01-Jul-17 1.3 01-Jul-16 14.8 01-Jul-17 14.9 Source Ministry of Education, EMIS Output Indicator 1.2 Ratio of health extension workers to population Output Indicator 1.3 Average time to nearest all weather road Planned Achieved Planned Achieved Assumption Block grant financing results in more recurrent resources at local levels; financing of improved PFM, planning and budgeting leads to more efficient expenditure Source Output Indicator 1.4 Increase in household beneficiares of agriculture extension services (millions) Ethiopian Roads Authority, Reports from RSDP 01-Jul-12 c8.5 Planned Achieved DFID £433m Source Ministry of Agriculture/Central Statistical Agency, Agriculture Sample Survey/Admin System Govt (£) Other (£) 01-Jul-14 12.8 01-Jul-15 14.6 Total (£) RISK RATING medium DFID SHARE (%) DFID (FTEs) Output Indicator 2.1 % woredas implementing prrior audit recommendations 01-Jul-12 16% Planned Achieved 01-Jul-14 30% 01-Jul-15 40% 01-Jul-16 60% 01-Jul-17 90% Assumptions Financing for fiduciary sysems leads to better functioning fiduciary systems Source Output Indicator 2.2 Number of regions with costed sector strategies (a) at least one sector (b) all 5 basic sectors Reports prepared by Office of the Federal Auditor General Baseline Milestone 1 0 2 Planned 0 0 Achieved Milestone 2 3 1 4 2 Target (date) 5 3 RISK RATING medium Source MoFED reports Output Indicator 2.3 Baseline Milestone 1 Govt (£) Other (£) Milestone 2 Target (date) Total (£) DFID SHARE (%) Planned Achieved Source DFID £66m DFID (FTEs) Output Indicator 3.1 # sectors incorporating approved indicators (classified as official data through implementation of Ethiopian Data Quality Assessment Framework) in their sector plans and reports Output Indicator 3.2 Number of woredas (total = 900) that have rolled out the new Education Management Information System Planned Achieved 01-Jul-12 0 01-Jul-14 2 01-Jul-15 4 01-Jul-16 5 01-Jul-17 5+1 Assumptions Financing for M&E sysems leads to better functioning M&E systems Source CSA, EDQAF reports Baseline Planned Achieved 0 Milestone 1 300 600 Milestone 2 900 Target (date) 900 Total (£) DFID SHARE (%) RISK RATING medium Source DFID £7m Ministry of Education, EMIS project implementation report Govt (£) Other (£) DFID (FTEs) 109 Output Indicator 3.1 # sectors incorporating approved indicators (classified as official data through implementation of Ethiopian Data Quality Assessment Framework) in their sector plans and reports Output Indicator 3.2 Number of woredas (total = 900) that have rolled out the new Education Management Information System 01-Jul-12 0 Planned Achieved 01-Jul-14 2 01-Jul-15 4 01-Jul-16 5 01-Jul-17 5+1 Assumptions Financing for M&E sysems leads to better functioning M&E systems Source CSA, EDQAF reports Baseline 0 Planned Achieved Milestone 1 300 600 Milestone 2 900 Target (date) 900 Total (£) DFID SHARE (%) RISK RATING medium Source DFID £7m Ministry of Education, EMIS project implementation report Govt (£) Other (£) DFID (FTEs) Output Indicator 4.1 Number of basic service units (eg health centres, primary schools) that post the standarised service delivery template 01-Jul-12 25 Planned Achieved 01-Jul-14 30 01-Jul-15 40 01-Jul-16 50 01-Jul-17 70 01-Jul-15 90 01-Jul-16 100 01-Jul-17 120 01-Jul-15 25.0% 01-Jul-16 25.0% 01-Jul-17 25.0% 00-Jan-00 55% 00-Jan-00 55% 00-Jan-00 55% Source Assumptions Financing social accountability mechanisms leads to better functioning citizen feedback MoFED/EMCP, survey report Output Indicator 4.2 Number of woredas (total = 900) that publicise the refined and simplified budget and expenditure templates 01-Jul-12 70 Planned Achieved 01-Jul-14 80 Source MoFED/EMCP, survey report Output Indicator 4.3 % citizens who are informed about the woreda budget 01-Jul-12 19.0% Planned Achieved 01-Jul-14 23.0% Source MoFED/EMCP, survey report Output Indicator 4.4 Citizens who report that woreda officials have actively sought the views of people I their kebele on improving the quality of basic services 01-Jul-12 48% Planned Achieved 00-Jan-00 50% RISK RATING medium Source MoFED/EMCP, survey report DFID £4m Govt (£) Other (£) Total (£) DFID SHARE (%) DFID (FTEs) 110
