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PROJECT INFORMATION DOCUMENT (PID)
APPRAISAL STAGE
Project Name
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Project ID
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Date PID Prepared
Date of Appraisal
Authorization
Date of Board Approval
Report No.: AB5513
Capacity-Building for Palestinian Economic and Regulatory
Institutions
MIDDLE EAST AND NORTH AFRICA
General public administration sector (50%); General finance sector
(50%)
P118560
PALESTINE LIBERATION ORGANIZATION
(for the benefit of the Palestinian Authority)
Ministry of Finance of the Palestinian Authority
[ ] A [ ] B [X] C [ ] FI [ ] TBD (to be determined)
April 21, 2010
March 10, 2010
June 15, 2010
1. Country and Sector Background
The Palestinian Authority (PA) has made significant progress in building institutional capacity,
including passing some of the most progressive economic and social laws in the Arab world. While
the political and economic crisis resulting from the election of Hamas and the consequent withdrawal
of direct donor support in 2006 nearly led to the collapse of the PA and reversed some of the earlier
institutional development, the government led by Prime Minister Salam Fayyad since 2008 has
restored and strengthened key institutions. A series of reforms including the establishment of the
Central Treasury Account (CTA), the formation of an internal audit function and the timely
publication of public financial information, has put the PA’s public financial management ahead of
many countries in the region.
Further development of Palestinian economic and regulatory institutions is needed. There is a need
for sustained momentum on reforms as the political environment becomes more precarious and the
peace talks have stalled. The PA’s 2009 report ‘Building Palestine: Enabling the Institutions of a
Modern State’ gives a high priority to building capable institutions for economic independence and
national prosperity, and notes that ‘The Government is committed to building effective institutions,
consolidating the rule of law and serving its citizens’.
Growth in West Bank/Gaza (WBG) accelerated in 2009 and initial estimates suggest real growth
reached 6.8% - well above the 5% projected in the PA’s 2009 budget. Most of the growth was in the
West Bank, where the IMF and the Palestinian Central Bureau of Statistics (PCBS) estimates real
GDP growth was 8.5%. However, despite the continued closure of Gaza, growth there was still
estimated to be positive at about 1%. Initially PCBS estimated real growth for WBG in 2008 at
2.3%, which would be a real per capita decline in GDP. However, they have recently issued revised
estimates that put real growth in 2008 at about 5.9%, implying an increase in per capita GDP. Thus,
the 2009 performance is the third consecutive year of per capita GDP growth and may signal that at
least the West Bank economy is beginning to recover after years of decline. Yet growth is still less
than what might be expected from an economy recovering from such a low base.
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Despite the growth in the West Bank, the PA’s fiscal position remains precarious. In 2009, the PA’s
recurrent budget deficit was nearly $1.6 billion, about $143 million more than its revised budget
projections. Net revenues were $32 million less than projected and spending was almost $110
million more than budgeted. The PA managed to increase tax revenues by nearly 10% more than
projected in the budget. However, non-tax revenues were about $70 million less than expected. In
addition, despite the economic growth, clearance revenues were off by nearly $20 million. The fall
in clearance revenues can largely be attributed to the situation in Gaza, including its complete closure
in the first quarter of 2009.
The PA continues to require large amounts of donor funding and in 2009 received nearly $1.35
billion in budget support. The 2009 budget was seen as a major step towards increasing the quality of
the budget by shifting donor resources from recurrent budget support to development financing. The
2010 budget has not yet been published; however, the PA has stated that it hopes to hold its recurrent
deficit to $1.2 billion by increasing domestic revenues by nearly 18 percent and controlling spending.
This would be a significant step towards improving the PA’s fiscal position but may be difficult to do
if the situation in Gaza does not improve. This proposed project would build the capacity of leading
Palestinian institutions in statistics, financial sector, and pensions, to implement the Palestinian
Reform and Development Plan (PRDP) and improve the PA’s fiscal position.
2. Objectives
The project development objective is to build the capacity of leading economic and regulatory
institutions, in order to support the implementation of the PRDP. Capacity building support to the
proposed implementing partners would contribute to achieving this goal as laid out below:
(i) Strengthening the capability of the Palestinian Central Bureau of Statistics (PCBS) to provide
accurate and timely economic data is critical to sound policy making by the PA. The National
Accounts estimates produced by PCBS underpin the budgetary process and allow the PA and its
partners to measure the effectiveness of their efforts. The sub-component on National Accounts
will allow PCBS to both produce more accurate estimates and extend its estimates to critical
areas such as making quarterly estimates for the income side. The quality control sub-component
will increase the quality and accuracy of all PCBS estimates by improving the sampling and
survey methodologies used throughout PCBS. The planned Agricultural Census will provide
much needed data for the Ministry of Agriculture’s strategy, and support efforts to promote the
agricultural economy. In addition, providing a baseline for the agricultural sector will improve
the accuracy of National Accounts estimates. Finally, the technical assistance on poverty
estimation will assist PCBS to produce more accurate poverty estimates on a timely basis.
(ii) A capable and effective banking sector regulator is essential to ensure that the risks and
challenges facing the Palestinian banking sector are managed and that further progress is made.
The financial sector, dominated by banks, is closely linked to economic growth, and to the
feasibility of the PRDP’s private sector-led economic growth strategy. This project would build
capacity to facilitate the Palestinian Monetary Authority’s (PMA) eventual transition to a fullfledged central bank. The PMA intends to develop capacity to be able to conduct an independent
monetary policy to maintain price stability. This objective necessitates the building up of reserve
management, monetary operations, and monetary and financial market analysis which are
fundamental functions of a modern central bank. Through its Banking supervision and Research
and Monetary Policy departments, the PMA can promote financial stability, and inform
macroeconomic monitoring, forecasting and policy, as well as monetary policy. The PMA’s role
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in ensuring that donors can provide funding to the PA and to Gaza, without risk of funds being
diverted to unintended uses, helps ensure substantial donor funding in support of the PRDP.
(iii) The 2008-2011 PRDP reiterated the PA’s commitment to strengthen its fiscal position. The
proposed technical assistance would enable the Palestinian Pension Authority (PPA) to more
effectively manage all civil service pension schemes in West Bank and Gaza, in a more
transparent and sustainable manner. It would enable the PPA to put in place an automated
system to effectively manage all civil service pension schemes, including providing updated
individual pension records for all participants in a more transparent and timely manner. It would
strengthen the PPA’s capacity to support the PA in implementing its pension reform action plan
(parametric and systemic reforms of the 4 ongoing pensions schemes), including through
providing information to the highest levels of government on projected future pension liabilities
and their detrimental consequences on future economic growth in WBG. Strengthening the
PPA’s capacity to help implement pension reforms could improve the PA’s fiscal position,
through reform of the unsustainable pension system that otherwise could threaten the fiscal
viability of a future Palestinian government.
3. Rationale for Bank Involvement
The Bank’s Interim Strategy for West Bank & Gaza envisages technical assistance to support the
implementation of the Palestinian Reform and Development Plan (PRDP), and advisory services for
implementation of the ongoing economic reforms program. The ultimate goal of the PRDP is to
create the institutional infrastructure of a Palestinian state. This capacity-building project would
strengthen the capacity of key Palestinian institutions to help achieve that objective. The Bank has
supported the PRDP through two development policy grants (DPGs) aimed at (i) strengthening the
PA’s fiscal position; and (ii) improving public financial management. A third development policy
grant that would maintain the same objectives is under consideration. This proposed technical
assistance grant compliments these DPGs by helping to build institutional capacity in areas that are
critical to the implementation of the PRDP. Strengthening the selected institutions will increase the
PA’s ability to manage the economy and create opportunities for growth, and improve its fiscal
position, which will allow the PA to be less reliant on external assistance.
The Bank has existing advisory or technical assistance relationships with each institution, and each
has strategic plans in place or under development that merit capacity-building support for
implementation. These proposed implementing partners were agreed with the Ministry of Finance as
priorities for technical assistance, and appropriate candidates for inclusion in the project.
4. Description
The project would fulfill the project development objective through providing capacity-building
support to three of leading Palestinian economic and regulatory institutions. The project is composed
of 4 components:
Component 1: PCBS - Strengthening the capability of PCBS to provide accurate and timely
economic data, and to implement the first Agricultural Census.
Component 2: PMA - Supporting the development of PMA capacity to effectively regulate the
financial sector, promote financial stability, conduct monetary policy, and inform macroeconomic
monitoring.
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Component 3: PPA - Strengthening the PPA’s capacity to more effectively manage civil service
pension schemes in West Bank and Gaza, and to implement reforms.
Component 4: Project Management – Financing expenditures related to project management
5. Financing
Source:
Borrower
Special Financing
Total
($m.)
0
3.7
3.7
6. Implementation
The PA, through the Ministry of Finance, will lead project implementation. The project coordination
unit at the MOF will coordinate project implementation by the implementing agencies, providing
financial management and consolidated reporting for the components, progress monitoring, and
centralized procurement. The project coordination function would therefore build on existing PA
capacity, rather than being set-up separately. The Ministry of Finance (MOF) Project Coordination
Unit (PCU) is currently managing the World Bank-funded Third Emergency Services Support
Project and the corresponding Multi-Donor Trust Fund.
A Project Implementation Manual will be drafted by the MOF with consultant support, which will
cover its relationship with the implementing partners. It will outline the respective roles and
responsibilities of the MOF and the implementing partners, and the flow of documents and reporting.
It will cover reporting, monitoring and evaluation, financial management and procurement.
Implementing partners will be responsible for managing the technical assistance in line with the
signed contracts. Implementing partners have prepared Terms of Reference for each technical
assistance activity to be supported by this project that are consistent with existing strategies and with
their submissions to the PRDP for 2011-2013. The implementing partners will have the direct
responsibility for implementing those plans, within the overall project coordination by the MOF.
7. Sustainability
This project is to support the implementation of the PRDP, and to build the institutions of a future
Palestinian state. The sustainability of its impacts is therefore ultimately dependent on political
processes outside of the project’s control. However, the commitment of the PA to the PRDP has been
demonstrated through a series of sustained reforms over the past two years to improve public
financial management and to strengthen Palestinian institutions.
PCBS: PCBS is one of the PA’s strongest institutions. It has been steadily developing its capabilities
and effectively acting as a state statistical institution for more than 15 years. Its commitment to the
elements of this project is amply demonstrated by the fact that they are priority areas of the National
Development Statistics Strategy (NSDS). In addition, PCBS has already begun work in these areas
using their precious internal resources, which clearly indicates the importance that the PCBS
management and senior PA officials place on them. Bank support will allow them to carry out these
efforts sooner and more extensively.
PMA: since early 2008, when the World Bank started to focus on financial sector issues in West
Bank and Gaza, the PMA has consistently shown ownership and commitment toward analytical
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work. The ultimate goal of the PMA, which is to become a modern and full-fledged Central Bank,
constitutes a strong incentive to achieve the successful implementation of its component.
PPA: the PA has shown commitment as it has clearly indicated in its 2009 Letter of Development
Policy for the World Bank’s 2009 Palestinian Reform and Development Plan Development Policy
Grant II (PRDP DPG II) that one of its top priorities is to prepare a pensions reform action plan that
would include short, medium, and long-term measures. High level officials have indicated their
willingness to undertake parametric reforms in 2010.
8. Lessons Learned from Past Operations in the Country/Sector
There is an increased risk of restructuring or delays in a project with three implementing partners.
Lessons learned from similar projects (for example an Economic Reform Technical Assistance
Project in Nepal, and the Emergency Services Support Project in West Bank/Gaza) that will be
applied to this project include: having a lead partner (the MOF) coordinate and be responsible for the
project; agreeing terms of reference and procurement plans before effectiveness, in order to avoid
delays in negotiating eligibility to technical assistance funding; and preparing a Project
Implementation Manual before negotiations, to define the responsibilities of each of the 4 entities
(PCU/MOF, PCBS, PMA, PPA) involved in the project, and to avoid delays related to any
renegotiating of roles and responsibilities after effectiveness.
The PCBS component builds upon the successful experience of two grants from the Trust Fund for
Statistical Capacity Building. The first grant helped PCBS develop its NDSS and the second helped
implement aspects of the strategy. During the implementation of these grants, PCBS developed a
strong understanding of the Bank’s financial management and procurement procedures. PCBS also
improved its ability to identify and manage qualified international consultants. Finding consultants
who can successfully work in WBG is a challenge. It takes time to learn about the internal workings
of PCBS and its program. But more importantly it takes time to develop an understanding of the
unique political environment and its effect on PCBS’ operations. Consequently, one of the clearest
lessons learned from previous technical assistance to PCBS is that when possible it is best to use
consultants that already have experience working with PCBS. New consultants have a steep learning
curve and it takes considerable time before they become productive. Another lesson for previous
technical assistance is the usefulness of study tours. It is not possible for professionals from other
national statistics agencies to visit WBG and most private consultants possess narrow technical
knowledge. Thus, PBCS staff benefit greatly by being able to travel to other countries, see how
modern statistics agencies function and learn modern management techniques for statistical agencies.
The capacity-building support designed for the PMA is fully in line with the recommendations of the
past World Bank, IMF and donors’ analytical work carried out on the financial sector in West Bank
and Gaza. The sub-components under the PMA Component, and in particular the banking
supervision, the reserve management and the establishment of a deposit insurance scheme, are
designed in accordance with the best international practices.
9. Safeguard Policies (including public consultation)
None of the Bank's safeguard policies will be triggered.
Safeguard Policies Triggered by the Project
Environmental Assessment (OP/BP 4.01)
Yes
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No
[x]
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Natural Habitats (OP/BP 4.04)
Pest Management (OP 4.09)
Indigenous Peoples (OP/BP 4.10)
Physical Cultural Resources (OP/BP 4.11)
Involuntary Resettlement (OP/BP 4.12)
Forests (OP/BP 4.36)
Safety of Dams (OP/BP 4.37)
Projects on International Waterways (OP/BP 7.50)
Projects in Disputed Areas (OP/BP 7.60)*
[]
[]
[]
[]
[]
[]
[]
[]
[]
[x]
[x]
[x]
[x]
[x]
[x]
[x]
[x]
[x]
Consultations
The Bank advised the PCU/MOF to encourage the three sector entities to hold and document
stakeholder consultation during technical assistance preparation in order to enhance the design and
implementation of the technical assistance through consideration of stakeholder views and
documentation of stakeholder feedback. PCBS, PMA, and PPA have conducted sector-specific
stakeholder consultations during assistance preparation. Given the upstream - and potentially
sensitive - nature of the proposed interventions, particularly in the pension sector, and the fact that
the technical assistance focuses on capacity building of PA institutions, a dialogue-based approach
within the PA will be used to resolve any outstanding policy issues prior to considering a broader
consultative approach.
10. List of Factual Technical Documents
Program Document PRDP DGP II
Financial Management Capacity Assessment
Procurement Capacity Assessment
11. Contact point
Contact: Douglas Pearce
Title: Sr Private Sector Development Specialist
Tel: (202) 458-4343
Fax: (202) 522-2151
Email: [email protected]
12. For more information contact:
The InfoShop
The World Bank
1818 H Street, NW
Washington, D.C. 20433
Telephone: (202) 458-4500
Fax: (202) 522-1500
Email: [email protected]
Web: http://www.worldbank.org/infoshop
*
By supporting the proposed project, the Bank does not intend to prejudice the final determination of the parties' claims on the
disputed areas.
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