Document of The World Bank FOR OFFICIAL USE ONLY Report No: 74451-YE EMERGENCY PROJECT PAPER ON A PROPOSED GRANT IN THE AMOUNT OF SDR 65.1 MILLION (US$100.0 MILLION EQUIVALENT) TO THE REPUBLIC OF YEMEN FOR AN EMERGENCY CRISIS RECOVERY PROJECT JANUARY 31, 2013 Human Development Department Egypt, Yemen, Djibouti Country Management Unit Middle East and North Africa Region This document is being made publicly available prior to Board consideration. This does not imply a presumed outcome. This document may be updated following Board consideration and the updated document will be made publicly available in accordance with the Bank’s policy on Access to Information. CURRENCY EQUIVALENTS (Exchange Rate Effective December 31, 2012) Currency Unit = Yemeni Riyal YR 215.52 = US$1 US$0.65 = SDR 1 FISCAL YEAR January 1 – December 31 ABBREVIATIONS AND ACRONYMS CBY Central Bank of Yemen COCA Central Organization for Control and Audit CT Cash Transfer CSO Civil Society Organization DA Designated Account DFID Department for International Development ECRP Emergency Crisis Recovery Project ESSNEP Emergency Social Safety Net Enhancement Project FM Financial Management FMS Financial Management Specialist GDP Gross Domestic Product GOY Government of Yemen HBS Household Budget Survey IAD Internal Audit Department IDA International Development Association IDP Internally Displaced People IFR Interim Financial Report ISA International Standards on Auditing ISP Institutional Support Project MDG Millennium Development Goals MENA Middle East and North Africa M&E Monitoring and Evaluation MIS Management Information System MOE Ministry of Education MOF Ministry of Finance MOPIC Ministry of Planning and International Cooperation MOSAL Ministry of Social Affairs and Labor NGO Non-Governmental Organization OM Operations Manual PA Payment Agency PAD Project Appraisal Document PDO Project Development Objective PFS Project’s Financial Statements PMT Proxy Means Test PWP Public Works Project PST Project Support Team SFD Social Fund for Development SSN Social Safety Net SWF Social Welfare Fund TA Technical Assistance UCT Unconditional Cash Transfer USAID United States Agency for International Development WA Withdrawal Application WB World Bank WFP World Food Program YER Yemeni Rials YPO Yemen Post Office Vice President: Inger Andersen Country Director: Hartwig Schafer Country Manager Wael Zakout Sector Manager: Yasser El-Gammal Task Team Leader: Kamel Braham REPUBLIC OF YEMEN Emergency Crisis Recovery Project CONTENTS Page A.  Introduction ......................................................................................................................... 1  B.  Emergency Challenge: Country Context, Recovery Strategy and Rationale for the Proposed Project ......................................................................................................................... 1  C.  Bank Response .................................................................................................................... 5  D.  Appraisal of Project Activities ............................................................................................ 7  E.  Implementation Arrangements and Financing Plan .......................................................... 11  F.  Key Risks and Mitigating Measures ................................................................................. 14  G.  Terms and Conditions for Project Financing .................................................................... 15  Annex 1: Detailed Project Description ...................................................................................... 16  Annex 2: Results Framework and Monitoring ........................................................................ 21  Annex 3: Summary of Estimated Project Costs ....................................................................... 22  Annex 4: Operational Risk Assessment Framework (ORAF) ................................................ 23  Annex 5: Financial Management and Disbursement Arrangements ..................................... 27  Annex 6: Procurement Arrangements ...................................................................................... 34  Annex 7: Implementation and Monitoring Arrangements ..................................................... 36  Annex 8: Project Preparation and Appraisal Team Members ............................................... 39  Annex 9: Environmental and Social Safeguards Framework ................................................ 40  Annex 10: Economic and Financial Analysis ........................................................................... 45  Annex 11: Documents in Project Files ...................................................................................... 47  Annex 12: Statement of Loans and Grants............................................................................... 48  Annex 13: Country at a Glance ................................................................................................. 50  Annex 14: Maps........................................................................................................................... 52  REPUBLIC OF YEMEN EMERGENCY CRISIS RECOVERY PROJECT EMERGENCY PROJECT PAPER MIDDLE EAST AND NORTH AFRICA REGION Basic Information Country Director: Hartwig Schafer Sectors: Other social services (80%); Health Sector Manager/Director: Yasser El- (10%); General education sector (10%) Gammal/ Steen Jorgensen Themes: Social safety nets (50%); Nutrition Team Leader: Kamel Braham and food security (30%); Child health (10%); Project ID: P133811 Education for all (10%) Expected Effectiveness Date: 03/29/2013 Environmental category: C - Not Required Lending Instrument: Emergency Recovery Expected Closing Date: June 30, 2014 Loan Joint IFC: No Joint Level: N/A Project Financing Data [ ] Loan [ ] Credit [X] Grant [ ] Guarantee [ ] Other: Proposed terms: Financing Plan (US$m) Source Total Amount (US$m) Total Project Cost: 102.0 Cofinancing: 0.0 Recipient: 2.0 Total Bank Financing: 100.0 IBRD 0.0 IDA 100.0 New 100.0 Recommitted 0.0 Client Information Recipient: Republic of Yemen Responsible Agency: Social Welfare Fund (SWF) Contact Person: Mr. Mansour Alfeadi Telephone No.: (967-1) 544-012 Fax No.: (967-1) 544-011 Email: info@swf.gov.ye Estimated disbursements (Bank FY/US$m) FY 2013 2014 Annual 60.0 40.0 Cumulative 60.0 100.0 Project Development Objective and Description PROJECT DEVELOPMENT OBJECTIVES: The objective of the proposed Emergency Crisis Recovery Project (ECRP) is to assist the Recipient in mitigating the impact of the 2011 crisis by providing cash benefits to eligible poor households. PROJECT DESCRIPTION: The proposed ECRP will finance cash assistance grants to poor households in Yemen through the Social Welfare Fund cash transfer program. Poor households to be covered by the grant have been added in 2011 to the SWF beneficiary list after applying a Proxy Means Test (PMT) poverty-based targeting. Component 1. Cash Benefits to Poor Households: Provision of temporary cash benefits to eligible poor households for a maximum period of fifteen (15) months. Component 2. Project Monitoring and Evaluation: Strengthening the capacity of the Project Implementing Entity for Project monitoring and evaluation through financing of consultants’ services. Safeguard and Exception to Policies Safeguard policies triggered: Environmental Assessment (OP/BP 4.01) [ ]Yes [X] No Natural Habitats (OP/BP 4.04) [ ]Yes [X] No Forests (OP/BP 4.36) [ ]Yes [X] No Pest Management (OP 4.09) [ ]Yes [X] No Physical Cultural Resources (OP/BP 4.11) [ ]Yes [X] No Indigenous Peoples (OP/BP 4.10) [ ]Yes [X] No Involuntary Resettlement (OP/BP 4.12) [ ]Yes [X] No Safety of Dams (OP/BP 4.37) [ ]Yes [X] No Projects on International Waterways (OP/BP 7.50) [ ]Yes [X] No Projects in Disputed Areas (OP/BP 7.60) [ ]Yes [X] No Does the project require any exceptions from Bank policies? [ ]Yes [X] No Have these been approved by Bank management? [ ]Yes [ ] No Conditions and Legal Covenants: Financing Agreement Reference Description of Date Due Condition/Covenant Article V5.01 The Subsidiary Agreement By effectiveness has been executed on behalf of the Recipient and the Project Implementing Entity. A. Introduction 1. This Project Paper seeks the approval of the Executive Directors to provide an International Development Association (IDA) grant in an amount of SDR 65.1 million (US$100 million equivalent) to the Republic of Yemen for an Emergency Crisis Recovery Grant (ECRP). 2. The proposed grant will help finance the costs associated with the Government’s efforts to sustain delivery of critical social services which were negatively affected by the 2011 crisis. Yemen experienced intense and far-reaching country unrest from February 2011 until November 2011, which resulted in increased poverty, deterioration of the nutrition status of the poor and disruption in the delivery of basic services. The country continues to suffer from these disruptions while the social and economic context remains very fragile and vulnerable. The proposed support will assist the Government in mitigating the impact of the crisis through financing cash benefits to poor families made more vulnerable by the crisis. B. Emergency Challenge: Country Context, Recovery Strategy and Rationale for the Proposed Project Country Context 3. In 2011, Yemen experienced mass protests, violent clashes, and armed conflict that resulted in the election of a new President and the formation of a transitional government. The poor performance of the Government’s development strategy in the decades following the national reunification of 1990, driven by weak institutions and poor governance, triggered increasing social and political tension. Exacerbated by deteriorating economic conditions, these tensions culminated in 2011 with mass protests, occurring in the context of events termed the “Arab Spring�. The protestors demanded better governance, representation and economic opportunities, and the protests resulted in the transition agreement brokered by the Gulf Cooperation Council (GCC). In early December 2011, a transitional government was formed which was mandated to steer the process of constitutional changes, reform the military apparatus, manage economic recovery, and prepare for the next general election in early 2014. The transition government is working to stabilize the country within an overall complex and difficult security and economic environment. 4. The conflict situation caused significant disruptions in the supply and production chains and this resulted in contraction of the economy and higher unemployment. Economic activity contracted by 10.5 percent in 2011, and is estimated to contract further by 1.9 percent in 20121, leading to higher unemployment. Unofficial estimates suggest that up to one million workers may have lost their jobs in 2011. The reduction in fuel availability, particularly diesel, further aggravated shortages in electricity and water supplies. The repeated sabotaging of the pipelines in the Marib and Ras Issa areas and continued road insecurity have led to a sharp decrease in crude oil production by about 40 percent in 2011, and a similar loss expected in 2012. The 1 Other estimates might deviate from the forecasted growth depending on the assessment of the transition dynamic in Yemen. Overall, growth forecasts remain subjected to larger errors than usual during the transition period. 1 agricultural, service and industrial sectors faced significant cost increases for inputs such as irrigation, transportation and marketing, ultimately reducing production and exports. 5. Poverty, which was already increasing prior to the crisis, is estimated to have risen further 2 from 42 percent of the population in 2009 to 54.5 percent in 2012. Poverty is particularly high in rural areas, which are home to about 73 percent of the population and 84 percent of the poor. Urban poverty is concentrated primarily in Sana’a and Aden and is particularly extreme in Hodeidah, Taiz, and Mukalla. An estimated 806,586 people are now considered most vulnerable 3 due to current and previous conflicts in Yemen, including children who have been directly involved in or affected by the infighting and violence, as well as 213,000 vulnerable returnees and war-affected persons in the north, 203,900 refugees and asylum seekers,4 and approximately 150,000 displaced people in the south.5 At the same time, social service delivery has been dramatically affected across Yemen, leaving the vulnerability of a large part of the population unaddressed, and contributing to loss of livelihoods. The dramatic and immediate negative impact of the 2011 crisis on individuals’ health and wellbeing can be directly traced to Yemen’s chronic under-development, particularly with regard to basic social services. 6. Yemen remains one of the ten most food insecure countries in the world and the most food insecure country in the Middle East North Africa (MENA) Region. According to the U.N. World Food Program (WFP), approximately 45 percent of the population (10 million people) was food insecure in March 2012, a significant increase from the nearly 32 percent level of food 6 insecurity in 2009. Nearly one million children under five years of age are acutely malnourished, with 61 percent of all children under five malnourished, compared to 58 percent in 2006. About two-thirds of very young Yemeni children are stunted, and severe (life threatening) stunting affects one-third of all children in the country. The prevalence of hunger and malnutrition is predominantly rural. Yemen is highly reliant on food imports, which account for 81 percent of food consumption. As a result, the country is particularly vulnerable to external food price shocks.7 With the average Yemeni daily nutritional intake only 300 calories above hunger, domestic price rises will push many more Yemenis into food insecurity. 7. Fiscal policies in 2011 and 2012 were geared to containing the fiscal deficit. Revenues declined because oil production had come to a halt during the 13 month stoppage of the Marib- Hodeidah oil pipeline, the depressed economic activity, and the resistance of many to paying taxes during this time of political uncertainties. The 2012 fiscal deficit is projected to reach about 13 percent of the Gross Domestic Product (GDP) excluding grants (6 percent of GDP including grants). The public expenditures program in 2012 is struggling with numerous risks, domestic (security) and international (food prices, oil prices). While capital expenditures are still far too low to generate recovery (4 percent of GDP), the Government is hoping to keep the expenditures for petroleum subsidies constant in 2012. Raising revenues is politically 2 Joint Social and Economic Assessment. 3 United Nations High Commissioner for Refugees (UNHCR). 4 UNHCR. 2011. “2011 UNHCR Country Operations Profile–Yemen,� Global Appeal 2011 Update. 5 Escalated fighting in Abyan Governorate, southern Yemen, displaced approximately 1,800 people in March 2012, according to the U.N. Office for the Coordination of Humanitarian Affairs (OCHA). 6 U.N. WFP released preliminary findings of the recently completed Yemen Comprehensive Food Security Survey (CFSS) on March 14, 2012. 7 The 2010 food price spike placed stress on the balance of payments, with estimates suggesting that a 50 percent increase in wheat prices cost one percent of GDP and 20 percent of foreign reserves. 2 impossible; large oil grants from Saudi Arabia (amounting to almost 6 percent of GDP) have been keeping the Government financially afloat in 2012, especially during the first half of the year. In addition, critical social expenditures are often competing with other expenditures (salaries and security). Impact of the crisis on basic social services 8. The country’s crisis has had a strong negative impact on the delivery of education services. The 2011 conflict had a significant impact on the education sector, including damage to and occupation of school buildings, inaccessibility of some schools due to insecurity, increased absenteeism of teachers and administrative staff and less than full completion of the curricula in 2010/11 school year. The most visible effect was on the educational infrastructure damaged by fighting or occupation by armed forces and Internally Displaced Persons (IDPs). According to the Ministry of Education (MOE), about 810 schools have been more or less severely damaged by the armed conflict, with buildings completely destroyed in some cases. During its Back-to- School campaign in September 2011, UNICEF reported that more than 150 schools were occupied by either armed forces or IDPs. In addition, the normal construction of school buildings and delivery of equipment and material were affected by conflict-generated disruptions and severe budget constraints. 9. Access to basic health services has deteriorated. It is estimated that the physical access to fixed health facilities may have dropped to 50 percent from 68 percent before the conflict. Insecurity and armed conflicts since 2011 have resulted in the displacement of hundreds of thousands of Yemenis, affecting most of the governorates of the country. The situation has been further exacerbated by the precarious status of basic social and health services, while the poor level of nutrition for many Yemenis has had a detrimental impact on public health outcomes. Key challenges resulting from the conflict and its aftermath include: (i) shortages of drugs and equipment in health facilities at all levels; (ii) disruption in health services in governorates affected by the conflict as a result of the destruction of health facilities, loss of equipment, drugs and supplies, and displacement of health staff; (iii) lack of capacity of the emergency health system to respond to the violence and accidents that occurred during the crisis; and (iv) the additional burden put on an already weak health system by the IDPs. 10. The Yemeni population has suffered from a cycle of food price increases, floods, and political instability since 2008. The 2011 crisis triggered additional price hikes. Public water supplies, electricity and cooking fuel became scarce due to interrupted supplies. Water charges, lighting and cooking fuel costs increased sharply. In urban areas and neighborhoods where armed conflict occurred, such as in Sana’a and Taiz, families had to shoulder the costs of moving from their homes to safer locations, either in other neighborhoods or in their home villages and towns. Signs of distress within the general population have been observed, which are even more severe in regions affected by political conflict and an already high poverty level. The most affected groups in the population are clearly women and children. Coping mechanisms which have been observed are: reduced number of meals; decreased dietary diversification; taking children out of school and often times using them as laborers and in some cases, sending them illegally to neighboring countries; foregoing medical treatment resulting in worsening maternal and child health; increased household debt; and selling off of assets. 3 Government Response 11. Yemen has developed a Transition Plan for Stabilization and Development (TPSD) and has received substantial aid pledges. Donors expressed strong commitment to support the TPSD with total pledges of about US$7.5 billion received during the donors conference in Riyadh and the follow up Friends of Yemen meeting in New York (September 2012). While these pledges do not meet fully the Government's request to finance short-term needs amounting to US$4.3 billion, and for the medium-term development priorities amounting to US$7.65 billion, the short-term needs and a large part of the medium term needs are funded. The Government and its development partners are working closely together to access the pledges that have been made. To this effect, a Mutual Accountability Framework has been agreed upon, which binds the Government and the donors to their commitments. 12. The TPSD emphasizes, for the short-term, humanitarian, recovery and reconstruction support, while aiming to maintain economic stability. As one of the priorities under the TPSD, the Government has identified expansion of social protection and enhancing safety nets linked to the dual objectives of social assistance (short term and during transition) and economic development (long term and post transition). It intends to enhance the safety net mechanisms and networks to support the poor, give priority to labor-intensive investments in all economic sectors with special emphasis on youth and women in labor force participation, and expand the cash transfers system through the SWF to assist the poorest groups. Leveraging support for the most vulnerable is of highest priority for the immediate period. To this effect, the Government has enrolled about 500,000 new beneficiaries to the SWF cash benefits program in 2011. The fragile fiscal situation, reflecting the overall fragile political situation in the country, however, makes this support ambitious. 13. In education, the main objective of the Government is to protect and consolidate the gains in terms of access to basic education while promoting increased girls’ participation and improved quality of learning. Yemen has made remarkable strides in expanding access to basic education: Gross Enrolment Rate (GER) for basic education increased from 62 percent in 1998/99 to approximately 86 percent in 2010/11; and girls’ enrollment has increased substantially from 42 percent to 76 percent. Despite this improvement, Yemen is unlikely to achieve the Millennium Development Goals (MDGs) of Education for All to ensure that all boys and girls complete a full course of primary schooling by 2015, and quality of education remains a challenge. While revising its National Basic Education Development Strategy (NBDES) to update main targets and strengthen focus on quality, the MOE is addressing the impact of the 2011 crisis and conflicts on the sector’s operations. The education sector in Yemen benefits from strong and coordinated support from various Development Partners. 14. The Government is working on meeting the health needs of crisis-affected populations, particularly IDPs. Additional resources needed include essential drugs, medical equipment & appliances and emergency care services. The TPSD response to the current challenges identified three priorities for the health sector: (i) Humanitarian and Emergency Response: Enhancing the National Emergency Response Systems; (ii) Essential Service Package: Increasing health care access, availability and utilization; and (iii) Rehabilitation and Post Conflict Recovery: Ensuring flexible and responsive organizations to deal with crisis and instability. 4 Rationale for the Emergency Crisis Recovery Grant 15. The Bank is actively supporting Yemen’s post-crisis transition. In collaboration with the United Nations, the European Union and the Islamic Development Bank, in 2012, the World Bank (WB) prepared a Joint Social and Economic Assessment (JSEA) (Report #74316) to evaluate the impact of the crisis and identify recovery measures. The JSEA was the basis for the discussions at the donors conference in Riyadh and thereafter. In addition, the Bank has developed an Interim Strategy Note to adjust its support to the current transition period and its aftermath. 16. The proposed ECRP is in line with the JSEA recommendation of protecting critical social expenditures in the short term, and with the TPSD objective of maintaining income levels and critical basic services, especially for the poor. The ECRP is expected to contribute to the stability of the transition through supporting the Government in providing immediate financial assistance to poor households made more vulnerable by the crisis. 17. The possibility of using the Crisis Response Window (CRW) funds for this project was considered. However, the CRW could not be used for one of the access criteria, namely, an exogenous shock caused by either natural disaster or economic crisis affecting multiple countries. 18. The WB builds on a long standing effort to support social sectors in Yemen, jointly with other development partners. The WB has played a leading role in the past in supporting Yemen’s Poverty Reduction Strategy and its embedded Human Development Agenda. The Bank has been providing consistent support to the education sector with four currently active projects covering basic, secondary and higher education. The Bank is also a major supporter of the health sector with a particular focus on maternal and child health. In addition to direct support to key social protection instruments in Yemen (the Social Fund for Development (SFD), the Public Works Project (PWP) and the SWF), the Bank is working with other development partners on improving the targeting and the impact of the country’s social programs. C. Bank Response Bank’s Strategy 19. The World Bank Group’s strategy to address the aftermath of the country crisis and support the transition phase is framed in the recently prepared Interim Strategy Note (FY13- 14) (Report #70943) discussed by the Board of Executive Directors on November 13, 2012. The interim strategy aims to help the Government to stabilize the transition phase in the short term, and lay the groundwork for medium-term reforms. The ISN supports three strategic pillars: (i) achieving quick wins and protecting the poor by creating short-term jobs, restoring basic services, improving access to social safety nets, and revitalizing livelihoods; (ii) improving economic management by helping maintain macro stability, strengthening fiscal policies and public financial management, and improving the enabling environment for private sector growth 5 and competitiveness; and (iii) enhancing governance and local service delivery by supporting local governance, capacity building, service delivery, and improved citizen engagement. 20. While supporting enhanced access to basic services and infrastructure, the Bank’s strategy aims at mitigating the impact of food price increases. One of the main available instruments to address food price volatility is the support for safety nets and short-term income generating activities, which contribute to improving the purchasing power of the most-affected segments of the population and helping them address potential food price hikes and food security risks. The proposed project is one among a set of new activities under the ISN, targeting the vulnerabilities of poor people and marginalized groups in the short term. These also include: (i) Additional Financing (US$25 million) to expand the SFD for Labor Intensive Works project (P133699) to, on the one hand, cover unemployed youth and women and, on the other hand, include nutrition services; (ii) an Output-based Maternal and Newborn Voucher Program (P144522) (US$10 million) that would scale up existing Output-Based Aid (OBA) pilots; and (iii) a Second Basic Education Development Project (BEDP II) (P130853) (US$66 million) to sustain support to basic education, building on progress made under the earlier BEDP I (P076185). 21. Project Development Objective (PDO). The main objective of the proposed ECRP is to assist the Recipient in mitigating the impact of the 2011 crisis by providing cash benefits to eligible poor households. 22. Project description (See Annex 1 for detailed Project Description). The proposed project will finance cash assistance grants to poor households in Yemen through the Social Welfare Fund (SWF) Cash Transfer (CT) program. The SWF is the largest public cash-transfer-based social safety net in Yemen, established in 1996. In 2011, the SWF expanded its coverage by 50 percent to reach 1.5 million households, representing 6.9 million individuals in all 21 governorates. The additional 0.5 million households were selected using a Proxy Means Testing (PMT) method applied to the 2008 Households Survey to improve SWF poverty targeting. The PMT method, developed with technical assistance from the Bank, aims to improve pro-poor targeting based on specific features. In the PMT method, observable variables such as individual/household characteristics and household ownership of durable goods are collected and a series of “weights� are applied to predict household welfare. The PMT classified households in six categories: Categories A to D included households considered as poor or extremely poor; category E included households considered as vulnerable to poverty; and category F households were considered as not poor. The ECRP will finance cash benefits to households from categories A to D. 23. Project components - Component 1: Cash Transfer to Poor Households (US$99.8 million). This component will provide cash benefit payments to about 400,000 poor households. The project will finance cash benefits (about US$10-20 per month) to eligible households for a fifteen-month period. The associated service fees (1 percent) charged by the servicing agencies (Post Office and commercial banks) as well as the related SWF operational costs for project implementation will be financed by the Government. 6 - Component 2: Monitoring and Evaluation of Project Implementation (US$0.2 million). This component will provide consultancy services necessary to support the SWF in monitoring and evaluation of project implementation, including external audit. Eligibility for Processing under OP/BP 8.0 24. Consistent with the guiding principles of OP 8.00, the proposed project will address adverse economic and social impacts resulting from the crisis experienced by the country in 2011 which resulted in increased poverty and vulnerability. The project is expected to assist the Government of Yemen (GOY) in preserving the country’s human and social capital by financing cash benefits to poor households across the country. Consistency with Country Strategy 25. The recently adopted ISN lays out the World Bank Group’s strategy of assistance to Yemen for the fiscal years 2013 and 2014, a timeframe that corresponds to the transition period and its immediate aftermath. The proposed project is included in the ISN as one of the key components of the Bank’s response to prevent a worsening of the current humanitarian situation and ensure that the most critical social expenditures are protected. This proposed operation is also a first contribution to realize the WB’s pledge made at the September 2012 Riyadh conference. Expected Outcomes 26. The main expected outcome of the proposed project is sustaining financial support to about 400,000 poor households made more vulnerable due to the country crisis and price increases, particularly for food. About 40 percent of households to be covered by the project have a woman as a head of the household. The total number of individuals to benefit from the cash assistance provided through the project is estimated at 2.4 million persons of whom 52 percent are females. D. Appraisal of Project Activities Economic and financial 27. Overall, the proposed project is expected to have significant national-level economic benefits, given the relatively large number of households to be supported by the emergency grant. About 400,000 households, identified as poor using a proxy means testing method, are expected to receive cash transfers through the project. This represents about one third of the total number of SWF program beneficiaries. The cash transfers to be financed by the project are likely to result in: (i) increased consumption among beneficiary households; (ii) increased school enrolment and attendance for children; and (iii) reduced rates of morbidity and malnutrition among 0 to 5 year-old children. The income effect of the transfer (e.g., increased food consumption, dietary diversity) is expected to produce improvements in the health and education outcomes of children and the extended family. In addition to the direct welfare benefits arising from improved health status, gains can also be expected through increased schooling levels and improved cognitive achievement as well as productivity, earnings and income for adults. 28. By receiving regular cash transfers, households are likely to increase their food intake, resulting in less food insecurity and the maintenance of productive assets. This is expected to 7 have a positive effect on consumption smoothing. This will reduce both income poverty and income inequality due to the redistributive effect of targeting the transfer to the poorest families within the households. Unconditional Cash Transfers (UCTs) such as the one implemented by SWF will give poor families the most flexibility and are administratively less challenging to implement. UCTs are likely to impact human development where vulnerable groups have sufficient access to information to make informed choices about health and education. Technical 29. The proposed project aims to support the Government’s response to the 2011 crisis aftermaths and particularly the mitigation of the impact of food price increases on the poor households. The project design builds on the experience of the SWF in delivering direct cash assistance and the improved targeting through the use of the PMT to identify the intended beneficiaries of the project. The SWF is one of the main social safety net programs in Yemen, and has been operating for over 15 years delivering cash assistance. 30. The design of the proposed project builds also on the experience and lessons learned from the Emergency Social Safety Net Enhancement Project (ESSNEP) funded through the European Union Food Crisis Rapid Response Facility, and will benefit from the technical assistance provided to the SWF through the Bank-financed Institutional Support Project (ISP)(P#). The project design used the results of the technical assistance provided to the SWF to reform its targeting through the application of Proxy Means Testing (PMT) on their national database of the poor. 31. Project implementation will be monitored through SWF M&E department reports, and a beneficiary survey will be undertaken by an external firm. 32. An alternative option considered to finance food related expenditures was explored. However, this option was not retained since food is imported by private firms in Yemen and there are no associated subsidies from the Government. Also, food import subsidies have proven in the past to be an unreliable tool to target poor households. Accessing funds made available under the CRW to complement IDA funds in financing the ECRP was considered. However, eligibility for CRW funds requires an exogenous shock, caused by either natural disaster or economic crisis and affecting multiple countries at the same time. Specifically, the crisis is expected to result in a widespread or regional year-on-year GDP growth decline of at least 3 percentage points in a significant number of IDA countries in order to justify accessing CRW funds. It was concluded that the specific issues leading to the economic crisis in Yemen which made this operation necessary were primarily country specific and limited to Yemen, and therefore would not trigger access to CRW resources. Social 33. Poverty targeting. The project will contribute to increased benefits to rural and urban populations through the SWF’s focus on poverty targeting based on the PMT method, improving the SWF’s ability to target those most in need. 8 34. Gender and Youth. Gender of the head of household is one of the variables in the PMT poverty targeting method used for the selection of ECRP expected beneficiaries. The percentage of households covered by the project and having a woman as head of the household is 39.9 percent. It is also estimated that about 52 percent of direct beneficiaries of the ECRP (members of the households covered by the project) will be females. A recent survey by OXFAM in Hodeida governorate found that women were empowered as decision-makers through the SWF cash transfer program because, even though they are not head of the household in most cases, they are the ones who determine “what foods were brought home, often choosing to buy vegetables, medicine or livestock needs, in addition to the purchase of staple goods�. The project will also benefit the youth, as about 52 percent, out of the 2.4 million ECRP beneficiaries, are less than 18 years old. 35. Participation and inclusion. The project will benefit from ISP activities to support participation of stakeholders such as CSOs, NGOs, and local authorities in enrollment, recertification, and monitoring of the cash benefits program. The SWF has established a CSO Coordination Unit in order to maximize resources and build social accountability for SWF practices and procedures at the household level. Environmental 36. The environmental category is C. Project activities (cash benefits and associated costs) do not trigger any safeguards policy. Fiduciary 37. Financial Management. A Financial Management (FM) assessment was conducted with the objective of determining whether: (i) the SWF has adequate FM arrangements to ensure that project funds will be used for the purposes intended in an efficient and economical way; (ii) the controls and processes at the SWF can be relied upon; and (iii) the system in place is able to generate reliable and accurate project reports on a timely basis. The assessment confirmed that the SWF has adequate FM capacity to implement the project but is in need of enhancing its FM system. The SWF weaknesses are being addressed through capacity building activities financed under the Institutional Support Project and through mitigating measures included in the design of the project. The SWF has gained experience from successfully implementing a WB-administered and EU funded project, (ESSNEP) (P#?), which financed cash transfers to about 40,000 eligible poor households which were identified through the SWF household survey and the PMT scoring. The SWF submitted all audit reports. 38. The SWF has taken the following measures to reduce the project risks: (i) defined formal FM procedures and controls applicable to the proposed project, including agreement on the role of the Internal Audit Department, to be applied during implementation, and documentation of these controls and procedures in the project procedures manual; (ii) retained a qualified Financial Management Specialist based on TOR acceptable to the Association; (iii) established an accounting system capable of recording project transactions and generating timely project financial reports; and (iv) engaged an independent private external auditor acceptable to the Bank, to perform quarterly audits of the project’s activities, especially verification on the cash 9 transfer process, issue quarterly Audited Interim Financial Reports, and conduct the year end audits on the Project Financial Statements. 39. Given the nature of the inherent risks in the country system and the nature of the project, and in view of the FM arrangements already in place in the SWF, the overall FM risk rating of the project has been assessed as High. There are no FM conditions for project effectiveness and the FM arrangements will continue to be monitored throughout project implementation. 40. Procurement. The SWF has a Financial Department which is led by a manager seconded from the Ministry of Finance (MOF). The Financial Department has a procurement unit responsible for all non-high value tenders. The Department is sufficiently staffed with employees responsible for procurement who are familiar with WB procurement procedures. Since there is very limited procurement involved in the project, the staff and other resources used for the ISP will be sufficient to cover project-related activities. 41. The overall project risk for procurement is "Moderate" as the proposed project is the third IDA-supported project to be implemented by SWF and there is very limited procurement involved in the project. 42. Procurement under the project will be carried out in accordance with the Bank’s “Guidelines: Selection and employment of consultants under IBRD Loans and IDA Credits and Grants by World Bank Borrowers�, dated January 2011, and the provisions stipulated in the financing Agreement. Procurement activities are open to all bidders from eligible countries as defined in the guidelines. Consultants will be selected in accordance with WB Guidelines: Selection and Employment of Consultants by the WB Borrowers dated January 2011 and the Financing Agreement. In addition, procurement under the proposed operation will be carried out in accordance with the “Guidelines on Preventing and Combating Fraud and Corruption in Projects Financed by IBRD Loan/Credits/Grants�, known as the “2006 Anti-Corruption Guidelines�. See Annex 6 for details. Lessons learned and reflected in project design 43. Global Experience with UCT programs. Over the past decade, the number of Cash Transfer (CT) programs in the world has expanded substantially. The design of these programs (both UCT and CCT) has been improving over the years, especially with regard to targeting, often using the PMT methodology. Recently, both Africa and Asia have initiated CT pilots in several countries, such as Kenya, Tanzania, Zambia, Bangladesh and Pakistan. International experience has shown that well-designed CT programs can cost effectively reach the poorest and most needy households, and represent an effective alternative to poorly targeted and inefficient subsidies. There is mounting evidence that CT programs are an efficient way of redistributing income to the poor and thereby raising their consumption levels. Moreover, robust impact evaluations of well-designed CT programs are starting to provide sound evidence of positive impacts on school enrolment and attendance rates. The evidence on health outcome improvements is currently less clear, but recent studies demonstrate that CT programs have resulted in increased total food consumption and improved child growth. 10 44. UCTs as an emergency response to the crisis. The option of supporting the SWF cash transfer program is in line with the recommendations of the 2011 IEG report on Social Safety Nets (SSN). While the choice of instrument should depend on the country context and the nature of the crisis, the report indicates that case study evidence shows that UCTs were the most appropriate SSN instrument to use in a crisis situation for three reasons: (i) UCTs can be expanded or contracted without the constraint of “eligibility� limitations; (ii) UCTs are administratively simpler than other programs and can be implemented more quickly than, for example, programs involving procurement issues; and (iii) UCTs are often more politically acceptable during times of crisis, as people are aware of the need to protect the population affected by the crisis. Moreover, the project builds on an existing welfare system that has been supported by the Bank and other partners over the past years. 45. Simplified project design. One of the key lessons learned with the ongoing emergency programs is that an emergency project should have a simple project design that can be quickly and efficiently implemented with a clear project development objective and easily monitored indicators established from the beginning. The proposed project design builds on an existing program with improved targeting to ensure effectiveness and maximize impact on the poor. 46. Use of existing implementing agencies with appropriate capacity. The implementing agency should have the capacity to quickly mobilize human and financial resources (for project preparation) to carry out the project activities. The SWF is an existing agency operating for the past 12 years. It has recently carried out a national survey to improve targeting of poor households. The targeting under this emergency operation benefited from the results of the national beneficiary survey and the application of PMT methodology for the identification of eligible poor. Prior to the introduction of PMT, the SWF identified beneficiaries based on social categories resulting in significant inclusion error. 47. Emergency operations should focus on measurable results and outcomes tied to the short implementation timeframe. The results framework under the project follows this approach. E. Implementation Arrangements and Financing Plan Institutional Arrangements 48. The project will be implemented under the WB’s OP.8.00 procedures, Rapid Response to Crises and Emergencies, and hence, the operation is being processed on a fast track basis. The project will be implemented by the SWF from March 1, 2013 to June 30, 2014. The SWF was established in 1996 by Presidential Law No.31, and is governed by the revised Presidential Law 39 (2008). Its Board of Directors, headed by the Minister of Social Affairs and Labor, is composed of the Vice Minister of Finance, Deputy Minister of Social Affairs and Labor, Deputy Minister of Local Administration, Executive Director of the SWF (member and secretary), Executive Managers of Social Security Network Programs, and community representatives of private sector and civil society organizations. The SWF is headed by an Executive Director who is responsible for day-to-day operations. As of January 2012, the SWF had 1,810 staff operating through a three-level organizational structure: head office in Sana’a with 190 staff; 22 branch 11 offices covering all Governorates in Yemen, with 762 staff; and 214 district offices (out of 334 districts) with 816 staff. 49. The implementation will be carried out using an existing cash-transfer mechanism of the SWF. This project provides cash assistance of up to US$20/month to about 400,000 households for fifteen months. The beneficiary households have already been identified through PMT scoring. Payments are made quarterly through Payment Agencies (PA). The main PA used by SWF is the Yemen Post Office (YPO) which has 251 branches and mobile units, and is the most wide-reaching financial agency in Yemen. The YPO delivers the checks/payments through its branches and mobile units. In addition, areas that are not reached by the YPO are serviced by Alamal and CAC banks. For payment to SWF beneficiaries, the PA charges a 1 percent service fee, which will be funded by the government. 50. While the SWF is responsible for implementing project activities through its head office in Sana’a and branch offices, a Project Support Team (PST) already established through the ESSNEP and the ISP will provide coordination and fiduciary management support to complement the skills not available in-house. The PST reports to the Executive Director, and administers project funds. The PST includes a Technical Coordinator, Financial Management Specialist, Accountant, Procurement Specialist, Procurement Advisor, Management Information System (MIS) Specialist and Executive Secretary. 51. Project costs and financing. The total estimated costs for the proposed project amount to US$102 million. Table 1: Project Cost Summary (US$M) Total Project IDA Govt Costs Financing Financing (*) Component 1. Cash assistance 101.8 99.8 2.0 Component 2. Monitoring and 0.2 0.2 - Evaluation Total 102.0 100.0 2.0 (*) The IDA Grant will finance 100 percent of eligible expenditures of the US$100.0 million Grant, as specified in the Financing Agreement. Financial management and disbursement arrangements 52. The SWF will be implementing the proposed project. The SWF retains a qualified Financial Management Specialist (FMS) whose salary is financed under the ISP. The SWF established an accounting system capable of recording project transactions and generating timely project financial reports. The SWF has developed an operational manual setting out the structure of the cash transfer program, including fiduciary arrangements which are deemed to be adequate and will be used for the project. The SWF will issue, on a quarterly basis, Interim Financial Reports (IFRs) to be audited by an external auditor acceptable to the Bank and, on an annual basis, Project Financial Statements (PFS) audited by an external auditor acceptable to the Bank. The auditor’s Terms of Reference (TOR) will require the auditor to conduct a sample verification of 12 the eligibility of cash transfers through field visits and review of the cash transfers internal controls process. 53. The flow-of-funds procedures, including the use of the Payment Agencies (PA) to transfer funds to beneficiaries and the SWF reconciliation of the PA records, are acceptable and will be used under the project. The risk of project funds being used for unintended purposes is mitigated through the project design, including the SWF’s use of PMT, the beneficiaries certification carried out by the SWF, MOF and COCA, the Program’s Operations Manual, the PST’s accounting system, the SWF’s internal audit, the use of PA to channel the funds to beneficiaries and the reconciliation of data provided by them, COCA’s audits of SWF, and the use of an independent external auditor based on expanded scope of audit. 54. The project funds will be channeled through the SWF and deposited into a separate segregated USD Designated Account (DA) in the Central Bank of Yemen (CBY) to be opened and maintained by the SWF (See Chart 1 below), under conditions acceptable to the WB. Advances and Reimbursement based disbursement will be the main disbursement method. Requests for payments from the Grant funds will follow the report-based disbursement method and will be initiated through the use of the Bank’s Withdrawal Applications (WAs) supported by agreed upon Interim Financial Reports (IFRs), PA’s Reconciliation Reports and DA Bank Reconciliation and statements. Disbursement to the beneficiaries from the SWF will follow the SWF’s Operational Manual and cash payments to beneficiaries will be carried out through PA branches in the governorates. The project is designed to retroactively disburse up to 40 percent of Component 1 to reimburse the SWF’s financing of eligible cash assistance payments made in the second semester of 2012. These payments were made using acceptable arrangements including the use of PA. This project will follow the report-based disbursement method, which will report on eligible expenditures financed by the Government for component 1 as well a forecast of expenditures for component 2. This disbursement method will allow for reimbursement of funds advanced by the Government as agreed to be financed under Component 1 of the project and for funds advance for component 2. Chart 1: SWF Flow of Funds Government Grant Funds Budget Component SWF USD DA – CBY Two Post Office/Banks 13 Beneficiaries Supervision, monitoring, and evaluation 55. Bank Supervision. The WB will supervise the project in accordance with the WB’s applicable policies and procedures. The WB team will closely monitor project progress, and will make full use of the Results Monitoring Framework (Annex 2) in this process. Supervision of the project will be carried out by a WB team, including a financial management specialist, and a procurement specialist based in the Yemen Country Office who should be able to visit the SWF regularly, interact with SWF staff and have direct access to relevant documentation. Supervision will be supplemented by the use of consultants, as needed, and missions will take place at least twice a year. It is estimated that supervision will involve 40 weeks of staff time, given the need for the increased intensity and frequency demanded by the emergency context. 56. Monitoring and Evaluation (M&E) will be undertaken by the SWF. Project activities will be monitored on an ongoing basis to support achievement of the Project Development Objective. Monitoring reports covering the key Project Outcome Indicators will be prepared according to the schedule of frequency in Annex 2 (Results Framework and Monitoring). (i) Monitoring. SWF’s M&E Department and governorate branch offices will monitor the cash transfers as well as determine whether the ECRP CTs have been made to eligible beneficiaries. CTs will be delivered through PAs on a quarterly basis. In addition, Component 2 will finance consultancy services to monitor implementation and evaluate project outcomes. (ii) Evaluation. An Implementation Completion and Results (ICR) report will be prepared after project implementation is completed. As part of the ICR, a sample-based beneficiary survey will be conducted to determine the impact of the project on households’ welfare, e.g., food consumption patterns, household debt, productive assets, etc. Satisfaction data (satisfaction with the SWF payment mechanism, level of program information and support received from SWF) will be collected at the same time. Closing date and implementation schedule. 57. The project closing date is June 30, 2014. F. Key Risks and Mitigating Measures 58. The overall risks rating for the project is Substantial because of country context, as well as capacity and governance issues including, in particular: (i) Given the overall weak governance at the institutional and country levels, the fiduciary risks are considered as relatively high for the proposed project. These risks will be mitigated through a number of measures. First, the ISP, which is under implementation, is providing intensive staff training as well as introducing performance monitoring measures through the M&E system. Further technical assistance will be provided through the ISP to strengthen the capacity of the SWF in targeting, management and administrative processes as well as monitoring and evaluation. The ISP Project Support Team in place will also handle project financial and procurement management. The SWF’s Internal Audit Department (IAD) will add the proposed project to its scope of work. The IAD will be responsible for checking the list of proposed 14 beneficiary households and confirming eligibility, including conducting regular visits to a sample of selected beneficiaries and submitting internal audit reports to the SWF Managing Director. The SWF’s Department of Allocation will be responsible for following up on payments of beneficiaries. Also, the Project’s External Auditor’s TOR will include a special provision for the Auditor to conduct field visits to a sample of the selected beneficiaries to validate the beneficiaries’ eligibility and proper receipt of funds. (ii) Not reaching the right beneficiaries targeted by the project is another risk. Social and political pressures may arise which might exclude some regions from the project benefits during the current period of political instability and widespread poverty, with the result that extremely vulnerable families would not be reached by the program. This risk is managed through prior selection of project beneficiaries which have been selected using data from the SWF national survey (covering 1.6 million households) and using proxy means testing for targeting. The about 0.5 million households added in 2011 have been reviewed by a tripartite committee, including the SWF, Central Organization for Control and Audit (COCA) and MOF. (iii) There is also a risk of less than the full amount being paid to beneficiaries and untimely delivery of cash benefits in remote areas not reached by the post office. This risk is mitigated through using only PA, mostly the Post Office which has proven to be the most efficient way of delivering cash in Yemen for the implementation of the ECRP. In addition, both the EU and the Bank are providing technical assistance to strengthen SWF’s M&E system and to establish a complaint handling mechanism which will be used for the ECRP. G. Terms and Conditions for Project Financing 59. The project is expected to be funded through a US$100 million equivalent grant, which will cover 98 percent of the project costs. 60. Effectiveness Condition: the Subsidiary Agreement has been executed on behalf of the Recipient and the Project Implementing Entity. 15 Annex 1: Detailed Project Description REPUBLIC OF YEMEN: EMERGENCY CRISIS RECOVERY PROJECT Background 61. Poverty in Yemen has increased as a result of the 2011 conflict. The share of population under the country poverty line has risen from 42 percent in 2009 to 54.5 percent in 2012.8 Poverty is particularly high in rural areas, which are home to about 73 percent of the population and 84 percent of the poor. Urban poverty is concentrated primarily in Sana’a and Aden and is particularly extreme in Hodeidah, Taiz, and Mukalla. An estimated 806,586 people are now considered most vulnerable due to current and previous conflicts in Yemen,9 including children who have been directly involved in or affected by the infighting and violence, as well as 213,000 vulnerable returnees and war-affected persons in the north, 203,900 refugees and asylum seekers,10 and approximately 150,000 displaced people in the south.11 At the same time, social service delivery has been dramatically affected across Yemen, leaving the vulnerability of a large part of the population unaddressed, and contributing to loss of livelihoods. The dramatic and immediate negative impact of the 2011 crisis on individuals’ health and wellbeing can be directly traced to Yemen’s chronic under-development, particularly of basic social services. 62. Food and nutrition situation has deteriorated. According to the U.N. WFP, approximately 45 percent of the population (10 million people) was food insecure in March 2012, a significant increase from the nearly 32 percent of food insecurity in 2009.12 Nearly one million children under five years of age are acutely malnourished, with 61 percent of children under five malnourished, compared to 58 percent in 2006. About two-thirds of very young Yemeni children are stunted, and severe (life threatening) stunting affects one-third of all children in the country. The prevalence of hunger and malnutrition is predominantly rural. Yemen is highly reliant on food imports, which account for 81 percent of food consumption. As a result, the country is particularly vulnerable to external food price shocks.13 With the average Yemeni daily nutritional intake only 300 calories above hunger, domestic price rises will push many more Yemenis into food insecurity. 63. The cycle of food price increase, flood, and political instability since 2008 has had a token on the Yemeni population, particularly the most vulnerable. Signs of distress within the general population, more severe in regions affected by political conflict and high poverty levels, have been observed. The most affected groups in the population are clearly women and children. Coping mechanisms which have been observed are: reduced number of meals; decreased dietary diversification; taking children out of schools and often times using them as laborers and in some cases sending them illegally to neighboring countries; foregoing medical treatment resulting in worsening maternal and child health; increased household debt; and the selling off of assets. 8 Joint Social and Economic Assessment, 2012. 9 United Nations High Commissioner for Refugees (UNHCR). 10 UNHCR. 2011. “2011 UNHCR Country Operations Profile–Yemen,� Global Appeal 2011 Update. 11 Escalated fighting in Abyan Governorate, southern Yemen, displaced approximately 1,800 people in March 2012, according to the U.N. Office for the Coordination of Humanitarian Affairs (OCHA). 12 U.N. WFP released preliminary findings of the recently completed Yemen Comprehensive Food Security Survey (CFSS) on March 14, 2012. 13 The 2010 food price spike placed stress on the balance of payments, with estimates suggesting that a 50 percent increase in wheat prices cost one percent of GDP and 20 percent of foreign reserves. 16 64. In addition, the crisis has had an impact on the delivery of basic social services. Key challenges resulting from the conflict and its aftermath include: shortage in drugs and equipment at all levels of health facilities; destruction of and inaccessibility to health facilities and schools in governorates affected by the conflict as well as loss of equipment, drugs, and supplies; displacement and absenteeism of staff; and the additional burden of the IDPs on both health and education systems. It is estimated that physical access to fixed health facilities may have dropped to 50 percent from 68 percent before the conflict. Despite the resilience shown by the education system, the school year 2010/2011 was shortened and the curricula not fully completed for most Yemeni students. 65. The Government’s response to protect the poor was to expand the national cash transfer program (SWF). The program has expanded from about 1 million to 1.5 million households after applying poverty-based targeting (proxy means test) based on the results of the 2008 national survey. The Social Welfare Fund (SWF) Program 66. The SWF is the largest public cash-transfer-based social safety net in Yemen supporting about 1.5 million households. The SWF was established in 1996 by Presidential Law No. 31 with the main objective of ensuring financial assistance for poor and unemployed persons and helping those who can work to reintegrate into the labor market. It also aims to promote the human capital of Yemeni children to break the intergenerational cycle of poverty. 67. In 2008, due to the increase in food prices, the Government doubled the amount received by SWF recipients. Since then, the cash transfer ranges from 2,000 to 4,000 of Yemeni Rials (YER) per household per month, and is transferred on a quarterly basis, mainly through Post Offices. In remote rural areas, beneficiaries receive their payments through SWF’s district cashiers. There are no conditions imposed, except having a renewed SWF registration card based on the 2008 verification survey. Beneficiaries who meet specific criteria can get an advance payment equivalent to their annual entitlement, to purchase income-generating assets. The monthly amount of cash benefit is allocated based on the number of household members: Table 2: Monthly Amounts of SWF CT by Family Size Family size Monthly amount in YER 1 2,000 2 2,400 3 2,800 4 3,200 5 3,600 6 and more 4,000 68. Up to 2010, about 1 million households were benefiting from the SWF cash transfer program. These beneficiaries include two categories: (i) economic cases (unemployed, women with no support); and (ii) social cases (disabled, orphans, seniors). The 2005/6 Household Budget Survey (HBS) showed that SWF had poor targeting, as about 273,000 beneficiaries (households) were found to be ineligible. 17 69. In 2010, the SWF introduced a PMT method to improve its poverty targeting. The PMT method, developed with technical assistance from the Bank, aims to improve pro-poor targeting based on specific features. In the PMT method, observable variables such as individual/household characteristics and household ownership of durable goods (known as an asset index) are collected and a series of “weights� applied to predict household welfare. The weights are derived from the standard HBS information on household consumption and household characteristics. Statistical models are developed and applied to applicant data to predict household welfare and rank applicants/beneficiaries according to income relative to the regional poverty line. This divides potential recipients into 6 categories from A to F, where categories A and B are very poor, category C and D are poor, category E is vulnerable to poverty and category F are non-poor. 70. In 2011, the SWF expanded its coverage by 50 percent to reach 1.5 households, representing 6.9 million individuals in all 21 governorates. This development, planned since 2008 to expand the coverage to nearly all those below the poverty line, was delayed due to the oil crisis and subsequent impact on government revenue. The implementation of the Government’s commitment to expand SWF coverage took place in 2012 with retroactive effect for 2011. The number of program beneficiaries increased from about 1 million to 1.5 million households after applying the PMT method based on the results of the 2008 national survey. Of the approximately 0.5 million new households included in the program in 2011, 70,000 were supported through donor financing (The Netherlands and Department for International Development (DFID) funded 30,000 households and EU funded 40,000 households for one year each). The Government transferred cash to about 387,000 households (excluding beneficiaries in Al Jawf Governorate due to security constraints) for a total cost of about US$93 million, covering cash benefits due for 2011 and the first semester of 2012. 71. The SWF has just disbursed the cash benefits for the last two quarters of 2012 (except for households from Al Jouf Governorate). Estimated cost for the 1 million previous beneficiaries is about YER20.3 billion (US$94.4 million), while the estimated cost for the new cases (from 2011) is about YER11.6 billion (US$54 million) funded as shown in the following table: Table 3: CT paid in 2012 for the SWF New Cases Number of beneficiaries Amount in YER Disbursed by GOY 386,872 8,935,665,600 Financed by the Netherlands 29,963 1,069,311,600 Financed by the EU 40,441 1,444,176,000 Follow up cases 8,201 102,476,400 Total 465,477 11,551,629,600 18 Project Objectives and Description 72. Project Development Objective (PDO). The main objective of the proposed ECRP is to assist the Recipient in mitigating the impact of the 2011 crisis by providing cash benefits to eligible poor households. 73. The proposed ECRP will finance cash assistance grants to poor households added to the SWF beneficiary list in 2011 after applying the PMT poverty-based targeting. SWF cash transfer program beneficiaries to be covered by the ECRP will include about 70,000 households supported through donor financing (The Netherlands, DFID and EU) in 2011. In addition, the project will finance the monitoring of project implementation. Component 1: Cash transfers to poor households (US$99.8 million) 74. This component will provide temporary cash transfers to about 400,000 poor households selected among the SWF new beneficiaries who have been identified through the 2008 household survey and the PMT14 scoring. These households will receive YER2,000- 4,000/month/household, depending on family size (See Table 2), to help them cope with price pressures for a period of 15 months. The grant will finance the cash benefits only excluding any contracted payment agency administrative fee which will be financed by the Government. 75. Eligible beneficiaries. The ECRP will provide cash assistance to about 400,000 households which have been added to the SWF program in 2011 using the PMT targeting method and categorized as A, B, C or D. These households will include about 40,000 households funded by the EU/WB ESSNEP and 30,000 households funded by the Netherlands. 76. Period of coverage. The ECRP will finance cash benefits for eligible households for a maximum period of fifteen months occurring between July 2012 and December 2013. 77. Disbursement. The ECRP will reimburse the SWF actual cash transfer payments made to the eligible beneficiaries. Disbursement will be made against proper financial statements in 4 tranches:  First Tranche (40%): Retroactive financing of CT for the second semester 2012  Second Tranche (20%): Reimbursement of CTs for 1st quarter of 2013  Third Tranche (20%): Reimbursement of CTs for 2nd quarter of 2013  Fourth Tranche (20%): Reimbursement of CTs for 3rd quarter of 2013 14 Proxy Means Test (PMT) generates a score for each applicant on the base of observable characteristics using statistical models. Weights and selection of variables are derived from statistical analysis (usually Ordinary linear regressions, but it can be principal components analysis or discrete models) of detailed survey that had collected wealth information for the population of interest. 19 Component 2: Monitoring and Evaluation of Project Implementation (US$0.2 million) 78. This component will support the monitoring of the cash transfer process. In order to meet project fiduciary and M&E requirements, the project will finance costs associated with the monitoring and evaluation of cash transfers implementation. This sub-component will also finance the external auditor for the project. Targeting 79. Beneficiaries have been selected among the 495,459 households, identified through the PMT screening and who received cash transfer benefits for 2012. In addition, the following criteria will be used: (i) the 70,000 beneficiaries financed by donor programs will be included; and (ii) priority will be given to households which are below the regional poverty line as determined by the PMT. (categories A&B). 20 Annex 2: Results Framework and Monitoring REPUBLIC OF YEMEN: EMERGENCY CRISIS RECOVERY PROJECT Project Development Objectives PDO Statement: The Project Development Objective is to assist the Recipient in mitigating the impact of the 2011 crisis by providing cash benefits to eligible poor households. . Project Development Objective Indicators Data Responsibility Source / Cumulative Target Values Frequency for Data Description Unit of Methodolo PDO Level Results Indicators Core Baseline collection Measure gy S2 2012 Q1 2013 Q2 2013 Q3 2013 PDO Indicator One: Number of Monitoring Reports households receiving cash transfers Number - 400,000 400,000 400,000 400,000 and Financial SWF through the project statements PDO Indicator Two: Number of direct Monitoring Reports Number/P 2.4 (50 2.4 (50 2.4 (50 2.4 (50 project beneficiaries (Number in - Quarterly and Financial SWF ercentage percent) percent) percent) percent) millions) of which female (percentage) statements Intermediate Results Indicators Intermediate Result (Component 1) Intermediate Result – Indicator One Amount of grant transferred to Number 0 40 60 80 99.8 Quarterly Statements SWF beneficiaries ($US million) Intermediate Result – IndicatorTwo: FS 1 FS 2 FS 3 FS 4 Timely submission of financial submitted submitted submitted by submitted by Text N/A Quarterly Statements SWF statements for reimbursement of cash by March by May15, August 15, November transfers 31, 2013 2013 2013 15, 2013 MR 1 MR 2 MR 3 Intermediate Result – Indicator Three: submitted submitted submitted by Timely submission of Monitoring Text N/A by May by August Nov 30, Quarterly Reports SWF Reports 31, 2013 31, 2013 2013 21 Annex 3: Summary of Estimated Project Costs REPUBLIC OF YEMEN: EMERGENCY CRISIS RECOVERY PROJECT Table 4: Project Cost Summary (US$M) Total Project IDA Govt Costs Financing Financing (*) Component 1. Cash assistance 101.8 99.8 2.0 Component 2. Monitoring and 0.2 0.2 - Evaluation Total 102.0 100.0 2.0 (*) The IDA Grant will finance 100 percent of eligible expenditures of the US$100.0 million Grant, as specified in the Financing Agreement. 22 Annex 4: Operational Risk Assessment Framework (ORAF) REPUBLIC OF YEMEN: EMERGENCY CRISIS RECOVERY PROJECT Project Stakeholder Risks Rating: Moderate Description: There are no major issues related to stakeholders. Risk Management: Project will have continuous close consultations with government counterparts However, this is a transition government and the overall social as well as DPs. Close supervision will allow follow up on the commitments taken by the GOY and political picture is still shaping. Two possible risks: (i) under the ECRP. In addition, the ISP which will be implemented in parallel will continue to focus Social sector line ministries (education, health and social on strengthening targeting, case management, communications, and instituting complaint handling affairs), MOF, and Ministry of Planning and International mechanism together with other partners (especially with EU) Cooperation (MOPIC) cannot reach agreement on the allocations to finance the urgent needs identified for education and health and SWF operating budget; and (ii) the development Stage: Preparation partners (DPs) may have concerns with governance of the SWF Resp: Bank Due Date: Status: Ongoing and implementation in transferring the funds to the eligible beneficiaries. Implementing Agency Risks (including fiduciary) Capacity Rating: Substantial Description : Risk Management: - The SWF staff capacity is limited without a proper HR - The project will make use of the current fiduciary support provided to the SWF through the strategy in place, and the staff appointed by the Ministry of ISP which has been in place for over two years, and have developed some knowledge of the Civil Service do not have required skills. Further staff Bank’s financial and procurement requirements. Further technical assistance will be provided morale is low without appropriate compensation scheme through the ongoing ISP to strengthen the capacity of the SWF in targeting, management and and lack of operating budget for proper case management. administrative processes as well as monitoring and evaluation. - The SWF’s internal audit will audit the cash transfers which will be disbursed to the beneficiaries through the Post Office, and according to the SWF’s Operations Manual (OM) acceptable to the Bank. Additionally, the project’s accounts will be audited quarterly and annually by an independent private external auditor acceptable to the WB. - Through the Institutional Support Project, financed by the WB, the SWF is working on - The SWFs does not have an acceptable accounting system improving their accounting system to be able to properly record and report on all their and operations manual. transactions and prepare acceptable financial statements. In addition, to mitigate this risk, the SWF has developed internally an automated accounting system which is used to record and report transactions financed from the WB projects. The system is deemed adequate for this project. Also, the SWF has an operations manual acceptable to the WB. Resp: Recipient Stage: Implementation Due Date : Status: Ongoing 23 Description : Risk Management: - The SWF operating budget has shrunk from 2.3 percent to - The MOF and the Ministry of Labor and Social Affairs (MOLSA), took advantage of the .58 percent of the total SWF budget excluding payment ECRP by formalizing the annual operating budget of the SWF which will cover project agency fee and the staff salary between 2008 and 2011 at a operating costs. However, for proper operation of the SWF cash transfer program as whole, time when its operation has increased by more than 50 the Bank together with other donors will continue its dialogue with the MOPIC, MOF and percent. MOSAL on this issue especially for the recertification-related budget. The Bank will provide technical assistance through ISP to help SWF to prepare a proper operational budget plan to facilitate annual budget planning process. Resp: Both Stage: Implementation Due Date : Status: Ongoing Description : Risk Management: - The SWF has limited experience in managing IDA Projects. - IDA will monitor closely through carrying out supervision mission, coordinated with other Bank interventions in the sector at least twice a year a year; the Sana’a Office will provide additional operational support, including a qualified FMS supervising the FM activities of the project. Resp: Bank Stage: Implementation Due Date : Status: Ongoing Governance Rating: Substantial Description: Risk Management: - Extremely vulnerable families may not be reached by the - To avoid such risk as well as previous targeting issues, project beneficiaries have been program selected: (i) utilizing data of poor households from the SWF national survey (covering 1.6 million households) and using proxy means testing for targeting. In addition, tri-party - Social and political pressures may arise and result in committee of COCA, MOF and SWF conducted verification of all project beneficiaries excluding some regions from the project benefits during the enrolled in the program. current period of political instability and widespread - An independent qualified private external auditor acceptable to the WB will be engaged to poverty. audit the project’s accounts, quarterly and annually, according to TORs acceptable to the WB. The TOR will include a special provision for the Auditor to conduct field visits to a sample of Oversight and auditing function the selected beneficiaries and post offices to validate the beneficiaries’ eligibility and their proper receipt of funds. - The SWF’s internal audit will audit the cash transfers which will be disbursed to the beneficiaries through the Post Office, and according to the SWF’s OM acceptable to the Bank. Resp: Recipient Stage: Implementation Due Date : Status: Ongoing Description: Risk Management: No proper complaint handling mechanism is in place. Both EU and the Bank are providing technical assistance to establish a complaint handling mechanism in the SWF. Resp: Recipient Stage: Implementation Due Date : Status: Ongoing 24 Description: Risk Management: The risk of less than full amount being paid to beneficiaries. Post office and banks (instead of cashiers) will be used for cash payment. Resp: Recipient Stage: Implementation Due Date : Status: Ongoing Project Risks Design Rating: Moderate Description: Risk Management: - The project is being implemented using SWF existing cash - The Bank will ensure that beneficiaries are indeed those selected through the approved PMT transfer system and utilizing the proxy means testing mechanism. poverty targeting mechanism; there is no new design involved, and sufficient control is in place. - Cash transfers are done through the Country’s post office - The Post Office has proved its ability to manage large volume of cash payments through the and commercial banks. SWF’s experience with their current program and also through the WB experience in other IDA-financed and administered projects. There are proper controls in place at the Post Office to ensure proper transfer of funds. The SWF provides the Post Office with the list of beneficiaries generated from their system in an electronic form (Microsoft Access or Excel) which is then imported into the Post Office internal system. The data imported into the Post Office system is compared with the data generated from the SWF and once approved, the data is locked into the Post Office system. The post office has access to view the names and generate and send reconciliation reports showing the contact information of the beneficiaries who received and did not receive the allocated payments. The post office reconciliation report will be in data form. This data once received by the SWF will be compared with the data in the SWF’s system. Also prior to disbursement the allocation department reviews the list in the post office to ensure the total number per area is consistent. The funds for the unpaid cases will be refunded to the project’s DA. - Eligibility of beneficiaries to receive cash payments - SWF - The beneficiaries under this project are newly added in 2011to the SWF programs, i.e. not - System used to identify, record, and maintain the list of benefiting from the old score card based program. The SWF has developed oracle based eligible beneficiaries. system for the purpose of recording and maintaining the list of all their beneficiaries. The SWF conducted an internal review of all their beneficiaries and ensured no duplication of benefits given to the beneficiaries. The system has the capacity to generate exception reports showing potential duplication of benefits by running queries to list duplicated beneficiary data (e.g. name, ID #). There is proper control of access to the system as access is limited to few individuals in the SWF. Resp: Both Stage: Implementation Due Date : Status: Ongoing 25 Social & Environmental Rating: Low Description: Risk Management: There is no negative environmental or social risk identified for the project. No specific safeguard risks identified during preparation. No environmental risks have been identified as the proposed Resp: N/A Stage: Due Date : Status: N/A project includes cash transfers to poor households. Program & Donor Rating: Moderate Description: Risk Management: Although there is a good donor’s coordination, Donors have The ECRP will support only new cases selected using the PMT. An independent qualified private expressed concern about SWF targeting and cash amounts external auditor acceptable to the World Bank will be engaged to audit the project’s accounts, actually received by beneficiaries in rural and remote areas. quarterly and annually, according to TORs acceptable to the World Bank. Resp: Recipient Stage: Implementation Due Date : Status: O Delivery Monitoring & Sustainability Rating: High Description: Risk Management: - Fiscal sustainability of this portion of the cash transfer - While sustainability will depend to a large extent on the fiscal constraint, the GOY has shown program in view of the overall fiscal challenges the country a strong commitment to sustaining and improving the SWF CT program. is facing is high. - Through the ongoing ISP project, the Bank will contribute to fiscal sustainability of the overall cash transfer program of Yemen through improved targeting and efficiency. The government - Monitoring of cash transfer will be a challenge as the SWF is expected to fund about 486,400 beneficiaries in 2014. The spending represents about one does not have a properly functioning M&E system in place. percent of GDP. The share is expected to decline over the next year with growth picking up to about 0.8 percent. - The Bank will verify whether the SWF continues to meet the eligibility criteria for beneficiaries in the following two ways: (a) through reconciliation of data provided by the Post Office (in charge of cash payments to beneficiaries) with the SWF’s database; and (b) eligibility review of beneficiaries through the SWF Internal Audit Department and eventually a third party such as an NGO or other agencies. In parallel, SWF’s M&E department is getting technical assistance through EU and Bank’s ISP for strengthening its capacity. Resp: Both Stage:Implementation Due Date : Status: O Overall Risk Implementation Risk Rating: Substantial Comments : The overall risk rating for the project is Substantial because of the country context, as well as capacity and governance issues. 26 Annex 5: Financial Management and Disbursement Arrangements REPUBLIC OF YEMEN: EMERGENCY CRISIS RECOVERY PROJECT 80. The proposed project will mainly finance cash assistance grants to a subset of the about 0.5 million households added to the SWF list in 2011 through: (1) providing retroactive financing, not exceeding 40 percent of the Grant amount, for eligible cash assistance grants paid from the Government budget in 2012; and (2) financing eligible cash assistance grants paid in 2013. 81. Under the Bank’s policy (OP/BP 10.02, Financial Management), the Bank requires that for each Bank-funded operation, the borrower/recipient maintain acceptable FM arrangements that can provide reasonable assurance that the proceeds of the loan/grant are used for the purposes for which the loan/grant was granted. Consistent with this requirement, one of the guiding principles of OP 8.00, Rapid Response to Crises and Emergencies, is the provision of appropriate oversight arrangements, including corporate governance and fiduciary oversight, to ensure appropriate scope, design, speed, and monitoring and supervision of rapid response operations. 82. An FM assessment was conducted with the objective of determining whether: (i) the SWF has adequate FM arrangements to ensure project funds will be used for the purposes intended in an efficient and economical way; (ii) the controls and processes at the SWF can be relied upon; and (iii) the system in place is able to generate reliable and accurate project reports on a timely basis. 83. The Assessment confirmed that SWF has adequate FM capacity to implement the project. The SWF has successfully implemented a WB-administered and EU funded project, (ESSNEP), which financed cash transfers to about 40,000 eligible poor households that were identified through the SWF household survey and the PMT scoring. The SWF submitted all audit reports. Implementation Entity and Staffing 84. The SWF will be implementing the proposed project, including the financial management and disbursement aspects (e.g., planning, budgeting, internal controls, disbursement, supervision of the activities, and reporting on these activities to stakeholders). 85. The SWF is overseen by a board of directors, responsible for the overall policy of the Fund and the Minister of the MOSAL is the chairman of the board. The main executive agency is the SWF Head Office in Sana’a and it has 22 Branch Offices (one in each governorate) and 214 District Offices. The SWF Head Office is headed by its Managing Director who is also a member and secretary of the SWF’s Board. The Head Office has eight departments and five units dealing with all SWF affairs on the national level. 86. The Finance Department is managed by a Director General from the MOF who reports directly to the Executive Manager and is also accountable to the Internal Auditor, the MOF, and the Government’s Central Organization for Control and Audit (COCA). This department is responsible for preparing the annual SWF Program budget, undertaking all procurement for the SWF, and maintaining the SWF entities. As a result of the finance department low capacity and 27 conflict of interest in its mandate (e.g., finance and procurement), the SWF retains an FM Specialist who reports to the SWF’s Managing Director. The FM Consultant’s salary is financed from the WB-financed project (Institutional Support Project). He will be responsible for managing the FM and disbursement activities of the project. 87. In addition, the SWF has an Internal Audit Department (IAD) which is responsible for: (i) conducting audits on the SWF CT Program as required by the Program Management and at least on annual basis in accordance with COCA; (ii) performing audits for the SWF Branch Offices; (iii) preparing all required documents for annual external audits; and (iv) reviewing and investigating in case any irregularities are found. The department has 5 staff whose experience is relevant to the proposed project. The IAD submits its audit reports to the SWF’s Managing Director. Accounting System & Internal Controls 88. The SWF has internally developed an automated accounting system which is deemed adequate for this project. The accounting system is capable of recording project financial transactions, including allocation of expenditures, disbursement categories and source of funds. 89. The SWF has developed an Operations Manual setting out the structure of the CT Program, including the FM and disbursement arrangements, and controls over the use of the Post Office, and these arrangements have been approved by the WB. The SWF’s FMS will prepare monthly bank reconciliations. The FMS will prepare quarterly IFRs showing the source and use of funds by component, expenditure category, governorate and number of beneficiaries. Additionally, the IFRs will report the reconciliation of the DA, and a progress report detailing status on the payment to the beneficiaries, reflecting the unpaid and remaining balance in the DA, and the amount of paid and unpaid (returned) cash transfers to beneficiaries by Governorate. These reports will be attached with the application requesting funds for the following quarters. 90. All payments will be done centrally by the SWF’s Head Office in Sana’a. Disbursement to the beneficiaries from the SWF’s segregated DA will follow the Fund’s Operational Manual and WB Disbursement Guidelines. Cash payments to beneficiaries will be done through Yemen’s Post Office branches in the selected governorates and CAC and Alamal Banks. The Post Office has proved its ability to manage a large volume of cash payments through the SWF’s experience with their current program and also through the WB experience in other IDA- financed/administered projects. There are controls in place at the Post Office to ensure proper transfer of funds. The SWF provides the Post Office with the list of beneficiaries generated from their system in an electronic form (Microsoft Access or Excel) which is then imported into the Post Office internal system. The data imported into the Post Office system is compared with the data generated from the SWF and once approved, the data is locked into the Post Office system. The Post Office has access to view the names and generate and send reconciliation reports showing the contact information of the beneficiaries who received and did not receive the allocated payments. The post office reconciliation report will be in data form. This data once received by the SWF will be compared with the data in the SWF’s system. Also prior to disbursement, the allocation department reviews the list in the Post Office to ensure that the total number per area is consistent. The project will have a DA in USD and a sub account in YER. 28 The sub account will be used to transfer funds from the project’s DA to the sub-account for payments to the Post Office, and uncollected funds will also be deposited (i.e., refunded from the Post Office) into this sub-account. The funds for the unpaid cases will be refunded to the project’s DA. Flow of Funds and Disbursement Arrangements 91. The project funds will be channeled through the SWF and deposited into a separate segregated USD DA in the Central Bank of Yemen (CBY) to be opened and maintained by the SWF, and under conditions acceptable to the WB. Advances and Reimbursement based disbursement will be the main disbursement method. Requests for payments from the Grant funds will be initiated through the use of the Bank’s WAs supported by IFRs and Post Office Reconciliation Report and Bank statements. Disbursement to the beneficiaries from the SWF’s DA will follow the SWF’s Operational Manuals and cash payments to beneficiaries will be done through Yemen’s Post Office branches and the selected banks in the selected governorates. The proceeds of the proposed project will be disbursed in accordance with the Bank's disbursements guidelines as outlined in the Disbursement Letter. IFR based disbursement will be used under this project. 92. Retroactive Financing: Under the ECRP, an amount not to exceed SDR 26.1 million may be made from the Grant Proceeds for payments made prior to the signing date of the Financing Agreement but on or after July 1, 2012 for eligible expenditures under Category 1 (Cash Benefits under Component 1 of the Project) (See Table 5). 93. For requests for Reimbursement and for reporting eligible expenditures, the SWF will be using the IFR in the form agreed upon during negotiations for eligible expenditures in connection with Cash Benefits under Component 1 of the Project (Category 1) and Consultants' Services (Category 2). 94. IFRs that will be submitted along Withdrawal Applications for disbursement will be reviewed and approved by the Bank. 95. While category 1 for cash benefits is expected to be disbursed against reimbursement requests for eligible expenditures pre-financed by the Government, the SWF will open and maintain a separate DA with a ceiling of US$200,000 for Category 2 (Consultants’ Services for the Project) (See Table 5). 29 Table 5: Categories of Eligible Expenditures Category Amount of the Percentage of Financing Allocated Expenditures to be (expressed in SDR) Financed (inclusive of Taxes) (1) Cash benefits 64,970,000 100% under Part A of the Project (2) Consultants’ 130,000 100% services for the Project TOTAL 65,100,000 AMOUNT 96. For the amounts expected to be paid through retroactive financing, the Government has already paid the cash assistance grants from their budget so the SWF will request a reimbursement of the eligible expenditures (up to 40 percent of the Grant amount). The reimbursement amount will be deposited into the project’s DA which will then get transferred to the MOF’s budget account. For amounts financed by the Government after project effectiveness, the MOF will deposit their funds into the project’s DA, from which the SWF will make the payments to eligible beneficiaries. The SWF will then request reimbursement of eligible funds to be deposited into the project’s DA and similarly will get transferred to the MOF’s budget account. Chart 2 below summarizes the flow of funds from the Grant and the Government to the SWF’s DA and Post Office to finance the project’s eligible expenditures. Payment requests from the DA for eligible expenditures will be approved by the SWF’s Director and Financial Management Specialist and then the payment requests will be sent to the MOF for approval of payment from the DA at CBY. Chart 2: SWF Flow of funds chart Government Grant Funds Budget Eligible USD DA – CBY Expenditures Post Office/Banks Beneficiaries 30 97. Chart 3 below summarizes the flow of funds from the project’s DA. Payments from the project’s DA will be through requests by the SWF to the MOF in accordance with the Project Disbursement Letter. Chart 3: Illustrating process for requests of payments from the SWF’s DA Payment FM & MOF CBY Request Director approval Payment Process to ensure eligibility of households to receive cash payments 98. The SWF has developed an information system which records the list of all their beneficiaries. The SWF, MOF and COCA have conducted an internal review of all new SWF beneficiaries since 2011 to ensure that duplication of benefits is eliminated. The system has the capacity to generate exception reports showing potential duplication of benefits by running specific queries. The access to the SWF system is limited to a few staff members of the SWF and is subject to tight controls. All payments are initiated at the central level by the SWF’s Head Office in Sana’a. Disbursement to the beneficiaries follows the SWF’s Operational Manual. Cash payments to beneficiaries are being made through Yemen’s Post Office branches in the selected governorates. The Post Office has proven its ability to manage large volume of cash payments based on its services delivered to the SWF and its beneficiaries. There are proper controls in place at the Post Office to ensure transfer of funds. The SWF provides the Post Office with the list of beneficiaries generated from their system in an electronic form (Microsoft Access or Excel) which is then imported into the Post Office own IT system. The data imported into the Post Office system are then compared with the data generated from the SWF and once approved, the data are locked into the Post Office system. The Post Office has access to view the names and generate and send reconciliation reports showing the contact information of the beneficiaries who received and did not receive the allocated payments. The post office reconciliation report will be in data form. This data received by the SWF will be compared with the data in the SWF’s system. Also prior to disbursement, the list in the Post Office is reviewed by the SWF Allocation department to ensure that the total number per area is consistent. 99. The disbursement from the WB is based on the Bank’s review of the satisfactory application of the PMT confirming the eligibility of households to receive benefits. Prior to disbursement, assurances satisfactory to the WB will be sought through an eligibility review that beneficiary households were selected in accordance with the proxy means testing formula and are eligible to receive cash benefits from the proposed project. 100. The Bank recommends that the SWF post the list of beneficiaries in each of the Post Offices used to deliver the cash payments to the beneficiaries for as long as the project is ongoing, with eventually a hotline for complaints if someone is informed to be eligible for cash assistance but never received at a later date any funds from the project. 31 101. The SWF’s Internal Audit Department will add the proposed project to its scope of work. Internal Audit will be responsible for checking the list of proposed beneficiary households and confirm eligibility including conducting regular visits to a sample of selected beneficiaries and submit internal audit reports to the Managing Director. The SWF’s Department of Allocation is responsible for following up on payments of beneficiaries. Also, the Project’s External Auditor’s TOR will include a special provision for the Auditor to conduct two field visits to a sample of the selected beneficiaries to validate the beneficiaries’ eligibility and proper receipt of funds. Project Financial Reporting 102. Interim Financial Reports (IFRs) arrangement: IFRs will be prepared by the SWF and submitted to the WB quarterly. IFRs will be submitted to the Bank no later than 45 days after the end of the quarter. The IFRs will be audited by an independent external auditor acceptable to the WB and the reports will consist of (a) source and uses of funds by Component and Expenditure Category, (b) a reconciliation of the DA, and (c) cash transfers by governorate and number of beneficiaries, a progress report detailing status of the payment to the beneficiaries, reflecting the unpaid and remaining balance in the DA, and the amount of paid and unpaid (returned) cash transfers to beneficiaries by Governorate. External Audit o Entity: Separate Annual Entity Audited Financial Statements of SWF is required to be sent to the WB within six months from the end of the fiscal year. o Project: Separate Annual Audited Financial Statements of the project is required to be sent to the WB within six months from the end of the fiscal year.  The Terms of Reference (TOR) for the external auditor and the required Project Financial Statements will be agreed by the WB.  The Project’s External Auditor’s TOR will include a special provision for the Auditor to conduct field visits to a sample of the selected beneficiaries to validate the beneficiaries’ eligibility and their proper receipt of funds.  The external auditor report (in English and Arabic) shall encompass all Project’s components and activities and shall be in accordance with internationally accepted auditing standards e.g., International Standards on Auditing (ISA). The audit report and opinion will cover the Project’s financial statements, reconciliation and use of the Designated Account (DA) and withdrawals based on Interim Financial Reports.  The auditor is required to prepare a “management letter� identifying any observations, comments and deficiencies, in the system and controls, that the auditor considers pertinent, and shall provide recommendations for their improvements. Corruption 103. Fraud and corruption may affect the project resources. The above fiduciary arrangements, including the mitigating measures implemented by the SWF through the use of a Project Support Team, reliance on the work of COCA and SWF’s Internal Audit Department, the use of the Post Office to flow the funds to the beneficiaries, the use of SWF’s acceptable manuals and procedures, tailored financial reporting and external audit arrangements, and the capacity building activities implemented by the SWF are designed to mitigate these risks. The SWF will 32 contract an independent external auditor, with a TOR acceptable to the Bank, and with an expanded scope to audit the compliance of the internal controls process and eligibility of beneficiaries associated with cash transfers program. 33 Annex 6: Procurement Arrangements REPUBLIC OF YEMEN: EMERGENCY CRISIS RECOVERY PROJECT A. General 104. The GOY lunched a National Procurement Reform Agenda in 2006. The new procurement law adopted in 2007 (Procurement Law No.23) reflects international best practices in general. Furthermore, the revised executive regulations (the implementation arrangement for Law No. 23) were issued by Cabinet decree in February 2009. A comprehensive National Procurement Manual (NPM) to support GOY’s public procurement management at all levels has been issues. The manual includes a national Standard Bidding Documents (SBDs) for Goods, Works and Consultant Services. 105. Procurement for the proposed project will be carried out in accordance with the World Bank’s "Guidelines: Procurement under IBRD Loans and IDA Credits" dated January 11, 2011; and "Guidelines: Selection and Employment of Consultants by World Bank Borrowers" dated January 2011 and the provisions stipulated in the Legal Agreement. In addition, procurement under the proposed project will be carried out in accordance with the “Guidelines on Preventing and Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA Credits and Grants�, known as the “2006 Anti-Corruption Guidelines�. The various items under different expenditure categories are described in general below. For each contract to be financed by the Grant, the different procurement methods or consultant selection methods, estimated costs, prior review requirements, and time frame will be agreed between the Recipient and the Bank in the Procurement Plan. The Procurement Plan, approved on January 11, 2013, will be updated at least annually or as required to reflect the actual project implementation needs and improvements in institutional capacity. B. Procurement Arrangements 106. Selection of Consultants: Consultancy Services procured under this project will include but not be limited to the following: (a) technical assistance (TA) to monitor and evaluate project implementation and outcomes; and (b) recruitment of external auditors. 107. For firms, all contracts will be procured using Quality-and Cost-Based Selection (QCBS), Fixed Budget Selection (FBS), or Least-Cost Selection (LCS) methods except for small contracts of standard or routine nature estimated to cost less than US$200,000 equivalent which may be procured using Selection Based on Consultant’s Qualification (CQS). Single-Source Selection (SSS) for hiring firms for services that meet the requirements of paragraph 3.10 of the Consultant’s Guidelines may be used on an exceptional basis, with prior agreement of IDA. Shortlist of consulting firms for services estimated to cost less than US$200,000 equivalent per contract may be composed entirely of national consultants in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines. All individual consulting assignments will be on the basis of comparison of qualifications or based on Sole-Source basis in accordance with Section V of the Guidelines for Selection of Consultants. 34 C. Assessment of the agency’s capacity to implement procurement 108. The SWF has a Financial Department which is led by a Manager seconded from the MOF. The Financial Department has a procurement unit, responsible for all non-high value tenders, while the MOF takes responsibility for high-value contracts. The Department staff responsible for procurement are relatively familiar with WB procurement procedures. 109. The overall project risk for procurement is Moderate as the proposed project is the third IDA-financed project to be implemented through SWF and there are limited procurement activities involved. D. Procurement Plan 110. The SWF with the assistance of the Bank team has developed the Project Procurement Plan for the one year duration of the project reflecting the major project activities. The Plan provides the basis for the procurement methods and prior review thresholds for each contract, and will be updated annually or as required to reflect the actual project implementation needs and improvements in institutional capacity. E. Frequency of Procurement Supervision 111. In addition to regular prior review of contract awards above thresholds indicated in the Procurement Plan, IDA supervision missions will take place at least twice a year to carry out post review of procurement actions. F. Details of the Procurement Arrangements Involving International Competition Consulting Services List of consulting assignments with short-list of firms: 1 2 3 4 5 6 7 Ref. No. Description of Estimated Selection Review Expected Comments Assignment Cost (US$) Method by Bank Proposals (Prior / Submission Post) Date QCBS-1.1-1 External 100,000 LQS Prior May 15, For component 2 Auditor 2013 The prior review thresholds are as follows: Consultant Services Above US$50,000 for individual and US$100,000 for firms plus first three contracts, TORs, EOI, short-list, and all single source selection Post Review: All contracts not subject to prior review shall be subject to post review. 35 Annex 7: Implementation and Monitoring Arrangements REPUBLIC OF YEMEN: EMERGENCY CRISIS RECOVERY PROJECT Project Oversight 112. The project will be implemented from March 1, 2013 to June 30, 2014 by the SWF. The SWF was established in 1996 by Presidential Law No.31, and is governed by the revised Presidential Law 39 (2008). Its Board of Directors, headed by the Minister of Social Affairs and Labor, is composed of the Vice Minister of Finance, Deputy Minister of Social Affairs and Labor, Deputy Minister of Local Administration, Executive Director of the SWF (member and secretary), Executive Managers of Social Security Network Programs, and community representatives of private sector and civil society organizations. The Board meets at least every three months, and reviews policy issues and approves important documents like annual plans, budgets, and annual audits. Additionally, the Board will review project progress reports and take appropriate actions in support of implementation. The SWF is headed by an Executive Director who is responsible for day-to-day operations. As of January 2012, the SWF had 1,810 staff operating through a three-level organizational structure: head office in Sana’a with 190 staff; 22 branch offices covering all Governorates in Yemen, with 762 staff; and 214 district offices (out of 334 districts) with 816 staff. Project Implementation and Coordination 113. The implementation will be carried out using an existing cash-transfer mechanism of the SWF. This project provides cash assistance of up to US$20/month to around 400,000 households for one year. The beneficiary households have been already identified through PMT scoring. Payments are made four times a year; each payment corresponds to three payment months. The payments will be made through the Yemen Post Office which has 251 branches and mobile units, being the most widely spread financial agency in Yemen. The Post Office delivers the checks/payments through its branches and mobile units. For payment to SWF beneficiaries, the Post Office charges a 2 percent service fee, which will be funded through the Project. 114. While the SWF is responsible for implementing the project activities through departments at its head office and branch offices, a PST which has already been established through the ISP will provide coordination and fiduciary management support to complement the skills not available in-house. The PST reports to the Executive Director, and administers the project funds. The PST includes a Technical Coordinator, Financial Management Specialist, Accountant, Procurement Specialist, Procurement Advisor, MIS Specialist and Executive Secretary. The PST will report to the Executive Director, administer the Grant funds and support the SWF’s efforts in implementing the project. 115. Specifically, the PST will: (i) coordinate between units, departments and branch offices responsible for implementation, (ii) help the SWF in monitoring and evaluating the project targets and results; (iii) handle procurement, financial, and disbursement management, including the preparation of withdrawal applications under the project; (iv) ensure that an independent audit of the project is carried out on a timely basis; (v) prepare the financial and procurement 36 parts of the semi-annual Progress Report and consolidate with the technical part prepared by the relevant departments of the SWF for submission to the SWF Board and IDA; (vi) act as the liaison between the SWF and IDA; and (vii) ensure that all reporting requirements for IDA are met according to the project’s legal agreement. Targeting: 116. The Government’s response to protect the poorest categories of the population was to double the benefit amount of the national cash transfer program (SWF) in 2008, and in 2011, the program has expanded from about 1 million to 1.5 million households after applying poverty- based targeting (proxy means test) based on the results of the 2008 national survey. The project will target a subset of those 500,000 households brought in in 2011. Figure 1: Structure of SWF Head Office in Sana’a    SWF B o ard Ex ec utiv e M an ag e r D e p. E xe cu tiv e M ana ger - Offi ce M a ng er Lega l .M e dia Inte rna l Wom e n B r anc h - Ad vis ory s ta ff A ffair s and PR C ontr ol Af fair s Re lat ion - Ad min sta ff Unit Unit Un it Unit U nit DG GD of GD of GD GD GD GD of D G Adm in of of of of B e nefic iar y IT Planning A ffa ir s Fina nc e P olic ies A lloc a tion M& E De v elopm . Emp loye e Acc ou n ting P rog ra m- P la nn in g S WF A lloc atio n M on ito rin g Aw ar en e ss a ffai rs ming Po li cie s B uild in g P ro cu rem . R e sea rch E ntitle- N etw or k Tec hn ic al R e tu rn s E va lua tio n Tra in in g a nd Store s A dm in istr. me n t A ffa i rs Tra ini ng A sse ts an d Gen e ral Ma in te - IG Ma in te- Se rvi ces n an ce P roj ec ts na n ce P roje ct D e ve lo pm . Monitoring and Evaluation Arrangements 117. Monitoring and Evaluation (M&E) will be undertaken by the SWF. Project activities will be monitored on an ongoing basis to support achievement of the Project Development Objective. 37 Monitoring reports covering the key Project Outcome Indicators will be prepared according to the schedule of frequency in Annex 2 (Results Framework and Monitoring). (j) Monitoring. SWF’s M&E Department and governorate branch offices will monitor the cash transfers as well as determine whether the ECRP CTs have been made to eligible beneficiaries. CTs will be delivered through a tested intermediary (the Post Office and selected banks) on a quarterly basis, with financial monitoring reports submitted to the SWF. The SWF will use information from these reports to identify households not collecting benefits and will request a follow-up by the nearest SWF Social Researcher or other appropriate Governorate/district staff member to determine the cause of no withdrawal. These financial reports will also be monitored to determine benefits received by female-headed households. (iii) Evaluation. An Implementation Completion and Results (ICR) report will be prepared after project implementation is completed. As part of the ICR preparation, a sample-based beneficiary survey will be conducted by an external consultant, to be financed by the project, to determine the impact of the project on households’ welfare, e.g., food consumption patterns, household debt, productive assets, etc. Satisfaction data (satisfaction with the SWF payment mechanism, level of program information and support received from SWF) will be collected at the same time. 38 Annex 8: Project Preparation and Appraisal Team Members REPUBLIC OF YEMEN: EMERGENCY CRISIS RECOVERY PROJECT Name Title Unit Kamel Braham Sr. Education Specialist MNSHE Wilfried Engelke Sr. Economist MNSED Mira Hong Operations Officer MNSSP Moad Alrubaidi Financial Management MNAFM Specialist Saleh Qasem Al-Manary Financial Management MNAFM Analyst Jamal Abdulla Abdulaziz Sr. Procurement Specialist MNAPC Samira Al-Harithi Procurement Analyst MNAPC Nikolai Soubbotin Sr. Counsel LEGAM Hassine Hedda Finance Officer CTRLA Alaa Mahmoud Hamed Sr. Health Specialist MNSHH Ali Ahmed Al-Mudhwahi Sr. Health Specialist MNSHH Lire Ersado Sr. Economist MNSSP Ali Ali Hassan Salamah Program Assistant MNCYE Rania Atieh Consultant MNSHD Amir Mokhtar Althibah Temporary MNSED Elena Gagieva-Petrova Sr. Program Assistant MNSHD Emma Etori Program Assistant MNSHE 39 Annex 9: Environmental and Social Safeguards Framework REPUBLIC OF YEMEN: EMERGENCY CRISIS RECOVERY PROJECT A. Targeting and Inclusion of the Poor and Vulnerable 118. Yemen is an overwhelmingly rural country with about 73 percent of the population living in rural areas. Yemen suffers from chronic poverty where households in certain areas have continuous difficulty in meeting acceptable levels of food consumption (i.e., those who do not have enough resources for a sufficient basic needs basket). To ensure an effective safety net, targeting methods must be designed to find and to protect the poorest households in the population. The poor in Yemen are particularly concentrated in governorates with high population density and very small land holdings. In addition to the small size of agricultural holdings, the population suffers from inadequate access to services, largely due to the very rough terrain and the dispersal of very small settlements. 119. To implement a CT program that covers the basic needs of the poorest, it is necessary to identify who the poorest are and how to support them as potential beneficiaries. Given that full information about the household welfare is not available on a regular basis for all of the population in Yemen, and that data collection is costly and time-consuming, an alternative way to identify the poor population has been implemented by the SWF since 2011. The aim of such approach is to predict the household welfare (proxy means) based on a number of easy-to-verify variables such as gender of the head of household, number of children in the household, type of house construction material, type of water connection, etc. Proxy Means Test (PMT) Selection and Development of the PMT as the SWF Targeting Method15 120. The SWF newly introduced targeting method, the PMT, is being used in many countries for targeting their cash assistance programs, either conditional cash transfers linked to human capital accumulation or unconditional cash transfers, to the poorest of the poor households. The PMT method was chosen to improve pro-poor targeting based on specific features which make this method most suitable for the Yemeni context (i.e., where household income is based on a large share of non-verifiable sources of income (informal sector and own production)). In the PMT method, observable variables such as individual/household characteristics and household ownership of durable goods (known as an asset index) are collected and a series of “weights� applied to predict household welfare. The weights are derived from the standard HBS information on household consumption and household characteristics. Statistical models are developed and applied to applicant data to predict household welfare and rank applicants/beneficiaries according to income relative to the regional poverty line. 15 Project Note. Phillippe Leite, Economist, Social Protection & Labor (Safety nets team). The World Bank, October 2009. 40 121. The proposed PMT weights applied to SWF applicant/beneficiary data are presented in the Table 5 below: Table 5: Proposed PMT Weights Applied to SWF Applicant/Beneficiary Data Geographical characteristics Characteristics of the head Urban Area 0.062 Gender: male 0.043 Governorate Age 0.003 Ibb 0.000 read and write: yes 0.067 Abyan -0.184 Primary education: yes 0.109 Sana'a city 0.107 Secondary education: yes 0.169 Al-baida -0.283 Married: yes -0.064 Taiz -0.026 Al-jawf -0.102 Housing Characteristics Hajja 0.067 Floor type: mud -0.244 Al-hodeida -0.022 Floor type: flagstone/cement -0.165 Hadramout -0.120 House type: Luxury apartment/vila 0.082 Dhamar 0.191 Fuel: Gas 0.024 Shabwah -0.163 Water system 0.057 Sa'adah 0.160 Household size -0.063 Sana'a region 0.033 Number of members 6-25 Aden 0.039 attending school -0.012 Laheg -0.229 Number of members 6-25 Mareb 0.026 that attend school 0.030 Al-mahweet -0.027 Number of members 6-25 Al-maharh 0.417 that never attended school -0.019 Amran -0.298 Family property Al-dhale -0.029 Fixed/Mobile telephone 0.234 Remah 0.104 TV 0.095 Washing Machine 0.071 Sewing machine 0.032 Taxi Bus 0.302 House for rent 0.130 Own agricultural Plot 0.098 Constant 11.550 Testing of the PMT Method for Accuracy and Improved Targeting 122. The PMT ranks SWF applicants and existing beneficiaries according to the following categories: a. A&B groups – income below the regional poverty line; b. C group – income close to the regional poverty line. At risk of becoming poor; 41 c. D group – income approximately 25 – 50 percent above regional poverty line. Subject to income risks; d. E and F groups – income substantially above (+55 percent) regional poverty line. Should not be included to receive CTs. 123. In a series of micro-simulations on existing SWF beneficiary and survey data from 2008, the PMT targeting accuracy in increasing the coverage of the poor was compared to the previous Score Card targeting method used by SWF. The SWF 2008 survey included income level information as well as PMT/Score Card indicator data, allowing comparison of actual income reported with the PMT and Score Card scores for each applicant. a) The simulations showed that using the Score Card targeting method would extend coverage to only 8.4 percent of the population and reach only 10.8 percent of the lowest HBS decile (i.e., the poorest 10 percent). b) By applying the PMT weights, the coverage for Group A remained approximately the same (9 percent), but reach was extended to cover 26.9 percent of the poorest 10 percent. c) By including Group A&B data in the simulation, 35 percent of the Yemeni population would be covered and the program would reach 77.5 percent of the poorest 10 percent. d) In considering budget allocation to the extreme poor, the Score Card method was found to reach approximately 19 percent of the poorest, while the PMT Group A method reached approximately 50 percent of the poorest. 124. These results suggest higher targeting errors (inclusion and exclusion errors) under the Score Card targeting method, leading to the recommendation that SWF use the PMT method to increase the targeting accuracy of the program to include poor and vulnerable households. Process of beneficiary selection and enrollment – reaching out to the poor 125. Reaching the ultra-poor is a challenge: they are often widely dispersed in small settlements, have no means of communication with authorities and lack basic skills (i.e., literacy, numeracy, etc.) and resources. Multi-pronged methods such as surveys, community consultations, CSO contacts, SWF staff knowledge, knowledge of other program staff, etc., must be utilized to identify them. The SWF process of beneficiary selection and enrollment is carried out in the following steps: a) Identification - Obtain a list of potential beneficiaries developed from community sources as well as from new applicant lists. Community committees/leaders can help to identify and inform households that they can apply to the CT program. Community leaders or social workers at the time of application inform households concerning the program rights, obligations and rules via an orientation meeting. b) Registration – Register and collect survey data/information on potential beneficiaries. Registration can also be open to people from the community not previously identified, but still deemed to be poor. c) Selection - The selection of potential beneficiaries is made using a proxy means testing approach based on the information collected from each household registered for the program. The PMT formula is designed to capture one dimension of the economic status 42 of the household, i.e., the economic welfare of the household. The PMT represents the “predicted (potential) household per capita expenditure� according to household characteristics. The final list of selected applicants can be verified by the community or by community leaders during consultations. d) Enrollment – beneficiaries are enrolled in the program (after selection of potential beneficiaries based on the previous steps) to receive a certain amount of cash. As part of the enrolment process, families receive information about the entitlements of the Program and payment method, and are provided with identity cards. SWF beneficiaries targeted by the ECRP 126. The proposed ECRP will support cash transfers to households assessed using the PMT and identified as having an estimated income below 155 percent of the regional poverty line. These are households which are considered as very poor, poor, or at risk to become poor. B. Gender Considerations – Inclusion of Female Household Members 127. The ISN recognizes that women, who are already severely disadvantaged in Yemen, have suffered disproportionately as a result of the crisis. Preliminary figures from 2011 indicate decreased access to basic and social services and economic opportunities, as well as high levels of gender-based violence as a result of the unrest. These effects have compounded the severe gender imbalances that already existed. For six consecutive years, Yemen has ranked last in the 2011 Global Gender Gap Index. While there have been gains over the years, women’s inclusion in development remains an acute challenge. Girls are still much less likely than boys to complete basic education, and their primary and secondary school completion rates are well below those in other countries in the MENA region. Yemen has the highest fertility rate in the region at 5.2 births per woman in 2008, which corresponds to a low contraceptive prevalence rate at 28 percent in 2006. Early marriage is high at 50 percent. Yemen’s poor record on gender equality in human development outcomes is accompanied by stark disparities in economic and civic participation. Women’s labor force participation is among the lowest in the world at 21 percent, and only 11 percent of micro and small enterprises (MSEs) are owned by women. 128. Since SWF cash transfers go to the head of the household and most household heads are men, it will be important to assess if this determines how money is spent. The ISP is assisting the SWF in assessing male/female spending patterns and establishing methodologies for effectively communicating important messages (e.g., nutrition) to both men and women. The results of the analysis will be utilized to direct interventions and communication messages to men and women to influence the household spending patterns towards human capital benefits. A recent survey by OXFAM in the Hodeida governorate found that women were empowered as decision-makers through the cash transfer as they are the ones who determine “what food were brought home, often choosing to buy vegetables, medicine or livestock needs, in addition to the purchase of staple goods�. C. Program Transparency – Community Consultation and Information Disclosure 129. Successful cash transfer programs build broad credibility and accountability among beneficiaries and other stakeholders. SWF needs to establish and apply clear and transparent 43 rules on beneficiary selection criteria, established benefit levels, rights and obligations of beneficiaries, grievance and complaint systems. The credibility of the program also rests on SWF’s ability to keep an ongoing communication with, and receive feedback from, participating households. The role of community members in identifying poor households not yet receiving benefits, verifying that those receiving benefits are deserving, and acting as a “check and balance� mechanism concerning falsification of information will be strengthened through pilot activities. 130. The project will benefit from ISP activities to support a wide participation of stakeholders such as local CSOs, NGOs, agencies, training institutions, government officials and government offices. Individuals and community groups are involved in the basic education, numeracy and nutrition information/training sessions offered through the SWF Beneficiary Development Program. It is expected that sessions of this nature will build human capital of the participating households, as well as promoting awareness and increasing the demand for health and nutritional services from other providers. The ISP is assisting the SWF to strengthen CSO/NGO partnerships to effectively engage in policy dialogue concerning poverty alleviation and household needs, and is promoting transparency through real stakeholder engagement at every stage since the stakeholders as service providers are an integral part of the project design. The SWF has established a CSO Coordination Unit in order to maximize resources and build social accountability for SWF practices and procedures at the household level. 44 Annex 10: Economic and Financial Analysis REPUBLIC OF YEMEN: EMERGENCY CRISIS RECOVERY PROJECT 131. There is a strong economic and poverty rationale for investing in the SWF cash transfer program. A high level of poverty is one of the main challenges facing Yemen and its people, and it is crucial to support the poorest and most vulnerable in the country, particularly at times of crisis, to address inequality and achieve stability in the country. 132. Background and Global Experience on CT programs. Over the last decade, the number of CT programs in the world has expanded substantially. The largest CT programs are in Latin America countries, such as Brazil, Mexico and Argentina, covering millions of households. However, recently, both Africa and Asia have initiated CT pilots in several countries, such as Kenya, Tanzania, Zambia, Bangladesh and Pakistan. Most CT programs have two main objectives: (a) to provide poor households with a minimum consumption level and reduce current poverty; and (b) to break the inter-generational transmission of poverty by imposing conditions to the transfers on beneficiary compliance with key human capital investments. Well- designed CT programs can cost effectively reach the poorest and most deserving households and, where these are present, replace badly targeted and inefficient subsidies. There is mounting evidence that CT programs are an efficient way of redistributing income to the poor, thereby raising their consumption levels. Moreover, robust impact evaluations of well-designed CT programs are starting to provide sound evidence of positive impacts on school enrolment and attendance rates. The evidence on health outcome improvements is currently less clear, but some recent studies demonstrate that CT programs have resulted in increased total food consumption and improved child growth. 133. Although direct cash transfers imply an opportunity cost for the Government in terms of alternative investments, there is growing evidence that they can be equitable and efficient. Fiszbein and Shady (2008) argue that among the evaluated programs there is a significant impact on the poverty gap and the poverty severity index, but that headcount poverty is only affected in programs for which transfers are large enough. Even if a large share of the transfers are used to cover food expenditure and costs related to sending children to school, in some cases the cash transfers are used for savings or investments in productive assets. Savings allow households to protect themselves from negative shocks that would otherwise have a long-term negative impact on a household’s welfare and productive assets that might in future generate income for the household. 134. Economic Rationale for Investing in the Program. In a well-targeted CT program, the beneficiary households will be the poorest among the overall population. The high level of poverty is one of the main challenges facing Yemen and its people and it has become evident that it is crucial to support the poorest and most vulnerable in the country to not only reach expected growth, but to sustain it. Moreover, the Social Protection (SP) strategy for Yemen includes the SWF’s cash transfer program as one of the key components. 135. The number of poor in Yemen has dramatically risen during the crisis. Poverty, which was already increasing prior to the crisis, is estimated to have risen further from 42 percent of the population in 2009 to 54.5 percent in 2012. Poverty is particularly high in rural areas, which are 45 home to about 73 percent of the population and 84 percent of the poor. This provides an added rationale for supporting the cash transfer program and improving its targeting. 136. Adequate education and good health are key elements in reducing poverty in Yemen. Both offer high rates of return and promote future economic development. Since cash transfer programs are capable of increasing rates of school enrollment and improving health outcomes (through better nutrition and increased affordability of health services), the SWF can play an important role in reducing poverty through this mechanism. In addition, the ECRP involves a commitment from the government to allocate sufficient resources to respond urgent needs to and sustain delivery of services in education and health. 137. The importance of targeting in order to achieve maximum benefits. Cost-effective cash transfer programs channel most program resources to their intended target group. They also economize the administrative resources required to implement the program in two ways. First, at the level of the whole safety net system, they avoid fragmentation and the subsequent need to develop administrative systems without realizing economies of scale. Second, they run efficiently with the minimum resources required to achieve the desired impact, but with sufficient resources to carry out all program functions well. The ECRP support is expected to reach more households in extreme poverty as a result of the new PMT method that has been implemented in 2012. The 486,400 households expected to benefit from the ECRP have been selected using the newly implemented PMT. 138. Expected benefits of the program include: Higher consumption, reduced rates of mortality, morbidity and malnutrition and increased school enrollment and attendance. Three of the main benefits of SWF’s cash transfer program are likely to be: (i) increased school enrolment and attendance for children; and (ii) reduced rates of mortality, morbidity and malnutrition among 0 to 5 year old children; and (iii) increased consumption among beneficiary households. Improvements in the health and education outcomes of children and the wider family are expected due to the income effects of the transfer (e.g., increased food consumption, dietary diversity). In addition to the direct welfare benefits arising from improved health status, gains can also be expected through increased schooling levels, improved cognitive achievement as well as productivity, earnings and income for adults. Both adequate education and good health are key elements in reducing poverty in Yemen. 139. Poverty effects. Reaching the program objectives would contribute to a greater reduction in poverty and inequality and mitigate their intergenerational transmission. The impact of the cash transfer program on poverty will depend very much on the extent to which the program is successful at targeting the poorest households. In this sense, using the PMT as opposed to the previous categorical targeting method will enhance the impact of the cash transfer program on poverty rates. By receiving regular cash transfers, households are likely to increase their food intake, thereby resulting in less food insecurity and the maintenance of productive assets. This is expected to have a positive effect on consumption smoothing. This will reduce both income poverty and income inequality due to the redistributive effect of targeting the transfer to the poorest families within the households. 46 Annex 11: Documents in Project Files REPUBLIC OF YEMEN: EMERGENCY CRISIS RECOVERY PROJECT  SWF Law No. 39, 2008  SWF By-law for Law No. 39, 2010  Social Welfare Fund Institutional Support Project Appraisal Document, Report No. 53355-YE, May 7, 2010  Joint Social and Economic Assessment (2012)  Interim Strategy Note, World Bank (2012)  The Transitional Program for Stabilization & Development 2012-2014 47 Annex 12: Statement of Loans and Grants REPUBLIC OF YEMEN: EMERGENCY CRISIS RECOVERY PROJECT Difference Between Expected and Actual Original Amount in US$ Millions Disbursements a/ Project Fiscal Frm Project Name IBRD IDA GRANT Cancel. Undisb. Orig. ID Year Rev'd RY TAIZ MUNICIPAL DEV & FLOOD P070092 PROTEC 2002 100.2 0.4 24.3 -37.1 16.8 P110733 RY Higher Education Quality Improvement 2010 13.0 10.7 1.9 P089259 RY Rainfed Agriculture and Livestock 2007 20.0 6.8 5.5 0.3 P089761 RY Sec. Educ. Dev. and Girls Access 2008 20.0 16.3 13.6 0.0 P117608 RY SWF Institutional Support Project 2010 10.0 9.6 2.2 P085231 RY- Second Rural Access Project 2006 80.0 42.4 2.4 22.8 P086886 RY-Fisheries Resource Mgt & Conservation 2006 25.0 2.7 5.7 6.7 5.2 P094755 RY-Health & Population 2011 35.0 30.7 -0.6 P107050 RY-Integrated Urban Development 2010 22.0 20.9 14.0 P122594 RY-Labor Intensive Public Works Project 2012 61.0 58.4 3.9 P088435 RY-Port Cities Development II 2010 35.0 34.4 21.9 P086865 RY-Power Sector 2006 50.0 46.2 42.4 24.3 P117363 RY-Public Finance Modernization Project 2011 12.0 8.9 P092211 RY-Rural Energy Access Project 2009 25.0 26.1 19.9 11.1 P113102 RY-Schistosomiasis Control Project 2010 25.0 14.4 -0.8 P107037 RY-WATER SECTOR SUPPORT 2009 90.0 70.3 59.3 15.5 P103922 RY:GEF Agrobiodiversity and Adaptation 2010 4.0 3.4 0.8 P117949 RY:Social Fund for Development IV 2010 60.0 27.9 8.3 Total 0.00 683.2 4.0 3.0 457.4 161.4 95.9 Data as of January 17, 2013 48 COUNTRY STATEMENT OF IFC’s Held and Disbursed Portfolio In Millions of US Dollars Committed Disbursed Outstanding FY **Quasi Partici **Quasi Partici Approval Company Loan Equity Equity *GT/RM pant Loan Equity Equity *GT/RM pant 2003 Ahlia Water 1.36 0 0 0 0 1.36 0 0 0 0 2008 Al-Mawarid 3.0 0 0 0 0 3.0 0 0 0 0 2007/2008 AYCC 66.2 0 0 0 46.44 66.2 0 0 0 46.44 S Y Healthcare 12.63 0 0 0 0 12.63 0 0 0 0 Marib Agri 0 0 0 0 0 0 0 0 0 0 0 Yemen Battery 0 0 0 0 0 0 0 0 0 0 0 Total Portfolio: 83.19 0 0 0 46.44 83.19 0 0 0 46.44 * Denotes Guarantee and Risk Management Products. ** Quasi Equity includes both loan and equity types. Approvals Pending Commitment FY Approval Company Loan Equity Quasi Partic. Total pending commitment: 0.00 0.00 0.00 0.00 49 Annex 13: Country at a Glance REPUBLIC OF YEMEN: EMERGENCY CRISIS RECOVERY PROJECT 50 51 46ºE 48ºE 50ºE 52ºE 54ºE REPUBLI C O F This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information Y EM E N shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries. 20ºN SELECTED CITIES AND TOWNS 20ºN GOVERNORATE CAPITALS REP. OF SAUDI ARABIA NATIONAL CAPITAL YEMEN RIVERS MAIN ROADS GOVERNORATE BOUNDARIES INTERNATIONAL BOUNDARIES OMAN 18ºN 42ºE To Abha 44ºE Sanaw To Thamarit Habarut Thamud SAADAH Mah rat To Mirbat Saadah n Mt hu AL- ns. ak di M AL-JOWF Wa M A H R AT Zamakh HADRAMOUT Damqawt Maydi ¸ - Huth adi Al Jiz t W Al Hazm ser Al Ghaydah 16ºN HAJJAH AMRAN Wad n De Wad i Had Mar’ayt 16ºN tay i Jaw ram b'a f Al Ghuraf Nishtun ou Al Luhayyah Hajjah Sa t Amran t as Hawra MARIB mla Salif Al Mahwit Marib Ra Shabwah AL- SANAA t Qishn MAHWIT SANA'A o u a S H A B WA m Sayhut r a Re Al Hodeidah Al Gabain DHAMAR Harib Nuqub d HODEIDAH DAH a Shihr d (3199 m) Nisab Ataq H RAIMH Dhamar Rida Al Mukalla AL-BEIDA Se Wad Zabid i I B B AL- Al Huwaymi a 14ºN Al Beida 14ºN Ibb DHALE'E (3227 m) Bir Ali Al Dhale'e Taiz A B YA N W ad B i Ahwar TA I Z ana Mocha Shaqra At Turbah ERITREA Lahej Zinjibar Gulf of Ade n At Turbah LAHEJ Qadub Aden Qalansiyah ADEN ETH. Socotra 'Abd al Kuri Samha ) DJIBOUTI 0 50 100 150 Kilometers Darsa TE IBRD 33513R A 12ºN (HA The Brothers N OR 12ºN DRAMO T GOVER U MAY 2009 0 50 100 Miles 42ºE 44ºE 46ºE 48ºE 50ºE SOMALIA 52ºE 54ºE