FOR OFFICIAL USE ONLY Report No: ICR00005039 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA-D1350 AND IDA-D2430) ON TWO GRANTS IN THE AMOUNT OF SDR 1.5 MILLION AND SDR 3.6 MILLION (US$2.0 MILLION EQUIVALENT AND US$5.0 MILLION EQUIVALENT) TO THE REPUBLIC OF KIRIBATI FOR A THIRD ECONOMIC REFORM DEVELOPMENT POLICY OPERATION AND A FOURTH ECONOMIC REFORM DEVELOPMENT POLICY OPERATION December 20, 2019 Macroeconomics, Trade And Investment Global Practice Papua New Guinea, and Pacific Islands Country Management Unit East Asia And Pacific Region The World Bank Fourth Economic Reform Development Policy Operation (P161794) CURRENCY EQUIVALENTS (Exchange Rate Effective {Dec 18, 2019}) Currency Unit = Australian Dollar A$1.46 = US$1 US$1.38 = SDR 1 GOVERNMENT FISCAL YEAR January 1 - December 31 Regional Vice President: Victoria Kwakwa Country Director: Michel Kerf Regional Director: Hassan Zaman Practice Manager: Ndiame Diop Task Team Leader(s): Virginia Ann Horscroft and Mizuho Kida ICR Main Contributor: Kevin Chua The World Bank Fourth Economic Reform Development Policy Operation (P161794) ABBREVIATIONS AND ACRONYMS A$ Australian Dollar MFED Ministry of Finance and Economic ADB Asian Development Bank Development ATH Amalgamated Telecom Holdings MFMRD Ministry of Fisheries and Marine ATHKL Amalgamated Telecom Holdings (Kiribati) Resources Development Limited NEPO National Economic Planning Office CEO Chief Executive Officer OLL Ocean Link Limited CPO Chief Procurement Officer PDO Program Development Objective CPU Central Procurement Unit PFM Public Financial Management DFAT Department of Foreign Affairs and Trade PPG Public and Publicly-Guaranteed DPF Development Policy Financing PUB Public Utilities Board DPO Development Policy Operation RAMP Reserves Advisory and Management DSA Debt Sustainability Analysis Program ERP Economic Reform Plan RERF Revenue Equalization Reserve Fund ERT Economic Reform Taskforce RFP Request for Proposal FFA Forum Fisheries Agency RPF Regional Partnership Framework GDP Gross Domestic Product SAIDI System Average Interruption Duration GoK Government of Kiribati Index HIES Household Income and Expenditure Survey SAIFI System Average Interruption ICR Implementation Completion and Results Frequency Index ICT Information and Communication SDR Special Drawing Rights Technology SOE State-Owned Enterprise IDA International Development Association TICTD Telecommunication and ICT IMF International Monetary Fund Development Project JV Joint Venture TOC Theory of Change KDP Kiribati Development Plan TSKL Telecommunication Services Kiribati KPF Kiribati Provident Fund Limited KPPRP Kiribati Public Procurement Reform Plan UAP Universal Access Plan KV20 Kiribati 20-Year Vision US$ United States Dollar kWh Kilowatt Hour VAT Value Added Tax MFAT Ministry of Foreign Affairs and Trade VDS Vessel Day Scheme WB World Bank The World Bank Fourth Economic Reform Development Policy Operation (P161794) TABLE OF CONTENTS DATA SHEET .......................................................................................................................... 1 I. PROGRAM CONTEXT AND DEVELOPMENT OBJECTIVES.................................................... 4 II. ASSESSMENT OF KEY PROGRAM DESIGN AND OUTCOMES ............................................ 12 III. OTHER OUTCOMES AND IMPACTS ................................................................................ 27 IV. BANK PERFORMANCE ................................................................................................... 28 V. RISK TO SUSTAINABILITY OF DEVELOPMENT OUTCOMES .............................................. 30 VI. LESSONS AND NEXT PHASE ........................................................................................... 31 ANNEX 1. RESULTS FRAMEWORK ......................................................................................... 33 ANNEX 2. BANK LENDING AND IMPLEMENTATION SUPPORT/SUPERVISION PROCESSES....... 39 ANNEX 3. BORROWER, CO-FINANCIERS, AND OTHER DEVELOPMENT PARTNERS’/STAKEHOLDERS’ COMMENTS ............................................................................ 41 ANNEX 4. SECTORS AND THEMES ......................................................................................... 42 ANNEX 5. LIST OF SUPPORTING DOCUMENTS ...................................................................... 45 The World Bank Fourth Economic Reform Development Policy Operation (P161794) DATA SHEET BASIC INFORMATION Program Series Project ID Short Name Full Name P155540 Third Economic Reform DPO Third Economic Reform Development Policy Operation P161794 Fourth Economic Reform DPO Fourth Economic Reform Development Policy Operation Series Details (USD) Project ID Approved Amount Disbursed Amount P155540 2,000,000.00 2,078,430.00 P161794 5,000,000.00 5,096,674.21 Total 7,000,000.00 7,175,104.21 KEY_D PF_OPTI ONS_ TBL P155540 P161794 Policy-Based Guarantees No No Ln/Cr/TF IDA-D1350 IDA-D2430 Concept Review 17-May-2016 01-Aug-2017 Decision Review 15-Jun-2016 19-Sep-2017 Approval 13-Sep-2016 22-Nov-2017 Effectiveness 13-Jan-2017 15-Dec-2017 Original Closing 31-Dec-2017 31-Dec-2018 Actual Closing 31-Dec-2017 31-Dec-2018 Crisis or Post-Conflict No No Regular Deferred Drawdown Option No No Catastrophe Deferred Drawdown Option No No Page 1 of 46 The World Bank Fourth Economic Reform Development Policy Operation (P161794) Sub-National Lending No No Special Development Policy Lending No No Organizations Series Project Borrower Implementing Agency P161794 Republic of Kiribati Ministry of Finance & Economic Development P155540 Program Development Objective (PDO) Program Development Objective (PDO) (From last operation in the series) The program development objective is to: (i) strengthen public financial management through greater transparency in managing fisheries revenue, improved governance of the sovereign wealth fund, and better reporting and monitoring of public debt and contingent liabilities; and (ii) create an environment for inclusive and private sector led growth through reducing the costs, improving the quality and expanding the coverage of essential public utilities services (electricity, water, sewage and telecommunications). PROGRAM FINANCING DATA (USD) World Bank Administered Financing Approved Amount Actual Disbursed P155540 2,000,000 2,078,430 IDA-D1350 P161794 5,000,000 5,096,674 IDA-D2430 Total 7,000,000 7,175,104 RATINGS SUMMARY Program Performance Overall Outcome Relevance of Prior Actions Achievement of Objectives (Efficacy) Moderately Satisfactory Moderately Satisfactory Moderately Satisfactory Page 2 of 46 The World Bank Fourth Economic Reform Development Policy Operation (P161794) Bank Performance Moderately Satisfactory ACCOUNTABILITY AND DECISION MAKING At ICR: Regional Vice President Country Director Director Victoria Kwakwa Michel Kerf Hassan Zaman Practice Manager Task Team Leader(s) Ndiame Diop Virginia Ann Horscroft At Approval: P155540 Regional Vice President Country Director Director Victoria Kwakwa Mona Sur Satu Kristiina J. Kahkonen Practice Manager Task Team Leader(s) Mathew A. Verghis Mizuho Kida P161794 Regional Vice President Country Director Director Victoria Kwakwa Michel Kerf Carlos Felipe Jaramillo Practice Manager Task Team Leader(s) Ndiame Diop Virginia Ann Horscroft Page 3 of 46 The World Bank Fourth Economic Reform Development Policy Operation (P161794) I. PROGRAM CONTEXT AND DEVELOPMENT OBJECTIVES A. Context at Appraisal Context Kiribati is a small, remote, and geographically-dispersed island economy, facing significant growth and service delivery challenges. Geographic isolation, population fragmentation, narrow economic base, and vulnerability to natural disasters limit the growth prospects of the country. Private sector development opportunities are constrained by the lack of economies of scale and remoteness from large markets abroad. Beyond agriculture and fisheries, the private sector remains small, mostly consisting of small firms in the wholesale, retail, and transport sectors. Service delivery tends to be very costly given the small, dispersed and fragmented population, compounded by severe infrastructure deficits in the areas of utilities, transport and communications. Kiribati’s geography and exposure to natural hazards, particularly drought and loss of groundwater, also make some areas of service delivery like water and sanitation very challenging. With relatively weak private sector prospects, the public sector dominates the Kiribati economy. Economic activity is dominated by the public sector, including through the operations of a large number of state-owned enterprises (SOEs). The government directly supports the agriculture sector through heavily-subsidized copra production, and underpins a service economy in the capital of South Tarawa where approximately half of the population live. In 2016, public expenditure was equivalent to 112 percent of GDP, funded primarily by fisheries license fees (65 percent of GDP) and grants from development partners (33 percent of GDP). Government services directly account for as much as 50 percent of GDP and some 80 percent of jobs in the formal sector. To finance the public expenditure, Kiribati relies heavily on external sources of revenue, including fishing license fees, remittances from abroad, investment income from the Revenue Equalization Reserve Fund (RERF), and donor funding and grants. In the years leading up to the operations, growth had been relatively strong but extremely volatile. Kiribati had experienced consecutive positive economic growth since 2010. Growth, however, was volatile surging to 10.3 percent in 2015 on the back of strong wholesale and retail trade, and construction activity, and record level fisheries revenue, only to fall to 1.1 percent in 2016 due to the normalization of fisheries revenues and the winding down of donor-financed infrastructure projects. Because the level of economic growth is dependent on oftentimes unpredictable variables, the major concern of macroeconomic management, alongside providing a supportive environment for economic growth, is cushioning the impact of volatility and shocks mainly through fiscal policy. The use of monetary policy is limited since Kiribati uses the Australian Dollar as its currency. The fiscal position had improved due to high fishing license fee revenue, while public expenditure had also risen (Table 1). The fiscal outcome in Kiribati is dominated by fishing license fee revenue, which was low and volatile in the years to 2012. However, the implementation of the Vessel Day Scheme (VDS), which granted fewer fishing days for foreign vessels in Kiribati’s exclusive economic zone, led to a structural increase in fishing license fee revenues, though still variable subject to weather conditions and other exogenous factors. Efforts to increase domestic tax revenue through the introduction of VAT in mid-2014, and improvement in tax administration and collection, had also borne fruit. With strong revenues and pressing expenditure needs, public expenditures had commensurately risen, driven by subsidies (copra subsidy) and public sector wages (through health and education sector spending) on the current side, and large infrastructure projects on the capital side. About two-third of current spending is in the difficult-to-reduce categories of wages, salaries, pensions, interest payments, and subsidies. Because of Kiribati’s high degree of dependence on volatile Page 4 of 46 The World Bank Fourth Economic Reform Development Policy Operation (P161794) sources of revenue and vulnerability to external shocks, it is important to maintain large fiscal buffers and flexibility on public expenditures, and diversify revenue sources for the country to safeguard fiscal sustainability. The higher levels of fishing revenue allowed the government to make transfers into the RERF. At the time of the appraisal, the RERF was the main mechanism to serve as buffer against current shocks. With increased fishing revenues and fiscal surpluses, the Government of Kiribati (GoK) did not immediately make transfers into the RERF given pressing expenditure needs. But as fishing revenues grew further, the government accumulated significant cash reserves so that in 2015, the GoK transferred A$50 million to the RERF, and another A$70 million in 2016. Cash reserves in 2016 stood at 3-4 months of current expenditure, roughly in line with International Monetary Fund (IMF) recommendations. Continued strong fishing revenues in 2017 allowed the accumulation of significant cash reserves to A$110 million relative to the recommended buffer of A$45 million. Rather than transferring excess cash reserves into the RERF as in previous two years, the GoK decided to retain these as source of funds to finance infrastructure project in the outer islands – a key priority for promoting growth and service delivery across the whole country. Measures of deprivation pointed to the pressing need for pursuing inclusive growth. The most recent Household Page 5 of 46 The World Bank Fourth Economic Reform Development Policy Operation (P161794) Income and Expenditure Survey (HIES) in 2006 revealed widespread poverty. But poverty rates varied significantly by island groups depending on available economic opportunities, the extent of isolation, and the age structure of the population. Basic needs poverty, which measures the minimum resources needed for long-term physical well-being, was concentrated in South Tarawa, the nation’s capital, where approximately half the population live. Poverty rates were found to be higher in islands with limited agricultural potential and vulnerability to drought, and lower in islands with a younger migrant population and more abundant natural resources. Between 2010 and 2015, census data indicated that the proportion of households with access to piped or rain water increased from 38 to 58 percent, and the proportion of households with access to a flush toilet or pit latrine increased from 57 to 62 percent. Access to electricity for lighting increased between censuses due to donor-funded solar programs. The World Bank continued its support to the Government of Kiribati with the delivery of the Third and Fourth Economic Reform Development Policy Operations (DPOs). The Bank’s economic policy engagement with Kiribati began in 2012 when the GoK sought assistance from the Bank to formulate an Economic Reform Plan (ERP). The Bank worked on a public expenditure analysis, identifying the key problems with revenue, expenditure and asset management. The Bank then worked through the Economic Reform Taskforce (ERT), a joint government-donor working group, to prioritize the economic and fiscal challenges and prepare a coherent set of reforms to address them. The Bank supported the implementation of a selection of reforms through a set of technical assistance engagements and the first programmatic series of two DPOs. The first and second Kiribati Economic Reform Programmatic DPOs were approved in 2013 and 2014, providing a total of US$8.2 million equivalent. The operations supported government actions in three main policy areas: fisheries revenue; public assets and liabilities; and private sector opportunities. To continue the support for reform momentum, the Bank proceeded with the Third and Fourth Economic Reform DPOs, which are the subject of this ICR. These operations were aligned with the priorities identified in the Pacific Island Countries Regional Partnership Framework (RPF) FY 2017-2021. The first pillar of the PDO on strengthening public financial management was aligned with focus area 4 of the RPF on strengthening the enablers of growth opportunities – specifically the development and maintenance of frameworks to improve fiscal management. The second pillar of the PDO on improving the environment for inclusive growth was aligned with focus area 1 pm on fully exploiting the available economic opportunities – specifically improved management of oceanic and coastal fisheries, and focus area 4 specifically on increased access to basic services and improved connective infrastructure. Reform actions on both pillars of the PDO contributed to the twin goals of ending extreme poverty and promoting shared prosperity. These operations were aligned with the Kiribati Development Plan (KDP) 2016-2019, and the long-term development strategy in the Kiribati 20-Year Vision 2016-2036 (KV20). The KDP 2016-2019 identified key priority areas for the medium term, with the overarching vision, “Towards a better educated, healthier, more prosperous nation with a higher quality of life.” Of the six priority areas, the pertinent ones for the operations were the areas of economic growth and poverty reduction, governance, and infrastructure. Among the strategies identified in these areas were: enhancing RERF management; ensuring effective public financial administration and debt management; maximizing economic returns from marine resources; ensuring that that the most vulnerable groups in the population are cared for; and reforming the Public Utilities Board (PUB) to achieve operationally and financially sustainable electricity, water and sanitation services. These KDP priorities were reinforced and set within a longer-term development strategy in the KV20, which emphasized the importance of fisheries for economic growth, and the investment in infrastructure to realize this potential. Original Program Development Objective(s) (PDO) and Policy Areas/Pillars Supported by the Program (as approved) The original program development objectives were to (i) strengthen public financial management, through greater transparency in managing fisheries revenue, improved governance of the sovereign wealth fund, and better Page 6 of 46 The World Bank Fourth Economic Reform Development Policy Operation (P161794) reporting and monitoring of public debt and contingent liabilities; and (ii) create an environment for inclusive and private sector led growth, through reducing the costs, improving the quality, and expanding the coverage of essential public utilities services (electricity, water, sewage, and telecommunications). B. Significant Changes During Implementation Revised Program Development Objectives (PDOs) and Policy Areas/Pillars supported by the Program The revised program development objectives were to (i) strengthen public financial management; and (ii) improve the environment for inclusive growth. These two components corresponded to the two pillars of the operation. The first pillar was supported through strengthening the management of public assets and liabilities, and improving public procurement. The second pillar was supported through improving oversight of joint ventures (JVs) in the fisheries industry, improving the quality and expanding the coverage of essential public utilities, and facilitating competition and universal service provision in the telecommunications industry. The second pillar of the operation was revised from the earlier operation. The previous objective was broader than what could be feasibly be achieved in Kiribati in a two-year timeframe. In particular, achieving private sector-led growth in Kiribati seemed improbable in the near term, given that the main driver of growth was the public sector, funded by fisheries license fees and development assistance. The bulk of the economic activity generated from Kiribati’s fisheries assets was indirect through the public sector – in the form of the public sector employment, procurement and service delivery financed by the license fees – rather than direct through the private sector. Several of the reforms under the second pillar would improve the business environment, and the quality of life of the poorest in Kiribati, so a focus on improving the environment for inclusive growth was seen an appropriate reformulation of the pillar. Likewise, there were changes to the indicative triggers for the fourth operation. Indicative triggers were adjusted to account for slower-than-expected or greater-than-expected progress with some steps in the reform processes, and the evolution of the Bank’s and GoK’s thinking on the most appropriate sequence of reforms in reform processes. These revisions to the indicative triggers are shown in Table 2. Table 2. Changes in the Indicative Triggers in the Fourth Operation Pillar 1. Strengthening public financial management Components Indicative Triggers under DPO3 Prior Actions under DPO4 1. Strengthening the The Recipient, through the Ministry of The Recipient, through its Ministry of governance of the RERF Finance and Economic Development Finance and Economic Development, has: (MFED), has developed and submitted to (a) completed a review of RERF custodial the Cabinet the reform options to arrangements to ensure that the services regularize the transfers and withdrawals of the provider remain competitive with from the RERF. current market practice and benchmarks; (b) endorsed the recommendations of the review; and (c) issued a request for proposal (RFP) for custodial services. Page 7 of 46 The World Bank Fourth Economic Reform Development Policy Operation (P161794) 2. Improving the The Recipient has improved monitoring The Recipient has improved monitoring of management of public of contingent liabilities through (a) contingent liabilities, through (i) debt quantifying the sovereign guarantees; (b) quantifying the Recipient's guarantees; (ii) bringing up to date the external audits of accepting the financial statements of the the financial statements of SOEs including five largest state-owned enterprises for the Development Bank of Kiribati (DBK); the Recipient's financial year commencing and (c) submitting the financial January 1, 2016; and (iii) submitting the statement of the Kiribati National financial statement of the Kiribati Provident Fund (KPF) to the external Provident Fund for the Recipient's audits. financial year commencing January 1, 2016 to the external auditor. 3. Improving public The Recipient: (i) through its cabinet, has procurement (New approved the Kiribati Public Procurement component in DPO4) Reform Plan (KPPRP); and (ii) has made the Kiribati Public Procurement Reform Plan publicly available. Pillar 2. Improving the environment for inclusive growth 4. Improving the economic The Recipient's Cabinet has approved a The Recipient, through its Cabinet, has (i) returns from the fisheries fisheries joint ventures policy outlining approved a fisheries joint ventures policy JVs the criteria for evaluating existing and outlining the criteria for evaluating new fisheries joint ventures, and has existing and new fisheries joint ventures; approved a plan to annually review the and (ii) has approved a plan to annually performance of the fisheries joint review the performance of fisheries joint ventures against this policy. ventures against this policy. 5. Encourage competition The Recipient's cabinet has adopted a The Recipient, through its Cabinet, has and expansion of revised Universal Access Plan (UAP), approved ownership and management telecommunication detailing costs, options, and the timeline plans for telecommunication assets in the services to roll out the telecommunications outer islands, in order to facilitate the roll services to the outer islands. out of telecommunications services to outer islands that do not currently have access to them. 6. Reducing costs and The Recipient's Cabinet has adopted a The Recipient, through its Cabinet, has improving delivery of medium term reform plan of the PUB, approved (i) a new electricity tariff that public utilities services detailing the reform options to achieve makes electricity more affordable for the operationally and financially sustainable poor while aligning the average tariff with electricity, water, and sanitation services cost recovery; and (ii) a reduced in South Tarawa, Kiribati, and has household electricity connection fee, to implemented key aspects of the first six expand access to electricity. months of the plan. Reflecting revisions to the indicative triggers and attempts to make the results indicators more attributable to the policy actions themselves, the results indicators in the fourth operation were similarly updated. These revisions are summarized in Table 3. Page 8 of 46 The World Bank Fourth Economic Reform Development Policy Operation (P161794) Table 3. Revisions to Results Indicators Pillar 1. Strengthening public financial management Components Results Indicators (DPO3) Results Indicators (DPO4) 1. Strengthening the Result: The RERF is managed according Result: The RERF is managed according governance of the RERF to the prevailing market standards with to prevailing market standards with substantially reduced costs. reduced costs. Indicator: Average cost of managing the Indicator: Average cost of managing the fund as a percent of its market value. fund as a percent of its market value. Result: The balance in the government's external cash account outside of the RERF will be reduced to the level consistent with the approved policy. Indicator: Balance in external cash account outside the RERF as a percent of GDP or percent of current expenditure. Result: The return on the RERF portfolio is aligned with the relevant market benchmark. Indicator: Portfolio return relative to a market benchmark. 2. Improving the Result: Public debt is managed based on Result: Public sector debt, including management of public debt a comprehensive and up-to-date public contingent liabilities, is monitored sector debt database for effective effectively through a comprehensive monitoring of the debt including and up-to-date public sector debt contingent liabilities. database. Indicator: Comprehensive and up-to-date Indicator: Debt database covers public database, with all debt and debt-related sector external and domestic debt, transactions (including repayments and including contingent liabilities, and all disbursements) recorded within a three- debt and debt-related transactions month lag. (including repayments and disbursements) recorded within a three- month lag. 3. Improving public Result: Through the implementation of procurement (New the KPPRP, the CPU has become component in DPO4) operational, as indicated by the delegation of the relevant procurement powers to the CPO. Indicator: Delegation of procurement powers to CPO. Pillar 2. Improving the environment for inclusive growth Page 9 of 46 The World Bank Fourth Economic Reform Development Policy Operation (P161794) 4. Improving the economic Result: All fisheries joint ventures are Result: All fisheries joint ventures are returns from the fisheries JVs annually reviewed following a formal reviewed annually based on the process and based on transparent approved criteria and, for joint ventures evaluation criteria to ensure value for that the review finds do not offer value- money and consistency with national and for-money for Kiribati, remedial actions regional fisheries policies. are agreed. Indicator: Formal review of fisheries joint Indicator: Percent of joint ventures ventures or transparent evaluation assessed criteria. 5. Encourage competition Result: The Telecommunications market Result: The telecommunications market and expansion of the in Tarawa would be served by at least 2 in Tarawa is served by at least 2 mobile telecommunication services mobile service operators competing for service operators competing on access customers on the basis of coverage, and price. costs, and quality of services. Indicator: Number of mobile service Indicator: Number of mobile service operators, mobile phone penetration operators, mobile phone penetration rate, and cost of a three-minute peak- rate, and cost of a three-minute peak- hour mobile-to-mobile call in Tarawa. hour mobile-to-mobile call within Tarawa. Result: There is increased penetration of mobile telephones in the outer islands. Indicator: Mobile phone penetration rate in the outer islands. 6. Reducing costs and Result: The operational efficiency of the Result: The financial operation of the improving delivery of public PUB and its delivery of basic public Public Utilities Board and the quality of utilities services services have improved as measured by electricity services have improved, as the billing collection rate (increased to measured by the billing collection rate, over 97 percent from the baseline of 85- total power losses from the distribution 90 percent in 2014), total power losses network, and the frequency and (reduced to less than 11 percent from the duration of electricity outages. baseline of 18 percent in 2014), and total Indicator: Billing collection rate for water leakages form the distribution electricity services, total power losses, system (reduced to less than 41 percent frequency of electricity outages, and from the baseline of 50 percent in 2015). duration of electricity outages. Indicator: Billing collection rate, total power losses from the distribution network, and total water leakages from the distribution system. Result: There is an increase in the proportion of poor households in Tarawa benefitting from the new electricity tariff structure. Indicator: Percent of poor households that benefit from the new tariff structure. Page 10 of 46 The World Bank Fourth Economic Reform Development Policy Operation (P161794) Other Changes Page 11 of 46 The World Bank Fourth Economic Reform Development Policy Operation (P161794) II. ASSESSMENT OF KEY PROGRAM DESIGN AND OUTCOMES Indicative Triggers (from DPF3) Prior Actions for DPF3 and Results Indicators (original (DPF3) and revised) Prior Actions for DPF4 PILLAR 1. Strengthen public financial management Prior Action 1: Indicative Trigger 1: Result Indicator 1: The Recipient has The Recipient, through the Ministry of Finance and The return on the RERF portfolio is aligned with the relevant implemented the key Economic Development, has developed and submitted market benchmark. reform actions to to the Cabinet the reform options to regularize the improve the transfers and withdrawals from the RERF. Baseline (year to March 31, 2014): a return 8.29 percent below management of the RERF the benchmark. by: (a) appointing two Prior Action 1: new external asset (i) The Recipient, through its Ministry of Finance and Target (2018): a return 0.25 percent below the benchmark or managers through a Economic Development, has completed a review of better. transparent and RERF Custodial arrangements to ensure that the competitive selection services of the provider remain competitive with Current status (2018): The performance of the RERF in 2018 process; and (b) current market practice and benchmarks; (ii) the resulted in a return 0.09 percent higher than the benchmark. executing the approved Recipient's Cabinet has endorsed the recommendations strategic restructuring of of the review; and (iii) the Recipient has issued a Result Indicator 2: the RERF portfolio to request for proposal for custodial services. The RERF is managed according to prevailing market standards, better align with the with reduced costs. RERF’s long-term investment objectives. Baseline (2015): Costs of 0.2 percent of market value. Target (2018): Costs of no more than 0.1 percent of market value. Current status (2018): The target was achieved based on the Page 12 of 46 The World Bank Fourth Economic Reform Development Policy Operation (P161794) combination of actual asset management fees for 2018 and estimated custodian fees for 2018. Prior Action 2: Indicative Trigger 2: Result Indicator 3: The Recipient has The Recipient has improved monitoring of contingent Public sector debt, including contingent liabilities, is monitored improved management liabilities through (a) quantifying the sovereign effectively through a comprehensive and up-to-date public of its public debt by guarantees; (b) bringing up to date the external audits sector debt database. establishing a of the financial statements of SOEs including the comprehensive database Development Bank of Kiribati; and (c) submitting the Baseline (December 31, 2015): The debt database covers only of public debt, including financial statement of the Kiribati National Provident central government external debt. the debt of state-owned Fund to the external audits. enterprises and joint Target (December 31, 2018): The debt database covers public ventures. Prior Action 2: sector external and domestic debt, including contingent The recipient has improved monitoring of contingent liabilities, and all debt and debt-related transactions (including liabilities, through (i) quantifying the Recipient's repayments and disbursements) are recorded within a three- guarantees; (ii) accepting the financial statements of month lag. the five largest state-owned enterprises for the Recipient's financial year commencing January 1, 2016; Current status (October 31, 2019): The debt database covered and (iii) submitting the financial statement of the public sector external and domestic debt, including contingent Kiribati Provident Fund for the Recipient's financial year liabilities, and all debt and debt-related transactions (including commencing January 1, 2016 to the external auditor. repayments and disbursements) were recorded within a month lag. Prior Action 3: Result Indicator 4: The Recipient: (i) through its cabinet, has approved the Through the implementation of the KPPRP, the CPU has become Kiribati Public Procurement Reform Plan; and (ii) has operational, as indicated by the delegation of the relevant made the Kiribati Public Procurement Reform Plan procurement powers to the CPO. publicly available. Baseline (December 31, 2016): No CPU. Target (December 31, 2018): The CPO holds delegated procurement powers. Page 13 of 46 The World Bank Fourth Economic Reform Development Policy Operation (P161794) Current status (November 30, 2019): The CPO does not hold delegated procurement powers. PILLAR 2. Improve the environment for inclusive growth Prior Action 3: Indicative Trigger 3: Result Indicator 5: The Recipient has (a) The recipient Cabinet has approved a fisheries joint All fisheries joint ventures are reviewed annually based on the reviewed all existing ventures policy outlining the criteria for evaluating approved criteria and, for joint ventures that the review finds fisheries joint ventures to existing and new fisheries joint ventures, and has do not offer value-for-money for Kiribati, remedial actions are examine their financial approved a plan to annually review the performance of agreed. performance, the fisheries joint ventures against this policy. contribution to the Baseline (December 31, 2015): Two-thirds of joint ventures were economy, and Prior Action 4: assessed as providing value-for-money to Kiribati. consistency with the The Recipient, through its Cabinet, has (i) approved a National Fisheries Policy fisheries joint ventures policy outlining the criteria for Target (December 31, 2018): All remaining joint ventures were and regional agreements; evaluating existing and new fisheries joint ventures; assessed as providing value-for-money to Kiribati in the latest and (b) approved the and (ii) has approved a plan to annually review the annual review, or had associated remedial actions agreed. restructuring or performance of fisheries joint ventures against this dissolution of the policy. Current status (November 30, 2018): The MFED, through an fisheries joint ventures as ADB Technical Assistance, commissioned a review of the appropriate based on the fisheries joint ventures in 2018. The review found that the joint findings and ventures do not offer value-for-money for Kiribati. The MFMRD recommendations of the expressed reservations with the consulting firm’s review and review. planned to ask for an independent review from the Pacific Islands Forum Fisheries Agency (FFA). No further action has been taken in the interim. Prior Action 4: Indicative Trigger 4: Result Indicator 6: The Recipient has issued The Recipient's cabinet has adopted a revised Universal The telecommunications market in Tarawa is served by at least a second mobile operator Access Plan, detailing costs, options, and the timeline two mobile service operators competing on access and price. license so as to introduce to roll out the telecommunications services to the outer Page 14 of 46 The World Bank Fourth Economic Reform Development Policy Operation (P161794) competition in the islands. Baseline: The Tarawa market is served by one mobile service cellular mobile operator, with the mobile phone penetration rate at 12 percent communications services Prior Action 5: (December 31, 2014), and the cost of a three-minute peak-hour in the Recipient’s The Recipient, through its Cabinet, has approved mobile-to-mobile call in Tarawa at A$0.90 (December 31, 2013). territory. ownership and management plans for telecommunication assets in the outer islands, in order Target (December 31, 2018): The Tarawa market is served by at to facilitate the roll out of telecommunications services least two mobile service operators, with the mobile phone to outer islands that do not currently have access to penetration rate at least 50 percent and the cost of a three- them. minute peak-hour mobile-to-mobile call in Tarawa no more than A$0.75. Current status (October 31, 2019): The Tarawa market is served by two mobile service operators, with the mobile phone penetration rate at 47.0 percent and the cost of a three-minute peak-hour mobile-to-mobile call in Tarawa of A$0.35. Result Indicator 7: There is increased penetration of mobile telephones in the outer islands. Baseline (August 31, 2015): 12 percent penetration rate Target (December 31, 2018): 20 percent penetration rate Current status (October 31, 2019): 42.6 percent penetration rate Prior Action 5: Indicative Trigger 5: Result Indicator 8: The Recipient has The Recipient's Cabinet has adopted a medium term The financial and operational performance of the Public Utilities implemented short term reform plan of the PUB, detailing the reform options to Board and the quality of electricity services have improved, as measures designed to achieve operationally and financially sustainable measured by the billing collection rate, total power losses from quickly improve the electricity, water, and sanitation services in South the distribution network, and the frequency and duration of Page 15 of 46 The World Bank Fourth Economic Reform Development Policy Operation (P161794) operational performance Tarawa, Kiribati, and has implemented key aspects of electricity outages. of the Public Utilities the first six months of the plan. Board, including Baseline: Billing collection rate of 85 percent (2015), total power appointing, through a Prior Action 6: losses of 18 percent (2015), SAIFI of 7.9 interruptions (2016) and competitive and The Recipient, through its Cabinet, has approved (i) a SAIDI of 946 minutes (2016) transparent process, an new electricity tariff that makes electricity more international chief affordable for the poor while aligning the average tariff Target (2018): Billing collection rate of at least 90 percent, total executive officer for the with cost recovery; and (ii) a reduced household power losses of less than 15 percent, SAIFI of 6 interruptions PUB to manage and electricity connection fee, to expand access to and SAIDI of 880 minutes implement the PUB’s electricity. medium-term reform Current status (2018): Billing collection rate of 96 percent, total plan. power losses of 16.9 percent, SAIFI of 11.4 interruptions and SAIDI of 3,451 minutes Result Indicator 9: There is an increase in the proportion of poor households in Tarawa benefiting from the new electricity tariff structure. Baseline (December 31, 2016): 0 percent of poor households (households consuming less than 100kWh) benefit from the new tariff Target (December 31, 2018): 70 percent of poor households (households consuming less than 100kWh) benefit from the new tariff Current status (2018): 100 percent of poor households (households consuming less than 100kWh) benefit from the new tariff Page 16 of 46 The World Bank Fourth Economic Reform Development Policy Operation (P161794) A. Relevance of Prior Actions Rating: Moderately Satisfactory The series of DPOs aimed to achieve the development objectives of strengthening public financial management (PFM) and improving the environment for inclusive growth in Kiribati (Figure 1). To support Pillar 1 on strengthening public financial management, the operations focused on key reform actions in the areas of the RERF, public debt, and public procurement. A fourth component on improving the economic returns from the fisheries JVs was classified under Pillar 2, but might well fall under Pillar 1 considering that fisheries revenues significantly contribute to public revenue, and, thus, are integral to the management of public finances. To support Pillar 2 on improving the environment for inclusive growth, the operations focused on improving fisheries revenue, telecommunication services, and public utility service delivery to better serve and reach the poor, and the population residing in the outer islands. Figure 1. Kiribati DPOs 3 and 4 Results Chain (Theory of Change) Inputs and Actions Outputs and Results Outcomes Development Objectives Strenghtened public financial management The return on the RERF portfolio is Appointment of asset managers; Strategic aligned with market benchmark. restructuring of RERF portfolio; Review of Strengthened governance custodial arrangements; Endorsement of the recommendations of the review; and Issuance of → The RERF is managed according to → of the RERF a RFP for custodial services. prevailing market standards with reduced cost. Establishment of a comprehensive public debt Public sector debt, including database; Monitoring of contingent liabilities; contingent liabilities is monitored Improved management of Accepting the financial statements of the five largest SOEs; and Submitting the financial → effectively through a comprehensive and up-to-date public sector debt → public debt statement of the KPF to the external auditor. database. The CPU is operational, as indicated Improved public Approval and publicization of the KPPRP. → by the delegation of the relevant procurement powers to the CPO. → procurement Review of fisheries JVs; Approval of the All fisheries JVs are reviewed restructuring or dissolution of JVs based on the annually based on the approved Better economic returns findings; Policy outlining the criteria for JV → criteria and, for those found not to → from the fisheries JVs Improved environment for inclusive growth evaluation; and Approval of a plan to annually offer value-for-money, remedial review fisheries JVs. actions are agreed. The telecommunications market in Tarawa is served by at least two Issuance of a second mobile operator license; mobile service operators competing Reduced cost and and Approval of ownership and management on access and price. expanded delivery of plans for telecommunication assets in the outer → → telecommunication islands. There is increased penetration of services mobile telephones in the outer islands. The financial and operational performance of the PUB and the quality of electricity services has Appointment of an international CEO to manage improved. Reduced cost and the medium term reform plan; Approval of a more affordable electricity tariff; and Reduction → There is increased in the proportion of → improved delivery of public services of household electricity connection fee. poor households in Tarawa benefitting from the new electricity tariff structure. Page 17 of 46 The World Bank Fourth Economic Reform Development Policy Operation (P161794) Pillar I. Strengthening public financial management A. Strengthening the governance of the RERF Strengthening the management of the RERF is pivotal to anchor the country’s fiscal sustainability. In 2011, the IMF conducted a review on the management of the RERF, revealing weak oversight of asset managers, misalignment of asset allocation with long-run investment objectives, and unrealistic investment targets. The review recommended closer oversight of asset managers, contract renegotiation with the custodian, and a shift to passive investment strategy, among others. Based on the recommendations, the World Bank Treasury reviewed the performance of the incumbent asset managers in 2013, and found them taking inappropriate risks, achieving returns below market benchmarks, and charging management fees above competitors. Given this context, the prior actions under DPO3 would help improve the management of the RERF through the appointment of two new asset managers, and execution of the portfolio restructuring to align with long-term investment objectives. The review of the RERF custodial arrangements and issuance of the custody RFP replaced the original trigger. The original trigger was the development and submission to Cabinet of reform options to regularize transfers to and withdrawals from the RERF. This trigger was not achievable. The 2016 election ushered in a new government, which despite supporting the continued implementation of the earlier IMF- and WB- supported reviews, decided to grapple first with the overall direction and purpose of the RERF. Finalizing the objectives for the RERF and developing a strategy for their achievement would then have implications for transfers to and withdrawal from the RERF. In lieu of the original trigger, the team decided to replace it with the review of the custodial arrangements and issuance of the custody RFP. The review identified a pressing need to renegotiate the contract for custodial services to strengthen the oversight role of the custodian. It also found that the fees charged by the past custodian was the highest among clients in the WB Reserves Advisory and Management Program (RAMP), and that the custodian was unable to meet the market practice reporting requirements. Cabinet endorsed the recommendations, and issued the custody RFP in the first half of 2017. The prior actions under this component were appropriate and relevant in achieving the development objective. The problem was the mismanagement of the RERF portfolio, resulting in relatively high management cost and low portfolio return. To address this problem, the prior actions were to hire the best- fit asset managers through a competitive and transparent process, review the RERF custodial arrangements, and issue the RFP to hire a qualified institution to undertake the custodian role. These prior actions were properly sequenced and were appropriately chosen to accomplish the desired improvement in RERF management through better portfolio returns and reduced management costs. Ultimately, the actions contribute to strengthening public financial management in Kiribati by ensuring that the RERF, the main mechanism to buffer against current shocks, is well managed. B. Improving the management of public debt While the GoK had improved fiscal management in the area of debt policy, it needed to strengthen the monitoring of contingent liabilities. Kiribati adopted a debt policy on the formal procedures for contracting new debt, and criteria for concessional and non-concessional borrowing. It also established a comprehensive database of public debt, including the debt of SOEs and JVs. Nonetheless, tracking contingent liabilities Page 18 of 46 The World Bank Fourth Economic Reform Development Policy Operation (P161794) remained a weakness in the overall debt management, which was needed as SOEs imposed significant fiscal burden through direct and often ad hoc subsidies. The prior actions for this reform area were tied to monitoring contingent liabilities, and included reforms to quantify sovereign guarantees and the expansion of the debt database to include them and other contingent liabilities. It also included the timely monitoring of the financial situation of large SOEs where the major potential contingent liabilities lie. Among the SOE- related measures, the government strengthened the financial oversight of the Kiribati Provident Fund (KPF), which manages assets equal to about 60 percent of GDP, through the timely submission of financial statements to external audits. The second component in the original set of triggers was revised to be aligned with SOE legislation. The second component in the original set of triggers was to bring up-to-date the external audits of the financial statements of the SOEs including the Development Bank of Kiribati (DBK). This was revised to bringing up-to- date the financial statements of the five largest SOEs. The shift from audit to financial statements was made in order to align with SOE legislation which set a timeframe for the completion of financial statements rather than the completion of the external audits of these financial statements. The completion of financial statements was also the indicator that the MFED has regularly monitored. Meanwhile, the shift from all SOEs to the five largest ones was made in recognition of capacity and risk. The revised trigger did not stretch as far considering the very thin capacity of available accountants in SOEs and monitoring staff in MFED; and focused on the five big SOEs that posed fiscal risks to the government, instead of covering all of them. The prior actions under this component were appropriate and relevant in achieving the development objective. The prior actions under this reform area were sound debt management strategies worthy of sustained implementation. The GoK institutionalized the strategies through the National Economic Planning Office (NEPO) which was in charge of collecting and keeping the database up-to-date. Information on public debt fed into the annual budget presented to the Parliament, which gave additional impetus for its timely preparation. The prior actions, therefore, were appropriate and relevant to accomplish the improvement in debt management policy which would lead to the goal of better public financial management. C. Improving the public procurement system Procurement is as an area of significant weakness in public financial management in Kiribati. This third component on the public procurement plan was introduced in the last operation of this DPO series. It is nonetheless an important area of reform as the procurement process lacked the regulatory framework and mechanism in support of efficiency, fairness, and transparency. The existing legislation does not establish a preference for open competition, and the broader procurement framework lacks procurement regulations, standard bidding documents, contract documents, and a working-level procurement manual. There are also decentralized procurement functions in line ministries and SOEs, most with small volumes of procurement and no dedicated procurement officers. Procurement tends to be transactional rather than strategic. With technical assistance from ADB, the GoK completed a procurement review and formulated a reform program endorsed by the Cabinet. The reform plan included establishing a Central Procurement Unit (CPU) to centralize common activities and build professional capacity, centralize procurement over a certain threshold, and manage consolidated purchases of commonly procured items. The position of Chief Procurement Officer (CPO) would be moved to be within MFED from the current arrangement of the Secretary of the Cabinet as the CPO. Page 19 of 46 The World Bank Fourth Economic Reform Development Policy Operation (P161794) The prior action under this reform area – the approval and publication of a reform plan – was not the ideal choice for inclusion in the last operation of the DPO series. The prior action for this reform was the approval and publication of the Kiribati Public Procurement Reform Plan (KPPRP). However, like any plan, the approval of the KPPRP only signaled intent, and not actual actions that would institutionalize changes in the procurement process. As this prior action was included in the final operation of the DPO series, follow up actions could not be recommended as triggers. The team initially argued that Cabinet’s approval of the reform plan itself already signaled commitment to reforms. Nonetheless, changing political circumstances including an election that altered leadership or capacity issues could weaken such commitment and impede reform delivery. Acknowledging the importance of the procurement reform, the team took this risk that could consequentially jeopardize the timely achievement of the results indicators. Pillar 2. Improving the environment for inclusive growth D. Improving the economic returns from the fisheries JVs In Kiribati, fisheries are the main driver of the economy, impacting the welfare of many citizens. The fisheries sector holds one of Kiribati’s most important assets. It drives the economy through the public sector activity that fisheries license revenue supports. It also provides direct economic benefits in the form of jobs in fishing, processing and transshipment operations. Increasing the returns from fisheries – whether revenue to fund public sector activity or direct economic benefits – is critical to inclusive growth in Kiribati. Increasing the returns obtained from fisheries assets is a priority for the GoK. To increase domestic value-added from fisheries assets and provide employment opportunities for I-Kiribati workers, the government has forged a number of joint ventures with overseas partners. The impact of the JVs has been mixed with some delivering domestic jobs and export-grade products, while others were less clear on their economic contribution. It is therefore relevant that, as a prior action, the government institutionalized a regular review of all existing fisheries joint ventures. There was no change in the original triggers. The triggers remained to be the approval of a fisheries joint ventures policy outlining the criteria for evaluating existing and new fisheries joint ventures, and the approval of the plan to annually review the performance of fisheries joint ventures against this policy. The prior action under this reform area was not calibrated with government capacity and circumstances. In February 2017, the Cabinet approved the criteria for the review of the fisheries JVs targeting four key variables: revenue-generation for the government, impact on the community, impact on fisheries resources, and project viability. These criteria would serve as the basis for the planned annual review of fisheries JVs. Details of the review were, however, deficient and unclear as to which ministry would undertake it, whether capacity was available, or whether funding would be allocated. Having missed these considerations, the review process may turn out not calibrated with government capacity and circumstances. Civil service and human resources were known to be thin in Kiribati, which might impact delivery, and potentially endanger the timely achievement of the intended results. Finally, as the annual review was a mere policy directive, it was difficult to guarantee its operationalization into concrete actions. E. Encouraging expansion and competition in the telecommunication sector Page 20 of 46 The World Bank Fourth Economic Reform Development Policy Operation (P161794) The government liberalized and encouraged competition in the telecommunication sector. Achieving universal access to reliable and affordable telecommunication services is important to facilitate inclusive growth across the country. In the past, reaching this goal was hampered by the monopoly of Telecommunication Services Kiribati Limited’s (TSKL), an SOE, in the sector. In 2013, the GoK enacted a new telecommunication legislation providing for the liberalization of the sector, including the commercialization and sale of assets of the incumbent SOE. Two rounds of international bidding were undertaken in 2014-2015. After the failure of the first bidding process, the GoK decided to pursue other telecommunication operators in the region. The second bidding was successful, and the government in May 2015 concluded an agreement to sell TSKL assets to Fiji-based Amalgamated Telecom Holdings (ATH) forming a new company named Amalgamated Telecoms Holdings Kiribati Limited (ATHKL), which is now the dominant player in the telecommunication sector. The sale of TSKL was an ICT reform undertaken as part of the Telecommunication and ICT Development project (TICTD, P126324) funded by the World Bank. Nonetheless, while ATHKL was able to lower the cost of telecommunication services, it remained relatively high due to the lack of scale and the difficult operations on remote and sparsely populated islands. To address the cost problem, the GoK issued a second mobile operator license to the China-based Ocean Link Limited (OLL), the sole bidder for the tender, to introduce market competition in the sector. The original trigger was revised to focus on the ownership and management plans of telecommunication assets in the outer islands. The original trigger for this reform area was the Cabinet’s adoption of a Universal Access Plan (UAP), detailing costs, options, and the timeline to roll out the telecommunications services to the outer islands. Instead of a UAP, the Cabinet adopted an ownership and management plan for telecommunications assets in the outer islands in 2017, detailing the costs, options, and timeline to roll out mobile and internet services to the outer islands. Despite the revision, the Bank was of the view that the ownership and management plans adopted by Cabinet meets the requirements of a universal access program in the Kiribati context, thus the approval does not represent a substantial change to the original trigger. Currently, the ownership of the telecommunications assets is with BwebwerikiNet Limited, a newly established SOE which is responsible for telecommunication infrastructure. The company is working on developing its management plan, and is in the process of visiting all the islands to confirm their assets and values, and plan to lease them out to interested parties. They are expecting to have their plan ready by the first quarter of 2020. The prior actions under this component were appropriate and relevant in achieving the development objective. The telecommunication sector in Kiribati faced market failure with private firms refusing to provide service in a costly and capital-intensive sector with low prospect of high returns. The government’s stepping in to support the privatization of the SOE and issuance of a second mobile operator license – which were the prior actions – contributed to market competition, leading to a relatively lower cost for mobile services. The revised trigger was the approval of an ownership and management plan of assets in the outer islands, meant to facilitate the roll out of telecommunications services to the outer islands. Following consultations with the Bank’s telecommunication team, the GoK has opted for a public-private partnership approach on the telecommunications assets. The prior actions and triggers were appropriate to enable private sector participation in building the physical infrastructure that allowed for wider telecommunication services in the outer islands. F. Reducing cost and improving delivery of public services Page 21 of 46 The World Bank Fourth Economic Reform Development Policy Operation (P161794) Access to quality, affordable electricity services is critical to supporting inclusive growth. There is substantial scope for services delivery to be improved in South Tarawa where the use of grid electricity for lighting is low by regional standards for capitals (73 percent of households). The problems with the provision of basic services, including water and electricity, have a large impact in the lives of the poor who rely on dirty fuels, such as firewood, for cooking and heating, and who are susceptible to diseases from contaminated sources of water. In Kiribati, electricity service delivery is under the domain of the PUB, which was the subject of a performance improvement plan by the Ministry of Public Works and Utility. The plan included the competitive international selection and recruitment of a new CEO to spearhead the implementation of the performance improvement plan. The original trigger was revised to capture key aspects of the medium-term reform plan. The original trigger was Cabinet adoption of a medium-term reform plan for PUB, and the implementation of key aspects of the first six months of the plan. As it turned out, the reform plan did not ever go to the Cabinet, but was substantially implemented in a short timeframe. The maintenance of electricity generators was improved, contributing to improved reliability and availability of electricity and a 7.0 percent increase in electricity sales in 2016. A 1.5 MW of solar PV was brought into service, and efforts made to create a culture of payment with record recovery of electricity revenues of 104.0 percent in 2016. Because Cabinet approval of the overall plan was not pursued by PUB in the end, the trigger was replaced to capture key aspects of the reform plan with a focus on initiatives in improving the delivery of electricity services. The new prior actions included the approval of a new electricity tariff to lower the burden of electricity costs for the poorest households, and reduction of household electricity connection fee to expand access to electricity. The first prior action under this reform area did not establish institutional or policy change, but relied on the competence of the CEO to deliver the development objective. The DPO 3 prior action did not offer the institutional or policy change to effect the improvement in the financial and operational performance of the PUB. The achievement of the objective heavily depended on the competence of the appointed CEO, who had to bring the technical and managerial knowledge, coordinate with public authorities, and address the many market variables to effectively run the enterprise. More attention could have been paid to whether the CEO had the resources, the authorizing environment, and the support from a team within PUB that would also be critical to the achievement of the intended results. The prior action was important and worth supporting, but its implementation did not in itself guarantee the sustainability of its results. It would have been better if the team identified policy or institutional measures to institutionalize the implementation in ways that might make it less vulnerable to being undone. B. Achievement of Objectives (Efficacy) Rating: Moderately Satisfactory Pillar I. Strengthening public financial management A. Strengthening the governance of the RERF The results indicators under this reform area were relevant and measurable, and the targets were appropriate. There were two results indicators in this reform area. The first indicator was that the return on the RERF portfolio was 0.25 percent below the benchmark or better, while the second indicator was that the Page 22 of 46 The World Bank Fourth Economic Reform Development Policy Operation (P161794) RERF was managed at a cost of no more than 0.1 percent of market value. Both indicators were clearly defined and relevant to show evidences of improvement in RERF management. The achievement of the objective was attributable to the policy actions which were the appointment of two new external managers to execute the strategic restructuring of the RERF portfolio to a 50:50 mix of equity and fixed income; and the hiring of a new custodian through competitive process to safeguard the RERF assets. The targets were appropriate with industry performance metrics used as benchmarks. The first indicator was revised from the original specification in DPO3. The original result indicator was that the balance in the government's external cash account outside of the RERF would be reduced to no more than 50.0 percent of current expenditure. The indicator was instead revised to measure the return on the RERF portfolio to be 0.25 percent below the benchmark or better by 2018. The reason for the revision was related to the change made in the trigger for the second operation. It was no longer appropriate to measure the cash balances since this was associated with the original trigger of regularizing transfers to and withdrawals from the RERF. Moreover, the team thought that the revised indicator captured the combined effect of reforms supported in DPO2 and DPO3, which were closely related. It was appropriate for the baseline to be drawn in 2014, when the sequence of reforms commenced. Likewise, it was impossible to calculate a baseline from between the two series, because that was when the restructuring of the RERF portfolio was being executed and the assets held in transitional accounts. The results indicators were fully achieved despite a delay in the hiring of the custodian. The performance of the RERF in 2018 was well within the target. The unhedged global equity portfolio earned 1.61 percent relative to 1.42 percent for its benchmark, while the AUD government bond portfolio posted a return of 5.18 percent relative to 5.22 percent for its benchmark. The combined return for the entire portfolio was approximately 0.09 percent higher than the return under the market benchmark. Likewise, the cost of managing the RERF was no more than 0.1 percent of its average market value in 2018. The cost was calculated as the sum of the asset management fees, and the estimated custodian fees based on the contracted fees of the new custodian that was implemented in February 2019. The use of estimates for the latter was because of the delay in the hiring of the custodian. Due to the need to extend the RFP timeframe to secure sufficient market response to ensure competitive selection, thin capacity, and delays with the change in government administration in 2016, the custodian was hired only in February 2019 after the RFP issuance in 2017. This delay did not materially impact the achievement of the results indicators. B. Improving the management of public debt The results indicators were relevant and the targets were appropriate in supporting the improvement in public debt management. It was for completeness of the public debt database that the need to monitor contingent liabilities alongside domestic and external debt within a short three-month lag was relevant and appropriate in reaching the objective of better debt management. Based on the 2018 IMF/World Bank Debt Sustainability Analysis, Kiribati remained at high risk of debt distress, arising from a possible reversal of favorable weather or global market conditions and from contingent liabilities. Contingent liabilities held by SOEs were especially critical as they could materially impact public finances when called upon. The metrics were well defined, and the lag in reporting can be checked vis-à-vis excel files kept by NEPO. The target results indicators were fully achieved. The NEPO updated the public debt database with information on domestic and external debt including the list of contingent liabilities (i.e. public guarantees, Page 23 of 46 The World Bank Fourth Economic Reform Development Policy Operation (P161794) letters of credits, callable capital, promissory notes, and VISA business cards held by senior government officials). Electronic records for November 2019 showed that the database was updated within a month lag (ending October 2019) with information on principal and interest payments on outstanding loans, and on contingent liabilities cross-checked with ANZ Bank. The debt information was made publicly available through the Kiribati Budget Document. The 2020 Recurrent Budget held information on the debt profile by projects, debt repayment summary, domestic loans from consolidated funds, and public debt portfolio for 2018. While contingent liabilities were not available in the 2020 budget, there was intention to include them in the preparation for the 2021 budget. G. Improving the public procurement system The result indicator was relevant and the target was appropriate. Before 2018, public procurement greater than A$50,000 went through the Central Procurement Committee chaired by the Secretary of the Cabinet, which raised the issue of conflict of interest considering that the Secretary was involved in project decisions as well. Moreover, there was general agreement that procurement powers should not fall under the jurisdiction of a high position such as that of the Secretary of the Cabinet. The target of the delegation of procurement powers to the CPO was, therefore, relevant and appropriate to resolve the aforementioned issues. However, the result indicator is not yet met as the procurement power is held by the Minister of Finance. The delay in the delegation of authority was attributed to two factors: the thin capacity of the CPU, and the lengthy sequencing of reforms. In June 2018, the CPU was established under the MFED, and headed by the CPO who oversaw only one staff. This thin capacity for a newly operationalized unit necessitated that the procurement powers could not be hastily delegated to the CPO, and was instead temporarily delegated to the Minister of Finance. In the interim, the CPO took the role of delivering trainings on procurement (awareness trainings since mid-2019 and operational trainings starting next year), providing advice to ministries on major procurements, and leading the preparation of a procurement manual. Nonetheless, the commitment to transfer the procurement powers to the CPO remained intact with the passage of the new procurement bill. A new procurement bill passed the Parliament in November 2019, paving the way for the eventual delegation of authority to the CPO next year. The procurement bill, which held the legal framework for the CPO authority, underwent preparation and consultation in 2018. It was submitted for first reading in Parliament in April 2019, and was successfully passed in November 2019. It would now proceed to the Office of the Attorney-General before being submitted to the President for final approval in late 2019 or January 2020. The implementing rules and regulations, which have already been approved by Cabinet in draft form, would then be issued by the Minister of Finance, including the Delegation of Authority granting expanded procurement powers to the CPO and CPU Procurement Officers. The CPO is taking measures to improve staff and technical capacity by submitting a request to increase staffing capacity of the unit by three additional personnel, and discussing with development partners on procurement trainings to improve technical capacity. While the result indicator was not achieved during this operation, it generally supported the procurement reform momentum into succeeding operations. There has been continuity in the operations across DPO series in Kiribati. DPO 5 supported the next steps in the procurement reforms such as the review of the Page 24 of 46 The World Bank Fourth Economic Reform Development Policy Operation (P161794) Procurement Act 2002, and the preparation of the revised legislative framework for procurement. Thus, while the team risked the untimely achievement of the target in this operation, the risk paid off by supporting the reform momentum in succeeding operations. Pillar 2. Improving the environment for inclusive growth H. Improving the economic returns from the fisheries JVs This result indicator was relevant to the objective of supporting inclusive growth. The result indicator under this reform area was appropriate. It focused on improving the economic returns and transparency over the revenue contribution of the fisheries JVs to the public coffer through the approval of the criteria for JV reviews. Two of the criteria were directly relevant to inclusive growth: the first was on the impact on the community and the economy in terms of employment effect and contribution to development; and the second was on the impact on fisheries resources in terms of sustainability of fisheries policies. Moreover, the revenue generated from the JVs meant more public spending capacity that would go to investments in education and health programs, as prioritized in the budget by the GoK. However, the indicator required for the annual review of the JVs which was difficult to implement. The indicator required for the annual review of the fisheries JV, which was difficult to implement given the thin capacity of the ministries. The Ministry of Fisheries and Marine Resources Development (MFMRD) revealed that no staff was assigned to monitor the fisheries JVs. Moreover, while the MFED commissioned a review in 2018 through a donor funded-technical assistance, no review has been implemented for 2019. It is unclear if future reviews will be conducted, which ministry will conduct it, or whether funding will be allocated for the review. The result indicator was not achieved, although GoK planned to seek an additional independent review on the fisheries JVs. The MFED, through development-partner technical assistance, hired independent consultants to carry the first annual review of the fisheries JVs in 2018. The review was completed in June the same year, and presented to the Cabinet. As is perhaps inevitable in work focused on such a politically sensitive area as sovereign-commercial fisheries JV arrangements in country with such a rich fishery, the report was scrutinized and contested. The MFMRD conveyed reservations on the report, citing issues of data validity and the questionable expertise of the consulting firm (i.e. group of economists with no fisheries specialist). The ministry felt that the review lacked thorough analysis because of the heavy reliance on interviews; and that commercial fishing firms did not freely share financial information. Consequently, the MFMRD planned to ask for an independent review by the FFA. While the report’s conclusion was that Kiribati is not getting value-for-money from the JVs, no remedial actions have yet been agreed between the GoK and the JVs given the standing reservations by the MFMRD. I. Encouraging expansion and competition in the telecommunication sector The results indicators under this reform area were relevant and measurable, and the targets were appropriate. Improving telecommunication services and expanding its reach to outer islands supported the environment for inclusive growth. There were two result indicators for these reform actions. The first indicator was that the Tarawa market was served by at least two mobile service operators, with the mobile phone penetration rate at least 50 percent and the cost of a three-minute peak-hour mobile-to-mobile call in Page 25 of 46 The World Bank Fourth Economic Reform Development Policy Operation (P161794) Tarawa of no more than A$0.75. The introduction of a second player was meant to increase competition with the hope of reducing costs and thereby, improve market penetration. The second indicator, which was introduced in DPO 4, was that there was an increased penetration of mobile telephones in the outer islands. Both these indicators were appropriate measures to assess whether the telecommunication sector environment had improved to lead to greater participation and usage of telecommunication services not only by the people of Tarawa but also by those from the outer islands. The results indicators were mostly achieved amid a substantial improvement in the telecommunication sector. As already noted, there are now two players in the telecommunication sector in Kiribati – the incumbent, ATHKL, and the newly licensed operator, OLL. ATHKL has been successful in expanding services, including 4G LTE, and coverage with the increase in base stations from 14 in 2016 to 26 in 2019. Furthermore, OLL commenced operations on the island in 2017, serving Tarawa and the outer islands at Butaritari and Makin. The entry of the second player resulted in competition that brought down the cost of mobile-to-mobile phone calls. The average cost of a three-minute peak-hour mobile-to-mobile phone call was reduced to A$0.35 as of October 2019 from A$0.90 as of December 2013, substantially below the target of A$0.75. The decrease in prices helped increase public usage of mobile services with the mobile phone penetration rate reaching 47.0 percent as of October 2019, falling short of the minimum target of 50.0 percent. Meanwhile, services to the outer islands markedly improved with a mobile penetration rate at 42.6 percent compared with the target of 20.0 percent. The outer islands are served by both players in the market. J. Reducing cost and improving delivery of public services The results indicators under this reform area were relevant and measurable, and the targets were appropriate. There were two sets of result indicators under this reform area. The first set of indicators measured the quality of electricity service delivery by gauging the PUB’s performance on the billing collection rate, total power losses, and frequency and duration of electricity outages. The prior action for these indicators was the appointment of an international CEO who would manage and implement the PUB’s reform program. The current CEO was the second one since the policy action to make the position internationally- recruited. The second set of indicators, which was introduced in DPO 4, measured the impact of the new electricity tariff structure on poor households in Tarawa. The prior actions were the approval of a more affordable electricity tariff, and the reduction in household electricity connection fee to make electricity more affordable to the poor. Both sets of indicators were relevant in contributing to inclusive growth by first, improving the service delivery of electricity and second, making electricity more affordable to the poor. The results indicators were measurable with the needed information collected by the PUB. The targets were appropriate when compared with industry standards and regional averages. Most results indicators have not been achieved. Performance in the electricity sector deteriorated with more frequent and longer power interruptions in Tarawa. Electricity-generation facilities were generally old, requiring extensive repairs and substantial upgrades. On the one hand, the SAIFI, which measured the frequency of interruptions, reached 11.4 times in 2018, significantly higher than the baseline of 7.9 interruptions in 2016 and target of 6 interruptions. On the other hand, the SAIDI, which measured the length of interruptions, reached 3,451 minutes in 2018, significantly higher than the baseline of 946 minutes in 2016 and the target of 880 minutes. Total power losses marginally improved to 16.9 percent in 2018 from the baseline of 18.0 percent in 2015, but still missed the target of less than 15.0 percent. Page 26 of 46 The World Bank Fourth Economic Reform Development Policy Operation (P161794) Despite these setbacks, electricity billing collection has improved. The electricity billing collection rate reached 96.0 percent in 2018, exceeding the target of 85.0 percent. The better performance was supported by effort to create a culture of payment, along with the PUB’s introduction of a prepayment metering project in August 2017. The metering project has completed 500 installations since then, and was reportedly well- received by the population in South Tarawa. Meanwhile, the implementation of the lifeline tariff for electricity, ensured that household customers only pay 10 cents per kWh for the first 100 kWh of electricity consumed. This tariff structure effectively lowered the burden of electricity costs so that the entire population of poor households who have access to electricity benefitted from the approved lower tariff. C. Overall Outcome Rating and Justification Rating: Moderately Satisfactory The overall outcome is rated moderately satisfactory. This overall rating arises from the ratings for relevance of prior actions (moderately satisfactory), and for achievements of objectives/efficacy (moderately satisfactory). Of the six reform areas, the prior actions and results indicators were appropriately chosen to support and measure the gains in three reform areas: the management of the RERF, the completeness of public debt database, and the service delivery environment in the telecommunication sector. Progress has been made with the remaining three reform areas, but fell short of achieving the desired targets. The procurement authority has yet to be delegated to the CPO, but the government’s commitment remains intact with the recent passage of a new procurement bill that paves the way for the eventual delegation to the CPO early next year. Meanwhile, the MFED delivered on the commissioned report to review the fisheries JVs, but no further action has been taken on the fisheries JV review process pending a planned independent review requested by the MFMRD. Finally, the performance on the delivery of electricity services has deteriorated in terms of reliability, revealing the immense challenges that the PUB faces, although the PUB has successfully expanded access and affordability for poorer households in South Tarawa. III. OTHER OUTCOMES AND IMPACTS A. Poverty, Gender and Social Impacts Policies that supported PFM strengthening ensures that the government can maintain public services and investment in human capital that benefit the poor. Improving the operational performance of the RERF is vital to fiscal sustainability in Kiribati. With better management by the new asset managers, the portfolio return has substantially improved to levels at par with market benchmark. The higher the returns earned from the RERF portfolio, the more financing is made available for important projects on infrastructure and social spending that can help the poor. In fact, in the 2020 Kiribati recurrent budget, the MFED prioritizes public expenditure on education and health. Moreover, a new withdrawal rule for the RERF is currently being deliberated with plans for portfolio returns in excess of 5.0 percent to be withdrawn for development projects. Besides improving the governance of the RERF, improving public debt management including the monitoring of contingent liabilities guides the government to prudent borrowings. Reduced telecommunication cost, alongside improved mobile services, increased market penetration in Tarawa where most of the poor live. Reform actions such as the privatization of the telecommunication SOE Page 27 of 46 The World Bank Fourth Economic Reform Development Policy Operation (P161794) and the entry of a second player encouraged market competition which led to the reduction of telecommunication costs. The low cost was accompanied by an increase in market penetration rate from 12.0 percent in 2014 to 47.0 percent as of October 2019 in Tarawa, where basic needs poverty was concentrated. Nearly half of the population in the capital are now users of mobile communication services which support connectivity for personal or business use. The rollout of telecommunication services in the outer islands that resulted in the more than three-fold increase in mobile telephones penetration help reduced the isolation and improved information dissemination to the residents. More broadly, the reforms in the sector are expected to improve the business environment in Kiribati, enabling the private sector to take advantage of economic opportunities with consequential benefits for job creation. The lower electricity tariffs and fees had positive poverty impacts. In January 2017, Cabinet approved the reduction of the residential electricity tariff for PUB from 40 cents per kWh to 10 cents per kWh for the first 100 kWh of electricity consumed. In April that year, it approved the reduction of the connection fee for residential power users from A$380 to A$50 per connection. The more affordable rates led to expanded access and wider electricity coverage especially among the poor. B. Environmental, Forests, and Natural Resource Aspects Reform actions on wider electricity coverage and better telecommunication services in the outer islands have minor positive impact on the environment. While the ICR team was unable to gather data evidences on the environmental impact of the reforms, the team believed that some reform actions had minor positive impacts. For instance, the increased household electricity connection would have reduced the use of kerosene for cooking and lighting; and that better telecommunication services in the outer islands would help the business environment and reduced migration and the pressure on resources in the capital of Tarawa. C. Institutional Change/Strengthening The delegation of procurement powers to the CPO will improve internal control in the procurement process. The GoK remains committed to issue the delegation of procurement authority to the CPO with the recent passage of the procurement bill in Parliament. Pending the President’s signing of the bill and Cabinet’s approval of the implementing rules and regulations, the delegation of authority is expected to be finalized in early 2020. The delegation of authority to the CPO is important to improve internal control and ensure the appropriate separation of project approval and procurement duties. D. Other Unintended Outcomes and Impacts No other unintended outcomes and impacts. IV. BANK PERFORMANCE Rating: Moderately Satisfactory Bank Performance at Preparation Phase The analytical underpinnings of the operation at entry were strong and relevant. The analytical underpinnings for the reform areas came from studies made by the World Bank and the IMF. The World Bank Treasury worked on the RAMP technical assistance report with recommendations on the contract Page 28 of 46 The World Bank Fourth Economic Reform Development Policy Operation (P161794) renegotiation with the custodian and the strengthening of the oversight of asset managers, while the IMF’s Establishing a Structure for Public Debt Management technical assistance report, together with the WB-IMF Debt Sustainability Analysis, led to the recommendation to monitor and manage contingent liabilities. Other reform actions on public procurement reforms and the fisheries joint ventures oversight benefitted from the Kiribati Public Financial Management Performance Report 2010, Kiribati Procurement System Review Report 2016, and the Kiribati National Fisheries Policy 2013-2025. Finally, the World Bank Kiribati ICT Development Project Appraisal Document anchored the reform actions made for the improvement of telecommunication services in the operations. The design of the operation reflected lessons learned in the implementation of a previous DPO series in Kiribati. These included the use of flexibility in the Bank’s approach to programmatic series of DPOs whereby, indicative triggers were revised to better suit developments and appropriateness of reform actions; the use of project-level engagements to identify priorities to be supported by the operations such as in the telecommunications and utility sector reforms; tackling contentious but important policy areas like the RERF and fisheries and SOE management; and the use of a budget support to push for policy dialogue in Kiribati. The risks were appropriately defined but the mitigating measures were not sufficient to address all the risks. Early on, the DPO 3 and 4 task team leaders have properly identified the risks that go with the operations. The overall risk rating was rated substantial due to institutional capacity risks, political and governance risk, and macroeconomic risk. First, capacity risk was rated high because of the extremely thin capacity of the public sector to implement the reform program and sustain it over time. This risk has materialized over the course of the operation, and has been a factor to the failure to achieve the result indicators in the areas of procurement and fisheries joint ventures. Mitigation measures relied on strong government engagement, fewer policy actions, and having regular missions. Second, political and governance risk was also rated substantial because some of the reform program supported by the DPO included areas that tended to be politically sensitive. These included the management of the RERF, the governance and reforms of SOE, and the management of fisheries joint ventures. To a large degree, these political risks could not be mitigated so measures relied on dialogue, building common platforms, and taking step-by-step approach to reforms. Finally, the macroeconomic risks was identified as substantial given the country’s inherent volatility to shocks which if materialized, may detract away from policy focus. Other risks identified originated from natural disasters and climate change, and fiduciary in nature. Coordination with other development partners through the ERT was adequate. A tried-and-tested model, government and development partners dialogue through the ERT was effective in creating a common matrix that highlighted government priorities, reform actions and process, and technical and budget support that each development partner would provide. This helped avoid the duplication of work, delivered better planning, and increased the synergy among the development partners. Bank Performance at Implementation Phase While the Bank has adequately assessed the Government’s implementation capacity in some reform areas, it has not in others. In general, the government’s commitment to reforms was established as early as the DPO preparation stage, evidenced by the completion of prior actions and agreement to triggers. However, leadership changes and staff turnovers has set back the reform progress as new leadership takes time and due diligence to understand the reform actions and their consequences. The Bank should have anticipated Page 29 of 46 The World Bank Fourth Economic Reform Development Policy Operation (P161794) such occurrences which derailed the timely achievement of targets. Moreover, in specifying some of the results indicators, the Bank failed to consider the client’s capacity in delivering some of the targets. For instance, the CPO turned out to be staffed by only two people, and the annual review of the fisheries joint ventures has not been carried out, at least partly due to the limited technical capacity of either the MFED and MFMRD staffs. Still, there were reform areas that the Bank adequately assessed the government’s capacity, including, for instance, limiting the accounting review to the five largest SOEs which posed fiscal risk to the government, instead of all SOEs, considering the thin capacity of available accountants in SOEs or monitoring staff in MFED. The DPO team had regular discussions with the GoK and worked very closely with other development partners on the progress of reforms. The DPO team followed up on the reform implementation with GoK, and discussions were made multiple times per year over 2017 and 2018. The team also worked closely with other development partners, to increase the extent and frequency of the support being provided to the GoK through the coordinated approaches of these other development partners. This was an important factor in enabling the Bank to achieve a greater degree of supervisory support for the program than would have been possible with the small, remotely located Bank team alone. The team made good use of the flexibility of a programmatic approach to the DPO to update key aspects of the operations. This included revising the PDO from the earlier focus on private sector-led growth to the updated focus on the environment for inclusive growth. The revision was appropriate considering the inherent economic structure in Kiribati where the public sector commanded a substantial portion of the economy through employment and SOE activities. Private sector has been growing but not to the extent of overturning the role of the public sector in the short term. As a result, commensurate changes were made on select results indicators to better align with the new PDO. V. RISK TO SUSTAINABILITY OF DEVELOPMENT OUTCOMES The sustainability of the development outcomes faces substantial risks from multiple fronts. These risks revolve mainly on the institutional capacity for implementation and sustainability, macroeconomics and the vulnerability to external conditions, and politics and governance in the country. Kiribati has a thin public sector that may translate to weak institutional capacity for implementation. The lack of human resources has impeded the timely delivery of tasks and projects, and endanger the quality implementation of reforms. Some departments are staffed too little including an extreme case of the CPU with only two individuals. This thin capacity is exacerbated by staff turnover including those in key leadership and management positions such as the Minister of Finance in the latter half of 2017 and again in 2019. Departing personnel take with them the management expertise, technical knowledge and work information that may not be properly and timely transferred when finding suitable replacements also takes time. This ICR mission was, in fact, conducted with a set of key counterparts who were not involved in the DPO preparation and implementation in 2016-2017. The thin public sector capacity is a clear risk to the sustainability and continuity of implemented reforms. The development outcome of the series is also subject to macroeconomic risks. The risk arises because the sustainability of the implemented reforms depends in part on stable macroeconomic conditions. Given the high reliance on fishing revenues and on imported goods, Kiribati is vulnerable to economic shocks, Page 30 of 46 The World Bank Fourth Economic Reform Development Policy Operation (P161794) emanating from large commodity price fluctuations, volatility in the Australian dollar, natural disasters and from global capital markets through the exposure to foreign assets of the RERF. The current context of a weak and uncertain global environment may especially weaken the yields of the RERF investments, or dent demand for fisheries output. Climate change is also increasing uncertainty for fishing revenue in the medium term. Where shocks undermine macroeconomic stability, policy effort may be diverted away from the areas supported by the programmatic series and the reform progress achieved may not be sustained, in turn threatening the achieved outcomes. Changes in government administration may alter policy priorities and focus away from the reform actions supported by this DPO series. Political and governance aspects can also be a risk in changing the priorities and commitment on specific reforms. Elections bring about changes in top leadership, along with the accompanying cabinet revamp. The risks to the sustainability of the development outcomes lies when new leadership bring about new policy priorities and shift away from commitments made by the previous authorities. Or it can be the case when the new leadership generally agree with the reforms but takes time to own the process. VI. LESSONS AND NEXT PHASE A. Lessons Learned The Economic Reform Taskforce has proven to be an effective model that brings together the government and development partners in pushing for reform actions. The ERT serves as the forum for consultation, coordination and management of key economic reforms. It is a joint government-donor working group, chaired by the Secretary to Cabinet and including the Permanent Secretaries for Finance and Economic Development, Fisheries and Marine Resources Development, Communications, Transportation and Tourism Development, and Commerce, Industry and Cooperatives, as well as representatives of the World Bank, ADB, DFAT, MFAT and the EU. The ERT provides a useful forum for dialogue, progress monitoring, results monitoring, and coordination of technical assistance for budget support-related reforms. The preparation of a common matrix clarifies the roles of different development partners in helping the GoK push for important reforms. The ERT may complement technical assistance with knowledge transfer and capacity building for government staff to better capacity in the delivery of reforms. Some choices of indicators face the risk of being unmet given the government’s thin and limited capacity. Some ministries operate with insufficient number of personnel, or for those with a large team, personnel may have limited technical capacity. For instance, the requirement for the annual review of the fisheries joint ventures required sufficient staffing and technical expertise within the government to conduct the review. While the first review was commissioned externally through a TA, it is unclear how the review shall be delivered in succeeding years without identifying the funding source and the appropriate experts within the ministry. The CPU is understaffed, and new recruits may need trainings in the performance of their duties. There is thus a need to complement policy actions with capacity building initiatives that prioritize knowledge transfer to support the ministries to effectively build expertise and conduct the work themselves. A support for civil service modernization would be a relevant next step for the Bank’s engagement to help strengthen strategic and operational leadership within GoK. Page 31 of 46 The World Bank Fourth Economic Reform Development Policy Operation (P161794) Measures have to be taken to ensure the proper and timely transfer of information and action points to new leadership. Changes in key leadership positions has been a problem in ensuring continuity in reform actions and knowledge of ongoing projects. The ICR mission faced this problem upon interviewing government officials who were not directly involved in the 2016-2017 DPO preparation and implementation. It is, thus, important that in instances of changes in leadership, the GoK must set measures to ensure the proper and timely transfer of information to ensure commitment and continuity of engagements on the agreed reform actions. This can be done through an exit meeting and document sharing from the outgoing to the incoming staff. Key ministry staff should also be involved in government discussions and development partners engagement to retain institutional memory within the ministry. In cases when delay occurs that preclude a proper transfer, the ERT can step in to share information and provide a briefing of key actions and target results. This can be similar to Trust Fund arrangements at the Bank when the departing task team leader prepares a Handover Memo and Letter of Representation to the government and incoming lead. The flexibility in a programmatic series of DPOs is important in response to changing circumstances. The World Bank must be flexible in dealing with counterparts with weak capacity, oftentimes subject to political and leadership change. While the government’s commitment remains intact, reform actions may be delayed for situations out of the control of the government such as the sudden resignations of key personnel, the weak capacity of staffs, or new urgent priorities that temporarily supplant old priorities. The Bank must show flexibility and leniency especially when the client shows sincerity through changing the timeframe of reforms, or changes in triggers in subsequent operations to accommodate these changes. By doing so, the Bank retains the incentive for the client to make progress on the other reform areas according to the original schedule, gives due acknowledgement to reform endeavors made in good faith, and supports macroeconomic stability through the predictable flow of resources that have been included in national budgets. B. Next Phase A new programmatic series of DPOs was prepared to maintain the continuity of dialogue and momentum for the reforms. In 2018, the Bank began preparation of a new series of two DPOs, building on the reform focus of DPOs 3 and 4. DPO 5 was approved by the Board in November 2018 and included prior actions on the governance of the RERF, the establishment of the CPU in line with the KPPRP, strengthening management of oceanic fisheries, and improving the provision of basic utility services by the PUB. DPO 6 includes further measures in relation to the RERF and PUB, while supporting the introduction of a new legal framework for procurement. The Bank continues to work with other partners under a joint matrix, coordinated through the ERT mechanism. . Page 32 of 46 The World Bank Fourth Economic Reform Development Policy Operation (P161794) ANNEX 1. RESULTS FRAMEWORK A. RESULTS INDICATORS Pillar: Strengthen Public Financial Management Indicator Name Unit of Measure Baseline Target Actual Achieved at Completion The return on the RERF portfolio Text The RERF portfolio has a The RERF portfolio has a The RERF portfolio has a return 0.09 is aligned with the relevant return 8.29 percent return 0.25 percent below percent higher than the market benchmark. below the benchmark. the benchmark or better. benchmark. 31-Mar-2014 31-Dec-2018 31-Dec-2018 Comments (achievements against targets): The target was met. The unhedged global equity portfolio earned 1.61 percent relative to 1.42 percent of its benchmark. The AUD government bond portfolio posted a return of 5.18 percent relative to 5.22 percent of its benchmark. The total portfolio outperformed the benchmark by approximately 0.09 percent. Indicator Name Unit of Measure Baseline Target Actual Achieved at Completion Page 33 of 46 The World Bank Fourth Economic Reform Development Policy Operation (P161794) The RERF is managed according Text Costs of 0.2 percent of Costs of no more than 0.1 The target was met. to prevailing market standards market value percent of market value with reduced costs. 31-Dec-2015 31-Dec-2018 31-Dec-2018 Comments (achievements against targets): The target was met based on the combination of actual asset management fees for 2018 and the estimated custodian fees for 2018. The estimated custodian fees in 2018 was based on the contracted fees of the new custodian that was implemented in February 2019. Indicator Name Unit of Measure Baseline Target Actual Achieved at Completion Public sector debt, including Text The debt database covers The debt database covers The debt database covers public contingent liabilities, is only central government public sector external and sector external and domestic debt, monitored effectively through a external debt. domestic debt, including including contingent liabilities, and comprehensive and up-to-date contingent liabilities, and all debt and debt-related public sector debt database. all debt and debt-related transactions (including repayments transactions (including and disbursements) are recorded repayments and within a month lag. disbursements) are recorded within a three month lag. 31-Dec-2015 31-Dec-2018 31-Oct-2019 Page 34 of 46 The World Bank Fourth Economic Reform Development Policy Operation (P161794) Comments (achievements against targets): The targets were met. Indicator Name Unit of Measure Baseline Target Actual Achieved at Completion Through the implementation of Text No CPU. The CPO holds delegated The CPO does not hold delegated the KPPRP, the CPU has become procurement powers. procurement powers. oprerational as indicated by the delegation of the relevant 31-Dec-2016 31-Dec-2018 30-Nov-2019 procurement powers to the CPO. Comments (achievements against targets): The target was not met. Pillar: Improve the Environment for Inclusive Growth Indicator Name Unit of Measure Baseline Target Actual Achieved at Completion All fisheries joint ventures are Text Two-thirds of the joint All remaining joint ventures The MFED through an ADB TA reviewed annually based on the ventures were assessed were assessed as providing commissioned a review of the approved criteria and, for joint as providing value-for- value-for-money to Kiribati fisheries joint ventures in 2018. The ventures that the review finds do money to Kiribati. in the latest annual review, review found that the joint not offer value-for-money for or had associated remedial ventures do not offer value-for- Kiribati, remedial actions are money to Kiribati. The MFMRD Page 35 of 46 The World Bank Fourth Economic Reform Development Policy Operation (P161794) agreed. actions agreed. conveyed disagreement in the review, and plan to seek an independent review from the Pacific Islands Forum Fisheries Agency (FFA). No further action has been taken. 31-Dec-2015 31-Dec-2018 30-Nov-2019 Comments (achievements against targets): The targets were not met. Indicator Name Unit of Measure Baseline Target Actual Achieved at Completion The telecommunications market Text The Tarawa market is The Tarawa market is The Tarawa market is served by two in Tarawa is served by at least served by one mobile served by at least two mobile service operators, with the two mobile service operators service operator, with mobile service operators, mobile phone penetration rate at competing on access and price. the mobile phone with the mobile phone 47.0 percent, and the cost of a penetration rate at 12 penetration rate at least 50 three-minute peak-hour mobile-to- percent (December 31, percent and the cost of a mobile call in Tarawa at A$0.35. 2014), and the cost of a three-minute peak-hour three-minute peak-hour mobile-to-mobile call in mobile-to-mobile call in Tarawa no more than Tarawa at A$0.90 A$0.75. (December 31, 2013). 31-Dec-2013 31-Dec-2018 31-Oct-2019 Page 36 of 46 The World Bank Fourth Economic Reform Development Policy Operation (P161794) Comments (achievements against targets): The targets were mostly met, with only the penetration rate falling short of the target. Indicator Name Unit of Measure Baseline Target Actual Achieved at Completion There is increased penetration of Percentage 12.00 20.00 42.60 mobile telephones in the outer islands. 31-Aug-2015 31-Dec-2018 31-Oct-2019 Comments (achievements against targets): The target was met. Indicator Name Unit of Measure Baseline Target Actual Achieved at Completion The financial and operational Text Billing collection rate of Billing collection rate of at Billing collection rate of 96 percent, performance of the PUB and the 85 percent (2015), total least 90 percent, total total power losses of 16.9 percent, quality of electricity services have power losses of 18 power losses of less than SAIFI of 11.4 interruptions, and improved. percent (2015), SAIFI of 15 percent, SAIFI of 6 SAIDI of 3,451 minutes 7.9 interruptions (2016), interruptions, and SAIDI of and SAIDI of 946 minutes 880 minutes (2016) 31-Dec-2015 31-Dec-2018 31-Dec-2018 Comments (achievements against targets): Page 37 of 46 The World Bank Fourth Economic Reform Development Policy Operation (P161794) The targets were partially met. Indicator Name Unit of Measure Baseline Target Actual Achieved at Completion There is an increase in the Percentage 0.00 70.00 100.00 proportion of poor households in Tarawa benefiting from the new 31-Dec-2016 31-Dec-2018 31-Dec-2018 electricity tariff structure. Comments (achievements against targets): The target was met. Page 38 of 46 The World Bank Fourth Economic Reform Development Policy Operation (P161794) ANNEX 2. BANK LENDING AND IMPLEMENTATION SUPPORT/SUPERVISION PROCESSES A. TASK TEAM MEMBERS P161794 Virginia Ann Horscroft (Task Team Leader), Cristiano Costa e Silva Nunes (Procurement Specialist), Stephen Paul Hartung (Financial Management Specialist), Robert Johann Utz (Team Member), Natasha Beschorner (Team Member), Ekaterina M. Gratcheva (Team Member), Mizuho Kida (Team Member), Duangrat Laohapakakul (Counsel), Samantha Evans (Team Member), Kamleshwar Prasad Khelawan (Team Member), Loren Jayne Atkins (Counsel) P155540 Mizuho Kida (Task Team Leader), Cristiano Costa e Silva Nunes (Procurement Specialist), Stephen Paul Hartung (Financial Management Specialist), Robert Johann Utz (Team Member), Ekaterina M. Gratcheva (Team Member), Kamleshwar Prasad Khelawan (Team Member) B. STAFF TIME AND COST P161794 Staff Time and Cost Stage of Project Cycle No. of staff weeks US$ (including travel and consultant costs) Preparation 24.717 94,616.30 FY17 11.480 57,564.14 FY18 1.862 4,506.32 FY19 1.075 2,568.39 FY20 Total 39.13 159,255.15 Supervision/ICR 1.900 4,134.74 FY20 Total 1.90 4,134.74 Page 39 of 46 The World Bank Fourth Economic Reform Development Policy Operation (P161794) P155540 Staff Time and Cost Stage of Project Cycle No. of staff weeks US$ (including travel and consultant costs) Preparation 18.943 80,479.15 FY16 24.717 97,182.75 FY17 11.480 57,564.14 FY18 1.862 4,506.32 FY19 1.075 2,568.39 FY20 Total 58.08 242,300.75 Supervision/ICR .150 15,026.35 FY16 1.900 4,134.74 FY20 Total 2.05 19,161.09 Page 40 of 46 The World Bank Fourth Economic Reform Development Policy Operation (P161794) ANNEX 3. BORROWER, CO-FINANCIERS, AND OTHER DEVELOPMENT PARTNERS’/STAKEHOLDERS’ COMMENTS Ministry of Finance and Economic Development, National Economic Planning Office The Government of Kiribati has reviewed the ICR and has noted the findings and broadly agrees with the moderately satisfactory ratings, as presented, on basis that reforms outlined are ongoing and the relevant feedback is being incorporated to improve result outcomes in subsequent DPOs. Specifically, responses to the key clusters of DPOs are as follows: RERF, public debt, and procurement progress and outcomes have been noted. Utility outcomes in power and telecommunications are also noted. Fisheries outcomes have also been noted. We have noted the incorporation of feedback in the report which we appreciate. Acknowledgement of the effort from world bank staff and the relevant government stakeholders engaged in the consultation to complete this ICR is made. The Government does kindly request please if ICRs can be done quicker following DPOs while DPO activity memory is fresh and results actionable, particularly where deteriorating trends need to be addressed quickly by the Government to improve the outcome and sustainability of future development interventions. Australia’s Department of Foreign Affairs and External Trade: The review is comprehensive and fully reflects a true information on the (context, implementation of the triggers and changes, including targets and outcomes) of the DPO 3 &4. The theory of change (Fig 1) and the assessment of the program design and outcomes makes it easier for the reader to understand the changes throughout the processes until the impact. The review is also inclusive in assessing the broader future impact of the RERF. The overall rating of ‘moderately satisfactory’ is reasonable, however it does not consider the great achievements made under each of the outcome. For example, the achievement on ‘strengthened governance of the RERF’ should be valued more compared to the rest of the outcomes. Page 41 of 46 The World Bank Fourth Economic Reform Development Policy Operation (P161794) ANNEX 4. SECTORS AND THEMES . SECTORS AND THEMES P161794 Sectors Mitigation Co- Adaptation Co- Major Sector/Sector (%) benefits (%) benefits (%) SECTOR_TBL Agriculture, Fishing and Forestry 17 0.00 0.00 Fisheries 17 0 0 SECTOR_TBL Public Administration 50 0.00 0.00 Central Government (Central Agencies) 50 0 0 SECTOR_TBL Information and Communications Technologies 17 0.00 0.00 ICT Services 17 0 0 SECTOR_TBL Energy and Extractives 16 8.00 0.00 Energy Transmission and Distribution 16 50 0 Themes Major Theme/ Theme (Level 2)/ Theme (Level 3) (%) Economic Policy 33 Fiscal Policy 33 Fiscal sustainability 33 Private Sector Development 50 Business Enabling Environment 50 Investment and Business Climate 50 Public Sector Management 33 Public Finance Management 33 Public Expenditure Management 17 Page 42 of 46 The World Bank Fourth Economic Reform Development Policy Operation (P161794) Debt Management 17 Environment and Natural Resource Management 17 Climate change 8 Mitigation 8 Renewable Natural Resources Asset Management 17 Fisheries Policies and institutions 17 Energy 17 Access to Energy 17 P155540 Sectors Mitigation Co- Adaptation Co- Major Sector/Sector (%) benefits (%) benefits (%) SECTOR_TBL Public Administration 60 0.00 0.00 Central Government (Central Agencies) 60 0 0 SECTOR_TBL Information and Communications Technologies 20 0.00 0.00 ICT Services 20 0 0 SECTOR_TBL Energy and Extractives 10 0.00 0.00 Other Energy and Extractives 10 0 0 SECTOR_TBL Water, Sanitation and Waste Management 10 0.00 0.00 Other Water Supply, Sanitation and Waste 10 0 0 Management Themes Major Theme/ Theme (Level 2)/ Theme (Level 3) (%) Economic Policy 40 Fiscal Policy 40 Fiscal sustainability 40 Page 43 of 46 The World Bank Fourth Economic Reform Development Policy Operation (P161794) Private Sector Development 20 Business Enabling Environment 20 Regulation and Competition Policy 20 Public Sector Management 20 Public Finance Management 20 Debt Management 20 Public Administration 20 State-owned Enterprise Reform and Privatization 20 . Page 44 of 46 The World Bank Fourth Economic Reform Development Policy Operation (P161794) ANNEX 5. LIST OF SUPPORTING DOCUMENTS 1. Program Documents, August 2016 and October 2017 2. Letters of Development Policy, July 2016 and September 2017 3. Memo to IEG on Result Indicator 2: Managing the RERF at a reduced cost Page 45 of 46 The World Bank Fourth Economic Reform Development Policy Operation (P161794) Map of the Republic of Kiribati Page 46 of 46