The World Bank Report No: ISR14330 Implementation Status & Results Sao Tome and Principe Second Governance and Competitiveness Development Policy Operation (P130925) Public Disclosure Copy Project Name: Second Governance and Competitiveness Development Program Stage: Implementation Seq.No: 1 Status: APPROVED Last Modified Date: 27-May-2014 Policy Operation (P130925) Country: Sao Tome and Principe Approval FY: 2013 Product Line: IBRD/IDA Region: AFRICA Lending Instrument: Development Policy Lending Implementing Agency(ies): Key Dates Board Approval Date 03-Jun-2013 Original Closing Date 30-Jun-2014 Planned Mid Term Review Date Last Archived ISR Date Effectiveness Date 08-Aug-2013 Revised Closing Date 30-Jun-2014 Actual Mid Term Review Date Program Development Objectives Program Development Objective (from Program Document) The objective of the DPO series is to assist the Democratic Republic of São Tomé and Príncipe to: (i) strengthen economic governance, with a focus on improving the transparency, monitoring and accountability of public and natural resources, improving the management and reporting of statistics, promoting fiscal stability, and strengthening public debt management; and (ii) support broad-based growth by improving the business climate, with a focus on simplifying business regulations and reducing the cost of trading across borders, and by promoting economic diversification. Has the Program Development Objective been changed since Board Approval of the Program? Yes No Overall Ratings Previous Rating Current Rating Progress towards achievement of PDO Moderately Satisfactory Overall Implementation Progress (IP) Satisfactory Implementation Status Overview Public Disclosure Copy The second governance and competitiveness development policy operation (Grant H2485) was approved by the World Bank's Board of Directors on June 3, 2013 after the completion of 9 prior actions. This program was signed on June 20, 2011 and became effective on August 8, 2013, after the conditions for effectiveness were met. This is the second operation in a series of three single-tranche operations, the first of which was approved in March 2012. The DPO series aims to strengthen STP’s macroeconomic and institutional framework, build resilience to internal and external shocks, enhance the efficiency and transparency of public expenditures, foster a healthy and competitive business environment, and speed-up economic diversification. The Government of Sao Tome and Principe is committed to achieve all results indicators before the program's closing. As of April 2014,not all the target term indicators had been fully met. Concerning e the end program targets, although significant progress has been achieved, a satisfactory completion of the program will depend critically on the Government's expedite completion of the EITI process and the adoption of key legislation to foster debt management and implement the Single Window of Trade. Results Page 1 of 15 The World Bank Report No: ISR14330 Results Indicators Public Disclosure Copy Public Disclosure Copy Page 2 of 15 The World Bank Report No: ISR14330 Indicator Name Core Unit of Measure Baseline Current End Target Availability of budget information to the public Text Value STP makes publicly available The preliminary 2013 PEFA The Government makes 1 out of the 6 listed types of result indicated Sao Tome available to the public at least Public Disclosure Copy information under the PEFA and Principe in 2012 3 out of the 6 listed types of methodology for PI-10 (PEFA published three/four of the six budget information under the 2010) elements required under the PEFA methodology for PI-10, PI-10 of PEFA. These include and the documents are the complete annual budget published within one month of documentation, which is their completion published as soon as the budget proposal is submitted to the parliament. This was also presented in 2013 and 2014. The reports of the execution of the budget during the year, which for 2013 were however presented for the first, the second, and the third quarter. Finally, in 2014, the government also published the General State Accounts for 2010. The PEFA further notes an improvement in the publishing of the tender specifications and processoutcomes. In addition, in 2013, the government published the financial statement for 2011 and plans to submit in 2014 the financialstatements for 2012. However, the financial statements are not published Public Disclosure Copy within 15 months by the end of the fiscal year and the quarterly execution reports are presented with a delay. This is due to the fact that the e-safe system, introduced in 2012, still presents some technical problems. Specifically, data produced for the quaterly report via the electronic system need to be checked manually. Date 31-Oct-2010 15-Apr-2014 31-Dec-2014 Comments Page 3 of 15 The World Bank Report No: ISR14330 Comprehensive-ness of information included in Text Value Budget proposal includes 3 The preliminary PEFA 2013 Most recent budget budget documentation out of the 9 required elements assessment notes substantial documentation includes at foreseen in the PEFA improvements in least 5 of the 9 required methodology for PI-6 (PEFA transparency. Budget elements foreseen in the Public Disclosure Copy 2010) documents for 2013 included PEFA methodology for PI-6 7 of the 9 elements that should be covered by according to international best practices. The 2014 budget proposal includes 6 out of elements ofthat should be covered by international practice and specifically : macroeconomic assumptions; fiscal deficit; summarized budget data for both revenues and expenditures; a breakdown of planned deficit financing; the budget out- turns for the previous year; and theestimated budget out- turn for the current year. With the support of the forthcoming DPO3, the final, approved budget document for 2014 includes an explanation of the new reforms to improve tax administration and provides an estimate of the impact of the revenue reforms. The budget documentation further includes the costs associated with the key projects of the public investment program. Theseprojects are described Public Disclosure Copy in the Major Planning Options document (“Grandes Opções do Plano”) that accompanies the budget proposal document. Similarly, as in 2013, the 2014 budget includes a summary of the debt stock, in line with the PEFA recommendation. Date 31-Oct-2010 16-Apr-2014 31-Dec-2014 Comments Page 4 of 15 The World Bank Report No: ISR14330 Application of EITI principles and criteria Text Value STP was delisted from the With the support of the DPO2, An STP-EITI Committee is EITI in 2010 and is not an STP became an EITI operational and receives EITI Candidate Country candidate, established the dedicated budget resources; EITI National Committee and a Reconciliation Report, in Public Disclosure Copy introduced a dedicated line with EITI specifications budget line in the 2013 and covering STP’s Budget to finance EITI petroleum-related payments activities. In June through 2012, as well as a 2013 the International EITI Validation Report of the EITI Secretariat adopted a new set process, are accessible to the of standards, which has public affected the timing of the presentation of the EITI report. The previous standards focused on reconciling private-sector payments at the company level with public revenue. To further improve the transparency and quality of data reporting, the International EITI Secretariat adopted a new set of standards June 2013, which establish additional disclosure requirements and specify further contextual information to be included in the Reconciliation Report. As a result the reconciliation report is now expected to be released by October 2014. Date 31-Oct-2011 16-Apr-2014 31-Dec-2014 Comments Public Disclosure Copy Availability to the public of fishing agreements, Text Value Fishing agreements and With the support of the DPO2 All current fishing agreements registry and evolution of both industrial and related information is not the authorities published all and a registry of fishing artisanal fishing capacity public existing fishing agreements, licenses are made accessible as well as a complete to the public on a regular and inventory of fishing licenses timely basis for industrial vessels. With the support of the forthcoming DPO3 the government enacted a decree mandating the routine and systematic Page 5 of 15 The World Bank Report No: ISR14330 public disclosure of all new fishing agreements and of the issuance of all new fishing licenses no later than one Public Disclosure Copy month after the agreements are signed or the licenses are issued. Date 31-Oct-2011 16-Apr-2014 31-Dec-2014 Comments Availability of public accounts (financial Text Value Financial statements not With the support of the Public financial statements: (i) statements) produced. Court of Accounts forthcoming DPO3, the are submitted to the Court of cannot carry out an audit, government published the Accounts for auditing within which reduces public sector 2010 General State Accounts 15 months of the end of the accountability (2011) in June 2013, the first time in fiscal year; (ii) are made two decades. The 2011 available to the public within General State Accounts were one month of their presented to the Court of completion; and (iii) are Audit at the end of 2013. The presented in a consistent government is also workingon format over time with an the 2012 Government explanation of its accounting Accounts, expected to be standards published in 2014. Despite this impressive achievement the General State Accounts were not submitted within 15 months. Despite the fact that the Court of Accounts has not made any declaration, the public accounts donot seem to provide comprehensive information about the asset of the State yet. Specifically, the CGE 2011 contains only information on vehicles. The Public Disclosure Copy Government is currently seeking technical assistance to update the legislator framework, which will allow a proper inventory of this part of the patrimony and to modernize the registry and cadaster of the State. Date 31-Oct-2011 16-Apr-2014 31-Dec-2014 Comments Page 6 of 15 The World Bank Report No: ISR14330 Availability of demographic information. Text Value Outdated demographic With support of the DPO Demographic data has been information hinders PRSP series and assistance from updated in line with implementation the Government of Brazil and international standards that the United Nations Population quantifies demographic Public Disclosure Copy Fund the authorities recently distributions by age group, completed a new national gender, district, and census, which will facilitate socioeconomic conditions, the development of new and this information is made targeted surveys. With available to the public technical assistance from the African Development Bank the authorities will publish a report summarizing the main findings of the upcoming census. Also in2014, the authorities plan to submit to the National Assembly, for the first time, a report evaluating STP’s system of national statistics. This initiative is expected to raise awareness of data limitations and improve the management and reporting of statistics. However, the full census, has not been published yet. Nevertheless, continuous technical assistance will also be necessary to enhancethe quality of data collection and analysis at the National Statistics Office. With support of the DPO2, the government ratified atreaty of accession to AFRISTAT with the objective Public Disclosure Copy of strengthening its statistical capacity. AFRISTAT members can benefit from training and advisory services in all areas of statistics, including the preparation of national accounts. Date 31-Oct-2011 16-Apr-2014 31-Dec-2014 Comments Page 7 of 15 The World Bank Report No: ISR14330 Preparation of multi-year fiscal forecasts Text Value No forward estimates of fiscal With support from the DPO1 Forecasts of fiscal indicators aggregates are undertaken and DPO2 medium-term fiscal reflecting the major categories (PEFA 2010) planning has improved of budget classification are significantly, with fiscal targets prepared for at least three Public Disclosure Copy now explicitly incorporated years, and are made available into the budget process. In to the public line with the SAFE Law the government developed, for the first time, a medium-term fiscal framework (MTFF), which was integrated into the 2013 Budget Proposal. The updated MTFF for the period 2014-2016 has also been published as part of the pre- budget proposal submitted in October 2013, reaching the final objective of the DPO program. Date 31-Oct-2010 16-Apr-2014 01-Dec-2013 Comments Reduction in public sector arrears to EMAE Text Value Dobras 74.2 billion With support from DPO1 and Dobras 15 billion DPO2, the authorities verified and approved the total stock of arrears of local and regional governmentsto EMAE and included in its Budget Proposal dedicated budget lines for utility payments (for electricity and water and for telecommunications) for all line ministries and local and regional governments. These Public Disclosure Copy efforts led to a continuos decrease in arrears owned bythe Treasury to EMAE. The total stock of public-sector arrears owed to EMAE at the end of December 2013 was reduced by the Government to about 8 billion dobras. The government is further committed to clear all Page 8 of 15 The World Bank Report No: ISR14330 remaining arrears towards EMAE in 2014 and is currently discussing plans to improve the operational Public Disclosure Copy efficiency and financial sustainability of EMAE, which is now threatened by its ownaccumulated arrears to ENCO. Date 31-Oct-2011 31-Dec-2013 31-Dec-2013 Comments Existence of a debt management strategy Text Value Lack of a debt strategy With support from DPO1, the A medium-term debt strategy undermines fiscal policy authorities to the National exists which includes specific management Assembly a status report on indicators for interest rate, the Recipient’s central refinancing, and foreign government debt with currency risks. The strategy information updated as contains a minimum target of October 2011 that indicates grant element in external the debt broken down by borrowing, and supports origin, and the outstanding domestic debt market debt and payment profiles; development. It is also andpublished this report on available to the public the Recipient’s public portal. Following this step, with support of the forthcoming DPO3 and technical assistance from the IMF and the World Bank, the Medium Term Debt Management Strategy was adopted by the Council of Ministers in 2014. Thetechnical document elaborated with TA from the World Bank and the IMF, Public Disclosure Copy analyzes the costs and risks of four strategies to financethefuture debt operations (maintaining the same composition of debt, increasing the share of concessional and highly concessional lending, financing part of the debt with domestic debt, and the Page 9 of 15 The World Bank Report No: ISR14330 contraction of commercial loans starting in 2017 in concomitance with oilproduction). The document Public Disclosure Copy emphasized the need to prioritize lending with high degree of concessionality to diminish the risk of indebtedness. Date 31-Oct-2011 16-Apr-2014 31-Dec-2014 Comments Quality of coverage of the legal framework for Text Value Legislation does not meet the Since 2012 the government Debt legislation provides clear managing debt minimum requirements of the has taken steps to improve authorization to borrow, to DeMPA methodology. debt management, but issue new debt, to undertake reforms have progressed at a debt-related transactions, and slower pace than anticipated. to issue loan guarantees. It (i) In 2012 the government includes clear debt completed a medium-term management objectives; (ii) reform plan to improve debt mandates annual reporting to management. With the the National Assembly; and support of the DPO1 the (iii) requires external audits government began to implement this reform plan, first by submitting to the National Assembly an annual report on central-government debt, andthen by publishing this report. Following several delays the Public Debt Management Law was enacted and promulgated in January 2013.The government is currently working on decrees to further Public Disclosure Copy expand and operationalize the Public Debt Management Law. The Council of Ministers enacted a decree that establishes the legal regime for issuing treasury bills. However, delays in the approval of the debt- management law and the need to ensure that all Page 10 of 15 The World Bank Report No: ISR14330 regulations are properly drafted implied that the regulation for the emission of Treasury Bonds , the Public Disclosure Copy establishment of the loan guarantee and external auditing process for debt operations. Date 31-Oct-2011 16-Apr-2014 31-Dec-2014 Comments Number of days to start a business Days Value 144.00 5.00 8.00 Date 31-May-2010 16-Apr-2014 01-Jun-2014 Comments Doing Business 2011 Doing Business 2014 Average official cost to comply with business Percentage Value 386.00 299.90 200.00 regulations (incl. paid-in minimum capital). Date 31-May-2010 16-Apr-2014 01-Dec-2014 Comments In 2011 the government began to implement a comprehensive reform program to simplify business regulations. The government established a one-stop shop for commercial activities, and business-registration processes now require just three business days. With supportfrom DPO 1 and technical assistance from the IFC the government significantly simplified the process of business regulation by removing general operating licenses Public Disclosure Copy (alvarás) pertaining to business activities which, according to international best practices, did not need an ex- ante license. By removing the alvarás the government effectively repealed the minimum statutory capital requirement for obtaining a business license and eliminated the associated Page 11 of 15 The World Bank Report No: ISR14330 cost, which was equal to 281.2 percent of annual per capita income as estimated by the 2014 Doing Business Public Disclosure Copy report for the majority of business activities. This is because the minimum capital was precondition for obtaining the alvarás. The alvarás was removed for the 91 most common activities in commerce, tourism, industry, and construction while 88 sector licenses remained. These licenses concern activities that related to the trade of arms, medications, and fuel. As a result, the Doing Business still reports a high average official costs to comply with business regulations. Number of days spent dealing with construction Days Value 255.00 118.00 119.00 permits Date 31-May-2010 16-Apr-2014 31-Dec-2014 Comments With support from DPO2, the authorities issued regulations to simplify procedures for obtaining construction permits, including thespecification of application forms. STP has already reduced the number of days it takes to obtain a construction permit from 255 in2011 to 118 Public Disclosure Copy in 2013. Number of days spent on export regulations Days Value 27.00 26.00 23.00 Date 31-May-2010 16-Apr-2014 31-Dec-2014 Comments With support from the DPO1 and technical assistance from the IFC the government began to streamline processes for trading across borders. Foreign-trade Page 12 of 15 The World Bank Report No: ISR14330 licenses for all non-hazardous goods and services (except the export and import of arms, medicines and oil derivatives) Public Disclosure Copy were simplified. The adoption of the ASYCUDA World customs-management system in March 2011, with assistance from the UnitedNation’s Commission for Trade and Development and the U.S. Department of Defense, made STP the first country in Central Africa to utilize the system. This contributed enormously to improving customs efficiency and transparency, as direct links to the InternationalBank of STP were established for duty collection. To further reduce the time required for exporting and importing, which accordingto the DB 2012 remains high, the government launched the project for the establishment of a Single Window for Foreign Trade built on ASYCUDA World in September 2013. While the Single Window for foreign trade will not be fully operational until end 2014, major improvements have Public Disclosure Copy been already achieved. These include the recent introduction of the e-manifest, which allows customs brokers to submit clearance request as soon as a ship arrives, and the use of simplified custom declaration. It is estimated that this has already reduced Page 13 of 15 The World Bank Report No: ISR14330 average import-clearance time by one day. Number of days spent on import regulations Days Value 29.00 28.00 24.00 Public Disclosure Copy Date 31-May-2010 16-Apr-2014 31-Dec-2014 Comments Number of STP visas processed through the Number Value 0.00 1892.00 2000.00 electronic visa system Date 31-Oct-2011 16-Apr-2014 31-Dec-2014 Comments With support from this DPO series, the authorities are developing an on-line visa system to facilitate the issuance of tourist visas. The system still suffers from minor technical issues but is expected to be fully operational in 2014. In the meantime the system is enabling the remote processing of visa requests. Data from the authorities show that the system received an average of 400 visas per month between July 2012 and January 2013, and 600 visas per month between January and April 2013, for a total of 6000 visa sincethe launch in July 2012. Of these, data from the authorities show that the system provided authorization for 1892 visas. Public Disclosure Copy Data on Financial Performance (as of 02-Sep-2013) Financial Agreement(s) Key Dates Project Ln/Cr/Tf Status Approval Date Signing Date Effectiveness Date Original Closing Date Revised Closing Date P130925 IDA-H8450 Effective 03-Jun-2013 21-Jun-2013 08-Aug-2013 30-Jun-2014 30-Jun-2014 Disbursements (in Millions) Project Ln/Cr/Tf Status Currency Original Revised Cancelled Disbursed Undisbursed % Disbursed P130925 IDA-H8450 Effective XDR 3.70 3.70 0.00 3.70 0.00 100.00 Page 14 of 15 The World Bank Report No: ISR14330 Tranches Tranche 1 Public Disclosure Copy Amount (USD) Expected Release Date Actual Release Date Status 0 Pending Released Key Decisions Regarding Implementation As per minutes of the negotiations, the authorities and the World Bank will share with the authorities the content of the draft disclosable ISR and reach an agreement on its content before the disclosure of the ISR. A draft ISR was shared with the MoF on May 13, 2014. No comments have been received up-to-date. However, the policy dialogue and the status of reforms were discussed during the preparation of DPO3. Restructuring History There has been no restructuring to date. Related Operations P128023-First Governance and Competitiveness Development Policy Operation Public Disclosure Copy Page 15 of 15