Document of The World Bank

Report No: 32493

IMPLEMENTATION COMPLETION REPORT(TF-50893 IDA-39320)

ON A CREDIT

IN THE AMOUNT OF SDR 62.1 MILLION(US$90 Million Equivalent)

TO THE

ISLAMIC REPUBLIC OF PAKISTAN

FOR ASECOND STRUCTURAL ADJUSTMENT CREDIT FOR THE

GOVERNMENT OF NORTH WEST FRONTIER PROVINCE

June 22, 2005

Poverty Reduction and Economic Management UnitSouth Asia Region

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CURRENCY EQUIVALENTS

(Exchange Rate Effective June 20, 2005)

Currency Unit = Pak Rupees (PKRs) PKR 1 = US$ 0.0165.

US$ 1 = PKR 60.5

FISCAL YEARJuly 1 June 30

ABBREVIATIONS AND ACRONYMS

AAA Analytical & Advisory Activity M&E Monitoring & EvaluationADBP Agriculture Development Bank of Pakistan MDG Millennium Development Goal

ADP Annual Development Plan MICS Multi Indicator Cluster Survey AGP Auditor General of Pakistan MMA Mutahidda-Majlis-e-Amal AIT Agriculture Income Tax MTBF Medium-Term Budget Framework

AsDB Asian Development Bank NBP National Bank of PakistanBoK Bank of Khyber NFC National Finance Commission

CAS Country Assistance Strategy PAC Public Accounts CommitteeCBR Central Board of Revenue PFAA Provincial Financial Accountability AssessmentCFAA Country Financial and Accountability Assessment PFC Provincial Financial CoordinatorCWIQ Core Welfare Indicators Questionnaire PFM Public Financial ManagementDAO District Accounts Officer PIFRA Project for Improvement in Financial Reporting and AuditingDCO District Coordinating Officer PIHS Pakistan Integrated Household SurveyDFID Department for International Development (UK) PPA Participatory Poverty AssessmentEDO Executive Development Officer PPSC Provincial Public Service CommissionEIROP Essential Institutional Reforms Operationalization

ProjectPRSP Poverty Reduction Strategy Paper

EMIS Education Management Information System PRSC Poverty Reduction Support CreditEPI Expanded Program of Immunization PSD Private Sector Development FEF Frontier Education Foundation PTA Parent-Teacher AssociationFIAS Foreign Investment Advisory Services SAC Structural Adjustment CreditGAVI Global Alliance for Vaccines and Immunization SBP State Bank of PakistanGTZHMIS

Gesellschaft fur Technische ZusammenarbeitHealth Management Information System

SDASDC

Sarhad Development AuthoritySwiss Development Corporation

ICA Investment Climate Assessment SIDB Small Industries Development BoardIFC International Finance Corporation SME Small-Medium Sized EnterpriseLFS Labor Force Survey TEVTA Technical Education and Vocational Training

AgencyLGC Local Government Commission TMA Tehsil Municipal AdministrationLGO Local Government Ordinance UNDP United Nations Development ProgrammeLHW Lady Health Worker WAPDA Water and Power Development Authority

Vice President: Praful Patel, SARVPCountry Director John W. Wall, SACPK

Sector Director Sadiq Ahmed, SASPR Task Team Leader/Task Manager: Paul Wade, Zareen Naqvi (SASPR)

PAKISTANNWFP SAC II

CONTENTS

Page No.1. Project Data 12. Principal Performance Ratings 13. Assessment of Development Objective and Design, and of Quality at Entry 24. Achievement of Objective and Outputs 75. Major Factors Affecting Implementation and Outcome 216. Sustainability 227. Bank and Borrower Performance 238. Lessons Learned 259. Partner Comments 2610. Additional Information 34Annex 1. Key Performance Indicators/Log Frame Matrix 36Annex 2. Project Costs and Financing 47Annex 3. Economic Costs and Benefits 48Annex 4. Bank Inputs 49Annex 5. Ratings for Achievement of Objectives/Outputs of Components 50Annex 6. Ratings of Bank and Borrower Performance 51Annex 7. List of Supporting Documents 52

Project ID: P079635 Project Name: NWFP SAC IITeam Leader: Paul Wade TL Unit: SASPRICR Type: Core ICR Report Date: June 22, 2005

1. Project DataName: NWFP SAC II L/C/TF Number: TF-50893; IDA-39320

Country/Department: PAKISTAN Region: South Asia Regional Office

Sector/subsector: General public administration sector (40%); Health (20%); General education sector (20%); General industry and trade sector (10%); General agriculture, fishing and forestry sector (10%)

Theme: Public expenditure, financial management and procurement (P); Education for all (P); Health system performance (P); Administrative and civil service reform (P); Regulation and competition policy (P)

KEY DATES Original Revised/ActualPCD: 04/01/2004 Effective: 06/23/2004 06/23/2004

Appraisal: 04/15/2004 MTR:Approval: 06/22/2004 Closing: 12/31/2004 12/31/2004

Borrower/Implementing Agency: GOVERNMENT OF PAKISTAN/MINISTRY OF FINANCE; GOVERNMENT OF PAKISTAN/GOVERNMENT OF NWFP

Other Partners:

STAFF Current At AppraisalVice President: Praful C. Patel Mieko NishimizuCountry Director: John Wall John WallSector Director: Sadiq Ahmed Sadiq AhmedTeam Leader at ICR: Paul Wade Paul WadeICR Primary Author: Richard Carroll

2. Principal Performance Ratings

(HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible)

Outcome: S

Sustainability: L

Institutional Development Impact: M

Bank Performance: S

Borrower Performance: S

QAG (if available) ICRQuality at Entry: S

Project at Risk at Any Time: No

3. Assessment of Development Objective and Design, and of Quality at Entry

3.1 Original Objective:

Background

National context. After a decade of macroeconomic weakness and stagnant social indicators, a military government came into power in Pakistan in October 1999. This government recognized the need to restore macroeconomic stability, raise growth and reduce poverty, and designed a reform program to modernize Pakistan and its institutions. The Bank has been supporting this strategy as expressed in the national Poverty Reduction Strategy Paper (PRSP) with two adjustment credits and one Poverty Reduction Strategy Credit (PRSC) to the federal government. Several provinces, including the North West Frontier Province, have supplemented the federal reform program with their own programs of growth and poverty reduction through improved economic management and governance and improved delivery of basic social services. These provincial programs are in line with the national government’s program to improve service delivery and decentralize many government functions.

Provincial context. The North West Frontier Province (NWFP) is one of four provinces in Pakistan and accounts for about 15 percent of the Pakistan’s total population. Its per capita income is estimated at 14 percent below the national average (World Bank estimate). NWFP’s most recent poverty headcount placed it at 46 percent compared with a national average of 37 percent (World Bank estimate based on PIHS 2001/02 household data). The rural and urban poverty headcounts are 48 and 35 percent, respectively, compared with national averages of 42 and 26 percent. About 85 percent of NWFP’s population is rural.

Despite some improvement in the 1990s, social indicators reveal weak social development. The literacy rate for NWFP was estimated in 2001/02 at only 38 percent, compared to 45 percent for the nation (from PIHS survey 2001/02). The 2001/02 data also showed large gender disparities with the female literacy rate at 20 percent (57 percent for males) and net primary enrollment at 39 percent (62 percent for males), though it has improved recently.

The Second Structural Adjustment Credit to the Islamic Republic of Pakistan the NWFP SAC2 in the amount of US$90 million equivalent was the second phase of IDA support to the Government of the NWFP’s economic reform program to reduce human and income poverty in the province, and address gender disparities. Like the first phase, the NWFP SAC2 was a single tranche operation and was fully disbursed the day of effectiveness (June 22, 2004). The credit closed on December 31, 2004, which was the original closing date.

Objective

NWFP SAC2’s overarching objective was to support the medium-term Provincial Reform Program (PRP 2001-2004), which has five pillars:

1. fiscal reforms; 2. public financial management and accountability reforms; 3. reforms to accelerate human development; 4. governance reforms to achieve an efficient, accountable and service-oriented civil service; and 5. measures to promote growth and private sector development (PSD).

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The NWFP SAC2 was responsive to the province’s priority development problems. The credit allowed the province to incur larger budgetary expenditures for the province’s reform program, especially those related to improved service delivery improvements and retirement of expensive debt. More detailed objectives are listed as subcomponents in Section 3.3 below.

This support was consistent with the program expressed in the national PRSP that was published in December 2003 and discussed by the World Bank and IMF Boards, and complements the nationwide Poverty Reduction Strategy Credit. The national poverty strategy emphasizes: improved macro-policy and growth, governance and devolution, human capital development and programs targeting the poor, which are essentially the same priorities as those of the NWFP SAC2.

3.2 Revised Objective:

No revisions.

3.3 Original Components:

The components of the NWFP SAC2 were consistent with the main goal of the Bank Group’s Assistance Strategy for FY2003-2005, discussed by the Board in June 2002, which is to support the Government reform program for a transition to a modern Islamic state through a program of analytical services, institutional capacity building, and demand-pull lending. The components address the priority development constraints in the province, and reflect the pillars of the PRP, listed in Section 3.1. The NWFP SAC2 components and their sub-components were expressed in the form of objectives and comprised the following:

1. Improving Fiscal Sustainability and Restoring Financial Accountability1.1 Enhancing fiscal sustainability1.2 Increasing reliance on provincial revenues1.3 Restructuring public expenditures1.4 Improving budgetary processes1.5 Strengthening fiscal devolution1.6 Improving public financial management and accountability1.7 Improving public procurement

2. Strengthening Accountability and Professionalism of State Institutions2.1 Restructuring the civil service2.2 Strengthening administrative devolution2.3 Improving M&E

3. Accelerating Human Development3.1 Improving access to education and reducing gender disparities3.2 Improving quality of education and health services3.3 Improving public-private partnership in education and health 3.4 Full budget (MTBF) funding for education in general --for girls’ schools in particular--and for health services3.5 Improving M&E for education and health3.6 Improving health outcomes

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4. Promoting Growth-Private Sector Development4.1 PSD strategy formulation and implementation4.2 Improving the regulatory and administrative business environment4.3 Restructure and privatize state-owned enterprises4.4 Agriculture sector development

The design was broad as in the previous operation. Enhancing fiscal sustainability, improving public financial management and accountability and accelerating human development through improved public service delivery in education and health were key ingredients. Each component addressed a priority reform area with the overall aim of restoring financial and operational integrity to provincial government institutions and improving the effectiveness of public expenditures. The credit aimed at helping NWFP maintain and create additional fiscal space for high priority programs through the retirement of expensive federal debt, improved revenue mobilization and expenditure management. Civil service reform included revised rules of business that would clarify responsibilities in a decentralized civil service. The growth strategy included formulating a PSD strategy for the province based on guiding principles for further PSD reforms; improving the investment climate by reducing regulatory and administrative barriers; leasing or selling select government assets to the private sector; and and agriculture strategy and irrigation sector reform.

The GoNWFP strategy views education as the foundation of long term development and promoted education through better access to primary education and reduction of gender disparities. The NWFP SAC2 was to achieve these goals through making public education free through secondary school, new hiring rules of teachers (most of them from their local community) to reduce teacher absenteeism, upgrading school facilities, in particular in girls schools to improve their access to education, redeploying teachers, rationalizing staff and faculty, and separating the managerial aspects of education from those of teaching. Encouraging public private partnerships in education and strengthening PTA were two vehicles to increase access to education and to monitor quality indicators (such as teacher absenteeism), respectively.

The health policy component aimed to improve health outcomes by extending coverage of TB DOTS programs to 7 additional districts (FY03) and by expanding access to maternal and child health services, including family planning, by deploying new lady health workers (LHWs) and female nurses at district hospitals. The non-core program contained a good deal of planning for the sector including a long-term sector reform program. In this sector, the SAC2 could have better supported the need to improve management and develop a multi-level referral system. Funds from SAC2 were used to remove obvious gaps in facilities, which was a top priority. Though monitoring of health care financing was part of the policy dialog, there could have been more follow-up in the mechanism for health care financing/cost recovery.

The Government institutional set up was such where there was little delineation between the roles of the Government vis-a-vis the private sector, thus the growth and private sector development component was fairly sparse in terms of specifics and focused more on developing a private sector- oriented mind set. Due to a lack of quality analytical work there were few specifics with respect to reducing administrative barriers. A FIAS study on administrative barriers was expected to provide input into SAC2. However, the study has been delayed and has, therefore, not provided input into SAC2. A core component of the PSD agenda was to lease out two hydel projects to the private sector, which was an appropriate move. Some of the M&E indicators established for the PSD agenda were relatively general. This reflected that the Bank needed to build up a PSD reform agenda gradually given the specific context at the time. The SAC2 team

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was dealing with a newly elected government who had no experience in governing and very limited insight into PSD matters. There was a long history of mistrust and lack of communication between government and the private sector, and also a lack of AAA on the provincial economy and PSD issues (which has now been addressed with the recent NWFP Economic Report). The first sign that the Government was becoming increasingly aware of PSD issues and the importance for economic growth and poverty reduction in the province was the PSD Policy Statement in April 2004. This was subsequently followed by a number of policy initiatives on public-private partnerships in 2005.

The basic concept of provincial adjustment loans was sound; it recognized that to make progress on MDGs in Pakistan, the reform efforts need to be targeted also at the provincial level where delivery of social services takes place. The provincial SAC2 also provided much-needed support for a challenging decentralization process by providing the fiscal space for expanding social service delivery at the local level. The credit followed a programmatic approach, which is a sequence of similar credits (a total of three are anticipated). The programmatic approach offers the flexibility to adapt the program to changing circumstances as well as the multi-year commitment of a reasonable level of budgetary support in order for fiscal and governance reforms to yield results. As in SAC1, the triggers for the Bank’s future assistance strategy are based on measurable outputs expected to be closely associated with progress towards the Millennium Development Goals (MDGs) in the social sectors.

3.4 Revised Components:

No revisions.

3.5 Quality at Entry:

Satisfactory (moderately). As part of the second phase of the reform program, the preparation of the NWFP SAC2 benefited from the experience of the preceding SAC. SAC2 activities generally adjusted to the priorities that were apparent after implementation of SAC1, namely, the need to continue to improve public expenditure management and revenue mobilization, as well as build on education and civil service reform, which were the strongest components of SAC2. The areas of health and PSD were followed up, but will need further strengthening ahead. Still, health outcomes were ultimately good (Section 4.1), and, in PSD, as mentioned, the SAC2 program was starting from a rudimentary base and was able to initiate an effective PSD policy dialog. In general, the policy dialogue with GoNWFP was broad and has continued to deepen. The Government had a high degree of ownership of the SAC2 design.

Risk assessment. The Program Document cited four types of risk and proposed mitigations, which are summarized in Table 1. The risk of inadequate implementation capacity threatened the success of decentralization. This risk was to be addressed by a bilateral and multilateral, donor-supported comprehensive capacity building program. Decentralization was also threatened by power struggles between the province and the districts, which was extremely difficult if not impossible to mitigate during the project period. A risk that needed greater consideration was that the SAC2-funded improvement in physical assets in the social sectors would not be adequately maintained. There is not a culture of maintenance in NWFP, particularly at the district level, and stronger efforts could have been designed to ensure adequate funds for maintenance and the application of those funds for their intended use. Overall the risk assessment and mitigation were moderately satisfactory.

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Table 1: Major Risks and Mitigation for NWFP SAC2Type of Risk Mitigation

Political: mainly from the regional security problems, which could lead to rising opposition to the reform program.

Despite the potential for pulling the government in a more radical, anti-reform direction, the government has continued to pursue reforms at a reasonable pace.

Implementation capacity: combined with the large number of non-core conditions could undermine implementation.

This lack of capacity is being addressed with TA funded by other donors.

Fiscal: the risk has shifted from one of sustainability to one of not maintaining adequate social spending and investment. The concern is poor judgment in the composition of spending and in the civil service.

Continued adherence to the MTBF. Continued improvement in own revenue generation.

External shocks: including impacts on the national economy that could reduce transfers from the central government, drought, border tensions that affect commerce.

Limited scope for mitigation except that emphasis on improved irrigation and water use could mitigate low rainfall.

One fiscal factor outside the control of the province with a negative impact on the provincial finances was the breakdown of the deal to increase federal transfers to the provinces (National Finance Commission -NFC- awards). Civil service salaries increased too rapidly and placed a further strain on the budget. There was also a concern at the Bank that after SAC1 was disbursed and the new government settled in, the reforms might be derailed. That did not happen and it was appropriate to separate the SAC1 and SAC2 by an additional year to ensure commitment of the new government to the reform program before proceeding with the next round of budget support.

Civil Service Measures and Fiscal Impact. One action, lifting the ban on civil service recruitment outside of teachers and health workers was a response to changing conditions, namely, increased demand for social services in step with population growth. And there were empty sanctioned posts (available positions) that needed to be filled. The program document warned that lifting the ban would pose a threat to fiscal sustainability in an environment of an unchanged NFC Award. When the NFC Award was not approved it did add somewhat to the negative fiscal impact because it combined with a large, federally-driven, civil service salary increase. Thus, the risk was appropriately assessed (see Section 5 for an explanation).

Monitoring Indicators. Much emphasis was placed on monitoring of poverty indicators, such as those covered in the PIHS, which are conducted at regular intervals and on a nationwide basis by the federal government. Reliance on these instruments for program monitoring proved unrealistic. The federal government had protracted debates on how best to get the increased amount of information needed at the district level in light of decentralization. This deliberation caused delays. The federal government also delayed in carrying out Core Welfare Indicator Questionnaires-“CWIQ surveys,” for which it had opted in the interim. CWIQ surveys are carried out among a larger number of households, but require less information per household. Even the CWIQ survey is a major undertaking with a sample size of about 80,000 households. EMIS and HMIS (under provincial control) data were collected, but delayed as well, and their reliability is not certain. A set of monitoring indicators might have been selected and collected in a way that did not rely on a nationwide, coordinated effort. To its credit, the Bank attempted a round of third party validation surveys but that was rejected due to the upcoming CWIQ. By the time of the ICR, sufficient monitoring indicators including the CWIQ, became available to evaluate the program, and served as input into the next credit (SAC3, or Development Policy Credit-DPC).

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SAC2 complexity. Although the core conditions were relatively few (12), there were 64 non-core conditions, which seemed to tax the provincial authorities’ implementation capacity. This strain on implementation capacity resulted in a somewhat less determined pursuit of the non-core program (see Section 4). In addition, the program was very broad with measures ranging from public expenditure management and procurement, to micro-hydro privatization, school rehabilitation, accounting and auditing and farmer organizations.

Frequency of SACs. When the program was originally designed, a SAC was envisioned for each year, but only if implementation were exemplary. As implementation has been generally satisfactory, but not exemplary, the SACs are spaced out to every other year, allowing additional time for the GoNWFP to demonstrate commitment, particularly for the broader, non-core program. This approach has worked well so far but has the weakness of not providing funding at the time of the budget approval, on an annual basis.

4. Achievement of Objective and Outputs

4.1 Outcome/achievement of objective:The achievement of objectives is rated satisfactory. This section bases its rating on meeting the core conditions, and on progress in the non-core program as revealed by the monitorable indicators, process improvements and the overall provincial macro/fiscal measures. The NWFP SAC2 effectively supported the government reform program and made significant progress through its major components, with particular emphasis on social sector and governance reforms. The outcomes are presented under their corresponding project development objectives (PDOs). Table 2 provides estimates of provincial macro indicators. Table 3 summarizes the broad outcomes from the NWFP SAC2-supported program, though many of the indicators are updated infrequently. The table in the Additional information section presents the recent fiscal performance of the GoNWFP and Annex Table 1 provides additional details of outcomes and outputs. While there have been a number of shortcomings documented below, GoNWFP implemented all core conditions, the vast majority of the non-core program and achieved a significant development impact. Moreover, the pace of reforms has been steady and with notable progress after 3 years of SAC-supported reforms. There are significant measured improvements in health and education outcomes, increased fiscal responsibility and credibility of government institutions and recent momentum in PSD.

Macroeconomic Stability

Numbers describing provincial macro stability were estimated by the Bank. Official estimates of provincial GDP are not available. Bank estimates show moderately strong growth throughout the program period. Unemployment held steady at about 13 percent. Detailed fiscal accounts are provided in Additional Information, Section 10 (Table 5).

TABLE 2: Provincial Macroeconomic Indicators

Indicator 2001/02 2002/03 2003/04 2004/05 (Proj.)Provincial GDP Growth 1/ 5.4 5.1 5.6 6.3Unemployment 13.1 2/ 13.0 3/ 12.9 2/ 12.8 3/

1/ Bank staff estimates. These estimates have been derived by calculating NWFP's share in national value added by using broad "allocators" or national GDP apportioning factors. For instance, the allocator for agriculture crops is production of these crops in NWFP; for manufacturing it is the share of manufacturing value added in NWFP; and for services is the employed civilan labor force in services sector in NWFP. The projections for FY05 are based on expected GDP growth in NWFP. 2/ Labor Force Surveys. 3/ The unemployment rate is based on assumed employment-to-GDP growth elasticity of 0.55 and assumed annual growth in labor force of 3.2%.

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4.1 Outcomes by Development Objective

I. Improving Fiscal Sustainability and Restoring Financial Accountability (Satisfactory)

There were a number of positive developments on the fiscal front. The province has made impressive gains under fairly difficult fiscal circumstances, raising own revenues, reducing debt and creating fiscal space and improving the composition of expenditures. Provincial own revenues have increased cumulatively by 29 percent in nominal terms during FY02 (pre-SAC) to FY04. The provincial government has retired Rs 10.1 billion of expensive debt since 2002/03, and created Rs 1.9 billion ($5.2 million) in annual fiscal space by reducing interest and principal payments. Interest payments as a share of total expenditures have declined from 18 percent in FY02 to 12.5 percent by end FY04. The debt to PGDP ratio has been reduced from around 16 percent in FY02 to 12 percent in FY04 and is expected to fall further in coming years. The composition of expenditures has improved with higher expenditures on public investments and on social sectors. During 2001/02 to 2003/04 the share of current expenditure has declined from 80 percent of total expenditures to 77 percent; the share of development expenditures has increased from 20 percent to 23 percent; and the share of social sector expenditures in total expenditures have increased from 29 percent to 39 percent. Moreover, the province has controlled expenditures on subsidies from 3 percent of total expenditures in FY02 to only 1.5 percent in FY04.

Provisional estimates show a 23 percent increase in overall revenues (13 percent increase in real revenues taking the provisional GDP deflator estimate of 10 percent for FY05 for Pakistan) during the first three quarter of FY05 compared to the same period of FY04. Based on preliminary estimates, it is expected that the overall increase in revenues would be around 26 percent (16 percent in real terms) by the end of FY05. The GoNWFP’s own nominal revenues increased by 16 percent (6 percent in real terms) (see Table in Additional Information Section), during the first three quarters of FY05 over the same period of FY04, thus exceeding the nominal target of 13 percent (Table 3). Provincial own revenues are expected to increase by close to 20 percent (10 percent in real terms) by end-FY05 over actual revenue collection of FY04. The overall resource position in FY04 was basically stagnant, but provincial own revenue collection increased by 8.9 percent (1.1 percent real increase) higher in FY04 over FY03.

The FY05 third quarter position showed a 21 percent increase in nominal expenditures and a 11 percent real increase based on the estimated cumulative GDP deflator for the year. Expenditures increased due to an increase in establishment costs but also because of a healthy increase in development expenditures of 85 percent (75 percent real increase) – largely due to growing public investments in social sectors and in public infrastructure. Based on preliminary estimates for the end of FY05, it is expected that the overall increase in revenues would be around 18 percent (8 percent in real terms) over FY04, including a 26 percent nominal increase (16 percent real increase) in development expenditures. The smaller increase in expenditures between the third quarter and expected by end of the fiscal year is largely because expenditures were better paced throughout the year during FY05, whereas expenditures, particularly development expenditures, were bunched during the last quarter of FY04. Although the province has made progress in fiscal monitoring, due to teething problems with the introduction of the New Chart of Accounts in FY05 and chronic problems of fiscal reporting from Districts, monitoring of actual expenditures has been somewhat weak and inconclusive.

The fiscal deficit stood at Rs. 1.5 billion (0.2 percent of the estimated PGDP) by the end of the third quarter of FY05 and is expected to be around Rs 3.5 billion (0.6 percent of PGDP) by end of the fiscal year. The expected FY05 deficit is within the agreed limits that were set in the Program Document for SAC 2 (Rs 4.3 billion). Although the province did not get the NFC Award as was expected at the time of

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negotiating the Credit (end of FY04) it is not expected to end up with a higher fiscal deficit in FY05. The reasons are that the overall revenues stood close to the expected levels because of higher Federal and foreign grants, current expenditures were contained to agreed levels even though expenditures on establishment costs were higher, while the province continued to provide resources for infrastructure development and social sectors. There were some initial concerns regarding the sustainability of FY05 expenditures but many of these fears have not materialized. The province has not resorted to Ways and Means financing in FY05 due to prudent fiscal management and receipt of arrears on electricity from WAPDA and on certain types of user charges. Fiscal sustainability could be an issue in FY06 and beyond, if there is no agreement on the new NFC Award, if the Net Hydel Profits continue at their capped levels of Rs 6 billion and if there is another increase of 15-20 percent in the wage and pension rates as part of the decisions of the Federal Government. The province would like to get on a higher growth path to generate jobs and move to next phase of reforms. Unless more resources are available from the Federal government (the new NFC), or from donors, it may need Ways and Means financing to fund expenditures and that the need might go beyond the Rs.2 billion limit (about US$40 million), above which the State Bank charges a higher interest rate (7 percent). The more important concern is that GoNWFP’s wage and pension bill has increased rapidly over the past two years. If this trend continues, it could crowd out expenditures that would be more likely to produce growth, employment and poverty reduction, such as in O&M and public investments that would foster long-term growth. So far, however, Annual Development Plan (ADP) spending is growing at a satisfactory pace.

The ADP budgeted throw forward rate was reduced to 2.86 years, which was a substantial achievement. The actual outcome on the ADP throw-forward for FY05 will be available by October/November 2005 with the June final data. The ADP throw forward relates to the total remaining spending needed to finalize all development projects that are already included in the project portfolio. It is measured in number of years it would take to complete the existing projects with the current pace of implementation (i.e., this year's ADP spending). This achievement meant that more development projects were completed more rapidly and that projects would not be added to the bloated project portfolio unless there were funds to complete the project in less than the throw-forward target. It improved efficiency and reduced the practice of proliferating development projects for political reasons. It also benefits private contractors who are more likely to be paid enough to complete the contracted job in a reasonable amount of time. Steps toward strengthening procurement were taken with the enactment of the new procurement law and notification of procurement regulations and standard bidding documents. However, the impact is reduced as many provincial Departments continue to use the old procurement rules. The new law is also in need of some revisions, which the Bank has recommended. More importantly, there needs to be greater stakeholder involvement developing the implementing regulations for the new procurement practices. Failure to do this earlier has also reduced the impact of the new law.

II. Strengthening Accountability and Professionalism of State Institutions (Moderately Satisfactory)

Civil Service Reform. Restructuring the civil service has been carried out incrementally with increased transparency, particularly for grades 11 and above (grades 16 and above in departments that have devolved functions to the districts) through recruitment by an autonomous Provincial Public Service Commission (PPSC). The increase in sanctioned posts was held below the 3 percent yearly target (1.3 percent). Senior staff tenure has increased substantially to 16.0 months (as of April 2005) and is more or less on track to reach the 18-month target during FY06. The increase in tenure is expected to improve management continuity and, therefore, flatten learning curves, with fewer staff shake-ups, which will improve implementation. Complicating civil service reform is the extremely weak database, which does not allow a

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comparison of the actual numbers of staff employed against the number of sanctioned posts provided for in the budget nor provide reliable information on staff movements such as appointment, transfer or promotion. The Bank has continued to support the establishment of a human resource database, which is progressing well. The second phase of this effort is underway and 228,000 data sets (out of 282,000) have been input into the system. The key will be to operationalize the system quickly, integrate it into the government and update it regularly. Delays would be damaging in this activity.

GoNWFP followed suit with the Federal government by increasing civil service salaries by 15 percent for all staff, and increasing pensions of current retirees by 8-16 percent in 2004. This increase followed another 15 percent increase in salaries and pensions in 2003. Although not legally required, provinces typically follow federal salary increases because they share the same basic pay scale structure. Provincial governments perceive that it is politically impossible to diverge from the federal civil service remuneration policy. These increases were not well structured and carry substantial costs with insufficient gains in retaining high quality staff; the low level employees are reportedly over-paid compared to their best alternative employment, while high level employees are substantially underpaid (ref. "Pakistan Public Expenditure Management", World Bank, 2004). Patronage has thus become more attractive.

Though civil service reform has had significant progress in recruitment and tenure, regularization of contract employees causes concern. The Bank views the GoNWFP’s approach as a way of expanding the civil service. The regularization does not however increase the number of sanctioned posts as contracted employees already occupied sanctioned posts. Staff quality may have suffered because a lower caliber of applicant may have been attracted to contract posts where the terms and conditions of employment were less attractive than those pertaining to regular posts. However, this is difficult to assess in practice. Regularization may increase pension liabilities for the 23,000 or so contract staff hired since 2001. New contract employees will not, for now, have free pension benefits, but the Government has had a practice of granting additional benefits, and if internal pressure from the bureaucracy builds (as was the case in regularization), it will be difficult, politically, to prevent.

There is also concern that this regularization may nullify benefits from the introduction and expansion of school-based contracts for teachers (see next objective section). The Bank, in general, maintains that workers that have a finite task should be under contract, and those who have continuous work are permanent employees and not contractors. However, there will always be exceptions where job performance is critical and where a fixed term contract is required to ensure performance and/or provide a simple mechanism, for example the expiry of the contract, to deal with non-performance. The terms and conditions of such contracts should not be less attractive than those of regular employment engagements and would typically include generous gratuities, normally paid at the successful completion of the contract. However, if teachers are to be regularized, they should still be responsible to the school where they work and not to the Province or district. Existing Rules of Business provide that no staff may be transferred before they have completed a term of three years. This rule will be difficult to monitor and enforce before the human resources management system is operational.

Strengthening Administrative Devolution: District Rules of Business and Devolution. The Local Government Ordinance (passed in 2001) is the basic, national law governing devolution, and the District Government Rules of Business further spell out the division of responsibilities between the provinces and the districts. As per the District Rules of Business, the authority over recruitment and career management of district staff in grades 1-16 has been formally transferred from the provincial to the district governments. Specifically, appointments of staff in the devolved departments in BPS 1-15, and postings and transfers in BPS 1-16, have been given to the districts. However, while these formal authorities have been devolved, de facto provincial control over recruitment and career management of district, and tehsil, personnel is quite

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pervasive. Moreover, the Rules also specify a high degree of centralization of appointment, posting, and transfer powers within the district in the office of the District Coordination Officer (DCO). The DCO is the appointing authority for staff in grades 1-15, and the posting and transfer authority for staff in grades 1-16. This centralization undermines the efficient functioning of the district administration as the DCO’s office lacks the capacity to handle the human resource functions for all the devolved departments. It is also in contrast to the pre-devolution set-up, where senior district officers within each department had considerable administrative authority.

Improving M&E. Improving M&E was achieved through additional efforts and resources, but more frequent updates are needed to be useful to shorter-term program monitoring. Some of the data necessary to monitor outcomes are federal (PIHS, CWIQ), but other are provincial responsibilities (EMIS, HMIS, fiscal data, HR database). Both need to improve in terms of timeliness and reliability. The provincial management information systems (e.g., for health and education) could be strengthened and made more reliable by for instance establishing independent units for these information systems. Also, monitoring of service delivery and accountability by frontline providers can be strengthened by better involvement of local monitoring committees and community based organizations such as PTAs in M&E .

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III. Accelerating Human Development (Satisfactory)

Education. SAC2 supported the rehabilitation of girls’ primary school facilities and was successful, with 100 percent of targeted facility improvements attained. SAC2 made it possible to substantially increase social expenditures and provided approximately US$25-30 million additional funds for this activity. Works and services were able to spend about 94 percent of their budget last year and this year, which is a good performance, but it also means that they are surrendering the rest. Girls are also getting more than half of overall resources and are getting free textbooks through grade 10. There does seem to be gradual improvement in the outcome indicator, gross enrollment ratio in public (government) schools (which is the beneficiary of SAC2 funds), which has increased from 62 to 64 percent during FY04-FY05. Total primary enrollment increased from 77 to 80 percent during 2001/02-2004/05 (preliminary CWIQ data, 6/2005). Female primary enrollment increased from 56 to 65 percent over the same period. Recent preliminary CWIQ data (table 4) show that percentages of the population completing primary school and enrollment in middle school are also increasing substantially for both boys and girls, again, during 2001/02-2004/05. The Teacher Management Study (TMS) also confirmed that education reforms -- an essential component of the SAC -- are having an overall positive impact on enrollment increase, reduction in drop-out, increase in retention of students at primary level, improvement in learning achievement, reducing teacher absenteeism and empowering PTAs. Finally, literacy rates for persons aged 10 or above have climbed from 38 to 45 percent over the four year SAC-supported program period.

Other areas are not as strong. For example, public and private partnerships are not effectively encouraged, though objectives were modest, here. In fact, at least in the rural areas, public private partnerships that consist of private agents conducting evening classes in public buildings do not work well in NWFP. There is the issue of safety, especially, but not exclusively, for women. Also, the profit margins for this activity are nil, except in the urban areas. For now, it would make sense to devise other ways of public private partnerships in the rural areas, but continue to cultivate evening classes in the urban areas. Schools also need to be able to hire their own staff, which is currently not the case.

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Table 3: Medium-Term Monitoring Indicators for the SAC-Supported ProgramINDICATOR BEFORE

NWFP SAC1ACTUAL LATEST

PLANNED END FY06

Provincial GDP growth rate 4% i 6.3% i 5-6% iPoverty Head Count (caloric) using World Bank poverty line a/

44.3 a 46.3% a 37% a

Poverty Head Count (caloric) using GoP poverty line (Bank staff estimates)

41.6 b 42.4 b

Provincial Tax Revenue Growth 15% 14% c 13%% Pro-poor I-PRSP expenditures of total

29% 38% d 41%

Development expenditures 26% 20% c 21%Reconciled fiscal data using the New Accounting Model

--- 95% of receipts97% of expend.

(March 2005)

100%

Gross Primary Enrollment rate 70% e 80% e 85% e,iGross Primary enrollment rate female

54% e 65% e 84% e,i

Primary school dropout rates 24% e 22% e 20% eGirls school provided essential facilities

50% f 100% l 100% by end of FY04

Full immunization % of children less than 2 yrs.

54% e 76% e 65% e

% of population with access to TB Control using DOTS

20% g 100% m 100% k

Antenatal coverage of pregnant women by health professionals

34% h 46% k 50% e

Contraceptive Prevalence Rate 21% h 33% k 30% kPopulation with access to safe drinking water

58% e 65% e 68% e

Proportion of roads in poor condition 80% n.a. 50%a/ World Bank. NWFP Poverty Annex and as per the Bank’s methodology and poverty line using PIHS 1998/99 and PIHS 2001/02, respectively. b/ Estimates based on PIHS data and official poverty line using PIHS 1998/99 and PIHS 2001/02, respectively. World Bank staff estimates.c/ GoNWFP. June Final in a given FY over June Final in the previous FY. d/ GoNWFP. Both recurrent and development spending on Education and Health, June Final in one FY over June Final in

previous FY.e/ Pakistan Integrated Household Survey (PIHS) 1998/99 and 2001/02, respectively. Pakistan Social and Living Standards Measurement (PSLM) survey which includes CWIQ, from FY05 onwards.f/ NWFP: Education Management Information System 2001/02 and 2002/03, respectively. g/ Department of Health, GoNWFP.h/ Pakistan Reproductive Health and Family Planning Survey 2000/01.i/ NWFP Economic Report, June 2005, Bank estimate. j/ NWFP District based Multi Indicator Cluster Survey 2001.k/ HMIS.l/ EMIS 2004-data for 2004.m/ Joint Review of the National TB Control Programme Mission report.

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PTAs are critical to successful schools in the NWFP educational strategy. PTAs have been established in many schools, but will require time to operate effectively in monitoring teacher attendance and directing maintenance of schools. Policy issues are not being taken up and M&E is weak. The M&E does not use standard reporting and does not disaggregate between boys and girls making assessment of reducing gender disparities, beyond enrollment rates, impossible. The GoNWFP agreed that EMIS was to produce additional monitoring data such as teacher absenteeism. The EMIS report was delayed by nearly 6 months and there is no detailed data as yet on teacher absenteeism. The EMIS is intended as a management tool and has been useful in planning the free textbook program and in teacher redeployment, but needs further development to convince managers of its usefulness in running schools.

Teacher recruitment is improving with SAC2-supported facility-based recruitments where teachers are employed by a specific school, not the district bureaucracy. This change increases the teacher’s incentive to show up and teach. There is also increased enforcement of penalties on absent teachers, both those with facility-based contracts and some of those recruited under the previous system. The vast majority of teachers was recruited under the non-facility based system, though the TMS notes improvements in merit recruitment of teachers. Facilities and access are also a major constraint in teacher attendance that SAC2 has been addressing. Only senior high school teachers and lecturers (grade 16 and above) are recruited through the PPSC, which conducts merit-based recruitment. Many teacher recruitments, which are in the grade range of 7 to 15 cannot assuredly be said to have been merit based. There is plenty of anecdotal evidence that many teaching positions are viewed as entitlements with little obligation to actually teach.

Health. The two most important impacts of this component were the increased coverage of TB DOTS (districts with fully functional TB DOTS through the public health system) and the deployment of Lady Health Workers to deliver health care to a greater share of the population. Supervision missions report that the overall immunization program, along with the deployment of LHWs, is proceeding well. Expanding access to TB DOTS vaccinations (100 percent of districts) has progressed as planned. Reduction of polio cases (33 to 8) is also going well. Most of the other health indicators are also good. Antenatal immunization has reached 46 percent coverage, which is on target to reach 50 percent by 2006. Contraceptive use increased to 33 percent already exceeding the 2006 target of 30 percent. Immunization coverage of children aged 12-23 months has also exceeded the target of 65 percent by 2006, having reached 76 percent (preliminary CWIQ data, table 4). The weakness in the program was the minimal progress in establishing a management cadre in the health sector. The Bank will need to continue to pursue this initiative with GoNWFP.

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Table 4. Social Indicators based on the Preliminary CWIQ Survey Results (June 2005)

1998-99 2001-02 2004-05Literacy Rate (10+ years)Total 37 38 45Females 20 20 26Gross Primary Enrolment Rate (5-9 Years)Total 70 77 80Female 54 56 65Population 10 years and above who have completed primary educationTotal 28 31 36Female 14 16 20Gross Middle Enrolment Rate (10-12 Years)Total 37 38 47Female 22 23 31Gross Matric Enrolment Rate (13-14 Years)Total 36 41 43Female 13 20 24Percent of Children 12-23 months immunizedTotal 54 57 76Female 56 57 76Access to safe water 58 58 65Homes with toilet facilities 58 69 76Sources: Pakistan Integrated Household Survey (PIHS) 1998/99 and 2001/02, and preliminary results from the Pakistan Social and Living Standards Measurement Survey 2004/05 (CWIQ Approach).

IV. Promoting Growth-Private Sector Development (Satisfactory)

This component aimed at PSD strategy formulation and implementation, privatizing state-owned energy enterprises and agriculture sector development. There has been progress on all fronts, with a recent acceleration in the PSD agenda following the March 2005 Investors' Conference. SAC 2 improved the business environment by supporting a reduction in the number of industrial inspections from 23 to 13. Firms can benefit further by being exempted from 10 of the remaining 13 inspections, which are labor related, if they have been certified in compliance with the labor laws.

In power, seven of nine micro-hydro plants have been leased out to the private sector, exceeding the SAC2 target of 2 and approaching the DPC/SAC3 trigger of 9. This is a significant step in involving the private sector in meeting the electric power needs in NWFP. The private sector is also increasing its presence in the power sector by carrying out feasibility studies for two hydro plants totaling a capacity of 135 MW. In agriculture, GoNWFP developed a sector strategy and increased the ADP allocation from Rs80 million in 2003/04 to Rs135 million in 2004/05. This higher allocation, with additional funds for rural development and regional development programs, helps fulfill the objective of aligning public expenditure to the agriculture sector strategy. DPC/SAC3 is following up with measures in the water sector that seek to strengthen and increase the authority of the Provincial Irrigation and Drainage Authority (PIDA) and the role of farmers organizations in the management of irrigation schemes (see Section 4.2).

As mentioned, the PSD agenda has accelerated. The Bank has supported a business dialogue forum

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between the private and the public sector, with equal representation, in some cases with chairman from the private sector. This new principle for private public policy dialogue is now applied (i) in industry and sector dialogue with the establishment of the Industrial Facilitation Council for high-level policy dialogue with the Chief Minister of NWFP as the Chair, and with equal representation from the private sector and the public sector (typically Department Secretaries), and an industrial facilitation committee for problem solving in the interface between business and government; (ii) in Central Management Committees that function as Boards for public technical training and vocational schools (chairman from the private sector); and (iii) in agricultural committees.

4.2 Outputs by components:The main outputs of SAC2 are summarized in Annex 1 (divided by reform component), which lists the core conditions for SAC2, non-core measures and medium-term monitoring indicators.

I. Improving fiscal sustainability and restoring financial accountability

The throw-forward of the ADP has remained within the limit agreed with the Bank of below 3.2 years. The most recent estimate, for the current fiscal year, is budgeted at 2.86 years, and is better than the SAC3 trigger of 3.0 years. However, the final outcome would be available with the June Final data in October/November 2005.

Account reconciliation. Implementation of the comprehensive reconciliation framework in at least 10 districts (target May 2005) under PIFRA auspices has been somewhat delayed to PIFRA II. So far 5 districts are covered and coverage for an additional 3 is expected to be completed by

end-May, bringing the total to 8 districts. The province would therefore continue with the existing reconciliation arrangements until on-line reconciliation is introduced through PIFRA II. In any case, the provincial reconciliation targets set under the program have been surpassed markedly, as shown in Table 4A.

There have been some problems associated with mapping the old chart of classification (used at the district government levels) to the new chart of accounts (used at the provincial government level) during the current FY, namely consolidation deficiencies for the province-whole fiscal data. These associated problems are expected to be resolved as of FY06 when both the provincial and district governments would be operating on a unique chart of accounts.

In some non-core areas, results have been mixed.

Audit backlogs. Despite the activeness of the PAC in reviewing audit reports and accounts, little progress has been achieved in clearing backlogs of audit reports due to 3 main factors: (a) the number of audit paragraphs requiring review is high for a non-full time committee to deliberate on over a single year without technical assistance and support; (b) the capacity of the PAC members and its secretariat staff is inadequate; and (c) the quality of audit reports for historical years has been uneven. The milestone, scheduled for achievement by December 2005, was designed on the assumption that the provincial assembly would have succeeded in securing TA support (such as the IDF Grant to support and strengthen the Federal PAC and its secretariat) to support the PAC in its deliberations particularly relating to clearing the backlog of audit reports. This TA has not yet become available. There are now more regular meetings by the DACs aimed at clearing backlogs of audit paragraphs but the progress is slow. Apart from education which has significant paragraphs yet to be cleared, most provincial departments are progressively clearing their respective paragraphs. Clearing arising paragraphs is taking longer than the targeted 3

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months of receipt of advance paragraphs from DGs Audit.

Internal Audit (IA). Internal audit functions have been notified at the provincial government departments but a formal strategy for establishing IA functions at district government levels has not been devised. Even at the provincial government departments, the form and structure of the internal audit function does not accord with international practice. Progress in this area will most likely come after the establishment of formal internal audit units at the federal level under the auspices of PIFRA.

New Chart of Accounts. The province has demonstrated commitment to reform by the adoption of the GFS-compliant new chart of accounts under the new accounting model for the provincial government budget for FY05—the first in Pakistan. It has also achieved a state of readiness in extending the adoption of this new COA/NAM system to all its 24 districts for the FY06 budget year. In comparison to the other 3 provinces, NWFP is performing the best with respect to consolidation of the province-wide budget and accounts. This is an indicative trigger for NWFP SAC3 that has already been met.

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II. Strengthening accountability and professionalism of state institutions

Devolution and civil service reform. The notification of the District Rules of Business outlining the administrative authorities of district and provincial governments was an important initial step in devolution. However, administrative devolution remains far from complete, as key senior district officers, such as the DCO and the Executive District Officers (EDOs) remain provincial employees, and therefore are often subject to considerable pressure from the province to transfer district staff, thereby undermining local control over personnel management. The Rules specify that intra-district transfers of devolved staff in grades 1-16 will be made by the EDO, with mandatory consultation with the DCO. Therefore, formally this authority stands devolved to the district. However, while there is no comprehensive monitoring data, anecdotal evidence from some districts reveal that politically motivated intra-district transfers of staff were a common problem, a majority of which were instigated by DCOs and EDOs under pressure from the provincial government. Moreover, while the original Rules of 2001 required consultation with the District nazim for the postings and transfers of senior officers (BPS 17 and above) in the district, the 2003 amended Rules removed this requirement.

In certain sectors, in particular water supply and sewerage, there has been limited functional devolution of responsibilities. The LGO specifies that TMAs are responsible for the delivery of municipal services, including water supply, sanitation, and solid waste disposal. For this purpose, it was envisaged that the staff of the Public Health and Engineering Department (PHED) would be devolved to the TMAs to provide them the necessary capacity to perform these functions. However, in NWFP the PHED staff were not devolved to TMAs, but were instead merged with the district Works and Services department. TMAs were left with only the staff of the erstwhile urban councils, and therefore have the capacity to only initiate small schemes limited to the urban areas. Therefore, the present situation is that while the TMAs have the legal mandate, they lack the requisite staff, and the districts, which do not have the legal mandate, now have the staff and are de facto providing these services. This confusion in the roles and responsibilities of the district W&S department and the TMA has compromised the planning and implementation of water and sanitation services, has in some cases resulted in the duplication of services, and is the source of considerable conflict between the district and tehsil/town governments.

Greater administrative devolution through the phased creation of a District (and Tehsil) Service is required to give local governments de facto control over their staff, and to resolve these conflicts with the provincial government, and between local governments. In addition, mechanisms will need to be put in place to de-politicize transfers and to increase the tenure of senior local government staff, and to protect them from both local and provincial political pressures. The introduction of an operational human resources management information database expected in August or September will allow better monitoring of this issue. The provincial government also needs to decide which tier of government will deliver water supply and sewerage services, and then provide that tier with the resources and the staff to deliver these services.

Civil service recruitment. All new staff, except police, prison and judiciary, was hired on a contract basis with the declared purpose of saving on pensions. Civil service rules for redressing grievances have been extended to contract staff. These existing contract personnel are shortly to be regularized with all pension and other regular staff benefits, although as the new Contract Law is still pending passage by the Provincial Assembly we do not know when this will be. New staff hired after the law is in place will be on contract terms that have all regular staff benefits except for a free pension. They and government will each contribute 10 percent of the salary to an individual retirement savings account. The Bank is not in favor of this measure because it means that new hires would have less favorable pension arrangements, which is sure to become a political issue. Even the current policy demonstrates a practice of appearing to hold the line on pension costs and then retroactively granting pensions to excluded personnel. Contract employment

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should not be used as a device to circumvent regular human resources policies, especially in the areas of hiring and compensation, including pensions. Staff are most appropriately hired on a contract basis where there is a specific task to be performed, usually over a fixed period and to achieve a given outcome and, where this is done compensation should be fixed at such a level that grievances due to unfavorable comparisons with staff on regular terms and conditions of employment do not arise.

The GoNWFP met the important non-core condition of keeping the growth of sanctioned posts to 3 percent above the September 2003 level. Staffing increases have been confined only to health, education, police and the judiciary following reform initiatives. Regularization of contract staff does not affect the number of sanctioned posts as contracted personnel already occupy sanctioned posts.

III. Accelerating Human Development

Targets for upgrading schools were achieved as 171 primary schools and 162 middle schools were substantially rehabilitated representing a 10 percent increase, more than half of which was for girls. In addition, 270 primary schools, 271 middle schools and 46 high schools are being upgraded to the next highest level through ADP funds, about half of which are schools for females. The target to supply free textbooks to all girls at all grades and boys through grade 2 was exceeded as books were distributed to all students in government schools. In all, 2.66 million sets of books were distributed. The distribution was implemented by the Department of Schools and Literacy (DoSL) and the NWFP Textbook Board and was monitored by EMIS. During April-May 2005 free textbooks were provided to girls in grades 1-10 and boys in grades 1-5. It was reported in the field that distribution would have been more effective had the distribution points been the actual schools rather than the district offices. Subsequent textbook programs should attempt to deliver textbooks directly to the schools, especially considering the lack of transportation capacity in the district offices. The TMS cited free textbook provision as key to increasing enrollments and decreasing the dropout rate.

NWFP’s appointment of 4,000 teachers on a contract basis (non-core program) was delayed beyond FY04, because the recruitment process was stopped on court orders. The court has since lifted the ban and the recruitment (and redeployment) process is underway. The goal of separating the teachers from the management cadre was not carried out due to opposition from the teachers’ union. This reform will continue to be pursued. Service rules are being amended to re-launch this reform.

Health reforms. The health policy component aimed to improve health outcomes by extending coverage of TB DOTS programs to 7 additional districts (FY03) and deploying 1,800 new Lady Health workers and 200 female nurses. Successes include achieving universal access (100 percent district coverage) to TB control, deployment of 12,100 Lady Health workers (on track to meet FY05 target of 13,000), decline in polio cases of 33 in 2003 to 8 in 2004 (also on track to meet the 0 target by end FY05, with only one case reported so far this year). While monitoring indicators established for health did allow the tracking of outcomes, the quality of the data could not be verified. Subsequent Bank activities should include at least spot verification of data. Though the health outcomes and outputs were satisfactory, there are a couple of areas of needed improvement in the reform program. Timely availability of expenditure data as a mechanism for collecting and aggregating expenditures across two levels is not fully functional and the provincial government needs to accelerate progress in this area. Such expenditure data is key for a

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well-managed structural adjustment program. Second, the knowledge of districts about the reform program was limited and there was little interaction between the two levels of the government about the reform program. In the future, the Bank and the Government need to do more to ensure that there is a stronger buy-in of the reform program and information about the program is shared with district governments.

4. Promoting growth and private sector development

The main outputs of the PSD component were as follows:

• Reduction of industrial inspections from 23 to 13, with a further reduction to three if compliance with labor laws is ensured.• Leasing out of seven micro-hydro plants, thus exceeding the target of two.• 20 farmers organizations have been formed to take over management of water distribution for irrigation, which approaches the SAC3 target of 24.• Announced policy statement on private sector development showing a new orientation in PSD policy along sound principles. Reforms since then are in accordance with the PSD policy statement.

The privatization committee has taken up the cases of only two companies, but there are only very few entities that need to be privatized. Thus, the Committee has focused on restructuring, which is an appropriate role.

Since end-2004 there has been a substantial shift in the orientation of the government towards the private sector. Recent measures include:

• Establishment of an Investor Facilitation Council under the chairmanship of the Chief Minister and an Investor Facilitation Committee with the Chief Secretary as chairman. Both high level committees have equal representation by the private and the public sector. • Handing over of management of Industrial Estates to the private sector.• Establishment of Central Management Committees to govern public technical schools and vocational training centers. There is equal representation by the private and the public sector and the Chairperson is from the private sector. • Drafting of new concession rules for mining addressing deficiencies mentioned in this report.

The critical challenge remains sustained implementation of these steps to ensure that the initiatives are effective in facilitating PSD. SAC 3 will endeavor to maintain this momentum.

4.3 Net Present Value/Economic rate of return:

Not applicable.

4.4 Financial rate of return:

Not applicable.

4.5 Institutional development impact:

The SAC2-supported provincial reform program deepened the process of more accurate budgeting and

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increased fiscal discipline according to fiscal targets. The institutional development impact in these areas was arguably substantial. The procurement and accounting and auditing frameworks and capacities have also been strengthened, but with the shortcomings, IDI must be rated modest for now. The GoNWFP has accepted the need for and strongly committed to upgrading primary and secondary schools and school materials, particularly for females. SAC2 has supported key legislation, such as the revised DRB, specifically to improve clarity in roles and responsibilities between the provincial and district governments. Again, while the potential impact is high, current shortcomings in implementation, particularly service delivery and lingering civil service politicization, call for a “modest” impact rating. The government has accepted and followed through on efforts to improve social services, but some of the institutional areas will take a number of years to be fully functional, such as is the case of the PTAs (education). Also, in education, while the EMIS is carried out, schools managers still do not view the data as potentially useful to improved performance. The data themselves need to be improved to more accurately measure program performance.

Thus, while the movement is definitely in the right direction overall, the reforms have not been as uniformly and completely implemented, especially with regard to a number of non-core actions. As stated in the previous completion report for SAC1, the measures supported by the NWFP SAC2 are expected to lead to a substantial institutional development impact in the future. However, the impact still must be characterized as modest for now. The new government has shown that it is committed to the reforms, but the real proof of substantial institutional impact will be the sustained improvement of social services and other government services. M&E efforts will also have to be intensified both to improve the quality of data and to achieve institutional development.

5. Major Factors Affecting Implementation and Outcome

5.1 Factors outside the control of government or implementing agency:

There are essentially four factors that are outside the control of the provincial government: (i) macroeconomic and PSD; (ii) fiscal (fiscal federalism including revenue transfers from the center, and civil service wage and pension increases); and (iii) political and regional security factors. The macroeconomic policies and environment for PSD are determined mainly by the federal government. On the macroeconomic management front, Pakistan has made considerable progress in restoring macroeconomic stability, liberalizing the trade regime, and reforming the financial sector. Private investment has increased substantially.

NWFP’s fiscal outcomes, and the provincial and local governments’ ability to deliver better services depend partly on its own fiscal performance, but also to a large extent on federal policies. There are large vertical fiscal imbalances in Pakistan, with most of the revenue collected at the federal level, and most of the expenditure carried out by provincial and local governments. Hence, provincial fiscal outcomes and performance depend to a large extent on a reliable and timely system of transfers from the federal government through the NFC. In the case of NWFP, they also require the timely payment of hydel profits from WAPDA, a federal entity. While the Government of NWFP’s fiscal performance is improving, the transfer of resources from the federal government has increased only to a limited extent and not commensurately with the expansion in service delivery activities devolved to the districts via the provinces. At the time of the preparation of SAC 2, it appeared possible that agreement on a new NFC award would be concluded in time to provide additional resources to NWFP for FY05. Due to political economy considerations, this higher award did not materialize, and as of now an agreement has not yet been reached. The level of hydel profits to the province also turned out to be lower than was projected by the provincial government. The lesson for future provincial operations is that higher level of transfers from the federal

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government should be factored in only when an agreement on the NFC materializes. It also emphasizes the need for provincial governments to explore all revenue raising measures provided for in the Constitution of Pakistan.

On the expenditure side, the two 15 percent across-the-board increases in civil service salaries that the Federal Government implemented and GoNWFP followed (the provincial and federal civil services share the same basic pay scales and system of job classification) strained NWFP’s fiscal position and made patronage more attractive with respect to already overpaid, low-level civil servants. However, even though GoNWFP has controlled well the increase in sanctioned posts in mitigation of these salary increases, its decision to extend non-contributory pension privileges to 23,000 existing contract workers will further damage its fiscal position.

The new Government that was elected in 2002 had many members who understood the challenges of improving governance and service quality as they tended to come from social strata that relied on public services. It was reported that their personal experience convinced them of the priority to reduce corruption and provide better health and education. Finally, the external security environment in the region has tended to limit interest of foreign investors in the province.

Regional security factors have a bearing on investors -- both domestic ones, in particular in other provinces than NWFP, and foreign investors' -- perceptions about the attractiveness of investing in the province. The regional security perception is largely outside the control of the provincial government but does have a bearing on investment and growth in the province and hence on employment and poverty reduction that are key targets for the provincial government.

5.2 Factors generally subject to government control:

Political forces play an important role in SAC2 implementation through their affect on decentralization. Most districts in the NWFP are controlled by the opposition. This factor creates a disincentive for the province to devolve power to the districts as quickly and as completely as is feasible or desirable. It is possible that the elections, planned for August 2005, could change the balance in the districts that would encourage fuller devolution in the future.

In some cases the process of decentralization complicated implementation of the reforms. In addition to the need to build capacity at lower levels, power sharing is still being worked out between the districts and the province. In the case of the Nazims, the incentive structure is such that they view their main constituency as the Union Councilors which elect them rather than the individual constituents and they often allocate their funds accordingly (fragmentation of funds with equal shares to each Union Councilor for spending in their respective local area). As a result, maintenance of schools, clinics and roads has suffered.

Another area that also affects decentralization is the extent of fiscal federalism where greater federal to provincial revenue devolution can create the necessary fiscal space for further provincial to local devolution. As noted above, the federal revenue transfers to the provinces have not increased commensurately with the additional responsibilities that were being devolved to the districts via the provinces and a new NFC Award with a higher revenue share to the provinces is necessary. The postponement of increased transfers in 2004 strained NWFP’s fiscal position and also set back decentralization efforts.

5.3 Factors generally subject to implementing agency control:

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No specific factors.

5.4 Costs and financing:

The total original credit amount was SDR 62.1 million (US$90 million equivalent). The entire credit amount was disbursed in a single tranche upon effectiveness. The credit was made on standard IDA terms with a term of 35 years, and a 10-year grace period. The borrower was the Government of the Islamic Republic of Pakistan which on lent the funds in PAK rupees (also on IDA terms) to the Province of NWFP.

6. Sustainability

6.1 Rationale for sustainability rating:

The sustainability of the NWFP SAC is rated likely, but with reservations due to uncertainties from some aspects of implementation. The Government has performed well in raising provincial revenues, but faces some fiscal uncertainty from the costs of the two successive, federally-driven, 15 percent, across the board civil service salary (and pension) increases. The government elected in 2002 has demonstrated that it is committed to reform, but it also needs to put more effort into the non-core program.

Achievements in accounting and procurement appear permanent, which will heighten the performance and sense of integrity in public institutions. Health and education improvements such as improved physical school facilities and immunization coverage are more sensitive to slippage as they require concerted efforts and budget allocations to maintain achievements. Sustainability will be aided by increased awareness of the importance of, for example, educating girls, and the establishment of complementary financing mechanisms (e.g. partial cost recovery) that demonstrate the high priority of services to the public. The new Secretary for Schools and Literacy is reform-minded and is expected to improve implementation in the education reform program. The reform program also needs a renewed focus on quick wins to sustain public support. Examples of quick wins thus far include upgrade of school facilities, improved vaccination services and provision of textbooks to primary and secondary students. Future quick wins could include substantially improved teacher attendance and progress on the Bank of Khyber.

6.2 Transition arrangement to regular operations:

The third phase of the SAC-supported program is underway and the GoNWFP continues to make progress on the established triggers for SAC3. This progress was verified in a detailed Aide-Memoire from a December 2004 mission, through GoNWFP monitoring, comprehensive supervision mission in May 2005, and by an ICR field mission that generated additional updated information. Key areas for improvement are provision for maintaining school improvements, monitoring and evaluation, more effective civil service reform at both the provincial and district levels and more effective measures to improve private sector investment that will increase growth and employment. There is a risk that the improvements to education and health facilities made possible by SAC2 will erode unless a more systematic maintenance program is put in place. Currently, the program relies on PTAs with their IM&R budget to carry out school maintenance. Because PTAs are not yet fully effective, the maintenance program may not be sufficient. Also, it was reported that Nazims and even DCOs, occasionally do not ensure that maintenance budgets actually reach the schools. The future success of civil service reform will require an operationalized and computerized Human Resource database, which is progressing well so far. The Bank is assisting the GoNWFP in this effort which has moved into its second phase.Other data concerns may be alleviated by the completion, albeit delayed, of the CWIQ survey (which is part of the PRSC policy matrix for 2005/06). If the commitment to reform continues, as manifested in the progress toward triggers for a SAC3, then the

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Bank is poised to support the reform program with the third phase of the program in FY06.

7. Bank and Borrower Performance

Bank7.1 Lending:

Satisfactory. The Bank was able to work closely with a new government which might have easily chosen a direction far different from the reform program that they had inherited. The GoNWFP’s development agenda, as it turned out, was in line with the ongoing reform program supported by the Bank. The Bank effectively continued to pursue such priorities as girls’ education and professionalism of public institutions. The Bank might have focused more on cost recovery in some of the services to enhance sustainability. The Bank judged correctly that approving a SAC every year would have been too fast and slowed the pace of new adjustment lending to every other year. In the future it might be useful narrowing the scope of the operations and aim at an annual cycle for the operations.

7.2 Supervision:

Satisfactory. The system of quarterly reporting continued under SAC2 under the Reform Monitoring Unit. A project coordination unit at the Department of Finance monitored SAC2, with supervisory support from the Bank office in Islamabad. Intensive supervision missions were conducted with headquarters and the Islamabad office in December 2004 and May 2005, and each component was carefully assessed and issues identified. The December supervision mission was effective in in following up on areas that needed improvement to trigger a possible SAC3. The May supervision mission followed up on these areas and found them, in most cases to be on track. Despite the thorough and regular supervision, the Bank needs to help the GoNWFP improve the quality and timeliness of its M&E. This was also a weakness cited in the completion report for SAC1. It is also strongly urged that Bank staff make greater efforts to visit service delivery sites, especially where education and health facility upgrades have been funded from budget support from the Bank. It was reported during the ICR mission that Bank staff site visits to learn the direct impact of the activities and to verify outcomes indicated by monitoring data were not as frequent as they should be.

7.3 Overall Bank performance:

Satisfactory. The Bank pressed on with its support for the PRP and its emphasis on expenditure management, fiscal discipline and social service delivery helped improve prospects for decentralization. In addition, since the beginning of the program, the Bank has deepened working relations in NWFP, with increasing mutual respect, and a degree of leverage with the provincial government. The Bank also made a successful investment in changing the government’s mindset regarding PSD which has begun to show positive results.

Borrower7.4 Preparation:

Satisfactory. The new Government generally took ownership of the ongoing reform program. Part of the reason that they were elected to power was the public’s demand for better governance and better delivery of social services. The new Government had a reputation for clean governance and came from the same classes that in general rely more on public provision of social services than on private, more expensive, delivery. So the new government seemed to understand quite well that aspect of the program, and embraced it. Other aspects, such as PSD were not so intuitively understood and that has taken longer to

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develop, but recently has resulted in a series of recent positive policy initiatives. Ownership of health initiatives, especially at the district level, needs to be improved in subsequent operations, specifically to improve district awareness of the reform program.

7.5 Government implementation performance:

Satisfactory. The Government carried out all Board Conditions for a timely tranche release. The fiscal pressures that developed were handled well by the provincial government. Most of the key elements adding to the fiscal burden of NWFP originated at the federal government (large general wage increases, lack of increased transfers because of non-agreement on NFC award, and rapid erosion of the real value of the Net Hydel Profit transfer from a federal agency—WAPDA). The provincial government did add to its wage bill by expanding its civil service -- however, the increase in sanctioned posts has been well below the agreed annnual target of 3% and after a 7-year freeze on hiring. What the provincial government could influence, it did relatively well, such as own revenue mobilization, accelerated (pre)payment of expensive debt, and prudent build up of a capital fund against pension liabilities. There are a couple of areas of needed improvement that have been mentioned: more focus on the non-core program and monitoring the reform program.

7.6 Implementing Agency:

Moderately Satisfactory. Greater responsibilities are being assumed at lower levels, particularly in accounting, procurement and some services, though there is still resistance from the provincial authorities to devolve authority, e.g., salary payments to the districts. A long term issue for implementers is the need to de-politicize expenditures and recruitment at the district level and establish a district service. Also, it is important to establish appropriate incentive structures to align local spending preferences with those of higher levels of government. For example, there were a number of instances reported of maintenance budgets not properly used. The result is already clear in the declining condition of roads in the districts. Also, it is critical that the districts do a better job of maintaining the recent improvements to the government schools, or the gains from SAC2 will erode.

7.7 Overall Borrower performance:

Satisfactory (moderately). The Borrower showed initiative and ownership of the broad reform program, implemented all core conditions under the SAC2, the vast majority of the non-core program and exceeded targets in a number of areas. Processes at the district level, however, need continued improvement in the coming years. The decentralization process that runs concurrently with the reform program adds challenges to reform implementation, where capacity has to be built, not only at the provincial, but also at the district level.

8. Lessons Learned

Monitoring a program must measure not only what has been accomplished, but also what has not. The GoNWFP has improved substantially its monitoring processes. In the next stage, the GoNWFP needs to monitor its activities not just for the purpose of confirming completion of an activity, but, more importantly to identify problem areas that need attention.

For programs that fund facility improvements, a maintenance program must be in place. A large part of SAC2 funds were spent on educational and health facilities. Maintenance is critical to preserving the gains and the districts are currently weak in this regard. Therefore, subsequent operations, must have a

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strong maintenance program that guarantees adequate funds for maintenance and that the maintenance is actually carried out. Provincial adjustment loans can be critical to improving social services. Social services are delivered at the provincial and district levels. Thus a provincial SAC is closer to the action and has advantages in getting funds to the implementing agents compared to a country-wide SAC. In large, populous provinces, the Bank has an opportunity to provide the additional technical and financial resources to make decentralization successful and thereby make basic service delivery more effective. Without a specific provincial SAC, provincial reforms including reforms to improve service delivery by local governments would likely be much further behind.

SAC2 Reinforcement of Lesson from SAC1: It is better to proceed with a reform program credit even with the risks of sub-national lending, new elections and decentralization, if there is borrower ownership. SAC2 has fostered continued buy-in on reforms by the new government. There were also fears that the devolution program would fail, but to the contrary, the Bank’s support to NWFP under SAC2 strengthened decentralization as well as the position of reform-minded officials. Proceeding with the SAC2 meant that there was an established reform program that would give structure and focus to the new government’s reforms and limit errant policy decisions by continuing to improve expenditure management. In the second SAC it became clear that reform capacity was building, especially with a broader grasp of the concepts of the reform program.

Timely and reliable M&E depends on regular updating of performance indicators and site visits to verify data. Many of the indicators identified to monitor SAC2 were long-term in nature. Either different indicators need to be identified to measure performance that can be collected more regularly or greater efforts are needed to update the indicators that are chosen. Indicators that can be updated only every few years may be useful to long term assessments, but not to the type of M&E needed for trouble shooting. Unfortunately, it was not possible to generate interim data for monitoring purposes because the provincial government regarded such an exercise as duplicative of federal efforts. In any case, Bank staff need to do more field work to spot check the implementation and impact of program investments.

In the future, improving service delivery will require greater administrative devolution through the creation of a district service. Dual managerial authority by the provincial and local governments has weakened the accountability of front-line service providers, and the province needs to move ahead with the creation of the district (and tehsil) service so as to ensure that local governments are the unambiguous employers of the staff assigned to them. In addition, the present jurisdictional confusion between districts and tehsils in the provision of water supply and sewerage services needs to be resolved, with ideally this responsibility resting with the tehsils, accompanied by the requisite transfer of PHED staff.

Factor in higher revenue transfers from changes in NFC Awards into the fiscal program only when an agreement on the NFC materializes. The large vertical fiscal imbalances in Pakistan, with most of the revenue collected at the federal level, and most of the expenditure carried out by provincial and local governments, makes NWFP and other provinces very dependent on a reliable and timely system of transfers from the federal government through the NFC. The transfer of resources from the federal government has not increased commensurately with the expansion in service delivery activities devolved to the districts via the provinces. At the time of the preparation of SAC 2, it appeared possible that agreement on a new NFC award would be concluded in time to provide additional resources to NWFP for FY05 and this was projected in the fiscal program. It turned out that the political economy considerations were more complicated than what the staff and the provincial government anticipated and this higher award did not materialize. The lesson for future provincial operations is that higher level of transfers from the federal

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government should be factored in only when an agreement on the NFC materializes. It also emphasizes the need for provincial governments to explore all revenue raising measures provided for in the Constitution of Pakistan.

Capacity building efforts need to track changes in levels of responsibility as a result of decentralization. With greater responsibilities in the districts comes the need for additional capacity. For example, the large investments in school rehabilitation need to be matched with increased mobility of ADOs (through, e.g., provision of motorcycles) to monitor school condition and maintenance, as well as teacher attendance. Another example is the capacity in the PSC, which has taken on greater recruitment responsibilities, especially in 2004, but has not increased its staff commensurately.

9. Partner Comments

(a) Borrower/implementing agency:

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(b) Cofinanciers:

(c) Other partners (NGOs/private sector):

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10. Additional Information

Table 5: Summary Fiscal Accounts of the Government of NWFP, 2001/02 - 2004/05 (Rs Million)% Change

June Final Budget

June Final Budget

June Final Budget

WB Adj Budget

Actual upto QIII

Prelim estimate (June 05)

FY04 Actual over FY03

Actual

FY05 QIII over FY04 QIII

FY05 Prelim

over FY04 Actual

Total Revenues and Grants 36,549 47,950 38,851 52,843 38,978 51,521 49,104 30,875 49,309 0.3 22.8 26.5 Federal Tax Assignment 18,944 22,568 23,369 25,470 23,704 28,987 28,988 20,238 29,714 1.4 26.3 25.4 Provincial Own Revenues /1 9,300 20,374 9,891 22,325 10,255 12,994 13,285 6,567 11,573 3.7 12.7 12.9 Provincially Collected Revenues 3,021 3,897 3,594 3,986 3,915 4,231 4,522 3,029 4,679 8.9 16.2 19.5 Tax Revenues 1,351 1,809 1,538 1,976 1,688 2,081 2,081 1,459 2,162 9.8 17.4 28.1 Non-Tax Revenue 1,670 2,089 2,056 2,010 2,227 2,149 2,440 1,570 2,517 8.3 15.2 13.0 Hydel Profits from WAPDA 6,000 15,904 6,000 17,653 6,000 8,000 8,000 3,000 6,000 0.0 0.0 0.0 GST on Services 256 413 297 406 340 406 406 284 393 14.5 27.9 15.6 Royalty on Oil and Natural Gas 23 160 0 280 0 357 357 254 501 Federal & Foreign grants 8,305 5,008 5,591 5,047 5,019 9,540 6,831 4,070 8,022 -10.2 24.0 59.8 Subventions 3,915 3,898 3,898 3,898 3,898 4,500 4,500 2,924 4,500 0.0 0.0 15.4 Others 1,445 564 1,693 1,149 1,121 5,040 2,331 1,143 3,522 -33.8 214.2 o/w Foreign grants 387 546 373 767 505 1,248 1,248 124 270 35.4 -46.5

Total Expenditures 37,867 59,725 41,029 59,206 44,767 57,845 54,712 32,360 52,895 9.1 20.7 18.2Current Expenditures 30,295 46,052 32,750 44,510 34,621 41,650 42,693 25,754 40,159 5.7 10.8 16.0 o/w Wages 14,573 17,791 15,564 17,444 18,945 20,606 22,292 17,216 22,355 21.7 30.0 18.0 Pension 2,805 3,600 2,653 3,780 2,702 3,780 3,137 2,235 3,102 1.8 13.6 14.8 Non-Wage O & M, contingency 4,621 3,204 5,749 4,511 4,637 6,434 6,434 1,042 5,499 -19.3 -61.8 18.6 Interest Payments 6,798 8,679 5,907 6,159 5,599 7,404 7,404 3,280 5,877 -5.2 -5.5 5.0 Subsidies (Food) 1,228 1,000 800 1,000 700 1,000 1,000 200 900 -12.5 -33.3 28.6 Transfer payments to LG 269 1,959 2,077 2,084 2,038 2,426 2,426 1,781 2,426 -1.9 16.4 19.0

Development Expenditures 7,572 13,673 8,279 14,696 10,146 16,195 12,019 6,606 12,736 22.6 84.5 25.5 o/w Annual Development Program 1,684 4,230 6705 6,352 8604 10546 10,169 5552 10,963 28.3 91.8 27.4 Foreign Project Assistance 2,121 5,187 1,574 5,391 1,542 5,649 1,850 1,054 1,773 -2.0 53.9 15.0

Fiscal Balance -1,318 -11,776 -2,178 -6,363 -5,789 -6,324 -5,609 -1,485 -3,586 165.8 -11.5 -38.0 Primary Balance 5,480 -3,096 3,729 -204 -190 1,080 1,796 1,795 2,291 -105.1 0.2 -1305.6Source: GoNWFP and Bank Staff Projections. 1/ Provincial own revenues include provincially collected tax and non tax reveneus as well as Net Hydel Profits, GST on Services and Royalty on oil and gas2/ The Non-wage O&M is caclulated residually from current expenditures.

2001/02 2004/052003/042002/03

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Annex 1. Key Performance Indicators/Log Frame Matrix

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Annex 2. Project Costs and Financing

Project Cost by Component (in US$ million equivalent)AppraisalEstimate

Actual/Latest Estimate /a

Percentage of Appraisal /a

Project Cost By Component US$ million US$ millionBOP/Budget Support 90.0 90.0 100%

Total Costs 90.0 90.0 100%

Total Financing Required 90.0 90.0 100%

Project Costs by Procurement Arrangements (Appraisal Estimate) (US$ million equivalent)

Expenditure Category ICB Procurement

NCB Method

Other /a rN.B.F. Total Cost

1. BOP/Budget Support 90.0 90.0 Total Costs 90.0 90.0 Total Financed by IDA 90.0 90.0/a Or SDR62.1 million.

Project Costs by Procurement Arrangements (Actual/Latest Estimate) (US$ million equivalent)Expenditure Category ICB Procurement

NCB Method

Other /bN.B.F. Total Cost

1. BOP/Budget Support 90.0 90.0Total Costs 90.0 90.0Total Financed by IDA 90.0 90.0/b Or SDR 62.1 million.

Project Financing by Component (in US$ million equivalent)Component Appraisal Estimate Actual/Latest

Estimate/aPercentage of Appraisal /a

IDA Govt. CoF.IDAGovt.CoF.IDAGovt.CoF.BOP/Budget Support 90.0 90.0 100%Total 90.0 90.0 100%

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Annex 3. Economic Costs and Benefits

Not applicable.

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Annex 4. Bank Inputs

(a) Missions:Stage of Project Cycle Performance Rating No. of Persons and Specialty

(e.g. 2 Economists, 1 FMS, etc.)Month/Year Count Specialty

ImplementationProgress

DevelopmentObjective

Identification/PreparationSeptember 2003 8 TTL, E, L, F, PSD, E, H

Appraisal/NegotiationApril 2004 9 TTL, E, L, F, PSD, E, H S S

SupervisionDecember 2004 8 TTL, E-2, L, F, PSD, Ed, H S SMay 2005 9 TTL, E. L, F, PSD, Ed, H,A,P S S

ICRJune 2005 1 E S S

(b) Staff:

Stage of Project Cycle Actual/Latest EstimateNo. Staff weeks US$ ('000)

Identification/Preparation 66.14 210,328Appraisal/NegotiationSupervision 10.5 20,541ICRTotal 76.64 230,869

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Annex 5. Ratings for Achievement of Objectives/Outputs of Components(H=High, SU=Substantial, M=Modest, N=Negligible, NA=Not Applicable)

RatingMacro policies H SU M N NASector Policies H SU M N NAPhysical H SU M N NAFinancial H SU M N NAInstitutional Development H SU M N NAEnvironmental H SU M N NA

SocialPoverty Reduction H SU M N NAGender H SU M N NAOther (Please specify) H SU M N NA

Private sector development H SU M N NAPublic sector management H SU M N NAOther (Please specify) H SU M N NA

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Annex 6. Ratings of Bank and Borrower Performance

(HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory)

6.1 Bank performance Rating

Lending HS S U HUSupervision HS S U HUOverall HS S U HU

6.2 Borrower performance Rating

Preparation HS S U HUGovernment implementation performance HS S U HUImplementation agency performance HS S U HUOverall HS S U HU

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Annex 7. List of Supporting Documents

NWFP Public Service Commission, Annual Report 2004Program Document for a Proposed Credit in the Amount of SDR 62.1 million (US$90 million equivalent) to the Islamic Republic of Pakistan for a Structural Adjustment Credit for the Government of NWFP, May 26, 2004.Development Credit Agreement dated June 22, 2004.Memorandum of the President on a Country Assistance Strategy for the Islamic Republic of Pakistan, June 24, 2002.Project Agreement between the International Development Association and the North West Frontier Province, June 2004.Aide-Memoires from supervision missions (Project File)EMIS and HMIS data sheets

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