April 2011

Why a New Instrument? Change in client demand: Clients want Bank support for government’s own programs and increased focus on results. This demand can’t be fully met with existing instruments Results: Focus incentives of borrower and lender squarely on development results Institutions: Strengthen and work through the institutions and program systems that produce results Partnerships: Many countries request support for their program(s) through medium-term partnerships with Bank and other development partners

An Instrument for Incentives Toward Results Disbursements linked to results or performance indicators These can be outputs, outcomes, or other actions/results Definition of tangible, transparent, and verifiable disbursement-linked indicators Monitoring and evaluation

Examples of Disbursement Linked Indicators Percent of women receiving antenatal care or reduction in under-five mortality (Health) Implementation of an improved system for managing procurement (Public Sector Management) Time to start a business (Private Sector Development) Percent of municipalities with paved access (Transport) Strengthening of school-based management system (Education/ Governance)

An Instrument for Strengthening Institutions Results are sustainably produced by country institutions P4R is designed to help build institutions, capacities and country systems Supports incentives within government programs to enhance focus on and delivery of results

An Instrument for Better Partnership Will allow WB to effectively support larger program Facilitates leveraging by financing a small part of large government program Facilitates co-financing in pooled funding arrangements Complements grant-funded TA programs

Key Features of P4R Finances specific program sectoral or subsectoral expenditure programs Disburses upon achievement of results and performance indicators, not inputs Focuses on strengthening the institutional capacity essential to ensuring programs achieve their results and can be sustained Provides assurance funds are used appropriately and an adequate system is in place to protect affected people and the environment

Complementary Instruments Implementation Mechanism Project Lending (IL) Funds for specific expenditures Bank IL rules and procedures Funds for non- earmarked general budget support Policy Lending (DPL) Country policy processes Program Lending (P4R) Funds for specific expenditures program Program systems

P4R Guided by a Single Operational Policy The distinct nature of P4R requires a dedicated instrument and associated set of operational policies A new Operational Policy (OP) and Bank Procedures (BP) as well as guidance to staff will be developed to support implementation P4R would be subject to the independent oversight functions that apply to all World Bank operations

Use of P4R P4R can be used by any country in support of a program(s) or sub-program(s). World Bank will appraise the program and assess if it is a good candidate for a P4R operation We expect frequent use in social sectors and large national programs with decentralized implementation (community development programs, local government programs) P4R should not support investments (within programs) with: Potentially significant, irreversible impact on the environment and affected people (typically Category A) , and Investments requiring high value and/ or complex procurement packages

Appraisal of P4R Operations Appraisal of P4R will focus on the assessment of: Technical soundness (strategy, expenditures, and results) System capacity and performance (fiduciary, social and environment) Key risks of the program not to achieve its development objectives As needed, assessments will identify actions to enhance capacity and systems performance As part of appraisal, implementation support arrangements are defined, and agreement is reached on arrangements for audits

Expenditure Framework Technical Assessment Strategic Context How the program is situated in a strategic context in the country and sector Level of commitment and implementation capacity and support Expenditure Framework Focus on specific program(s) to be financed Shift from traditional costing exercises to assess level, efficiency, and effectiveness of program(s) Results Framework Focus on the results framework of the program Results are key part of the design and appraisal Attribution is for the whole program and not Bank financed activities M&E system capacity is a core element

Systems Assessments Focus on the program to be supported by P4R and the institutions managing the program Coverage: Program systems dealing with Fiduciary and anti-corruption Social and environment Key principles to guide the assessment include: Transparency, accountability, performance to support achievement of program’s results Funds are used appropriately under the program and environmental and social impacts and risks of the program are adequately addressed

Implementation Support Program provides regular monitoring reports and annual program audits Implementation support includes: Reviewing implementation progress and achievement of program results and DLIs Providing support for implementation issues as well as institutional capacity building Monitoring systems’ performance to ensure their continuing adequacy through program monitoring reports, audit reports, as well as field visits Monitoring changes in risks to P4R operations and compliance with legal agreements and action plans

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