DOCUMENT OF THE WORLD BANK

FOR OFFICIAL USE ONLY

Report No: 121718-SN

PROGRAM APPRAISAL DOCUMENT

ON A

PROPOSED CREDIT

IN THE AMOUNT OF EURO 93.1 MILLION (EQUIVALENT TO US$110 MILLION)

TO THE

REPUBLIC OF SENEGAL

FOR A

MUNICIPAL AND AGGLOMERATIONS SUPPORT PROGRAM

JANUARY 8, 2018

Social, Urban, Rural and Resilience Global Practice Africa Region

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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CURRENCY EQUIVALENTS

(Exchange rate effective: November 30, 2017) Currency Unit = CFAF

US$1 = 554 CFAF US$1 = 0.84488003 Euro

FISCAL YEAR

January 1 – December 31

ABBREVIATIONS AND ACRONYMS ADM Municipal Development Agency (Agence de Développement Municipal) ADS Association of Departments of Senegal (Association des Départements du Sénégal) AFD French Development Agency (Agence Française de Développement) AGETIP Agency for the Execution of Public Works (Agence d’Exécution des Travaux d’Intérêt

Public) AMO Assistance in Project Management (Assistance à Maîtrise d’Ouvrage) AMS Association of Senegalese Mayors, (Association des Maires du Sénégal) ARD ARMP

Regional Development Agency, (Agence Régionale de Développement) Procurement Regulatory Authority (Autorité de Régulation des Marchés Publics)

BCId Decentralized Consolidated Investment Budget (Budget Consolidé d’Investissement décentralisé)

BCL Office of LGs, DGID (Bureau des Collectivités locales de la DGID) BFL Local Tax Office (Bureau de Fiscalité Locale) CC Court of Auditors (Cour des Comptes) CFAF CFL Local Fiscal Commissions (Commission de Fiscalité locale) CNDCL National Council for the Development of Local Governments (Conseil National de

Développement des Collectivités Locales) CNDT National Commission for the Dialogue of Territories (Commission Nationale du Dialogue

des Territoires) CNFAT National Training Center for Territorial Stakeholders (Centre National de Formation des

Acteurs Territoriaux) CPF Country Partnership Framework CPS Country Partnership Strategy CTC Continuous Territorial Coaching (Coaching Territorial Continu) DA Designated Account DCFE Cooperation and External Financing Directorate (Direction de la Coopération et du

Financement Extérieur) DCL Local Government Directorate (Direction des Collectivités Locales) DCMP General Directorate of Procurement (Direction Centrale des Marchés Publics) DCT Local Government Directorate (Direction des Collectivités Territoriales) DEEC Environment and Classified Establishments Directorate (Direction de l’Environnement et

des Etablissements Classés) DGAT General Directorate of Territorial Management (Direction Générale de l’Administration

Territorial)

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DGB General Directorate of Budget (Direction Générale du Budget) DGCPT National Treasury (Direction Générale de la Comptabilité Publique et du Trésor) DGID General Tax Directorate (Direction Générale des Impôts et des Domaines) DLI Disbursement Linked Indicator DREEC Regional Division of Environment and Classified Establishments (Division Régionale de

l’Environnement et des Etablissements Classés) DSPL National Treasury’s Local Government Department (Direction du Secteur Public Local) ESSA Environmental and Social Systems Assessment FDD Decentralization Allocation Fund (Fonds de Développement de la Décentralisation) FECL Local Government Equipment Funds (Fonds d’Equipement des Collectivités Locales) FM Financial Managemen FY Fiscal Year GDP Gross Domestic Product GFILOC Interconnected Local Government PFM System (logiciel de tenue de la comptabilité des

collectivités locales) GRM Grievance Redress Mechanism HCCT High Council of Local Governments (Haut Conseil des Collectivités Territoriales) IAL Internal Inspectorate of Local Administration (Inspection de l’Administration Locale) IDA International Development Association IPF Investment Project Financing IVA Independent Verification Agency LADP Local Authorities Development Project (Programme de Renforcement et d’Equipement des

Collectivités Locales, PRECOL) LGs Local Governments LPS LTU

Sectoral Policy Letter (Lettre de Politique Sectorielle) Learning and Training Unit

LVATF Local Value Added Transfer Fund M&E Monitoring and Evaluation (Suivi-Evaluation) MASP Senegal Municipal and Agglomerations Support Program (Programme d’Appui aux

Communes et Agglomérations du Sénégal - PACASEN) MEFP Ministry of Finance and Planning (Ministère de l’Economie, des Finances et du Plan) MGT Ministry of Territorial Gouvernance (Ministère de la Gouvernance Territoriale du

Développement et de l’Aménagement du Territoire) MMC Minimum Mandatory Conditions MOD Delegated Project Management (Maîtrise d’Ouvrage Déléguée) NPV Net Present Value OBFILOC Local Governments Finance Online Platform (Observatoire des Finances Locales) OM Operation Manual OTC Operational Technical Committee PAs Performance Assessments PARCA Annual Capacity Development Plans (Plans Annuels de Renforcement de Capacités des

Communes et Agglomérations) PDO Program Development Objective PEFA Public Expenditure Framework Assessment PFM Public Financial Management PforR Program for Results PI Performance Indicators PNDL Local Development National Program (Programme National de Développement Local) PROACTSEN Government’s Program for the Second Phase of Implementation of Act III (Programme

d’Opérationnalisation de l’Acte III de la décentralisation du Sénégal) PSE Emerging Senegal Plan (Plan Sénégal Emergent)

iv

SSA Sub-Saharan Africa STC Program’s Strategic Steering Committee (Comité de Pilotage Stratégique) TA Technical Assistance ToR Terms of Reference UDDP Urban Development and Decentralization Project (Projet d’Appui aux Communes, PAC) US$ United States Dollar WB World Bank

Regional Vice President: Makhtar Diop Senior Global Practice Director:

Country Director: Ede Jorge Ijjasz-Vasquez

Louise J. Cord Practice Managers: Meskerem Brhane, Chiara Bronchi

Task Team Leaders: Salim Rouhana, Bronwyn Grieve

v

Republic of Senegal Municipal and Agglomerations Support Program

Table of Contents

Page

I. STRATEGIC CONTEXT 1

A. Country context 1 B. Sectoral and Institutional Context 2 C. Relationship to the CPF and Rationale for Use of Instrument 5

II. PROGRAM DESCRIPTION 7

A. Government program 7 B. Program Development Objectives and Key Results 8 C. PforR Program Scope 9 D. Disbursement Linked Indicators and Verification Protocols 20 E. Capacity Building and Institutional Strengthening 21

III. PROGRAM IMPLEMENTATION 22

A. Institutional and Implementation Arrangements 22 B. Results Monitoring and Evaluation 25 C. Disbursement arrangements 26

IV. ASSESSMENT SUMMARY 27 A. Technical 27 B. Fiduciary 31 C. Environmental and Social Effects 32 D. Risk Assessment 33 E. Program Action Plan 35

ANNEXES Annex 1: Detailed Program Description 38 Annex 2: Results Framework 59 Annex 3: Disbursement Linked Indicators, Disbursement Arrangements, Verification Protocols 63 Annex 3-1: DLI Verification Protocol Table 65 Annex 3-2: World Bank Disbursement Table 70 Annex 4: Summary Technical Assessment 75 Annex 5: Summary Fiduciary Systems Assessment 89 Annex 6: Summary Environmental and Social Systems Assessment 104 Annex 7: Implementation Support Plan 116 Annex 8: IPF Component – Project Appraisal 119 MAP 124

vi

PAD DATA SHEET

REPUBLIC OF SENEGAL

Municipal and Agglomeration Support Program

PROGRAM APPRAISAL DOCUMENT .

Basic Information Approval Date: January 30, 2018 Sectors: Sub-national government

administration (40%); General water, sanitation and flood protection (20%); Urban transport (20%); General public administration sector (10%); Solid waste management (10%)

Country Director: Louise J. Cord

Practice Managers: Global Practice Vice President:

Meskerem Brhane Chiara Bronchi Laura Tuck

Program ID: P157097 Themes: Decentralization, city-wide infrastructure and service delivery, municipal finance, municipal governance and institution building

Team Leaders: Salim Rouhana Bronwyn Grieve

Program Implementation Period: Expected Financing Effectiveness Date: Expected Financing Closing Date:

Start Date: January 30, 2018 End Date: July 30, 2023 May 1, 2018 July 30, 2023

.

Program Financing Data [ ] Loan [ ] Grant [ ] Other [X] Credit For Loans/Credits/Others (US$M): Total Program Cost: 260 Total Bank

Financing: 110

Total Co-financing from AFD: 90 Financing Gap: 0

Financing Source Amount BORROWER/RECIPIENT 60 AFD 90 IBRD/IDA 110 Total 260

vii

.

Borrower: Republic of Senegal Responsible Ministry: Ministry of Local Governance, Decentralization and Territorial Development Contact: Alassane Saïdou Sow Title: Cabinet Director, in the

Ministry of Territorial Governance (MGT)

Telephone No.: +221 33 869 4706 Email: yayasoh@gmail.com Responsible Agency: Municipal Development Agency (Agence de Developpement Municipal – ADM) Contact: Cheikh Issa Sall Title: Director General Telephone No.: +221 338 492 710 Email: pacadem@or

ange.sn

.

Expected Disbursements (in US$ Million) Fiscal Year 2018 2019 2020 2021 2022 2023 2024

Annual 29.2 22.5 23.5 21.5 12.3 1.0 0

Cumulative 29.2 51.7 75.2 96.7 109.0 110.0 110.0

.

Program Development Objective(s) The Program and Project Development Objectives (PDO) are to: (i) improve local government financing; and (ii) enhance the performance of participating urban local governments in managing public investments. .

Compliance Policy Does the program depart from the CAS in content or in other significant respects?

Yes [ ] No [X]

. Does the program require any waivers of Bank policies applicable to Program-for-Results operations?

Yes [ ] No [X]

Have these been approved by Bank management? Yes [ ] No [ ] Is approval for any policy waiver sought from the Board? Yes [ ] No [X]

Overall Risk Rating: Substantial Legal Covenants

Name Recurrent Due Date Frequency Operations Manual August 1, 2018

viii

Description of Covenant: No later than three (3) months after effective date, the Recipient shall prepare an Operations Manual in form and substance acceptable to the Association, containing details as specified in the Schedule 2, Section I, C, 1 of the Financing Agreement for PforR.

Name Recurrent Due Date Frequency Recruitment of Internal Auditor. Schedule, Section II, B (3) of Project Agreement.

June 1, 2018

Description of Covenant: The Project Implementing Entity shall, not later than one (1) month after the effective date, recruit an internal auditor, whose qualifications and experience and terms of reference shall be acceptable to the Association. Legal Conditions Name Type Execution of the Financing Agreement. Article V, 5.01 (a) of Financing Agreements for PforR and IPF.

Effectiveness

Description of Condition: The Project Financing Agreement has been executed and delivered and all conditions precedent to its effectiveness or to the right of the Recipient to make withdrawals under it (other than the effectiveness of this Agreement) have been fulfilled.

Name Type FECL Decree. Article V, 5.01(b) of Financing Agreement for PforR.

Effectiveness

Description of Condition: The Recipient has promulgated a decree reforming the FECL capital grant, by introducing a formula-based allocation and two-tiered conditional grant allocation.

Name Type Signature of the subsidiary agreement. Article V, 5.01 (b) of Financing Agreement for IPF.

Effectiveness

Description of Condition: The Subsidiary Agreement (i) has been executed on behalf of the Recipient and the Project Implementing Entity and (ii) has been duly authorized or ratified by the Recipient and the Project Implementing Entity and is legally binding upon the Recipient and the Project Implementing Entity in accordance with its terms.

.

ix

Team Composition Bank Staff

Name Title Specialization Unit Salim Rouhana Senior Urban Specialist, TTL Urban Development GSU19 Bronwyn Grieve Senior Public Sector

Management Specialist, co-TTL Public Sector Management

GGO13

Aissatou Seck Counsel Legal LEGAM Faly Diallo Finance Officer Loans Operations and

Trust Funds WFALA

Mamata Tiendrebeogo Senior Procurement Specialist Procurement GGO07 Ndeye Magatte Fatim Seck Procurement Analyst Procurement GGO07 Hugues Agossou Senior Financial Management

Specialist Financial Management GGO31

Maimouna Mbow Fam Lead Financial Management Specialist

Financial Management GGO13

Fatou Fall Samba Senior Financial Management Specialist

Financial Management GGO26

Hocine Chalal Lead Environmental Specialist Environment GEN07 Fatou Fall Senior Social Development

Specialist Safeguards Specialist GSU01

Nicolas Kotschoubey Senior Environmental Specialist Environment Safeguards

GEN07

Lamia Zaki Urban Specialist Consultant Urban Development GSU19 Paolo Avner Urban Economist Economist GSUGL Amina Ajola Cole Fofana Team Assistant Operational support AFCF2 Connie Kok Shun Senior Program Assistant Operational support GSU19 Ahmed Fall Environmental Safeguards

Consultant Environmental Assessment

GSU07

Non-Bank Staff Name Title City

Louis-Antoine Souchet Task Team Leader, AFD Paris

Marième Touré Lo Task Team Leader, AFD Dakar

Aissatou Kumagangue Lawyer, AFD Paris

Anne Sinet Consultant, Urban Governance Paris

x

Victor Chomentowski Consultant, Municipal Finance Paris

Francois Boulanger Consultant, Urban Development and Governance Paris

Lucie Perez Consultant, Urban Development Paris

Emilie Coindet Consultant, Urban Development Paris

1

I. STRATEGIC CONTEXT

A. Country Context

1. Since 2014, Senegal has achieved robust economic growth. With growth rates of 6.5 percent and 6.6 percent in 2015 and 2016 respectively, Senegal is now the second fastest growing economy in West Africa behind Côte d’Ivoire, and the fourth fastest in Sub-Saharan Africa (SSA). Growth has largely been driven by solid performance in industry and agriculture, linked to generous rainfalls, but also to strong exports and a virtuous fiscal policy, combining aggregate consolidation with expanding public investment. The national economy is largely driven by urban centers, and especially by its capital, Dakar (accounting for 55 percent of Gross Domestic Product - GDP). The recent discovery of large offshore reserves of oil and gas, if managed effectively, provide an opportunity for the country to sustain and accelerate growth performance in the coming years.

2. Notwithstanding this, sluggish growth in the preceding two decades has left Senegal with one of the highest monetary poverty rates in the world. GDP growth in Senegal has historically been consistently below the average of SSA and emerging and developing countries1, with substantial annual variations associated chiefly with the country’s significant vulnerability to climatic and exogenous shocks. The country is one of the few on the continent, whose real GDP per capita is lower today than at independence in 1960. Weak growth performance has translated into persistently high levels of poverty. According to the latest official national poverty survey, monetary poverty affected 46.7 percent of the population in 2011, while extreme poverty stood at 14 percent.2 And though Senegal is a top performer in the region with respect to certain human development outcomes (such as access to water and electricity, or certain health sub-sectors), in other areas it is still lagging behind. Overall, the country ranked 163 out of 187 in the United Nations Human Development Index in 2014. In education, Senegal still displays some of the worst results in SSA with gross primary enrolment only increasing slightly to 83.9 in 2014 (compared to 98.4 and 104.9 percent respectively in SSA and LMIC)3, and with the net primary enrolment rate stagnating at slightly above 60 percent.

3. The rural areas of Senegal have particularly high poverty rates. In 2011, nearly 70 percent of the poor and 84 percent of the extreme poor (or 57 percent of the population) lived in rural areas, reflecting that the depth and severity of poverty is worse in rural Senegal. Poverty rates in the southern parts of the country are particularly high, notably in the vicinity of the groundnut basin area (Diourbel, Kaolack and Kaffrine, in Casamance in the Kolda region, and in the Tambacounda region). Access to basic services such as water, electricity, and improved sanitation facilities, are also much lower in rural areas and in certain regions. For example, less than 5 percent of residents have access to basic services in the poorest communes in the South and Southeast (Kolda, Tambacounda, Kedougou). Adult literacy rates are above 30 percent in the western part of the country, but below 10 percent in the sparsely populated areas in the south east and centre. Access to tap water is generally below 20 percent in most of the municipalities outside the Dakar-Thies-Diourbel region, compared to above 70 percent in most of Dakar’s municipalities.

4. Yet, as a result of the steady movement of rural populations to urban areas, the majority of the poor currently live in secondary cities and in the capital city, Dakar. More than 45 percent of the Senegalese population currently live in urban areas, slightly above the SSA average rate of 40 percent.

1 Real GDP per capita has only increased by 17 percent in Senegal since 1990, against 45 percent on average in SSA and 134 percent in emerging and developing countries, and was estimated at US$1,067 in 2014, making Senegal a border-line lower middle income country. 2 Based on a 1.90 US$ international poverty line (2011 PPP), more appropriate for international comparisons, at 38 percent Senegal’s poverty rate is lower than in low income countries worldwide, while still well above the lower-middle income countries (LMIC) average of 21 percent. 3 World Bank, World Development Indicators 2015.

2

Projections estimate that by 2050, 60 percent of the population will live in cities4. The incidence of poverty in urban areas remains much lower, particularly in Dakar (26.1 and 41.3 percent in Dakar and other urban areas, respectively). However, with almost half of the population living in urban areas and one quarter living in Dakar, urban Senegal now hosts 30 percent of the total number of poor. The urban poor are concentrated in secondary cities. Although economic growth in Dakar has provided the basis for lifting urban inhabitants out of poverty, the same cannot be said for secondary cities. The sustained influx of rural populations fleeing drought and downturns in agricultural production has created particular challenges for Senegal’s secondary cities, who are faced with a growing deficit of urban infrastructure and poor service delivery. The situation in secondary cities has meant that, overall, Senegal has not benefitted fully from the positive outcomes of urbanization5.

5. Acknowledging the dual challenges of stimulating economic growth in expanding urban centers and promoting the wellbeing of populations across the territory, the Government of Senegal committed to an ambitious Emerging Senegal Plan 2014 – 2035 (Plan Senegal Emergent, PSE). The PSE establishes the framework for the country’s economic and social policy over the medium to long term. The PSE aims to achieve productivity-enhancing structural transformation through the development of urban poles conducive to the development of economic, cultural and touristic activities across the territory. At the same time, the PSE strives to improve the living conditions of people across the nation by fostering the emergence of viable territories.

6. The PSE is accompanied by the third Decentralization Act (Acte III de la Décentralisation, Act III), which underscores the Government’s commitment to empowering local governments (LGs) and cities to drive economic growth and improved access to services. Building upon a prolonged process of decentralization in Senegal, Act III was launched in December 2013 with the passage of the General Code for Local Governments (la loi portant Code général des Collectivités locales). Act III aims to reinforce the capacity of LGs to contribute to the economic and social development of the country and to become viable, competitive and sustainable by 2022. Act III extensively redefines the configuration of local governance institutions across the national territory, with the number of municipalities increasing from 172 to 557. It also sets out a vision for empowering LGs through the transfer of responsibilities, modernized public management processes, reform of local government financing and the development of qualified and capable local government administrations. However, four years after being launched, limited clarity regarding the fiscal, financial, and institutional modalities needed to achieve effective decentralization have presented significant challenges for the implementation of Act III.

B. Sectoral and Institutional Context

Sectoral context

7. Senegal has pursued a gradual, yet cautious, decentralization policy since its independence in 1960. Under colonial rule, LGs were created in the main urban centers and were conferred with limited responsibilities. After independence, local governance institutions were expanded to the hinterland with the creation of rural communities (communautés rurales) in 1972 to support local level community management. In 1996, the ten administrative regions were transformed into local government entities and additional responsibilities were transferred to existing urban LGs in areas such as urban planning, education, public health and social development. Under Act III, the territorial governance landscape in Senegal changed again in 2014 with the full “municipalization” of the territory which aimed to bring governance and service delivery closer to the citizens. Rural communities were converted into fully-fledged LGs, the competencies formerly attributed to regions were transferred to departments and urban agglomerations were reorganized into cities. In total, the number of LGs increased significantly from 172

4 United Nations DESA 2014, World Urbanization Prospects. 5 World Bank, Senegal Urbanization Review 2016.

3

to 557 (552 municipalities and five cities). The 2001 Constitution, which recognized the role of LGs, was amended in 2016 to reinforce the constitutional basis for LGs and to establish a Local Government Advisory Council (Haut Conseil des Collectivités Territoriale, HCCT).

8. LGs now represent steadfast features of Senegal’s institutional and governance fabric,6 but the consolidation of local level governance has created both opportunities and challenges for deeper decentralization reform. As the influence of LGs has developed, bottom-up pressures have helped to maintain momentum for decentralization reform. Yet the inter-connected dynamics of local and central level political processes have also influenced the territorial repartition of LGs, thereby creating challenges for the effective devolution of fiscal, financial and administrative authority. The territorial architecture derived from the full “municipalization” process (which led to an increase in the number of LGs from 173 to 557 – 552 municipalities and 5 cities) is characterized by strong spatial and demographic disparities within LGs. Most of the LGs that existed before Act III cover a small part of the national territory with relatively high population densities and concentrations of economic activity. Conversely, (and with the exception of former sub-urban communes - the ex-communes d’arrondissement - that were converted into LGs) the newly created LG’s cover significantly broader expanses of territory that are sparsely populated. For example, 35 percent of the former communautés rurales cover 54 percent of the national territory but only 13 percent of the country’s total population. The government’s evaluation of the first phase of implementation of Act III in 2015 identifies the challenges associated with the new local governance landscape, including: (i) the limited tax base of many small LGs; (ii) the fragmentation of LGs in the greater Dakar area; and (iii) limited clarity over the division of responsibilities between cities and departments. The challenges associated with the politicized repartition of local government institutions across the territory are compounded by constraints to effective fiscal and administrative decentralization.

9. Three critical constraints continue to impede effective decentralization in Senegal:

10. First, financial resources transferred from the central government to LGs are not sufficient to enable them to deliver on the mandates transferred to them.7 Although a comprehensive costing of the devolution of authority to LGs has yet to be conducted, both the national government and LGs have acknowledged that existing levels of local government financing are inadequate. Total financing for LGs between 2011-15 amounted to only 1.4 percent of Senegal’s GDP and 5.1 percent of total government expenditure – a level that is similar to other countries in the region (Mali, Benin, Burkina Faso), but well below the average for unitary decentralized countries (8.3 and 25.1 percent respectively8). Apart from larger cities, most LGs depend on intergovernmental transfers for financing. The principal transfer modalities consist of the Decentralization Allocation Fund (Fonds de dotation de la décentralisation, FDD) and the Local Governments Capital Development Fund (Fonds d’équipement des collectivités locales, FECL) which are indexed to the Value-Added Tax (VAT). Although the resources from these two funds increased by more than 30 percent between 2012 and 2016, outpacing the growth in national revenues, central government transfers to LGs remain low, constituting less than 26 percent of total local government financing (CFA 31.5 billion9 in 2016). Furthermore, the fragmentation of the intergovernmental fiscal transfer system (which, in addition to the FDD and FECL includes the Decentralized Consolidated Investment Budget “Budget Consolidé d’Investissement Decentralisé (BCId), and the new Local Value Added Transfer Fund (LVATF)), together with the lack of clearly defined and objective allocation criteria result in a situation in which fiscal transfers (i) are not reflective of the financing needs of LGs; (ii) their 6Constitutional amendments approved in the 2016 national referendum include explicit reference to the decentralization process in the Constitution and the creation of a local government advisory council. 7 The 2015 assessment of the first phase of implementation of Act III places particular emphasis on the mismatch between the mandates transferred to LGs and chronic deficiencies in the financial and human resources available to them to effectively implement their mandates - Nine (9) “areas of competence” have been partially or totally transferred to LGs in the following sectors: environment and management of natural resources; health; population and social action: youth, sports and leisure; culture; education; investment planning; land-use planning; housing and urban development. 8 OECD/UCLG (2016, Subnational Governments Around the World: Structure and Finance). 9 Those include FECL, FDD and BCId resources transferred and executed directly by LGs.

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allocation is characterized by opacity and significant disparities between the level of financing afforded per capita to LGs; and (iii) the limited predictability of overall transfers limits the capacity of the LGs to plan and invest strategically for local development.

11. This is compounded by limited local revenue mobilization. While local revenue mobilization globally constitutes the largest share of LG financing, 60 percent of local taxation revenue is concentrated in the Greater Dakar area. Effective revenue mobilization remains low, representing only 0.6 percent of national tax revenue in 2013. Weak revenue mobilization is underscored by both an outdated and fragmented legal and regulatory framework for local taxes and coordination failures between the national and deconcentrated tax administration structures and LGs. The chronic deficit in local financing thus presents a foundational challenge for the effective implementation of Act III. The dramatic expansion in the number of municipalities under Act III, together with the creation of new LGs with narrow tax bases and negligible prospects for mobilizing their own revenues, highlights the importance of: (i) increasing and rationalizing central government transfers in the short to medium term; and (ii) broadening local fiscal space and building mobilization capacity over the medium to longer term.

12. Second, weak technical and managerial capacity hamper the ability of LGs to manage local development and service delivery, creating disincentives for the central government to devolve financial resources. Under Act III, the Government committed to creating a Territorial Public Administration to establish a cadre of motivated and qualified civil servants to manage local government administrations. While the legislative framework was enacted in 2015, it has yet to be effectively implemented. Vast disparities in the composition, profiles and capacity of local government administrative personnel limits the quality of planning, budgeting, and public investment management processes. The absence of effective career management systems, together with poorly targeted and limited in-service training present particular challenges for LGs in attracting and retaining qualified staff. Limited LG capacity creates a vicious cycle whereby the central government is reluctant to transfer additional resources and the lack of resources further compounds the ability of LGs to develop capacity.

13. Finally, central level institutions charged with coordinating and advancing decentralization reform are weak. The Ministry of Territorial Governance (Ministère de la Gouvernance Territoriale, MGT) is responsible for designing and coordinating the implementation of Senegal’s policy on decentralization, territorial governance and spatial planning. Yet, critical coordination and capacity deficits exist in several core departments within the MGT and beyond, including the Local Government Directorate (Direction des Collectivités Locales – DCL), the principal Department charged with managing relations between LGs and the Central Government, the General Tax Directorate (DGID), responsible for supporting local revenue mobilization and the Local Public Sector Department in the Treasury (Direction du Secteur Public Locale – DSPL) Treasury, which support the LGs with budget execution and increasing local revenues.

14. Meanwhile, the institutional arrangements originally intended to accompany decentralization have done little to progressively enhance the autonomy of LGs. Senegal’s decentralization process is accompanied by a two-tiered system for supporting LGs. Drawing from the francophone model, certain central government functions have been deconcentrated to localized offices at the regional and departmental levels (Gouverneur, Préfet and Sous-Prefét) to facilitate a more proximate interface between LGs and the central government with regard to policy, budgetary control and revenue mobilization processes. Although deconcentrated structures are well-established across the territory, the limited capacity of these structures, shortages in personnel, together with weak incentives to support LGs have hampered the processing of tutelle approvals, and limited revenue mobilization and LG capacity-building efforts. In addition to the system of de-concentration and as a response to the weak capacity of LGs in the 1990’s, Senegal’s decentralization policy was oriented towards the creation of national agencies that were conferred with delegated responsibility for realizing local investments and managing basic urban services on behalf of LGs. Over time, these agencies became the direct recipients of central government financing. For example, around 50 percent of investment transfers under the FECL between 2011 and 2015

5

were allocated directly to certain national agencies. Increasingly these agencies managed or executed local government investments in the place of LGs, providing limited opportunities or incentives for LGs to develop their own implementation and managerial capacity. With the advent of Act III and the renewed focus on building LG capacity and autonomy, these agencies have been slow to adapt their modes of intervention to support progressive capacity development rather than to act in substitution of LGs.

15. The Government’s program for implementing Act III seeks to address these critical challenges. The MGT’s Sectoral Policy Letter (Lettre de Politique Sectorielle, LPS) for 2020 underscores the Government’s strategy for implementing Act III and incorporates amongst its objectives: (i) enhanced management and planning of LGs’ activities at the central level; and (ii) the promotion of local governance through improving LGs financial, technical and human capacities. Three years after the launch of Act III, an inter-ministerial committee led by the MGT engaged in a review of the first phase of implementation, identifying the principal constraints reflected above. This assessment formed the basis for the development of the Government’s program for the second phase of implementation of Act III (Programme d’Opérationnalisation de l’Acte 3 de la Décentralisation du Sénégal, Government’s Program for the Second Phase of Implementation of Act III - PROACTSEN). The PROACTSEN envisages horizontal structural reforms to increase resources available to LGs, reinforce administrative and managerial capabilities of LGs and improve central level coordination, support and monitoring. It also incorporates vertical measures to strengthen the capacity of LGs to manage public resources and deliver services to citizens in a transparent and accountable manner.

16. The proposed Operation10 seeks to build on the World Bank and the French Development Agency’s (AFD) longstanding engagement in local and urban development processes in Senegal, by tackling institutional reforms that are considered critical to effectively empowering LGs to manage local development. The World Bank remains a leading partner of the Government of Senegal and Senegalese municipalities in their efforts to improve urban governance and the decentralization framework. The Urban Development and Decentralization Project (UDDP, Cr. 3006-SE, closed December 2004) and the Local Authorities Development Project (LADP, Cr. 4224-SE, closed December 2013) put in place municipal loans, initiated contractual arrangements between the national and LGs to improve infrastructure in the country’s main cities and helped to improve the flow of fiscal transfers from the central level to the LGs on the basis of three-year capital investment programs. However, few of the initiatives engaged proved sustainable and many were not institutionalized beyond the lifetime of the specific operations. Following the introduction of Act III, the World Bank committed to supporting institutional reforms to establish robust foundations for the evolution of the decentralization agenda in Senegal. This includes addressing the critical challenges of: (i) improving local government financing; (ii) building the administrative capacity of LGs; and (iii) ensuring that the national level institutional arrangements support LGs to progressively develop and manage local development processes autonomously.

C. Relationship to the Country Partnership Framework (CPF) and Rationale for the Use of a Blended Investment Project Financing (IPF)/Program for results (PforR) Instrument

17. The proposed Operation is fully aligned with the existing Country Partnership Strategy (CPS) for Senegal (2013-2017)11. In line with the World Bank’s updated Governance and Accountability (GAC) agenda, the CPS recommends that interventions focus on strengthening governance systems and processes to enhance the predictability, credibility and accountability of the Government. The proposed operation aligns with key outcomes under Pillar 1: accelerating inclusive growth and creating employment; and Pillar 2: improving service delivery. In addition, the Operation is fully aligned with the CPS’s 2015 10 The operation is defined as the combination of the Program (using a PforR instrument) and the Project (using an IPF instrument). 11 Document date: 01/18/2013. Report number: 73478.

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Performance and Learning Review (PLR)12 that highlighted decentralization as a key development issue under the CPS’s Foundation Pillar, Strengthening the Governance Framework and Building Resilience.

18. The Operation also addresses several binding constraints identified in the Systematic Country Diagnostic (SCD) for Senegal, which is under preparation and which will inform the preparation of a CPF in FY18. The SCD identifies the spatial challenges involved in creating productivity-enhancing urban spaces, including secondary cities, to promote transformational growth and job creation, while bridging the urban and rural divide by securing basic service provision across the territory. It also highlights the importance of shifting the prevailing centralized and low level governance equilibrium by promoting local level contestation and citizen engagement. The proposed operation seeks to lay the foundations for empowering LGs across the territory to invest in public service delivery infrastructure by increasing inter-governmental investment transfers, enhancing the predictability, transparency and equitable allocation of resources and enhancing local revenue mobilization. At the same time, it focuses on equipping urban LGs, including Dakar and secondary cities, with the necessary support and capacity to plan, budget and manage public investments, while creating performance incentives for selected LGs to improve their management of public resources, engage with local populations and execute public investments to stimulate local economic activity and improve the livelihoods of local populations. Collaboration between the Urban and Governance Practices will ensure appropriate synergies between the institutional governance and urban and spatial development dimensions of the operation.

19. The proposed Operation will be financed through a hybrid of the PforR and IPF instruments. Drawing upon the lessons learned from other PforR operations in the region, and based upon the fiduciary assessment, a blended operation was considered necessary. Given shortcomings in the national budgeting and cash flow management processes in the country, there is a risk that a narrow set of specific technical assistance (TA) activities that are critical to informing or initiating the reforms targeted by the PforR might not be adequately resourced in a timely manner. As demonstrated elsewhere, this risk could potentially delay or derail Program implementation. The IPF instrument will therefore help to ensure the timely financing of discrete one-off TA activities at the national level. Hence the principal justification for the IPF is to secure funds for specific activities. Activities will include studies on specific inter-governmental transfer systems, the introduction of integrated local public financial management (PFM) information systems, and the recruitment of firms to support the Court of Auditors in managing municipal performance verifications and the MGT in developing a national local government portal. The Municipal Development Agency (Agence de Developpement Municipale, ADM), which will be responsible for Program coordination, will also be charged with executing the IPF component. The ADM already has extensive experience and proven capacity in managing IPF instruments and this will help to minimize the transaction costs associated with the dual management of a PforR and IPF. The hybrid operation as a whole will be referred to as the “Operation” unless specified otherwise. The IPF dimension will be referred to as the “Project” and the PforR dimension will be referred to as the “Program”.

20. The bulk of the proposed Operation will be financed through the PforR Instrument - a financing modality that is particularly well-suited to managing conditional grants to sub-national governments and to supporting sustainable structural incentives to strengthen local government capacity to deliver front-line infrastructure and services. Though the Government of Senegal does not have prior experience with the PforR instrument, the selection of the financing modality has been welcomed by the authorities. The government’s commitment to the instrument is underscored by extensive efforts during preparation to sensitize the authorities to the implications of a PforR. The PforR will enable full alignment between the government’s priorities under Act III and development partner support. It will provide results-based incentives to encourage the diversity of national and sub-national actors involved in the implementation of Act III to coordinate the effective application of reforms aimed at empowering LGs to manage local service delivery and development processes. Given the focus on developing sustainable

12 Document date: 04/28/2015. Document number: 93146.

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institutional arrangements to support the decentralization process, the instrument will enable the use of government systems and procedures, thereby minimizing the proliferation of parallel financing and fiduciary arrangements, while supporting the consolidation and strengthening of existing inter-governmental transfer systems and institutional capacity.

21. The joint IDA-AFD financed Program also provides important leverage in encouraging other development partners to support the government’s program.

II. PROGRAM DESCRIPTION

A. Government program

22. The Government’s commitment to advancing decentralization in Senegal is reflected in its Program for Operationalizing Act III (Programme d’Opérationnalisation de l’Acte 3 de la Décentralisation du Sénégal, Government’s Program for the Second Phase of Implementation of Act III - PROACTSEN). Based on the inter-ministerial committee’s evaluation of the first phase of implementation of Act III, the MGT developed the PROACTSEN in 2016 as the basis for the second phase of implementation of Act III from 2017 to 2030. The PROACTSEN focuses on creating an effective enabling environment to empower LGs to fulfill their mandates, while simultaneously introducing a results-based focus to encourage LGs to improve their performance. The PROACTSEN was validated by the Inter-Ministerial Technical Committee in August 2016, and endorsed by the MGT in September 2016. It consists of the following four subprograms:

23. Subprogram 1 (SP1): Strengthening the legal framework and national coordination and governance institutions involved in the implementation of Senegal’s decentralization policy. The objective of SP1 is to restructure the MGT and strengthen its capacity to strategically manage and coordinate the effective implementation of Act III. The sub-program focuses on: (i) streamlining the Ministry and related agencies and structures to optimize reform implementation, monitoring and evaluation (M&E) and support to LGs; (ii) strengthening interdepartmental and inter-governmental coordination; (iii) improving the legal and regulatory framework for decentralization; and (iv) establishing effective central level support arrangements to accompany territorial and local economic development, including the re-orientation of national agencies to support LGs in progressively developing capacity to manage local development with greater autonomy.

24. Subprogram 2 (SP2): Reinforcing the cohesiveness of territorial governance and spatial planning. The existing repartition of local government and administrative institutions across the territory has created significant challenges, as indicated above. On the one hand, a significant proportion of rural municipalities are small in size and sparsely populated and their potential to mobilize revenue is low. On the other, the fragmentation of local government institutions and the overlapping jurisdictions of departments and cities in Senegal’s larger urban agglomerations, particularly the Greater Dakar area, have created competition for, and confusion over, finite local revenues, while limiting cooperation and coordination across the agglomerations. SP2 seeks to rectify these challenges with the objective of promoting territorial cooperation and coherence, whilst creating the necessary conditions to ensure the development of competitive and integrated territories capable of sustaining local and regional development. In addition to revising aspects of the institutional and administrative architecture across the territory, the sub-program also envisages the promotion of inter-municipal arrangements/ structures and the identification and development of territorial growth poles identified in Act III.

25. Subprogram 3 (SP3): Enhancing the organization and technical and human capacity of LGs. The subprogram aims to support improvements in the organizational and operational capacities of LGs (in planning, programming, procurement, operations management and M&E, development and maintenance of infrastructure and equipment, etc.) and other territorial stakeholders to enable them to effectively deliver

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on their mandates. To support the application of the legal framework for the local public administration, activities will include:

• the establishment of standard organizational charts that define the key positions required for different categories of communes to operate effectively (organigrammes types);

• recruitment and career management tools to support LGs in attracting and retaining qualified staff; • comprehensive national initial and in-service training programs to build the core competencies of

local government staff and the eventual creation of a National Training Center for Territorial Stakeholders (Centre National de Formation des Acteurs Territoriaux, CNFAT); and

• an on-line territorial information and planning system.

26. Subprogram 4 (SP4): Reinforcing the financial capability of LGs to invest in local development. The subprogram incorporates a series of integrated measures to optimize the financing of LGs. The intergovernmental transfer system will be reformed to enhance the transparent, predictable and equitable allocation of central government transfers to LGs. Through a phased approach, resources will be increased, equalization mechanisms with respect to the different transfer modalities will be reinforced (notably for the FECL and FDD) and the overarching transfer system will eventually be consolidated. Critically, the Government has also committed to orienting the transfer system towards a results-based approach, through the introduction of conditional grants based on LG performance. At the same time, the subprogram seeks to strengthen the capacity of LGs to mobilize local revenue through local taxation reforms and measures to improve tax administration and coordination between tax authorities and LGs (including the creation of local fiscal commissions - commissions sur la fiscalité locale and taxpayer censuses). Finally, efforts to support alternative modalities for mobilizing resources, through bank and bond loans and public-private partnerships, will also be explored.

27. The PROACTSEN will be implemented in two stages. Acknowledging the complexities involved in both engaging structural reforms and implementing them across the territorial expanse, the PROACTSEN envisages a phased approach to implementation. During the first stage (2018-2022), a focus will be placed upon national level structural reforms and the piloting of initiatives to enhance support and introduce performance incentives to a sub-set of LGs. During the second phase of the PROACTSEN (2023-2027), these initiatives will be adjusted, where necessary, and scaled up to cover all LGs.

B. Program Development Objectives and Key Results

28. The Program Development Objectives (PDO) are to: (i) improve local government financing; and (ii) enhance the performance of participating urban local governments in managing public investments13. The proposed Operation seeks to support the structural intergovernmental transfer and fiscal reforms needed to enable LGs across the territory to invest in local infrastructure to boost local development and enhance local service delivery. It also aims to incentivize selected urban LGs to improve the planning, budgeting and management of their investments, through the pilot application of a two-tiered performance-based conditional capital grant system and dedicated institutional support arrangements. In so doing, the Operation will also contribute to stimulating the development of Senegal’s urban centers as hubs for

13 For the purposes of the Operation, the participating ‘urban local governments’ referred to in the PDO are comprised of 123 LGs, incorporating over 50 percent of the national population. ‘Urban LGs’ consist of five cities (Dakar, Thies, Rufisque, Guediawaye, and Pikine), all regional and departmental capitals, all LGs with more than 30,000 inhabitants with a density per ha above 10, and all LGs previously targeted by World Bank and AFD urban municipality projects. The ‘Principle Urban Center LGs’ refer to all five cities, all regional capitals, and the city of Touba, which is Senegal second largest and fastest growing city (4% annual growth). A comprehensive list of LGs targeted by the Operation is featured in the Technical Assessment.

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economic growth, while testing a performance-based approach that could later be replicated across the territory.

29. For the purposes of the Operation, reference to the management of public investments in the PDO refers to the planning, budgeting and execution management (maitrise d’ouvrage) of public investments funded by FECL resources at the communal level. It also includes ancillary dimensions needed to ensure effective public investment management (such as human resources, allocation of resources for the maintenance of investments etc). The performance of selected LGs in managing their public investments will be measured through their adherence to the performance criteria in the two-tiered performance conditional capital grant system. The criteria incorporate each of the dimensions of public investment management cited above.

30. Progress towards the PDO will be measured through a set of simple and measurable indicators. The Results Framework for the Program incorporates two key results areas that are closely inter-related. Each results area is comprised of cascading PDO level and intermediate indicators, for which the most critical will be linked to disbursements and for which monitoring, evaluation, and verification modalities are envisaged under the Program. The results areas are underpinned by Program Actions and activities that will support their attainment. They are also complemented by a narrow set of discrete TA activities that will be financed through a separate IPF component (described below) and that will help to build momentum for the achievement of results under the Program. The Results Framework and monitoring arrangements are provided in Annex 2.

31. The proposed PDO level indicators are as follows:

With respect to enhancing the financial viability of LGs:

• Modalities for the repartition of State transfers to LGs for recurrent and investment spending (FECL and FDD) and for the repartition of the Local Value Added Tax Fund (LVATF) reformed and applied in the timely allocation of resources to LGs, to the satisfaction of the World Bank;

• Increase in State-financed intergovernmental capital and recurrent grants (measured by the attainment of target aggregate amounts allocated annually to the FECL and FDD) and timely publication of annual allocations;

• Increase in local taxation revenues in the Principle Urban Center LGs.

With respect to enhancing the performance of selected LGs in managing public investments:

• Urban LGs that receive first-tier FECL conditional grants based upon satisfaction of annual Minimum Mandatory Conditions (MMC) that receive conditional grants based on their achievement of minimum performance conditions);

• Principle Urban Center LGs that reached the required execution rate of their Annual Investment Plans in terms of expenditures disbursed.

C. PforR Program Scope

32. Scope and Substance of the proposed Operation

33. The proposed Operation will finance critical parts of the first stage of PROACTSEN that focus specifically on tackling the chronic deficits and limited predictability of local government financing on the one hand, and addressing the weak management capacity of LGs on the other. The two results areas targeted by the Operation cover significant dimensions of the first, third and fourth subprograms in the PROACTSEN. The proposed Operation focuses on elements of the PROACTSEN that are both politically feasible and likely to produce measurable results in the short to medium term. Accordingly, the Operation does not cover the politically sensitive second sub-program of the

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PROACTSEN and excludes certain longer-term activities in the other sub-programs, such as the creation of a dedicated National Training Centre for Territorial Actors. Table 1 depicts the scope of the proposed Operation vis à vis the government’s program. Annex 1 provides a detailed description of the entire Operation.

Table 1: Scope of MASP vis-a-vis the PROACTSEN

SP1: Strengthening the legal and national coordination framework (10,150 million CFA)

SP2: Reinforcing the cohesiveness of territorial governance and spatial planning (3,000 million CFA)

SP3: Enhancing the organization and technical and human capacity of LGs (16,000 million CFA)

SP4: Reinforcing the financial capability of LGs (472,255 million CFA)

National Level Reforms Ministerial restructuring and streamlining

Revision of institutional and administrative architecture Adoption of standard

organizational charts (organigrammes types)

Reform of intergovernmental transfer system (including introduction of conditional grants)

Revision of legal and regulatory framework

Promotion of inter-municipal arrangements/ structures

Recruitment and career management tools Financing of unconditional

grants through the various intergovernmental transfer modalities (FECL, FDD, BCI etc.) over the 2018-2022 period

Intergovernmental / departmental coordination Identification and

development of the territorial growth poles identified in Act III.

Comprehensive national initial and in-service training programs

Local taxation reform

Strengthened central level support arrangements, including re-orientation of national agencies and enhancing the capacity of deconcentrated institutions.

Operational guides Strengthened central and deconcentrated DGID structures dedicated to expanding the local tax base and local government resource mobilization

On-line local government platform to enhance access to information on financing, performance and innovations adopted by LGs

Design of a modernized and interconnected local PFM information system

Creation of a National Training Center for Territorial Stakeholders

Promotion of alternative modalities for resources mobilization: bank and bond loans and public-private partnerships options

Pilot Reforms to Improve LG Performance in Selected LGs Application of a coaching and management assistance system in targeted 123 Urban LGs

Targeted training according to LG Capacity Development Plans in 123 Urban LGs

Financing of a two-tiered performance-based conditional capital grant window under the FECL including reporting, monitoring and control mechanisms (applicable to 123 Urban LGs and 19

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Principle Urban Center LGs respectively) Application of integrated PFM information system (GFILOC) in 123 Urban LGs Introduction of Local Fiscal Commissions in 123 Urban LGs and taxpayer censuses in Principle Urban Center LGs

34. Duration and geographic scope of the Program. The Program adheres to the phased implementation logic of the government program. As described above, the PROACTSEN seeks, in the first five years of implementation, to tackle national level structural reforms, whilst piloting the introduction of a system for incentivizing improved performance in selected communes. In line with this, over the course of five years, the Program covers horizontal national level structural reforms that will have an impact on all LGs across the territory. At the same time, the Program focuses vertically on supporting the piloting of incentive and institutional support mechanisms to boost the performance of selected LGs – through the financing of conditional capital grants and targeted territorial coaching and training.

35. The vertical pilots supported by the Program apply to selected urban LGs. The selection of LGs for coverage under the Program was based upon: (i) the Government’s interest in ensuring the Program’s success as a scalable pilot by starting with the LGs that already have a minimum level of capacity / local tax base to respond to a performance-oriented grant system and to achieve results targeted by the Program; and (ii) the need to enhance investments and improve access to services in LGs that play a leading role in generating regional level economic activity and constitute regional hubs that can create positive externalities for surrounding LGs. Accordingly, for the pilot initiatives, the Program targets two categories of LGs:

• 123 ‘Urban LGs’: consisting of the five cities (Dakar, Thies, Rufisque, Guediawaye, and Pikine), all regional and departmental capitals, all LGs with more than 30,000 inhabitants with a density per ha above 10, and all LGs previously targeted by World Bank and AFD urban municipality projects.

• 19 ‘Principle Urban Center LGs’: consisting of all five cities, all regional capitals, and the city of Touba. These LGs are also included in the list of Urban LGs.

36. An extensive consultative process which involved all relevant national stakeholders and which was validated by the Mayor’s Association of Senegal was engaged to validate the selection.

37. The proposed Operation is expected to contribute substantively to the attainment of key results identified in the first phase of the PROACTSEN. By combining support for the increased and improved allocation of government transfers to all LGs, with institutional mechanisms to enhance the performance of Urban LGs in efficiently and effectively managing public resources in a participatory manner, the Operation will contribute to deepening the processes of fiscal and administrative decentralization in Senegal, whilst strengthening local governance. The blending of results-based disbursements under the PforR and targeted TA for the articulation and implementation of reforms under the IPF is expected to create the necessary institutional incentives and support to accelerate achievement of the objectives underpinning the first, third and fourth sub-program of the Senegal Municipal and Agglomerations Support Program (MASP). Table 2 below depicts the contribution of the Operation to the attainment of key results in the government program.

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Table 2: Program Theory of Change and Contribution of MASP to the Attanment of Results under the PROACTSEN

MASP Contribution to PROACTSEN objectives Expected Results DLIs and PDO Level Indicators

Results Area 1: Enhancing the financial viability of LGs RA 1.1 Restructuring the intergovernmental grant transfer systems to improve the transparent, predictable and equitable allocation of financial resources to LGs and increase transfers allocated to LGS

DLI 1 Modalities for the repartition of State transfers to LGs for recurrent and investment spending (FECL and FDD) and for the repartition of the Local Value Added Tax Fund (LVATF) reformed and applied in the timely allocation of resources to LGs, to the satisfaction of the World Bank DLI 2 Increase in state- financed intergovernmental capital and recurrent grants (FECL and FDD) to LGs (in billion FCFA) SP4: Reinforcing the

financial capability of LGs to invest in local development.

RA 1.2 Improving local revenue mobilization in urban LGs

DLI 3: Urban LGs with a functioning local fiscal commission Increase in local taxation revenues in the Principle Urban Center LGs (PDO level indicator)

RA 1.3 Strengthening local PFM systems to facilitate effective and transparent budget planning and execution processes

Reduction in time taken for payment of investment expenditures in Urban LGs

Results Area 2: Enhancing the performance of selected LGs in managing public investments RA 2.1: Building the administrative capacity of Urban LGs with respect to Core Functions

DLIs 4 & 5: Minimum Mandatory Conditions (MMCs) and Performance Indicators incorporate criteria for staffing DLI 6: Proportion of Principle Urban Center LGs that have executed their annual investment plans on schedule in terms of expenditures DLI 7: Proportion of Urban LGs that received at least 80 percent of the territorial coaching support identified in their annual capacity building plans

SP3: Enhancing the organization and technical and human capacity of LGs SP1: Strengthened legal and national coordination framework

RA 2.2: Incentivizing good governance through the creation of a performance evaluation system for allocating conditional capital grants to selected LGs.

DLI 4: Proportion of Urban LGs that receive FECL conditional grants based upon satisfaction of annual Minimum Mandatory Conditions (MMC) DLI 5: Proportion of Principle Urban Center LGs that receive FECL conditional grants based upon achievement of annual Performance Indicators (IP)

SP4: Reinforcing the financial capability of LGs to invest in local development.

Cross-cutting theme: Citizen Engagement Enhancing citizen participation and access to information on local governance

Information on fiscal transfers and LG performance in year n-1 is publicly accessible by 31 March in year n DLIs 4, 5 and 7 all incorporate coaching or performance criteria for citizen participation

SP1: Strengthened legal and national coordination framework

Results Area 1: Enhancing the Financial Viability of LGs

38. Results Area 1 will support both national level activities and targeted initiatives in Urban LGs to improve local government financing and PFM. It will focus on three specific domains:

Results Area 1.1: Restructuring the intergovernmental grant transfer systems to improve the transparent, predictable and equitable allocation of state transfers to LGs

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39. In line with the Government’s commitment to reform the intergovernmental transfer system progressively, the Operation will support the gradual restructuring of three existing transfer modalities (the Local Government Capital Development Fund, FECL; the Decentralization Allocation Fund, FDD; and the new Local Value Added Transfer Fund, LVATF) and a strategy for the eventual harmonization and consolidation of the overarching intergovernmental transfer system (including the Decentralized Consolidated Investment Budget, BCId). The objective is to enhance the objectivity, transparency, and predictability of the main existing grant allocations to enable LGs to better plan and manage resources from the central government and to use them to leverage additional resources through loans and through partnership with the private sector. The reforms will also serve as a precursor for the eventual consolidation of the overarching intergovernmental transfer architecture.

40. The specific expenditure areas covered by Results Area 1.1 include:

• The reform of the FECL; FDD and LVATF transfer modalities. To ensure that LGs are equipped with adequate resources to invest in infrastructure and achieve tangible progress in service delivery during implementation, Program financing will be channeled through a specific window of the FECL. The restructuring of the FECL, therefore, represents a first order priority. During preparation, a draft decree for redesigning the FECL was developed (see Box 1 and Annex 1 for further details). The adoption of this decree constitutes an effectiveness condition for the Operation and an indicator for disbursement. The Program will then support the reform of the recurrent transfers through the FDD and the repartition of the LVATF.

• The timely allocation of recurrent and investment resources in conformity with the criteria established through the reforms. The Operation provides both incentives (through DLI 1) and TA to the DCL in this regard.

• Strategic management of the overarching intergovernmental transfer reform process. Periodic functional reviews of the overarching system will be conducted and the National Committee for the Development of Local Governments (Comité National de Développement des Collectivités locales, CNDCL) will be restructured to enhance its role in steering the reform process.

Box 1: The Proposed Reform of the FECL

The proposed reform of the FECL seeks to (i) re-orient investment resources away from national agencies to increase the grants allocated directly to LGs; (ii) establish objective and transparent criteria to allocate investment resources; and (iii) introduce performance-based conditional grants. The reformed FECL would be restructured into four windows (further details are provided in Annex 1):

Window 1 (non-conditional capital grants window): Resources under this window would be available to all LGs and allocated based on criteria to (i) guarantee minimum levels of investment resources per capita and per LG; (ii) target poor populations; and (iii) prioritize low density rural areas in which LGs have limited capacity the generate their own revenues for investment.

Window 2 (two-tiered conditional capital grant window): This window would be available to selected Urban LGs in the initial phase, but would be scaled up to all LGs in the medium term. The first-tier conditional grant would be allocated on the basis of LGs achieving a defined set of Minimum Mandatory Conditions (MMC). The second tier would provide a performance grant based on LG satisfaction of a set of specific performance indicators (PI).

Window 3 (special grants window): This window would enable the allocation of resources to LGs and national agencies on an emergency or specific needs basis. This window would be capped to a percentage of the non-conditional capital grant window amount to ensure that the bulk of investment resources are allocated directly to LGs based on objective criteria.

Window 4 (inter-territorial window): This window would provide incentives for LGs to coordinate investments across agglomerations. This window would only become operational once the legal and regulatory framework for agglomerative organization is developed.

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Results Area 1.2: Improving local revenue mobilization in urban LGs:

41. At the national level, Results Area 1.2 seeks to promote strengthened institutional coordination with respect to local revenue mobilization, together with progressive improvements to the legal and regulatory framework on local taxes. In response to the lack of institutional arrangements in place to prioritize local revenue mobilization in the DGID, a dedicated Local Tax Office (Bureau de Fiscalité Locale, BFL) was recently established. The Operation will support the Local Tax Office to improve tax administration coordination between central, deconcentrated and local level actors, ensuring that the regional and departmental structures are adequately equipped with human resource capacity. It will also assist the BFL in advancing short to medium term measures to improve local revenue mobilization across the territory by carrying out studies on local fiscal potential, reviewing tariff and fee structures, consolidating the legal and regulatory framework on local tax and developing operational guides. While broader reform of local taxation in Senegal will need to be phased with the ongoing land reform process, to advance the local tax agenda in the interim, TA under the Project will be provided for targeted studies on reform options to feed into the broader policy dialogue.

42. At the local level, the Program provides incentives for the Government to further pilot the establishment of Local Fiscal Commissions in the selected Urban LGs to improve tax administration and increase revenue mobilization. The local fiscal commission, which has already been tested in one LG, represents a homegrown Senegalese innovation for incentivizing coordination and performance on the part of the various institutions involved in local revenue mobilization. The commissions bring together local government and deconcentrated DGID and Treasury representatives. They operate on the basis of performance agreements that identify the roles and responsibilities of each actor and set measurable annual performance targets. The commissions facilitate the generation of reliable and consolidated data on taxable land and property assets at the local level. The Program will also support the BFL in coordinating formal taxpayer censuses in the 19 Principal Urban Center LGs.

Results Area: 1.3: Strengthening local PFM systems to facilitate effective and transparent budget planning and execution processes

43. Under Results Area 1.3, the Program will support:

• The General Directorate of Territorial Management (Direction Générale de l'Administration Territoriale, DGAT) in the Ministry of Interior to harmonize procedures and strengthen the capacity of local prefects and sub-prefects, to enhance the quality of budget controls and expedite budget approvals by the tutelle.

• The National Treasury’s DSPL to establish an on-line platform (Observatoire des Finances Locales - OBFILOC) to consolidate and ensure public access to financial information on LGs. This will be linked to a more comprehensive e-platform on local governance, which will be managed by the DCL.

• The DSPL in rolling out an Interconnected Local Government PFM System (logiciel de tenue de la comptabilité des collectivités locales, GFILOC) in the 123 Urban LGs. GFILOC, will replace the poorly functioning and separated accounting information systems currently used by LGs and the Treasury. The GFILOC will help to improve budget management processes, expedite payments from the Treasury and facilitate the timely production of budget execution reports for transmission to the Supreme Audit Institution (the Court of Auditors).

• The internal and external control functions. It will assist the Court of Auditors in conducting technical audits of a larger sample of communes each year, in compliance with its institutional mandate – this is different from the role that the Court of Auditors will play (with the support of a firm) in verifying the annual performance of eligible LGs for performance-based grants (described below). It will further support the Procurement Regulatory Authority (Autorité de Régulation des Marchés Publics, ARMP) in expanding its audit coverage to ensure that at least 30 percent of Urban

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LGs covered by the Program are audited at least once during the life of the Program. It will also support enhanced capacity within the Internal Inspectorate of Local Affairs in the MGT to conduct an increased number of control missions annually.

Results Area 2: Enhancing the Performance of selected LGs in managing public investments

44. Financing support under Results Area 2 will allow the government to focus in the next five years on improving the performance of selected urban LGs communes in managing public investments through a combination of: (i) national support mechanisms for LGs; and (ii) a system for measuring, reporting and monitoring LG performance to enable the allocation of conditional grants the restructured FECL.

Results Area 2.1: Building the administrative capacity of Urban LGs with respect to Core Functions

45. This area will focus on enabling the government to establish the necessary foundations for a well-trained and capable territorial public administration. At the national level, the Operation will support the MGT to encourage LGs to adhere to standardized local government organigrams through the development of human resource management tools (standardized job profiles and descriptions) and a local government personnel file management system. This will be complemented by introducing minimum staffing criteria into the performance-based conditional grant system for the 123 Urban LGs, described below. The Program will also finance the establishment and application of the following national level support mechanisms to accompany the selected 123 Urban LGs:

• LG Continuous Training Program (CTP). In accordance with the National Training Strategy for Territorial Actors, the Learning and Training Unit (LTU) will develop a robust national training curricula for local administrators and consolidate the fragmented programs offered by existing training institutions in the country as a precursor to establishing a National Training Centre. Training will then be provided to local administrators in the 123 Urban LGs on the basis of the new training program and the specific training needs identified by each LG in their Annual Capacity Building Plans.

• Continuous Territorial Coaching (CTC). To support the Government in creating coherent mechanisms for assisting and empowering LG’s to manage their local development programs, the Program will finance two new approaches in the 123 Urban LGs. Through a Continuous Territorial Coaching initiative, the national level Municipal Development Agency (Agence de Développement Municipale, ADM) and the Regional Development Agencies (Agence Régionale de Développement, Regional Development Agencies - ARD) will provide continuous TA to support LGs with overarching local government management and risk mitigation (including strategic planning, programming and budgeting, coordination of local actors and information management and reporting). The CTC will play a critical role in helping Urban LGs to achieve and report on performance targets to enable them to access additional investment resources through the FECL conditional capital grant window. CTC support to LGs will be based upon capacity gaps identified by individual LGs in their Annual Capacity Building Plans. The Direction of Training in the MGT will work closely with the ARDs and LGs in the preparation of the Annual Capacity Building Plans. Through the CTC, the ARDs will also provide demand-driven contract management support to help LGs in properly appraising and executing specific investment projects. In addition, the Program will support the Procurement Directorate to strengthen the capacity of its regional procurement poles to provide specialized support to LGs through the CTC.

With respect to the management of specific investment contracts, the Program will guide Urban LGs in selecting the most appropriate form of contract management based on their capacity and the complexity of the investment, using a simplified contract management risk typology. The objective is to empower LGs to assess and mitigate the fiduciary, social and environmental risks associated with investment project management. Support will also be provided to LGs that choose to delegate

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contract management to authorized third party agents, through the creation of model contracts and support for contract negotiations.

Results Area 2.2: Incentivizing good governance through the creation of a performance evaluation system for allocating conditional capital grants to selected LGs.

46. Most of the Program’s resources will be channeled through the two-tiered conditional capital grants window of the restructured FECL. As indicated above, eligible LGs will receive additional resources for investment through the FECL if they achieve certain performance standards. In order to operationalize the conditional capital grants window, a performance system will be put in place to measure, monitor and independently evaluate LG performance. The Program will support the design of the performance evaluation system, which will be tied to the two-tiered conditional capital grants window as follows:

• A first-tier conditional grant will be available to all 123 Urban LGs based upon their satisfaction of a defined set of eight Mandatory Minimum Conditions (MMCs). The MMCs focus on ensuring LG conformity with basic programming, budgeting, reporting and staffing norms and requirements. Conditions include the timely submission of the council-voted budgets to tutelle authorities; the timely submission by LGs of end-of-year budget execution reports; adherence to local debt management strategies, procurement and environmental and social safeguard procedures; the timely update and submission of triannual investment plans; the timely submission of the Annual Capacity Build Plan; timely payment of LG contributions to ARDs; the presence of qualified personnel that meet the requisite profiles for key posts (secretary general, director of technical services and director of administration and finance). A full list of agreed MMCs is contained in Annex 1 and described in further detail in the Technical Assessment.

• A second-tier conditional grant will be available to the 19 Principle Urban Centre LGs based upon their achievement of a set of 13 Performance Indicators (PIs). The PIs measure LG performance against defined good governance standards in the areas of (i) municipal management; (ii) citizen engagement; and (iii) execution of public investments. Examples of the PIs include: rate of execution of annual investment budgets; increase in local taxes recovered; wage bill control (ratio of payroll costs to revenue); allocation of revenue to the maintenance of municipal infrastructure and equipment; publication of municipal council deliberations; public deliberations on budget execution and budget orientation; and functioning local complaints handling mechanisms in place. A full list of agreed PIs is contained in Annex 1 and described in further detail in the Technical Assessment.

47. The MMCs and PIs were selected from an existing long-list of performance indicators recently developed by the DCL and the National Local Government Program (PNDL) for a nationwide LG self-evaluation and benchmarking exercise. The criteria selected represent a manageable set of objective and measurable indicators which combine both output-based and outcome-based measures. Similar criteria have also been tried and tested operationally in other countries, including Tunisia and Kenya. The selection of MMCs and PIs was conducted through a participatory process involving both national and local levels of government. A trial run will be conducted in the first year of Program implementation to enable baselines to be established and to calibrate the selection of annually required MMCs and PIs in order to ensure that the annual performance targets set are both realistic and provide incentives for eligible LGs to improve upon their existing performance.

48. Results Area 2.2 will also cover expenditure areas associated with setting in place the necessary institutional arrangements to evaluate and verify LG performance. The CTC will provide support to eligible LGs to prepare Annual PAs on the attainment of MMCs and IP. These will be submitted to the DCL for documentary verification and consolidation. The independent verification of the Annual PAs will be conducted in the first two years by an independent firm, recruited by the ADM with the support of the Local Government Chamber of the Court of Auditors. After two years, and subject to a No Objection from the World Bank, verifications will be conducted directly by the Chamber. Verifications will be made on the

17

basis of the consolidated LG Annual s, relying both on documentary evidence furnished and physical inspections/ surveys. Once verified, the DCL will manage the technical allocation of conditional grants, based on defined allocation criteria, for approval by the CNDCL.

49. Urban LGs that receive Program financing through the two-tiered conditional grant system will be required to use additional investment resources in accordance with the World Bank's Policy and Directive on Program-for-Results Financing. Accordingly, certain investments will not be eligible for financing though conditional capital grant allocations. These are summarized as follows: (i) all investments whose social and environmental impacts are considered to be non-reversible; (ii) specific investments such as solid waste management disposal facilities; regional slaughterhouses and national roads; (iii) less than 10 percent of financing envelopes can be spent on equipment; and (iv) all investments not in included in the Annual Investment Plans.

Citizen engagement as a cross-cutting theme

50. The cross-cutting theme of institutionalizing citizen engagement practices is incorporated into both Results Areas 1 and 2. Act III formally acknowledges, for the first time, the need for LGs to engage citizens in the management of local affairs. The Operation seeks to promote citizen engagement in local development at both the national and local levels.

51. At the national level, the Operation will support:

• A local governance platform: Under Results Area 2.2 an open-access, on-line local governance platform will be established by the DCL, in coordination with the Mayors Association of Senegal, the Departmental Association of Senegal, the Treasury and other stakeholders. The platform will serve as a critical tool for: (i) disseminating information on decentralization reform and local governance for LGs and the broader population; (ii) benchmarking LGs with respect to levels of financing and performance; (iii) consolidating and mapping the multitude of innovative pilots engaged by various actors on participatory approaches to local government; and (iv) creating a space for state and non-state actors to communicate, lodge grievances and share innovative practices. The DCL will organize an annual forum with state and non-state actors to focus on specific themes that emerge through the platform (e.g. the scale up and consolidation of innovative participatory approaches to local governance).

• OBFILOC: Under Results Area 1.3, an on-line database on local public finance will be managed by the Treasury and will facilitate the consolidation of, and access to, up-to-date data on local government finance. The OBFILOC will be interconnected with the local governance platform.

• A national Grievance Redress Mechanism (GRM): Under Results Area 2.2, the Operation will support the creation of a national GRM dedicated to local governance. The DCL in the MGT will be in charge of federating existing grievance redress modalities and consolidating these to enable annual evaluation of all complaints regarding local governance to be monitored and evaluated. To ensure that complainants have access to the mechanism, multiple modalities for the reception of complaints will be established, drawing upon existing national and local institutional arrangements. These will include trained focal points in the 123 Urban LGs, a national telephone hotline, an on-line complaints window in the local governance portal and focal points in key institutions (including the National Anti-Corruption Commission, OFNAC, the Procurement Regulatory Authority (ARMP, the ADM and the MGT). Further details on the complaints handling mechanism are provided in Annex 1.

52. At the local level, the Operation offers a blend of incentives and direct support to Urban LGs to promote citizen engagement. The CTC modality will incorporate guidance to all 123 on basic participatory approaches to local governance (communications, dissemination of information, public consultations on investment planning and execution, management of complaints etc.). In addition, performance criteria on

18

citizen engagement will be included in the second-tier conditional grant window of the FECL to incentivize Principle Urban Center LGs to host public discussions at the budget preparation and implementation phases and to maintain local complaints handling systems.

Project Component: TA IPF Project Component in support of Results Areas 1 and 2

53. The TA IPF Project Component will provide complementary support to the Program Results Areas to ensure that discrete project funding is available to enable the timely and effective delivery of specific studies and TA needed to advance the reforms identified in the Results Areas. TA will also be provided under this Project Component to facilitate the effective coordination of the Program and to enable the recruitment of an independent verification agency to verify the achievement of Program DLIs. Table 3 below provides an indicative list of activities identified under the component and their linkages with the Program Results Areas.

Table 3: TA Activities to Complement the Program Results Areas

Results Area Complementary TA provided under the IPF

1.1 • TA to restructure the FDD, LVATF and to develop a strategy for consolidation of the intergovernmental transfer system

• Mobilization of key stakeholders to support reform design • Modernization of DCL information system for applying transfer criteria • TA to restructure the CNDCL • Organizing a national forum on decentralization and local governance

1.2 • Studies on the fiscal potential of different categories of LG; the revision of selected tariffs and fee structures; and broader local taxation reforms

• TA for the consolidation of legal and regulatory framework for local taxation • TA to support the annual evaluation of Local Fiscal Commission Performance Contracts

2.1 • TA for the finalization of the organigram -types • Training and mobilization of actors on the organigram-types and related tools • TA for the preparation of harmonized toolkits for annual and pluriannual investment planning • TA for the elaboration of standardized tools for the preparation of Annual Capacity Building Plans; training

modules • Logistical support for CTC missions

2.2 • Consulting firm to carry out the verification of LG performance evaluations under the guidance of the Court of Auditors

• Logistical support for Court of Auditors verification missions • TA for the design and initial updating of the on-line Local Governance Portal • Annual mobilization of state and non-state actors on local governance themes (scaling up of innovatory

participatory approaches, consolidation of different modalities for performance evaluation etc.) • TA and logistical support for the creation of a national complaints handling mechanism

Program Coordination and management

• Support to Steering Committee and Operational Technical Committee • Set-up of a M&E system and unit and set-up of an Environment and Social management coordinating unit • Support for overall Program Coordination, including operating and human resources costs, the costs of

technical and financial audits, kick-off, communication, capitalization and dissemination costs • Program Communication and Dissemination • Recruitment of Independent Verification Agency for the verification of Program DLIs. • Annual financial audit of the Program (PforR and IPF) • Support to MGT Cabinet for the supervision and conduct of critical studies to implement the

PROACTSEN and MASP

Beneficiaries of the proposed Operation

54. The primary beneficiaries of the proposed Operation are the 7.5 million urban citizens living in the targeted 123 Urban LGs (50 percent of Senegal’s population). These beneficiaries will benefit from the additional investment resources available through the two-tiered conditional grant window of the FECL to close critical urban infrastructure and improve service delivery. At the same time, targeted support

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and incentives to strengthen the capacity of LGs to manage local development will help to both improve the efficiency and effectiveness of public expenditures at the local level and enhance the quality and timely completion of public infrastructure. Access to information and the participation of local communities, including women and youth, in planning and monitoring development activities managed by the LGs will ensure that investments are strategically identified and respond to the needs of all parts of the population, including the poorest areas.

55. The broader Senegalese population will also benefit from the proposed Operation. By creating incentives for the government to increase the financial resources available to LGs across the territory and by restructuring the intergovernmental transfer system to introduce a fairer and more transparent distribution of resources, local populations will benefit from an increase in overall investment financing per capita which is expected to translate into an expansion of local level public infrastructure. Simulations conducted as part of the FECL restructuring indicate that, per capita, poor populations located in remote, rural, low density LGs - where service delivery provision is particularly acute - stand to benefit most from criteria-based intergovernmental investment transfers under the FECL.

56. The proposed Operation is also anticipated to bring gender-oriented benefits. The training and CTC support envisaged under the operation will incorporate specific tools to help Urban LGs in encouraging the participation of women. The Performance Indicators (PI) criteria for accessing performance grants will also require Principle Urban Center LGs to specifically focus on ensuring the active engagement of women in budget orientation and execution public debates.

Program Financing

57. Overall, the Operation will finance approximately 25 percent of the total envelope of the government program, PROACTSEN between 2018 and 2022. The budget for the first stage of the PROACTSEN is estimated at 465 billion FCFA (US$837 million). The Program will fund a portion of PROACTSEN in the amount of 144 billion FCFA (US$260 million) over a period of five (5) years (2018-2022) of which the IDA will finance US$110 million, and the AFD will finance US$90 million equivalent. The breakdown of planned spending is presented in the table below.

58. The AFD is integrally involved in the design and financing of the Operation. The AFD will use similar financing modalities to the blended IPF-PforR modality selected by the World Bank. It will contribute a fixed percentage of the financing tied to the outputs under the Project and to disbursements linked to the Program’s DLIs. By applying a unified approach to the financing and M&E of the Operation, the World Bank and the AFD will contribute to simplifying and harmonizing efforts to support the government’s program.

Table 4: Operation Financing Table Results Areas Instrument Amount ($ Million) % of Total

IDA AFD Total Results Area 1 PforR 42

(38%) 34

(38%) 76 38

Results Area 2 PforR 61 (55%)

49 (54%)

110 55

Results Areas 1 and 2 IPF 7

7

14 7

Total Operation Financing

110 90 200 100

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D. Disbursement Linked Indicators and Verification Protocols

59. Program resources will be disbursed based on the achievement of seven Disbursement Linked Indicators (DLIs) 14. These have been selected to reflect critical performance milestones towards the achievement of the PDO, as reflected in the results matrix in Annex 2. The DLIs are mutually reinforcing and create incentives to encourage the diversity of central and local government institutions to coordinate the attainment of results. Table 5 below provides a summary of the rationale leading to the choice and design, as well as allocated funding for each of the DLIs. The complete DLI matrix is provided in Annex 3-1.

60. The weighting of DLIs reflects both the significance of the result with respect to the achievement of the PDO and the importance of aligning disbursements with the financial burdens entailed in achieving DLI targets. As indicated in the table below, the weighting of DLIs does not align exclusively to financing requirements involved in achieving the result. For example, DLIs 1 and 3 are relatively low cost, but critical, measures for achieving the overall objective and accordingly, a significant percentage of Program financing is allocated to the achievement of these DLIs. At the same time, given that the vast majority of Program resources will be channeled into annual conditional grants under the FECL, the programming of DLI disbursements also reflects the need to ensure consistent and regular financing across the life of the Program.

61. The DLIs fall under two categories, however disbursements for all will be channeled through the Treasury in the same manner. Program resources will all be channeled through the Treasury. Through the national budgeting process, the government will commit to flow most resources into the two-tiered FECL conditional grant system, with limited resources also going to the national level institutions and agencies involved in Program implementation. Among the seven DLIs, three focus specifically on national level reforms or actions that require a degree of inter and intra-institutional coordination at the central level. The four remaining DLIs require efforts on the part of both national and LG structures. The uniform manner, in which disbursements will be allocated, provides further incentives for all institutional actors to coordinate their efforts in order to receive Program resources.

Table 5: Program Disbursement Linked Indicators

Expected Results DLIs

Approximate IDA disbursement amount (US$ million)

Approximate AFD disbursement amount (US$ million)

% of total (PforR) amount

Results Area 1: Enhancing the financial viability of LGs Restructuring the intergovernmental grant transfer systems to improve the transparent, predictable and equitable allocation of financial resources to LGs.

DLI 1: Modalities for the repartition of State transfers to LGs for recurrent and investment spending (FECL and FDD) and for the repartition of the Local Value Added Tax Fund (LVATF) reformed and applied in the timely allocation of resources to LGs, to the satisfaction of the World Bank

20 16 19

14 Certain Program activities at the national level are financed through the IPF instrument and therefore not all rely on DLIs.

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Restructuring the intergovernmental grant transfer systems to improve the transparent, predictable and equitable allocation of financial resources to LGs.

DLI 2: Increase in state- financed intergovernmental capital and recurrent grants (FECL and FDD) to LGs (in billion FCFA) to LGs (in billion FCFA)

10 8 10

Improved local revenue mobilization in urban LGs.

DLI 3: Urban LGs with a functioning local fiscal commission

12 10 12

Results Area 2: Enhancing the performance of selected LGs in managing public investments Enhanced LG performance in managing local public investments

DLI 4: Proportion of Urban LGs that receive FECL conditional grants based upon satisfaction of annual Minimum Mandatory Conditions (MMC)

20 16 19

DLI 5: Proportion of Principle Urban Center LGs that receive FECL conditional grants based upon achievement of annual Performance Indicators (IP)

20 16 19

Enhanced access to basic services in selected LGs

DLI 6: Proportion of Principle Urban Center LGs that have executed their Annual Investment Plans on schedule in terms of expenditures

12 10 12

Enhanced technical and institutional support to LGs

DLI 7: Urban LGs that received at least 80 percent of the Territorial Coaching support identified in their Annual Capacity Building Plans

9 7 9

TOTAL 103 83 100

Verification protocols.

62. The achievement of all DLIs will be reviewed on an annual basis by the Program’s Operational Technical Committee (Comité technique opérationnel, CTO) and endorsed by the Program’s Strategic Steering Committee (Comité de pilotage stratégique, STC). The STC endorsed results will be submitted to the World Bank and AFD for clearance. The task team will send the cleared results to the disbursement team at the World Bank and to AFD to release the funds in the amount determined by the assessment to the National Treasury.

63. An Independent Verification Agency will be contracted on a yearly basis, and will conduct third-party verification for all Program DLIs prior to their submission to the STC. The World Bank will retain the right to make the final decision on whether a DLI has been achieved or not, and may undertake regular independent quality assurance checks of selected DLIs to ensure continued robustness of the system. The Verification Protocols are explained in detail in Annex 3-1.

E. Capacity Building and Institutional Strengthening

64. Capacity building and institutional strengthening are at the core of the proposed Operation and activities will be undertaken at both the national and LG levels. Such activities will include: (a) TA, policy and regulatory reviews and guidance; (b) developing and disseminating manuals, templates and standards; and (c) providing capacity building support through orientation, training, coaching, peer learning

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events and on-the-job training. The DLIs are all underscored by capacity enhancements at both the national and LG levels.

65. At the national level, TA will be combined with Program disbursements. Through the IPF, TA will be provided to support the MGT and other national institutions in developing and implementing critical reforms. The TA will provide the government with external expertise on fiscal transfers, taxation reform and the installation of information systems, amongst others. The ADM will be responsible for managing and coordinating these activities and external consultants and firms will be drawn upon, where required. In addition to this, a detailed capacity assessment of national level institutions engaged in the implementation of the Operation was conducted as part of the technical assessment. Specific measures to enhance the capacity of the MGT, the DGID/BCL, DSPL, ADM, ARD, Court of Auditors and procurement and environmental control institutions (DCMP, ARMP, the Environment and Classified Establishments Directorate (DEEC), the Regional Division of Environment and Classified Establishments (DREEC)) have been incorporated into the Program Action Plan (PAP) outlined in Annex 8.

66. At the LG level, traditional approaches to building LG capacity will be re-oriented and new institutional support mechanisms will be introduced. The evaluation of the first Phase of Act III highlighted the challenges involved in the country’s reliance on national agencies to ‘do the work’ of LGs. In principle, LGs are legally authorized to determine the manner in which they manage and execute investments. Yet, this seldom occurs and LGs are either side-lined or poorly implicated in decision-making processes regarding local development in their jurisdictions. Reflecting the need to build upon the legal authority of LGs while progressively strengthening the capacity of LGs to make informed decisions on the management of their investments, the Program will help to test and institutionalize a new form of national support to LGs.

67. Drawing upon the existing capacity of the ADM, ARDs and the Training Department of the MGT, the CTC modality will provide targeted overarching TA to Urban LGs. Given weak administrative capacity, many LGs are expected to choose to delegate contract management for specific investments to specialized entities in accordance with the national procurement code. At present, the only two existing national contract management agencies – AGETIP and AGEROUTE – are accredited to undertake delegated contract management on behalf of LGs in accordance with the existing Conventions between the State and these agencies. This said, the pilot LGs can competitively hire contract management support firms provided that these firms have the qualifications and the experience. Under the Operation, LGs will be provided with tools and support to negotiate with the existing national agencies. At the same time, the Program will support selected LGs in ensuring that their core personnel are adequately trained in core administrative competencies through the continuous territorial coaching support. The two-tiered conditional grant system is intended to incentivize LGs to build their capacity sustainably, including through a requirement to ensure key staff are employed.

III. PROGRAM IMPLEMENTATION

A. Institutional and Implementation Arrangements

68. In keeping with the underlying objective of building Senegalese institutions to sustain effective decentralization, the implementation of the Operation will be undertaken by existing government institutions at the national and local levels, with less focus on national level implementation agencies. Former urban development projects supported by the World Bank and the AFD relied principally on charging national agencies with the coordination and direct implementation of investments on behalf of LGs. While these agencies form an integral part of the institutional arrangements for decentralization in Senegal, the Operation will shift the focus of implementation by putting core ministries and LGs in the ‘driver’s seat’. Accordingly, the MGT, which is formally charged with the implementation of Senegal’s policy on decentralization, territorial governance and spatial planning, will be

23

responsible for the overall Operation. The Ministry of Economy and Finance will also play a pivotal role, both with respect to the financial and fiscal reforms envisaged under the Operation and with respect to the allocation of central government transfers to LGs. The Urban LGs targeted by the Project will be charged with key responsibilities for Program implementation at the local level and will draw upon CTC support to manage public investments financed through the conditional grant system.

69. A Strategic Steering Committee (Comité de pilotage stratégique, STC) will be established to oversee Program implementation and ensure proactive engagement of the multitude of institutional actors involved in the Operation. Chaired by the MGT and co-chaired by the Ministry of Finance and Planning (MEFP), the STC Governance and the Ministry of Environment), local government associations (AMS and ADS) and civil society. It will meet twice a year to review and define the Program’s strategic orientations and, as often as necessary, to resolve issues/constraints raised by the Technical Committee of the Program. The ADM will act as secretariat for the STC.

70. An Operational Technical Committee (Comité technique opérationnel, OTC) will be charged with overseeing technical implementation on a more regular basis. The OTC will be chaired by a representative of MGT, supported by ADM and will include national technical departments as well as agencies and structures directly involved in Program/Project implementation (DGID, DGCPT, DCMP, DEEC, Court of Auditors, AMS, ADS, ARD, ANAT etc). In coordinating and monitoring day to day implementation, the ADM will create Coordination Groups around specific themes. These groups will be charged with soliciting OTC meetings where necessary and, invoking exceptional meetings of the STC, if required, during Program implementation.

71. The ADM will continue to play a central role in providing technical level coordination support to the implementation of the Operation. Given its existing capacity and experience, the ADM will serve as the technical operational coordination unit, supporting the MGT in the day to day coordination and monitoring of the Operation and spearheading the CTC support modality for Urban LGs. The ADM will also undertake classic project implementation responsibilities (procurement, financial management (FM) and safeguards) with respect to the discrete TA activities envisaged under the IPF component of the Operation. ADM has extensive experience in World Bank-related Fiduciary and Safeguards procedures. ADM will sign with the institutions and entities involved in the implementation of the Program a Performance Agreement satisfactory to the World Bank. To ensure sustainability of the mechanisms in place, the Government agreed to cover most costs related to ADM’s dual functions of Coordination and leading the CTC, complemented by resources allocated by this Operation.

72. At the national level, several departments will be engaged in implementation. The DCL within the MGT will play a central role. It will prepare the new laws and regulations to promote decentralization (including the reform of intergovernmental transfers). It will also play an operational role in: (i) defining the annual allocation for each LG; (ii) collating Annual Performance Assessment information on the attainment of MMCs and PIs by selected LGs supported by the Local Development Support Directorate (DADL); (iii) liaising with the MEFP to ensure annual FECL and FDD grant commitments; and (iv) managing the national GRM. The Training Department of the MGT will coordinate and harmonize the training actions of the program in relation with the other actors (DGID, DGCPT, DGAT, DEEC, DCMP, ARMP Court of Auditors and the regional training committees). It will define the practical arrangements and tools for implementing the national training plan and the annual capacity-building plans for municipalities and agglomerations (integrating the CTC), in collaboration with the ARDs (which provide the secretariat for the regional training committees), the DCL (which provides the secretariat of the technical committee chaired by the Training Department) and the ADM (permanent member of the Technical Training Committee). Within the MEFP, the General Directorate of Budget (Direction Générale du Budget – DGB) and more specifically through the Cooperation and External Financing Directorate (DCFE), the Planning and Budgeting Directorate (DPB) and the Operational Budget Controller (COB) and the DGCTP will be in charge of transferring subsidies to LGs, while the DSPL and DGID/BCL will be charged with advancing the local tax reforms and accompanying LGs in mobilizing local revenues. The DCFE will be in

24

charge of coordinating the operation’s annual audits and ensure proper implementation of the declined recommendations of audits and supervision missions. Specific activities to strengthen the capacity of these core institutions have been incorporated into the Program Action Plan.

73. DCMP through its seven Regional Procurement Pole will conduct the ex-ante control on the procurement activities and in addition, will provide support-advice to the LG. The DCMP has agreed to strengthen its teams and improve the supervision of units in LGs benefiting from the program's resources. The DCMP developed a guide for contracting authorities. This guide will be reproduced and popularized within LGs with training tailored to their needs.

74. LGs. The Urban LGs will plan and implement investments from resources received through the conditional grant system, which will be fully financed through the Program. To encourage multi-annual investment programming as provided for by Act III, eligible LGs will prepare their investment plans on a three-year basis (to be updated annually through a participatory process). The specific training and TA needs of Urban LGs will be identified in their Annual Capacity Building Plans. Based on these plans, Urban LGs will receive support for implementing investments through: (i) the Continuous Territorial Coaching provided by the ADM and ARDs; (ii) training of LG administrators; and (iii) where necessary, systematized modalities for delegating contract management of specific investments specialized, accredited and qualified firms. The DGAT in the Ministry of the Interior, through regional and local level representatives (préfets, sous-préfets) will provide control over municipal budgets, programming and contract management. It will also be involved in supporting, advising and training LGs. The DEEC and DREEC at the Ministry of Environment will ensure that projects being designed and implemented by LGs abide by the national environmental and social safeguard requirements.

75. Regional Development Agencies (ARDs) will be in charge of executing the CTC. They will play a key role to support LGs attain their MMCs and PIs on one hand, and properly plan, program, and execute the investments identified under their yearly investments programs. ARDs will be coached by the ADM, and will support LGs liaison with deconcentrated structures such as the prefects and sub-prefects and DREECs to ensure proper budget planning and execution.

76. The Mayors Association of Senegal (AMS), will play an important role to ensure continuous mobilization of mayors and LGs around critical reforms envisaged under this Program. AMS will also play a lobbying role vis-à-vis government institutions to ensure that those reforms, and actions, are implemented timely and to their satisfaction.

Control and Verification

77. The Court of Auditors is juridically responsible for conducting external controls over the management of public resources in Senegal. This includes both jurisdictional controls with respect to all public accounts, audits to assess the quality of budget management15, and technical audits. The audits can encompass all aspects of budget management including ‘the achievement of the objectives set, the adequacy of the means used, the costs of the goods and services produced, the prices charged and the financial results as well as the impact on the environment.’ Given its mandate, the capacity of the institution to conduct both financial and technical audits and its relative independence, the Court of Auditors was selected to play a central role both in auditing the use of public resources by LGs selected under the Program and verifying LG performance under the national system for performance evaluation. The specific roles and responsibilities of the Court of Auditors under the Program are as follows:

i. given the significance of the resources channeled to LGs, the Local Government Chamber of the Court of Auditors will receive support from Program to carry out technical audits on a larger sample of LGs; and

15 Arts 30-31, Organic Law 2012-23 of 27 December 2012.

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ii. the Local Government Chamber of the Court of Auditors will play an integral role in the allocation of conditional grants under the FECL, by verifying the annual PAs of LGs both based on documentary evidence and field visits and spot checks. A firm will be recruited to conduct this verification role for the first three years of the Program implementation, and ensure knowledge transfer. If the capacity of the Local Government Chamber is deemed adequate, after two years, it will take over responsibility for the verification of LG PAs. By the fourth year, the Court of Auditors will take over full responsibility for the verification process.

78. In addition to its role in procurement and contract management training and capacity building, the ARMP will expanding its audit coverage to ensure that at least 30 percent of Urban LGs covered by the Program are audited at least once during the life of the Program. The ARMP will also strengthen its procurement related grievance mechanism.

79. Further, the Internal Inspectorate of Local Administration in the MGT will be in charge of conducting annual control missions on selected LGs to orient them towards further improving their municipal management practices.

80. A firm will be recruited as Independent Verification Agency (IVA) and will be charged with verifying the achievement of Program DLIs on a yearly basis.

B. Results Monitoring and Evaluation

81. The Operation will strengthen the capacity of existing national and local level structures to ensure regular and in-depth monitoring of implementation progress and outcomes. The Results Framework (Annex 2) provides the basis on which the ADM, in close coordination with the DCL, the National Treasury, LGs and supporting agencies, will measure and report on progress. The existing M&E unit within the ADM will be reinforced through the inclusion of an additional M&E expert to coordinate data collection and prepare mid-year and annual Operation Progress Reports. Performance Focal Points will be nominated within each of the national structures charged with the implementation of the Operation, as well as in each of the targeted LGs. These focal points will meet regularly with the M&E unit within the ADM to share feedback and data on implementation progress. A dedicated M&E electronic platform will be established to facilitate the collation of inputs and to provide a real-time mechanism for stakeholders to review progress, address issues as they arise and, where necessary, adjust the Operations’ parameters to evolving conditions. As indicated in the Program Action Plan, the Performance Focal Points will receive targeted training and capacity development support from the ADM’s M&E unit through program financing.

82. The indicators of the Operation rely primarily upon data generated from the government’s own system for tracking local government financing and monitoring the performance of Urban LGs in meeting MMCs and PIs. Given this, particular emphasis will be placed upon supporting specific governmental systems and structures. With respect to local government financing, support for the introduction of the GFILOC information system and the OBFILOC will help to consolidate data on government transfers to LGs and on LG budget execution. The DSPL will provide training to selected LGs in the use of the GFILOC system to ensure the effective use of the system and to enhance the reliability of data generated through the system. The performance system established to measure LG progress in achieving MMCs and PIs will also be critical to the Operation’s M&E arrangements. The Annual PAs prepared by LGs with the support of the CTC will be verified, initially by an independent firm and then later by the Court of Auditors. This verification will constitute the principal source of data for DLIs 3, 4, 5 and 6. TA in the IPF focuses specifically on strengthening the capacity of the Court of Auditors to take over the verification of the LG Annual PAs through the recruitment of a firm to coordinate the verification process in the first three years of implementation.

83. Operation Progress Reports. The reports will include consolidated financial statements that will cover all Program activities, expenditures and sources of funds, implementation status, progress in

26

achieving the DLIs, results indictors, and evidence of compliance with the requirements of the Program Action Plan. The mid-year and annual Operation Progress Reports prepared by the ADM will be shared with the STC, CTO, World Bank and AFD. The format and content of these reports will be outlined in the Operation Manual (OM).

84. The mid-year report on the Operation will cover the following issues:

• A summary of the overall expenditure of the Program and Project. • Summary of progress towards performance indicators and aggregate infrastructure and service

expenditures in Urban LGs. • Execution of the annual Capacity Building Plans in Urban LGs. • Summary of aggregate environmental and social performance reports from each of the Urban LGs,

as well as complaints handling mechanisms reports. • An update of Operation indicators, with justifications. • An assessment of key risks to be resolved upstream of the annual Operation Progress Report.

85. The Annual report on the Operation will, in addition to the abovementioned elements, include:

• Summary of the MMC and IP evaluation exercise and the conditional capital grants and performance grants disbursed to Urban LGs and Principal Urban Centre LGs respectively.

• Summary of aggregate information on procurement grievances and fraud and corruption issues.

C. Disbursement Arrangements

86. Disbursement arrangements for the Project activities envisaged under Results Areas 1 and 2 will be based on procedures that are consistent with IPF procedures. For IPF-financed activities, the report-based disbursement method will apply. A Designated Account (DA) will be opened in a commercial bank acceptable to the Association and managed by the direction of investment in coordination with ADM. The allocation of the DA will cover approximately six months’ cash flow forecast. The DA will be managed per the disbursement procedures described in the Disbursement Letter. All supporting documentation must be easily accessible and kept at an appropriate place for control and audit purposes.

87. Disbursement arrangements for the Program will be subject to PforR procedures only. Disbursements under the Program are scalable and will be based on the achievement of annual DLI targets. Disbursement will occur on an annual basis, on July 15. By April 1 of each year, the ADM will present evidence of the achievement of DLIs (covering the period of January 1 to December 31 of the previous year). After being reviewed by the OTC and validated by the STC, a verification of the achievement of DLIs will be conducted by the IVA. A Results Verification Report will be produced no later than May 31 each year and submitted to the World Bank and AFD. Upon mutual acceptance of the Results Verification Report, the World Bank will issue a notification to the Borrower confirming fulfillment of the Disbursement Conditions against these specific DLIs on behalf of both the World Bank and AFD. Upon receipt of such notification, the Borrower will then submit a withdrawal application to the World Bank and AFD. Disbursements will be made in July every year.

88. DLIs 4 and 5 are scalable and disbursements will need to be factored into national and local government annual budget frameworks. DLIs 4 and 5 are based upon the results of the LG annual PAs. Resources will be rolled-over to the next year if specific yearly results are not achieved. Details on the functioning of DLIs 4 and 5, and their insertion in the budgeting cycle of the FECL are available in the Program Technical Assessment.

89. Program funds will be channeled from a Special Account in the Treasury to LG accounts in accordance with the rules of public accounting applicable to LGs.

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90. Prior Results. The targets for DLI 1 and 2 are expected to be met prior to the date of the Operation’s legal agreement. Accordingly, at the date of Program effectiveness, an amount of US$12.6 million will be disbursed (of which US$7 million of IDA financing) against the achievement of these two prior results.

91. Advance. Given that Program resources will be disbursed in the middle of the Government’s fiscal year (July), an advance will be needed in the first year to ensure that sufficient resources are available for the conditional grants in both the first and second years. Disbursement against achievement of DLIs 1,2,4,5 and 7 in year one will provide funding in the amount of US$34.6 million. However, this disbursement will be insufficient to finance the government’s program activities for the first year and for the second year up to July 2019 (when the second disbursement against DLIs will be made). As a result, the advance requested by the Government will be US$15 million or 7.5 percent of the total IDA/AFD loan. This rolling advance, will be adjusted against the claim of disbursement against Program DLIs. The World Bank requires that the Borrower refund any advances (or portion of advances) if the DLIs have not been met (or have been only partially met) by the Closing Date of the Program, promptly upon notice thereof by the World Bank.

IV. ASSESSMENT SUMMARY

A. Technical

92. Strategic Relevance. Given the importance of strengthening local government capacity to support basic service delivery across the territory, on the one hand, and the need to crowd-in resources and capacity to close critical infrastructure gaps and drive economic development in Senegal’s heavily populated urban centers on the other, the Operation is assessed to be strategically relevant. The Operation will contribute to the Government’s PSE vision for 2030 by increasing and better orienting local government financing to enable LGs to respond more effectively to improving the livelihoods of local populations, particularly in poorer rural areas. At the same time, by combining robust national support mechanisms with conditional capital grants to incentivize good governance, Urban LGs will receive additional resources to invest in infrastructure and will develop capacity to better manage resources to drive local economic and social development in urban centers. This will in turn trigger positive externalities for surrounding localities. National reform efforts to strengthen institutional coordination, advance local taxation reform and create the foundations for well-trained and capable local public administrations will help to establish the necessary conditions for effective fiscal and administrative decentralization in Senegal. This will complement the significant advances made with respect to political decentralization in recent decades and will consolidate the social contract between local populations and locally elected governments by empowering LGs to respond to local development challenges.

93. Technical soundness. The Operation is considered technically sound, responding to the needs of both national and local actors, while integrating lessons on the orientation and phasing of decentralized service delivery from successful examples in the region. The Program incorporates key elements for progressively moving towards effective decentralization. The piloting of incentive and institutional support mechanisms in the 123 most capable LGs, has been demonstrated as an effective strategy to create demonstration effect and sustain reform momentum over the longer term. The Program combines increased local government financing with well-tested local PFM processes that align with national FM processes and enable inclusive multi-year planning of strategic infrastructure investments.

94. The conditional grants available to eligible LGs provide a significant incentive for improved performance. Simulations16 conducted during Program preparation show that for the first-tier conditional grants, eligible Urban LGs stand to receive a ‘top-up’ representing between 20 and 2000 percent of the investment resources currently available to them (this range reflects the vast disparities that currently exist with respect to investment resources at the LG level – while Dakar already has significant resources, other 16 Detailed simulations available in Annex 2 of the Technical Assessment.

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LGs have very limited resources at present). The Principle Urban Center LGs stand to benefit from an increase in investment resources in the order of 63 to 110 times of existing investment resources (based on 2015/6 budgets) through the first and second tier conditional grants. Further details on the significance of the incentives afforded by the conditional grants is addressed in the Technical Assessment. To avoid the risk that conditional grants might dis-incentivize revenue collection by eligible LGs, the performance criteria required to access the second-tier conditional grants includes performance indicators related to revenue mobilization, while DLI 3 provides Program incentives for participating LGs and deconcentrated tax authorities to improve tax administration and collection.

95. In line with the lessons learned from international experience, and given the weak absorptive capacity of eligible LGs to manage the increase in investment resources, the Program ensures that central government institutions and agencies are structured to effectively accompany LGs, while progressively promote greater autonomy of LGs. More specifically, the CTC mechanism will support LGs in the planning, programming and execution of their priority investments. Resources will be made available to support more complex LGs to prepare adequate simplified planning instruments to ensure sound investments and services to be executed. In addition, ADM and via the CTC will intervene directly to support Principal Urban LGs to complement their skill gaps and ensure activities are planned and executed in a timely manner. A risk matrix has been developed to also encourage LGs who will be overburdened with resources or are highly challenged with capacity gaps to delegate selected investments to a delegated contract management agency to accelerate and ensure effective implementation of investments.

96. The Program also supports citizen engagement through improved access to information on local governance and the promotion of participatory local governance practices. At the national level, the publication of information on-line will be critical to ensuring that national opinion leaders, civil society and the growing population of youth – many of whom have access to the internet – engage constructively in the decentralization process. Annual national debates on specific themes of local governance will further broaden the space for inclusive dialogue. At the local level, given limited literacy rates and access to the internet, the Program builds in incentives and CTC support for Urban LGs to use locally adapted participatory methods for engaging with local populations (including physical publication of council deliberations, public meetings on budget orientation and execution performance and proximate modalities for receiving grievances through local focal points). Experience internationally indicates that the promotion of citizen participation through these approaches can help to (i) increase the accountability of local government; (ii) strengthen citizen understanding of local institutions; (iii) respond inclusively to citizen expectations; and (iv) reinforce trust between local populations and LGs. The inclusive engagement of national and local level actors throughout the preparation of the Operation has also enabled substantive buy-in on the technical dimensions of the Operation from the broad spectrum of stakeholders.

97. Institutional Arrangements. Institutional arrangements for the proposed Operation are assessed as being appropriate and adequate. Responsibilities for implementation are divided across the national and sub-national levels in ways that are fully consistent with the prevailing legal and regulatory framework. The national government, through the MGT and MEFP, will take a leading role in policy, regulation, finance, support and oversight, drawing upon national agencies only where necessary. LGs will take primary responsibility for planning, executing and managing local level infrastructure for service delivery. Operational coordination at the technical level will be undertaken by the ADM, a structure that has both the experience and institutional mandate to provide such technical support. Meanwhile overall operational oversight will involve the broad spectrum of stakeholders involved in implementation and will ensure (i) Program results are reviewed and endorsed at a high level; (ii) there are inter-sectoral coordination mechanisms in place; and (iii) LGs are appropriately represented at the strategic level.

98. Expenditure Framework. The Program's expenditure framework consists of a total of US$260 million through two results areas. Results Area 1 (DLIs 1 to 3) for a total US$76 million and Results Area 2 (DLIs 4 to 7) for US$110 million. The PforR-financed results areas will be appropriately embedded in the budget and expenditure management processes of both the national and LGs. IDA and AFD funds will

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be deposited in a Special Account in the National Treasury to mitigate risks associated with liquidity shortfalls or cash rationing. In addition, through a Memorandum of Understanding with the Treasury, the government will commit to keeping payment delays within an agreed timeframe to ensure the timely disbursement of funds from the Special Account. Program allocations will be incorporated into the budget of the MGT as appropriated by the National Assembly. The bulk of resources will be allocated to selected LGs in the form of conditional capital grants. These grants will be reflected in the FECL annual Budget and will be transferred from the Special Account in the National Treasury to the participating LGs. The capital grants will be reflected in the annual budgets of the LGs that qualify for these allocations under the Program.

Table 6: Program Expenditure Framework (US$ million) (excluding IPF component)

Classification 2018 2019 2020 2021 2022 2023 Total

Performance based fiscal transfers

to LGS and cities achieving a set of Minimum Mandatory Conditions (MMC)

to LGS and cities achieving a set of specific performance indicators (PI)

10 32 48 48 36 - 174

Non-conditional capital grants transfers to pilot 123 LGs

8 9 10 11 12 - 50

Performance based fiscal transfers to other government institutions ADM, ARD, DCL, Court of Auditors, LTU etc.

2.0 3.0 2.3 2.1 1.8 0.8 12

Government resources allocated to institutions ADM, DCL, DGID, DSPL, ARDs, to ensure proper implementation of the Program

1.6 1.8 1.8 1.8 1.8 1.2 10

Total 21.6 45.8 62.1 62.9 51.6 2.0 246

99. Economic Evaluation. Emerging evidence from similar operations indicates that the reforms supported by the proposed Operation will likely result in a reduction of transaction costs associated with the delivery of local services due to (a) improved predictability and reliability of transfers from the central government to local government; (b) improved revenue collection and PFM capacity at the local level resulting in better budget planning and execution, reporting and accounting practices; and (c) improved administrative capacity at the local level resulting in improved responsiveness of LGs to the needs of citizens. While the Program is expected to contribute to improved public service delivery, the benefits accrued are not easily quantified. By design, the proposed Program provides LGs with discretion in deciding on the types of infrastructure investments that will be financed through the conditional capital grant system. It is therefore impossible to determine a priori which infrastructure services will be implemented. Infrastructure investments under the Program would include, inter alia, roads rehabilitation, drainage, economic and social infrastructure, public space, water supply, sanitation and solid waste management would spur the demand in Senegal for labor, goods, and services and ultimately support income levels and consumption capacities of the local populations. For the purposes of the economic evaluation, the analysis focuses on the financial, economic and social impact of the Program.

100. In terms of financial benefits, the Program is expected to generate financial gains in excess of US$290 million (US$100 million increase in state transfers and US$190 million in conditional transfers

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financed by the Program) from central government and Program-financed conditional and unconditional transfers (increased local taxation has not been evaluated but will further increase financial gains). With a discount rate of 3 percent, this represents a financial real net present value (NPV) of US$281,553,398 (US$276,190,476 if the discount rate is 5 percent) or the equivalent of 2.02 percent of the country’s average GDP over the period 2010-2014.

101. In terms of economic benefits, an analysis was undertaken to estimate the economic impact of local government spending (through FECL and FDD allocations) on socio-economic outcomes (see the Program Technical Assessment for further details). The analysis used regional level school enrollment outcomes and LG level poverty rates as dependent variables and LG level expenditure data as the control variable. The results of the analysis show evidence of a positive correlation between the fiscal variable and education outcomes and a negative correlation between the fiscal variable and poverty rates. Thus, increases in local expenditures would increase local school enrolment rates and reduce poverty rates. Predicting the impact of fiscal decentralization on education and poverty outcomes is relevant to understanding the impact of decentralization, not only with respect to these indicators but also with respect to other socio-economic indicators. Though comprehensive datasets on other socio-economic outcomes are not available, by extrapolation, if the education and poverty indicators are affected by improvements in fiscal decentralization, it is more likely that socio-economic outcomes including health care, water and sanitation, transportation and electricity would be impacted as well. This would in turn yield returns in terms of: (i) higher economic mobility; (ii) health gains; and (iii) increase in property-values. Access to all-seasons roads will accelerate the movement of people and goods and diminish operation costs such as vehicle maintenance. Similarly, improved access to health facilities increases the well-being of the direct beneficiaries and carries important externalities by creating a healthier environment and opportunities for human development for the whole community. Finally, lower congestion and higher economic mobility and a healthier and more efficient workforce would have a have significant impact on land and housing values.

102. In terms of social impact, the Program is expected to yield: (1) better efficiency of public expenditures – the incentives and support provided to Urban LGs will enable a more efficient and better use of public resources which is expected to result in improved value for money and pro-poor targeting of infrastructure for service delivery; (2) improved compliance with tax obligations – in addition to enhancing tax administration capacity, improvements in the efficiency of public expenditures and better service delivery has been shown to contribute to behavioral changes in favor of tax compliance by local populations; and (3) increased trust in LGs, which could create favorable conditions for the crowding in of new private investments.

103. Rationale for Public Sector Provision and Financing. The Operation will fund capacity building and institutional capacity activities in support of Senegal’s decentralization policy (improvement of the mechanism of State financial transfers to all LGs and strengthening of the local governance and management to improve the quality and sustainability of investments and local public services). The Operation will also fund basic infrastructures using an approach based on demand and performance which should contribute to improving LGs governance and accountability while reducing the transaction costs of local public investment. Consequently, the Operation will produce public assets, notably in terms of service and infrastructure delivery. Investments in terms of institutional strengthening (through the support of important reforms) will also contribute to the improvement of urban management and to the increase in the provision of public assets. Should these not generate profits likely to attract private investors, funding of this type of investment by public authorities will become indispensable.

104. World Bank Value-Added. The World Bank is uniquely placed to support the decentralization process in Senegal. The World Bank and the AFD are long-standing partners in the sector, having engaged for the last two decades in supporting local development and decentralized local governance through the Urban Development and Decentralization Project (UDDP) and the Local Authorities Development Project (LADP) . The lessons learned from these operations are reflected in the design of the proposed operations,

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specifically the need to shift from project-based support to a program approach focused on strengthening the institutional foundations for effective fiscal and administrative decentralization. In addition, the 2016 Urbanization Review, the 2017 Spatial Assessment and policy notes on local government financing developed in 2017 provide a strong analytical basis for supporting the proposed reforms. Finally, the extent of financing proposed under the Program is substantial and places the World Bank and the AFD as leading development partners in the financing of decentralization reform in Senegal. Through this support and the active engagement of the World Bank and the AFD in the decentralization donor coordination committee, both partners are well positioned to leverage and coordinate support from other development partners.

B. Fiduciary

105. An integrated fiduciary assessment has been conducted covering the Program institutional framework, fiduciary management capacity including a sample of participating LGs, consistent with World Bank Operational Policy/Procedure (OP/BP) 9.00, Program-for-Results Financing. The fiduciary assessment entailed a review of the capacity of the sample of participating entities on their ability to: (a) record, control, and manage all Program resources and produce timely, understandable, relevant, and reliable information; (b) follow procurement rules and procedures and appropriate project management modalities and fulfil the procurement MMCs required under the conditional grant window; and (c) ensure that implementation arrangements are adequate and risks are reasonably mitigated. A pre-evaluation mission was conducted in March 2017 and involved site visits to a sample of selected LGs. This mission was followed by a questionnaire designed to collect information and data to complete the assessment.

106. Senegal’s PFM system is considered satisfactory, but an updated evaluation of the country PFM performance is underway. At the national level, a Public Expenditure Framework Assessment (PEFA) was conducted in 2011 and a PEFA is scheduled to be carried out in 2017, together with a public investment management assessment. Recent PFM reviews noted that the execution rates of the country’s investment budget have consistently been above 90 percent since 2011. However, these rates do not reflect the execution of all investments included in the state budget. Investment management performance is further skewed by the late adoption of supplementary budgets (which revise appropriations to reflect actual appropriations). Transparency of fiscal information has been improved with the regular publication of quarterly budget appropriations and their execution on the MEFP website. The country is in the process of adopting the BOOST instrument to improve the availability of budget data. Tax reform and tax administration capacity have improved in recent years. At the local level, the major areas of concern relate to capacity for external audits and reporting and information systems. Technical, administrative and fiduciary capacity is weak. The budget execution software developed for use by LGs is not interconnected with the Treasury information system and is used by very few LGs. The flow of information between the Treasury and LGs remains a concern.

107. Further efforts are needed to strengthen the PFM institutional framework: Notwithstanding the progress made, some challenges need to be addressed at the national level in several areas including enhanced internal and external controls, modernization of expenditures management, and the implementation of accrual accounting. At the local level, external audit, reporting and information systems, capacity and accountability are among the issues that will need to be addressed by the Program.

108. The procurement framework is considered satisfactory and has undergone several iterations of reform. Having transposed the WAEMU procurement directive through the Procurement Code in 2007, Senegal was selected as candidate for piloting the use of country procurement systems in World Bank-financed projects in 2009. The procurement system successfully passed the first phase of the assessment. The second phase of the assessment in 2010 consisted of assessing the consistency and equivalence of the procedures as well as the bidding documents of Senegal with those of the World Bank. The report of this evaluation concluded that, in general terms, procurement methods for works, goods, services and consultant services as well as bidding documents are generally consistent and acceptable with World Bank standards.

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Recommendations for improving the national procurement system were largely considered in the Code of Public Procurement - Decree No. 2014-1212 of 22 September 2014.

109. The Public Procurement Decree of 2004 is applicable to all LGs. Each LG is required to have a dedicated procurement unit to prepare an annual procurement plan that is approved by the Procurement directorate. However, the assessment found that: (i) in general the planning process is poor because most of the LGs have no development plan and they lack of the technical expertise needed to conduct this kind of planning exercise; (ii) procurement capacity at the local level is very weak and the high turnover of staff trained under previous programs further hampered the sustainable development of institutional capacity; (iii) the General Directorate of Procurement (DCMP) in charge of prior review and capacity building is deconcentrated at the regional level and has seven procurement ‘poles’. However, these lack the resources needed to effectively support LG in procurement; (iv) the simplifications introduced under the Decree are applied in less than 20 percent of LGs assessed; (v) finally there is a lack of clarity regarding the payment process. The consequences of these weaknesses are delays in the procurement process and challenges in implementation of contracts, low execution of annual budget estimates and delays in payment.

110. Regarding fraud and corruption, the program will help to improve the overall control environment at the national and LG level through various measures” (i) a restructured intergovernmental fiscal transfer mechanism will bring predictability and transparency in the allocation of resources; (ii) improved systems for PFM in Urban LGs will lead to more transparency and increase accountability of LGs; (iii) access to conditional grant will rely upon LGs demonstrating improvements in the inclusive and transparent management of planning, budgeting and execution processes; and (iv) a comprehensive national complaints handling mechanism will be developed under the auspices of the DCL – modalities for referring cases of fraud and corruption to the relevant national and World Bank institutions will be developed and focal points at the local and national level will be trained in managing and referring cases appropriately. The combination of enhanced financial management systems, improved capacity, agreed verification protocols for results monitoring, increased engagement and demand from citizens, enhanced access to information on local governance and effective channels for grievance redress, fraud and corruption risks are expected to be reasonably mitigated.

111. Based on the fiduciary context and assessment, the overall fiduciary risk for the Program is high.

112. The Program will address fiduciary risks in several ways. First, the IPF component will support the improvement of PFM systems in Urban LGs and enhance control practices at the local level. Second, the Program will support a set of national institutions to strengthen the fiduciary capacity of LGs, especially the DCMP and the ARMP. In addition, the conditional grants supported by the Program will require compliance with and monitoring of LG performance in complying with fiduciary requirements. Third, several fiduciary mitigation measures have been embedded in the design of the Program to improve transparency in the allocation and predictability of resources, capacity strengthening, accountability, and external verification through better implication of citizens and enhancing the control and audit capacity of the Internal Inspectorate for Local Administration, the Court of Auditors and the ARMP.

113. It is important to note that this broad group of Program activities aimed at reducing fiduciary risk complements many other interventions and reforms introduced or supported by the Government, World Bank and development partners in improving central and local government fiduciary capacity.

C. Environmental and Social Effects

114. LGs are subject to the prevailing rules on national environmental and social safeguards. Following an Environmental and Social Systems Assessment (ESSA) of the Program, these rules have been adjusted per the recommendations of the World Bank and the AFD. A list of investments ineligible for Program financing has been developed in the ESSA. These types of investments have been excluded as they could

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potentially have non-reversible environmental and social impacts. This “negative” list of investments includes landfills, slaughterhouses of a certain size, projects generating physical or economic displacement of the population, etc.). It will be applied even in cases of co-financing (LG self-financing, loan, or other grant provided by the State or by a development agency).

115. The ESSA was elaborated by the World Bank team in a participative manner including the various national and subnational institutions which will be implementing the program activities. Preliminary consultations were organized in various regions of Senegal to assess capacities of relevant institutions at the sub-national level. The ESSA analyses the human and institutional capacities as well as the legal procedures in place to ensure that the overall environmental and social framework can manage potential risks. The main recommendations of the assessment include that the information chain be reinforced, in particular at the local level and that, capacity building and human resources be reinforced for the various national and subnational agencies involved namely the DEEC, ARDs, DREEC, and LGs to ensure adequate monitoring and reporting of these aspects.

116. The consolidated draft ESSA was finalized upon a second round of consultations to be held in the same regions. The final version was published both at the national and at the World Bank Infoshop on November 22, 2017.

117. Communities and individuals who believe that they are adversely affected as a result of a World Bank supported PforR operation, as defined by the applicable policy and procedures, may submit complaints to the existing program GRM or the WB’s Grievance Redress Service (GRS). The GRS ensures that complaints received are promptly reviewed in order to address pertinent concerns. Affected communities and individuals may submit their complaint to the WB’s independent Inspection Panel which determines whether harm occurred, or could occur, as a result of WB non-compliance with its policies and procedures. Complaints may be submitted at any time after concerns have been brought directly to the World Bank's attention, and Bank Management has been given an opportunity to respond. For information on how to submit complaints to the World Bank’s corporate Grievance Redress Service (GRS), please visit http://www.worldbank.org/GRS. For information on how to submit complaints to the World Bank Inspection Panel, please visit www.inspectionpanel.org.

D. Risk Assessment

118. On the basis of the conducted assessments, the overall risk rating for the Operation is substantial.

119. The governance and political risks are substantial. In light of the upcoming presidential and municipal elections in 2019, potential changes in the political environment with regards to reform vision and direction, and/or decision makers at the national and local levels might create a leadership continuity risk. To mitigate this risk, the Operation steers clear of the more politically contentious reform activities on spatial planning identified in the government’s program and focuses on reforms that will not likely be affected by changes in the institutional repartition of the territory. In addition, the Operation has been developed on the basis of, and is intended to sustain, an inclusive process. This has resulted in broad support from a diverse range of stakeholders from across the spectrum, including Mayoral Associations, parliamentary committees from diverse political parties and civil society.

120. Sector and technical risks are also considered to be substantial. Despite the overt commitment of the Government of Senegal to proceed with key reforms as part of its decentralization policy, many of these reforms require significant levels of inter and intra institutional technical engagement and coordination amongst diverse branches and sectors of the government. This is particularly the case with respect to the fiscal reforms envisaged, which will require proactive engagement and commitment of the MEFP. However, coordination challenges present a key risk to this cross-cutting reform agenda. To mitigate this risk, the Operation will install a Steering Committee co-led between the MGT and the MEFP with AMS

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and civil society representation to ensure proper direction of the Operation including those of selected reforms, and a technical committee, to ensure continuous dialogue between diverse line ministries and their respective departments on an operational level.

121. The fiduciary risks are rated high, largely due to weaknesses at the local level and the limited experience and capacity of LGs to-date in the management of resources of the magnitude anticipated under the proposed Operation. In addition, the budget execution information system within the LGs and with the accounting information system within the treasury systems are not operating effectively and procurement capacity remains weak. Furthermore, cash management weaknesses in the Treasury could result in delayed disbursement of budgeted expenditure areas or to delayed payments for LG investments made under the FECL conditional grant allocations. Program support to improve PFM information systems at the local level and to ensure that the Treasury conforms with agreed upon payment delays from the Special Account (through a Memorandum of Understanding), will help to mitigate these risks. Program resources will be channeled into a Special Account in the Treasury to avoid cash management challenges.

122. Environmental and social risks are assessed as substantial. Although the investments that will be funded by the Program are unlikely to have adverse impacts, existing environment and social management systems at national and regional levels are weak. The Program design and the measures in the PAP mitigate many of these risks. The financing of the Operation has also been structured so as to ensure that critical national-level activities are covered through the IPF. In addition, the CTC put in place to support LGs in projects definition and implementation, will help fill temporary capacity gaps, continuously bridge relationships with national and regional environmental management departments, and at the same time, ensure longer-term capacity building.

123. In terms of other risks, the co-financing arrangement between the World Bank and the AFD involves joint approval of disbursements. There is a risk that the two financing partners might diverge in opinion regarding the achievement of the DLIs. In mitigation of this risk, the Program establishes detailed protocols to ensure alignment on the measurement of DLIs and the AFD will delegate responsibility for supervision to the World Bank. In addition, the World Bank and the AFD have extensive experience co-financing investment operations in Senegal and will draw upon earlier experiences to ensure close collaboration in the M&E of the Program. A formal agreement with processes for mediating divergence between the two development partners will be developed prior to effectiveness.

Table 7: Summary SORT

Systematic Operations Risk-Rating Tool (SORT)

Risk Category Rating (H, S, M, L)

1. Political and Governance S

2. Macroeconomic M

3. Sector Strategies and Policies S

4. Technical Design of Project or Program S

5. Institutional Capacity for Implementation and Sustainability S

6. Fiduciary H

7. Environment and Social S

8. Stakeholders M

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9. Other M

OVERALL S

Rating: H=High; S=Substantial; M=Moderate; L=Low.

E. Program Action Plan

124. Table 8 summarizes key aspects of the Program Action Plan. A more detailed action plan is included in Annex 8.

Table 8: Summary Program Action Plan

Action Description Due Date Responsible Party Completion Measurement Organizational/ Program Management

Preparation and approval of Program OM.

Three (3) months following effectiveness

ADM/MGT Final approved version of the OM shared with all Program stakeholders.

Preparation and signing of performance agreements between ADM and each National-level Structure.

By effectiveness.

ADM, MGT, ADM, DCL, DEEC, DREEC, Court of Auditors, DSPL, DGID, National LTU, ARDs, DGAT, DADL, AMS, DCMP, ARMP, DCFE, IAL

Annual consolidated assessment report produced and validated for all performance memorandums.

Preparation and signing of a performance agreement between MGT and each beneficiary LG.

By effectiveness MGT, LGs, ADM Annual consolidated report prepared for all LGs performance memorandums.

Institutional Periodic functional review of intergovernmental transfer modalities.

Annual MGT Annual assessment report produced and validated.

Preparation and approval of the LG Performance Assessment Manual.

April 1, 2018 MGT/ADM Final approved version of the manual shared with all concerned LGs

Operational Continuous Territorial Coaching and Training mechanisms.

Year 2 ADM ARDs Training Unit of MGT

# Performance agreement between MGT and targeted LGs include CTC and training. # In Year 2, further training of all ARDs as Coaches. # In Year 2, identification of ARD capacity gaps and preparation of a capacity building strategy.

Annual Survey on LG satisfaction with respect to CTC support

From Year 2 MGT Report summarizing the survey results on LG satisfaction levels with respect to CTC support.

Recruitment of a Program Focal Point expert on Local Public Financing at DCL

Year 1 DCL Recruitment of a Local Public Finance expert.

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Operational Annual Forum on Local Governance

Annual MGT Annual forum incorporating broad representation of local governance stakeholders to be conducted on themes identified from the issues raised in the Local Governance Portal and Complaints Handling Annual Evaluation.

Environmental and Social Annual capacity building sessions.

Yearly ADM/ ARD/DREEC/Communes

Yearly capacity building conducted targeting a satisfactory pool of stakeholders.

Human resources to be reinforced at support and oversight structures.

Year 2 ARD/DREEC Additional support for monitoring and reporting.

Recruitment of a focal environmental and social staff at ADM.

Year 0 ADM Adequate focal point responsible for monitoring, reporting and guidance to subnational structures.

Fiduciary Roll out GFILOC, a modernized and interconnected local government PFM information system in the 123 Urban LGs.

Year 2

DSPL/ADM

In Year 1, effective deployment of GFILOC. In Year 2, GFILOC effectively used by the LGs to generate information.

Select the firm in charge of verifying communal performance.

Mid-year 1 Court of Auditors/ ADM Firm notified of selection.

Selection of the Independent Verification Agency.

Mid-Year 1 ADM Firm notified of selection.

At least 60 Urban LGs have been subjected to technical audits conducted by the Court of Auditors.

Year 5 Court of Auditors Over the duration of the Program, the Court of Auditors has conducted technical audits with respect to 60 of the 123 targeted Urban LGs.

The Inspectorate of Local Administration conducts 25 percent more control missions of LGs each year.

Annual Inspectorate of Local Administration

Report produced by the Inspectorate of Local Administration outlining missions conducted (baseline in 2017 – 9 missions).

Strengthen the Procurement Regional Poles to provide support advice and improve the supervision of procurement units in LGs. Reproduced and popularized

Year 1 and 2 DCMP / ADM Annual Report, detailing the content and extent of training and guidance targeting Program LGs.

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procurement guidance document within LGs with training tailored to their needs. Procurement audits of at least 30 percent of Urban LGs covered by the Program by the ARMP.

Year 5 ARMP Annual report produced by ARMP outlining annual audits conducted.

Strengthen the capacities of LGs to manage grievances and identification of local grievance focal points.

Year 1 ARMP/ADM/DCL List of focal points produced.

Fraud and Corruption National complaints management system in place incorporating local modalities for receiving and treating grievances and enhanced capacity of LGs to manage grievances.

One year after effectiveness

MGT Complaints management system established by DCL in the MGT.

Annual report on the functionality of the National complaints management system.

Two years after effectiveness

ADM/LGs Yearly report produced by the DCL consolidating all complaints received at national and local levels and reviewing their treatment.

Monitoring and Evaluation Structure for Program-wide monitoring in place and operational (recruitment of 1 expert and 1 assistant).

Year 1 ADM ADM M&E person and Performance Focal Points nominated and trained. Program M&E integrated information system in place.

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Annex 1: Detailed Program Description

A. Project Development Objective

1. The Program Development Objectives (PDO) are to: (i) improve local government financing; and (ii) enhance the performance of participating urban local governments in managing public investments. The Program aims to contribute to financial and fiscal reforms that will ensure that LGs across the country have improved access to critical resources needed for local service delivery. It also supports the Government in testing a system that provides performance-based incentives and targeted support to selected urban LGs to boost their performance in planning, budgeting and managing local investments and to promote their emergence as vectors for economic growth. The key Program results are:

1. Modalities for the repartition of State transfers to LGs for recurrent and investment spending (FECL and FDD) and for the repartition of the LVATF reformed and applied in the timely allocation of resources to LGs, to the satisfaction of the World Bank;

2. Increase in State- financed intergovernmental capital and recurrent grants (measured by the attainment of target aggregate amounts allocated annually to the FECL and FDD) and timely publication of annual allocations;

3. Increase in local taxation revenues in the Principle Urban Center LGs; 4. Urban LGs that achieve minimum performance conditions related to planning, budgeting and

executing public investments (measured by the proportion of Urban LGs that receive conditional grants based on their achievement of minimum performance conditions);

5. Increase in the execution rate of annual investment plans in the Principle Urban Center LGs (measured in terms of expenditures disbursed).

B. Overview of the Government’s program

2. The Government’s program for implementing the second phase of the Act III decentralization reform agenda, the PROACTSEN, is divided into four inter-related and cross-cutting sub-programs:

Subprogram 1 (SP1): Strengthening the legal and national coordination framework and governance institutions involved in the implementation of Senegal’s decentralization policy. The objective of SP1 is to enhance institutional arrangements for strategically managing and coordinating the effective implementation of Act III. The sub-program focuses on: (i) streamlining the MGT and related agencies and structures to optimize reform implementation, M&E and support to LGs; (ii) strengthening interdepartmental and inter-governmental coordination; (iii) improving the legal and regulatory framework for decentralization; and (iv) establishing effective central level support arrangements to accompany territorial and local economic development, including the re-orientation of national agencies to support LGs in progressively developing capacity to manage local development with greater autonomy.

Subprogram 2 (SP2): Reinforcing the cohesiveness of territorial governance and spatial planning. Sub-program seeks to promote territorial cooperation and coherence, whilst creating the necessary conditions for the development of competitive and integrated territories capable of sustaining local and regional development. In addition to revising the territorial repartition of LGs across the territory, the sub-program also envisages the promotion of inter-municipal arrangements/ structures and the identification and development of territorial growth poles.

Subprogram 3 (SP3): Enhancing the organization and technical and human capacity of LGs. The subprogram aims to support improvements in the organizational and operational capacities of LGs (in planning, programming, procurement, operations management and M&E, development and maintenance of infrastructure and equipment, etc.) and other territorial stakeholders to enable

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them to effectively deliver on their mandates. The subprogram includes: (i) the establishment of standard organizational charts that define the key positions required for different categories of communes to operate effectively (organigrammes types); (ii) recruitment and career management tools to support LGs in attracting and retaining qualified staff; (iii) comprehensive national initial and in-service training programs to build the core competencies of local government staff and the eventual creation of a National Training Center for Territorial Stakeholders (Centre National de Formation des Acteurs Territoriaux, CNFAT); and; (iv) initiatives to promote citizen engagement at the local and national levels, including the scaling up of participatory approaches to local governance and an on-line and accessible local governance platform at the national level.

Subprogram 4 (SP4): Reinforcing the financial capability of LGs to invest in local development. The subprogram incorporates a series of integrated measures to optimize the financing of LGs. The intergovernmental transfer system will be reformed to enhance the transparent, predictable and equitable allocation of central government transfers to LGs. Through a phased approach, resources will be increased, equalization mechanisms with respect to the different transfer modalities will be reinforced (notably for the FECL and FDD) and the overarching transfer system will eventually be consolidated. Critically, the Government has also committed to orienting the transfer system to a results-based approach, through the introduction of conditional grants based on LG performance. At the same time, the subprogram seeks to strengthen the capacity of LGs to mobilize local revenue through local taxation reforms and measures to improve tax administration and coordination between tax authorities and LGs. Finally, efforts to support alternative modalities for mobilizing resources, through bank and bond loans and public-private partnerships, will also be explored.

3. The PROACTSEN will be implemented in two stages. Acknowledging the complexities involved in both engaging structural reforms and implementing them across the territorial expanse, the PROACTSEN envisages a phased approach to implementation. During the first stage (2018-2022), a focus will be placed upon national level structural reforms and the piloting of initiatives to enhance support and introduce performance incentives to a sub-set of LGs. During the second phase of the PROACTSEN (2023-2027), these initiatives will be adjusted, where necessary, and scaled up to cover all LGs.

C. Scope of the Program

4. Duration. The proposed Operation is timed to align with the first stage of the PROACTSEN from 2018 to 2022.

5. Financing. Overall, the Operation will finance approximately 25 percent of the total envelope of the government program, PROACTSEN between 2018 and 2023. The budget for the first stage of the PROACTSEN is estimated at 465 billion FCFA (US$837 million). The Program will fund a portion of PROACTSEN in the amount of 144 billion FCFA (US$260 million) over a period of five (5) years (2018-2022) of which the World Bank US$110 million, and AFD US$90 million equivalent.

6. Parameters of the Program vis-a-vis the PROACTSEN. Given its focus on results and the inter-related and cross-cutting nature of the sub-programs established under the government’s program, the parameters of the proposed Program are not entirely confined to covering discrete government sub-programs. Instead, the Program is structured into two critical results areas that cover significant parts of three of the four government sub-programs.

• The Program’s first objective of improving local government financing is directly aligned with the PROACTSEN’s sub-program 4 objective of strengthening the financial capacity of LGs to invest in local development. Improvements in local financing will be supported through Results Area 1 of the Program which focuses on (i) increasing central government transfers to LGs; (ii) improving the manner in which transfers are allocated to ensure the timely and predictable allocation of

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resources and an equitable and pro-poor distribution of resources across the territory; (iii) improving the capacity of LGs to generate their own revenue through local taxation; and (iv) improving local PFM processes to ensure the effective and efficient of public resources.

• The second Program objective of improving the performance of participating urban local government in managing public investments for local service delivery cuts across three of the four PROACTSEN sub-program objectives which are targeted at strengthening the national coordination framework; enhancing the organizational, technical and human capacity of LGs; and strengthening the financial capacity of LGs. Through Results Area 2, the Program will support the Government to pilot the introduction of national reforms aimed at (i) enhancing central government support to LGs; and (ii) incentivizing improved municipal performance through results-based conditional capital grants.

7. The Program focuses on elements of the PROACTSEN that are both politically feasible and likely to produce measurable and substantive results in the short to medium term. In light of this, the Program does not cover SP2 of the PROACTSEN and certain expenditure areas in sub-programs 1, 3 and 4 also fall beyond the scope of the Program.

8. Geographic Scope. Each of the results areas incorporates both horizontal national level reforms and targeted vertical support to a set of pilot LGs. This approach will both enable the Government to lay the institutional foundations needed to advance administrative and fiscal decentralization in the country, while stimulating tangible results at the local level in the short to medium term. The approach draws from a growing body of operational experience that demonstrates the importance of introducing results-based systems for improving municipal performance in a gradual manner, focusing initially on the LGs that have the capacity to respond favorably to the performance incentives offered by the system. The selection of the LGs for the vertical support provided under the Program reflects this. The selection of LGs was based upon: (i) the Government’s interest in ensuring the Program’s success as a scalable pilot, by starting with the LGs that already have a minimum level of capacity / local tax base to respond to a performance-oriented grant system and to achieve results targeted by the Program; and (ii) and the need to enhance investments and improve access to services in LGs that play a leading role in generating regional level economic activity and constitute regional hubs that can create positive externalities for surrounding LGs. An extensive consultative process which involved all relevant national stakeholders and which was validated by the Mayor’s Association of Senegal was engaged to validate the selection. Two categories of LGs are covered by the pilots supported under the Program:

• 123 ‘Urban LGs’: consisting of the five cities (Dakar, Thies, Rufisque, Guediawaye, and Pikine), all regional and departmental capitals, all LGs with more than 30,000 inhabitants with a density per ha above 10, and all LGs previously targeted by World Bank and AFD urban municipality projects.

• 19 ‘Principle Urban Center LGs’: consisting of all five cities, all regional capitals, and the city of Touba. These LGs are also included in the list of Urban LGs.

Typology of Program activities

Results Area 1: Enhancing the Financial Viability of LGs

9. Through a blend of TA and results-based disbursements, Results Area 1 will support both national level activities and targeted initiatives in Urban LGs to improve local government financing and PFM. It will focus on three areas:

Results Area 1.1: Restructuring the intergovernmental grant transfer systems to improve the transparent, predictable and equitable allocation of state transfers to LGs

10. In addition to providing incentives, through DLI 2, for the Government to increase recurrent and investment resources transferred to LGs, Results Area 1.1. supports the gradual restructuring of three

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existing transfer modalities (the Local Governments Capital Development Fund, FECL; the Decentralization Allocation Fund, FDD; and the new Local Value Added Transfer Fund, LVATF) and a strategy for the eventual harmonization and consolidation of the overarching intergovernmental transfer system (including the Decentralized Consolidated Investment Budget, BCId). The objective is to enhance the objectivity, transparency, and predictability of the principle existing grant allocations to enable LGs to better plan and manage resources from the Central Government and to use them to leverage additional resources through loans and PPPs. The reforms will also serve as a precursor to the eventual consolidation of the intergovernmental transfer architecture. The specific expenditure areas covered by Results Area 1.1 include:

• The reform of the FECL; FDD and LVATF modalities for the repartition of resources to LGs (see Box 1).

• The timely allocation of recurrent and investment resources in conformity with the criteria established through the reforms. The Operation provides both incentives (through DLI 1) and TA to the DCL in this regard.

• Strategic management of the overarching intergovernmental transfer reform process. Annual functional reviews of the overarching system will be conducted and the National Committee for the Development of Local Governments (Comité National de Développement des Collectivités locales, CNDCL) will be restructured to enhance its role in steering the reform process.

Box 1.1: Intergovernmental Transfer Reforms

The FECL represents the principal modality through which the central government transfers investment resources directly to LGs. It will also be used to channel Program resources. To provide LGs with the necessary resources to bridge investment gaps and effectively provide local services, the Government has prioritized the reform of the FECL. The proposed reform of the FECL incorporates two critical dimensions. First the reform seeks to restructure the FECL modality into separate windows to enable allocations to be aligned with different objectives (the introduction of a performance-based grant system, the limitation of allocations to institutions other than LGs). Second, the reform proposes measurable and objective criteria to redress existing imbalances in the allocation of investment resources per capita across the territory and to prioritize financing for poor, rural LGs. Simulations indicate that the new criteria would differentiate per-capita resources to the richest LG compared to poorest LG by a factor of 1 to 7. This means that LGs with the highest concentration of poverty and rurality will benefit from seven times more resources in the unconditional capital grant window than the wealthier LGs.

The FDD channels central government transfers for recurrent expenditures to LGs (75 percent as compensation for competencies devolved; 25 percent operating costs for regional institutions and allowances for local councilors). The reform of the FDD will focus principally upon the optimal distribution of resources differentiated to the needs of different communes and to the challenge of supporting payroll costs of local public administrators (which are currently not covered by the FDD).

FECL

Window 1Non-Conditional Capital

grant

Window 2Two-tiered conditional

capital grant

Window 3Special grant

Window 4Inter-territoial grant

Government financing

IDA and AFD financing

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The Operation will also support the design of a Local Value Added Tax Fund (LVATF) for the allocation of tax revenue generated from the newly reformed Local Economic Contribution. The Local Economic Contribution replaces the Patente tax and is designed to reduce recovery complexities. It consists of two components: a contribution on the rental value of business premises which is channeled directly to the LG whose territory is concerned; and a contribution on the Value Added of Enterprise (1 percent of the VA). This contribution, which is equivalent to 85 percent of the total envelope of the FECL) is intended to be distributed to all LGs, though the basis for the distribution is yet to be determined.

Results Area 1.2: Improving local revenue mobilization in urban LGs

11. At the national level, Results Area 1.2 seeks to promote strengthened institutional coordination with respect to local revenue mobilization, together with progressive improvements to the legal and regulatory framework on local taxes. The following expenditure areas will be covered:

• Support for the installation of a dedicated Local Tax Office (Bureau de Fiscalité Locale, BFL) in the DGID, as well as the reinforcement human resources for regional tax centers and the creation of departmental tax centers. This will help to improve tax administration coordination between central, deconcentrated and local level actors.

• Short to medium term measures to expand the tax base and improve collection rates though studies on local fiscal potential, the revision of tariff and fee structures, the consolidation the legal and regulatory framework on local tax and operational guides. TA will also be provided on policy options to advance the broader local tax agenda.

12. At the local level, the Program provides incentives for the range of central, deconcentrated and local actors involved in local revenue mobilization to coordinate and improve recovery rates. Based on a pilot experience in St Louise, the Government will scale up the establishment of Local Fiscal Commissions in the selected Urban LGs as the principle mechanism for improving tax administration and increasing revenue mobilization. Comprised of representatives from Treasury, the DGID and local government, the Local Commissions will facilitate improved coordination between actors. A performance contract outlining roles and responsibilities and setting yearly targets for each Local Fiscal Commission will be evaluated and benchmarked on a yearly basis. In addition to the incentive created by the benchmarking, individual performance of DGID and Treasury staff will be linked to the evaluation. The commissions will also enable an informal updating of information on taxable land and property assets at the local level (based on information furnished by local representatives living in the area). The Program will also support formal taxpayer censuses in the 19 Principal Urban Center LGs and the introduction of mobile phone technology for the issuing of market tax receipts in Urban LGs to reduce leakages.

Results Area: 1.3: Strengthening local PFM systems to facilitate effective and transparent budget planning and execution processes

13. Results Area 1.3 covers four dimensions of local PFM:

• The consolidation and dissemination of data on local government financing: The Program will support the National Treasury’s DSPL to establish an on-line platform (Observatoire des Finances Locales - OBFILOC) to consolidate and ensure public access to financial information on LGs.

• The introduction of a modernized and interconnected PFM financial system, GFILOC in Urban LGs. GFILOC will replace the poorly functioning and separated accounting information systems currently used by LGs and the Treasury. The GFILOC will help to improve budget management processes, expedite payments from the Treasury and facilitate the timely production of budget execution reports for transmission to the Supreme Audit Institution (the Court of Auditors). Though the central level parts of the new system are already functional, the Program will support the extension of the system to Urban LGs and the Court of Auditors and the training of relevant personnel.

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• Enhancing the quality and timely application of tutelle controls: The Program will support nation-wide efforts to harmonize budget control procedures and build the capacity of deconcentrated institutions to provide effective and accelerated ax ante controls and to gradually shift towards ex post controls.

• Strengthening the national internal and external control functions: The Local Government Chamber of the Court of Audits has jurisdiction to control local government annual accounts and conduct audits of LGs with a significant backlog of controls, the Chamber has few resources to audit LGs. The Program will support the Court of Auditors in reinforcing external controls over the use of public resources by LGs through annual audits of a sample of the 123 Urban LGs. It will further support the Procurement Regulatory Authority (Autorité de Régulation des Marchés Publics, ARMP) in expanding its audit coverage to ensure that at least 30 percent of Urban LGs covered by the Program are audited at least once during the life of the Program. The Program will also strengthen the capacity of the Inspectorate of Local Administration in the MGT to conduct a progressively increasing number of control missions per year.

Results Area 2: Enhancing the Performance of selected LGs in managing public investments

14. Financing support under Results Area 2 will allow the Government to focus in the next five years on improving the performance of selected urban LGs communes in managing public investments through a combination of: (i) national support mechanisms for LGs; and (ii) a system for measuring, reporting and monitoring LG performance to enable the allocation of conditional grants the restructured FECL.

Results Area 2.1: Building the administrative capacity of Urban LGs with respect to Core Functions

15. This area will focus on enabling the Government to establish the necessary foundations for a well-trained and capable territorial public administration. At the national level, the Operation will support the DCL to encourage LGs to adhere to standardized local government organigrams through the development of human resource management tools (standardized job profiles and descriptions) and a local government personnel file management system. This will be complemented by introducing minimum staffing level criteria into the performance-based conditional grant system for the 123 Urban LGs, described below. The Program will also finance the establishment and application of the following national level support mechanisms to accompany the selected 123 Urban LGs:

• LG Continuous Training Program (CTP): In accordance with the National Training Strategy for Territorial Actors, the Learning and Training Unit (LTU) will develop a robust national training curricula for local administrators and consolidate the fragmented programs offered by existing training institutions in the country as a precursor to establishing a National Training Centre. Training will then be provided to local administrators in the 123 Urban LGs on the basis of the new training program and the specific training needs identified by each LG in their Annual Capacity Building Plans.

• Continuous Territorial Coaching (CTC). To support the Government in creating coherent mechanisms for assisting and empowering LG’s to manage their local development programs, the Program will finance two new approaches in the 123 Urban LGs. Through a Continuous Territorial Coaching initiative, the national level Municipal Development Agency (Agence de Développement Municipale - ADM) and the Regional Development Agencies (Agence Régionale de Développement) will provide continuous TA to support LGs with overarching local government management and risk mitigation (including strategic planning, programming and budgeting, coordination of local actors and information management and reporting). The CTC will play a critical role in helping Urban LGs to achieve and report on performance targets in order to enable them to access additional investment resources through the FECL conditional capital grant window. CTC support to LGs will be based upon capacity gaps identified by individual LGs in their Annual Capacity Building Plans.

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16. Through the CTC, the ARDs will also provide demand-driven contract management support to help LGs in properly appraising and executing investment projects. More specifically, ARDs will support LGs in preparing their simplified planning instruments, programming investments (multi-year and yearly) in an inclusive manner, and supporting LGs in direct project management, or facilitating their delegation of project management (MOD) to tier agencies. In addition, the Program will support the Procurement Directorate to strengthen the capacity of its regional procurement poles to provide specialized support to LGs through the CTC.

Figure 1.1

17. With respect to the management of specific investment contracts, the Program will guide Urban LGs in selecting the most appropriate form of contract management based on their capacity and the complexity of the investment, using a simplified contract management risk typology outlined in Table 1.2. The objective is to empower LGs to assess and mitigate the fiduciary, social and environmental risks associated with investment project management. Support will also be provided to LGs that choose to delegate contract management to authorized third party agents, through the creation of model contracts and support for contract negotiations.

Table 1.2 Municipalities’ capacities vs. complexity of projects

LG Capacity Project Complexity Risk Consequence on Project

Management

Weak Average Strong MOD recommended

Average Weak Weak Free choice

Strong Strong Average AMO recommended

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Results Area 2.2: Incentivizing good governance through the creation of a performance evaluation system for allocating conditional capital grants to selected LGs.

18. Eligible LGs will receive additional resources for investment through the FECL if they achieve certain performance standards. In order to operationalize the conditional capital grants window, a performance system will be put in place to measure, monitor and independently evaluate LG performance.

Performance Criteria for Accessing Conditional Grants

19. A first-tier conditional grant will be available to all 123 Urban LGs based upon their satisfaction of a defined set of nine Mandatory Minimum Conditions (MMCs). The MMCs focus on ensuring LG conformity with basic programming, budgeting, reporting and staffing norms and requirements. The MMCs are as follows:

MMC The Prime Budget for Year N is voted by the Municipal Council and submitted to the State Representative at latest on 12/31 of Year N-1

The administrative account of the Year N-2 voted by the MC is submitted to the DCL before 10/31 of the Year N-1

The Commune is up-to-date on its obligations with regard to its LADP debt for the Year N-1 and registered in its CO for the Year N the corresponding amount

The Commune has made the necessary arrangements to pay its financial dues for ARD operations for the Year N-1

Capacity-building plan for Communes and Urban areas for the Year N submitted to the DCL before 12/31 of the Year N-1

Updated three-year investment rolling program submitted before 12/31 of Year N-1

The Commune followed legal bid processes for investment spending during the Year N-1

The Commune observed the procedural manual provisions relative to the social and environmental evaluation of projects during the Year N-1

20. A second-tier conditional grant will be available, on a pilot basis, to the 19 Principle Urban Center LGs based upon their achievement of the following Performance Indicators (PIs), structured around three of their main mandates. These 19 LGs will only be eligible for second-tier conditional grants if they have also satisfied the first tier MMC requirements.

Monitoring and community management capacity Financial management Improvement of self-financing ability (measured by the savings rate to the Administrative Account of Year N-1 applied to self-financing)

Improvement of budget credibility (measured by the rate of realization of annual investment budget or the bi-annual average)

Increase of taxes recovered by the commune as evidenced by entries in the Administrative Account of Year N-2 compared with the previous year.

Regular updating on decisions regarding municipal rights and taxes

The commune has set up a functional local tax commission with the support of DGID

Trial balance of the Administrative Account for the Year N-1 computed by information systems [COMMAIR /COLLOC(?)]

Control of the total payroll (measured by the personnel/regular receipts spending ratio of the Administrative Account for the Year N-2) Citizen participation in the management of local businesses Access to information

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Publication of Municipal Council decisions via at least two communication methods (public posting and online, portal or others) Citizen’s involvement Holding at least 15 days prior to the organization of the National Budget Debate of at least one public meeting to: (i) present the budgetary implementation of year N (to date) and; (ii) discuss the budgetary orientation of year N+1 Complaint handling Registry of complaints and responses in place and updated Capacity-building and system and investments sustainability Improvement of Human Resources management Recruiting aligned with typical Organization charts and Municipal Secretary/DAF/DST profiles correspond to Job descriptions developed by DCL

Choice of project head modalities consistent with provisions of the FECL manual

Adoption and implementation of the capacity-building plan for communes and urban areas (PARCA) Assets maintenance Assignment of proceeds to the maintenance of infrastructure and equipment the commune is responsible for (as evidenced in the prime budget of Year N or in the management account of Year N-2)

21. The MMCs and PIs were selected from an existing long-list of performance indicators recently developed by the DCL for a nationwide LG self-evaluation and benchmarking exercise. The criteria selected represent a manageable set of objectives and measurable indicators which combine both output-based and outcome based measures. The selection of MMCs and IPs was conducted through a participatory process involving both national and local levels of government.

22. Given that base-lines have yet to be established, the first year of implementation of the Program will constitute a dry run. Disbursement of DLIs 4 and 5 will be based on the satisfactory elaboration of baselines for all Urban LGs and the elaboration of a Performance Assessment (PA) Procedural Manual on the application of the MMC and PIs. The operation of the performance system will be refined and adjusted as necessary during the preparation of the PA Procedural Manuals to take account of the experience gained through the dry run, but will remain consistent with the principles described above. The Procedural Manual will calibrate the selection of annually required MMCs and IPs to ensure that the annual performance targets set are both realistic and provide incentives for eligible LGs to improve upon their existing performance.

23. Once LGs become eligible for conditional grants through satisfaction of the MMCs and PIs, the amount of their allocations will be determined using the same criteria developed for the unconditional capital grants, namely population, poverty and density.17 This is the simplest, most objective, and most transparent formula possible, and ensures that resources are distributed in accordance with the government objectives to favor LGs that concentrate the highest percentage of poor. Based on the simulations conducted (see Technical Assessment), LGs will stand to receive additional investment resources that are both sufficiently significant to incentivize improved performance and sufficiently modest to take into account absorptive capacity weaknesses. The 19 LGs that will benefit from both MMC and IP allocations, will receive only 50 percent of the allocations due to them under the first-tier conditional grant to add further weight and leverage to their PI allocations.

24. LGs will be notified of their first and second tier conditional grant allocations by March 31 of every year18, in line with the national budgetary cycle. This will ensure that LGs have the necessary resources to implement investments on a timely and effective basis. The entire disbursement cycle to LGs is detailed in the Technical Assessment.

17 The Program will rely on population data based on the 2016 census figures. These population estimates will be used by the Program until any potential restructuring or additional financing is needed. The population data used is drawn from the Senegalese National Bureau of Statistics. Details on modalities of attribution are in the technical assessment, and will be further validated in the Operation Manual. 18 This follows the legal notification calendar of the Overall FECL allocations.

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25. For any specific year, LGs that will not be eligible for CMO or IdP resources will see those specific amounts deducted from their overall estimated allocations for the overall duration of the Program. Those resources will be redistributed in the following year to all eligible LGs based on the same criteria.

Annual PAs

26. The CTC will provide support to eligible LGs to prepare Annual PAs on the attainment of MMCs and IPs. These Annual PAs will be submitted to the DCL by December 31st of every year, for documentary verification and consolidation. With the assistance of an independent firm19, the Local Government Chamber of the Court of Auditors will then undertake independent verifications of the consolidated LG Annual PAs, relying both on documentary evidence furnished and physical inspections/ surveys. Once verified, the DCL will manage the technical allocation of conditional grants, based on defined allocation criteria, for approval by the CNDCL. LGs will be officially notified of their allocations by end of March of every year. The detailed MMC and PI value chain is available in Annex 4 of the Technical Assessment.

Figure 1.2 : Roles and Responsibilities around MMC and PI FECL

Financing Exclusions

27. Urban LGs that receive Program financing through the two-tiered conditional grant system will be required to use additional investment resources in accordance with the World Bank's Policy and Directive on Program-for-Results Financing. Accordingly, certain investments will not be eligible for financing though conditional capital grant allocations. These are summarized as follows: (1) all investments whose social and environmental impacts are considered to be non-reversible; (2) specific investments such as solid

19 This verification will be conducted in the three years by an external firm, and the responsibility will be fully delegated to the Local Government Chamber of the Court of Auditors starting Year 3.

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waste management disposal facilities; regional slaughterhouses and national roads; (3) less than 10 percent of financing envelopes can be spent on equipment; and (4) all investments not in included in the Annual Investment Plans.

Citizen engagement as a cross-cutting theme

28. The cross-cutting theme of institutionalizing citizen engagement practices is incorporated into both Results Areas 1 and 2. Act III formerly acknowledges, for the first time, the need for LGs to engage citizens in the management of local affairs. The Operation seeks to promote citizen engagement in local development at both the national and local levels:

• Local governance platform: An open-access, on-line local governance platform will be established by the DCL, in coordination with the Mayors Association of Senegal, the Departmental Association of Senegal, the Treasury and other stakeholders. The platform will serve as a critical tool for : (i) disseminating information on decentralization reform and local governance for LGs and the broader population; (ii) benchmarking LGs with respect to levels of financing and performance; (iii) consolidating and mapping the multitude of innovative pilots engaged by various actors on participatory approaches to local government; and (iv) creating a space for state and non-state actors to communicate, lodge grievances and share innovative practices. The DCL will organize an annual forum with state and non-state actors to focus on specific themes that emerge through the platform. This will provide opportunities to scale up and/or consolidate different approaches being tested locally across the territory. It will also enable the performance system applied through the PROACTSEN / MASP to be compared with other initiatives for evaluating local performance to identify opportunities for rationalizing and improving approaches. OBFILOC: Under Results Area 1.3, an on-line database on local public finance will be managed by the Treasury and will facilitate the consolidation of, and access to, up-to-date data on local government finance. The OBFILOC will be interconnected with the local governance platform.

• A national GRM: The DCL, with the support of consultants, will establish a national GRM dedicated to local governance and will be responsible for designing, coordinating and preparing annual reports on the functionality of the mechanism. The national mechanism will draw from existing national and local institutional arrangements for soliciting grievances. A GRM manual will be developed outlining processes for reception and referral of complaints. An online local governance portal and a telephone hot line operated by the Mediator will also be established. Focal points will be nominated within the relevant institutions and will receive training on the GRM Manual. They will be responsible for providing the DCL with information on all complaints related to local governance that they receive. At the local level, a local GRM focal point will be nominated and will receive training from the ARDs on managing complaints and maintaining a local GRM register. ARDs will be responsible for reviewing local GRM registers on an annual basis and reporting on GRM outcomes at the local level to the DCL. The Annual Capacity Building Plan developed by Urban LGs will include a specific focus on strengthening the ‘back-office’ capacity of LGs to manage grievances.

• Local level: At the local level, the Operation offers a blend of incentives and direct support to Urban LGs to promote citizen engagement. The CTC modality will incorporate guidance to all 123 on basic participatory approaches to local governance (communications, dissemination of information, public consultations on investment planning and execution, management of complaints etc.) In addition, performance criteria on citizen engagement will be included in the second-tier conditional grant window of the FECL to incentivize Principle Urban Center LGs to host public discussions at the budget preparation and implementation phases and to maintain local complaints handling systems.

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TA IPF Project

29. The IPF-funded TA activities planned to complement the Program are summarized in Table 1.4 below. The Independent Verification Agency that will be recruited to verify the achievement of Program DLIs will also be financed through the IPF:

Table 1.4: IPF-funded activities Results Area Complementary TA provided under the IPF

1.1 • TA to restructure the FDD, LVATF and to develop a strategy for consolidation of the intergovernmental transfer system

• Mobilization of key stakeholders to support reform design • Modernization of DCL information system for applying transfer criteria • TA to restructure the CNDCL

1.2 • Studies on the fiscal potential of different categories of LG; the revision of selected tariffs and fee structures; and broader local taxation reforms

• TA for the consolidation of legal and regulatory framework for local taxation • TA to support the annual evaluation of Local Fiscal Commission Performance Contracts • Organizing a national forum on decentralization and local governance

2.1 • TA for the finalization of the organigram -types • Training and mobilization of actors on the organigram-types and related tools • TA for the preparation of harmonized toolkits for annual and pluriannual investment planning • TA for the elaboration of standardized tools for the preparation of Annual Capacity Building Plans;

training modules. • Logistical support for CTC missions

2.2 • Consulting firm to carry out the verification of LG performance evaluations under the guidance of the Court of Auditors

• Logistical support for Court of Auditors verification missions • TA for the design and initial updating of the on-line Local Governance Portal • Annual mobilization of state and non-state actors on local governance themes (scaling up of

innovatory participatory approaches, consolidation of different modalities for performance evaluation etc.)

• TA and logistical support for the creation of a national complaints handling mechanism Program Coordination and management

• Support to Steering Committee and Operational Technical Committee • Set-up of a M&E system and unit and set-up of an Environment and Social management

coordinating unit • Support for overall Program Coordination, including operating and human resources costs, the costs

of technical and financial audits, kick-off, communication, capitalization and dissemination costs • Program Communication and Dissemination • Recruitment of Independent Verification Agency for the verification of Program DLIs. • Annual financial audit of the Program (PforR and IPF) • Support to MGT Cabinet for the supervision and conduct of critical studies to implement the

PROACTSEN and PACASEN

Beneficiaries of the proposed Operation

30. The primary beneficiaries of the proposed Operation are the 7.5 million urban citizens living in the targeted 123 Urban LGs (50 percent of Senegal’s population). These beneficiaries will benefit from the additional investment resources available through the two-tiered conditional grant window of the FECL to close critical urban infrastructure and improve service delivery. At the same time, targeted support and incentives to strengthen the capacity of LGs to manage local development will help to both improve the efficiency and effectiveness of public expenditures at the local level and enhance the quality and timely completion of public infrastructure. Access to information and the participation of local communities, including women and youth, in planning and monitoring development activities managed by the LGs will ensure that investments are strategically identified and respond to the needs of all parts of the population, including the poorest areas.

50

31. The broader Senegalese population will also benefit from the proposed Operation. By creating incentives for the government to increase the financial resources available to LGs across the territory and by restructuring the intergovernmental transfer system to introduce a fairer and more transparent distribution of resources, local populations will benefit from an increase in overall investment financing per capita which is expected to translate into an expansion of local level public infrastructure. Simulations conducted as part of the FECL restructuring indicate that, per capita, poor populations located in remote, rural, low density LGs - where service delivery provision is particularly acute - stand to benefit most from criteria-based intergovernmental investment transfers under the FECL.

32. The proposed Operation is also anticipated to bring gender-oriented benefits. The training and CTC support envisaged under the Operation will incorporate specific tools to help Urban LGs in encouraging the participation of women. The PI criteria for accessing performance grants will also require Principle Urban Center LGs to specifically focus on ensuring the active engagement of women in budget orientation and execution public debates.

D. Institutional and Implementation Arrangements

33. In keeping with the underlying objective of building Senegalese institutions to sustain effective decentralization, the implementation of the Operation will be undertaken by existing government institutions at the national and local levels. Former urban development projects supported by the World Bank and the AFD relied principally on charging national agencies with the coordination and direct implementation of investments on behalf of LGs. While these agencies form an integral part of the institutional arrangements for decentralization in Senegal, the Operation will shift the focus of implementation by putting core ministries and LGs in the ‘driver’s seat’. Accordingly, the MGT, which is formally charged with the implementation of Senegal’s policy on decentralization, territorial governance and spatial planning, will be responsible for the overall Operation. The MEFP will also play a pivotal role, both with respect to the financial and fiscal reforms envisaged under the Operation and with respect to the allocation of central government transfers to LGs. The Urban LGs targeted by the Project will be charged with key responsibilities for Program implementation at the local level and will draw upon CTC support to manage public investments financed through the conditional grant system.

34. A Strategic Inter-Ministerial Steering Committee (Comité interministériel de pilotage stratégique, STC) will be established to oversee Program implementation and ensure proactive engagement of the multitude of institutional actors involved in the Operation. Chaired by the MDGLAT and co-chaired by the MEFP, the STC will include representatives from key ministries (including the Ministry of the Interior, Ministry of Good Governance and the Ministry of Environment), local government associations (AMS and ADS) and civil society. It will meet bi-annually to review and define the Program’s strategic orientations and, as often as necessary, to resolve issues/constraints raised by the Technical Committee of the Program. The ADM will act as secretariat for the STC.

35. An Operational Technical Committee (Comité technique opérationnel, OTC) will be charged with overseeing technical implementation on a more regular basis. The OTC will be chaired by the Chief of Staff of MGT and supported by ADM and will include national technical departments as well as agencies and structures directly involved in Program / Project implementation. In coordinating and monitoring day to day implementation, the ADM will create Coordination Groups around specific themes. These groups will be charged with soliciting OTC meetings where necessary and, invoking exceptional meetings of the STC if required during Program implementation.

36. The ADM will continue to play a central role in providing technical level coordination support to the implementation of the Operation. Given its existing capacity and experience, the ADM will serve as the technical operational coordination unit, supporting the MGT in the day to day coordination and monitoring of the Operation and spearheading the CTC support modality for Urban LGs. The ADM will also undertake classic project implementation responsibilities (procurement, financial management and

51

safeguards) with respect to the discrete TA activities envisaged under the IPF component of the Operation. ADM has extensive experience in World Bank Related Fiduciary and Safeguards procedures. ADM will sign with the institutions and entities involved in the implementation of the Program a Performance Agreement satisfactory to the World Bank. To ensure sustainability of the mechanisms in place, the Government agreed to cover most costs related to ADM’s dual functions of Coordination and leading the CTC, complemented by resources allocated by this Operation.

37. At the national level, several departments will be engaged in implementation. The DCL within the MGT will play a central role. It will prepare the new laws and regulations to promote decentralization (including the reform of intergovernmental transfers). It will also play an operational role in: (i) defining the annual allocation for each LG; (ii) collating Annual Performance Assessment information on the attainment of MMCs and PIs by selected LGs supported by the Local Development Support Directorate (DADL); (iii) liaising with the MEFP to ensure annual FECL and FDD grant commitments; and (iv) managing the national GRM. The Training Department of the MGT will coordinate and harmonize the training actions of the program in relation with the other actors (DGID, DGCPT, DGAT, DEEC, DCMP, ARMP Court of Auditors and the regional training committees). It will define the practical arrangements and tools for implementing the national training plan and the annual capacity-building plans for municipalities and agglomerations (integrating the CTC), in collaboration with the ARDs (which provide the secretariat for the regional training committees), the DCL (which provides the secretariat of the technical committee chaired by the Training Department) and the ADM (permanent member of the Technical Training Committee). Within the MEFP, the DGB and more specifically through the Cooperation and External Financing Directorate (DCFE), the Planning and Budgeting Directorate (DPB) and the Operational Budget Controller (COB) and the DGCTP will be in charge of transferring subsidies to LGs, while the DSPL and DGID/BCL will be charged with advancing the local tax reforms and accompanying LGs in mobilizing local revenues. The DCFE will be in charge of coordinating the operation’s annual audits and ensure proper implementation of the declined recommendations of audits and supervision missions. Specific activities to strengthen the capacity of these core institutions have been incorporated into the Program Action Plan.

38. DCMP through its seven Regional Procurement Poles will conduct the ex-ante control on the procurement activities and in addition, will provide support-advice to the LG. The DCMP has agreed to strengthen its teams and improve the supervision of units in LGs benefiting from the program's resources. The DCMP developed a guide for contracting authorities. This guide will be reproduced and popularized within LGs with training tailored to their needs.

39. LGs. The Urban LGs will plan and implement investments from resources received through the conditional grant system, which will be fully financed through the Program. In order to encourage multi-annual investment programming as provided for by Act III, eligible LGs will prepare their investment plans on a three-year basis (to be updated annually through a participatory process). The specific training and TA needs of Urban LGs will be identified in their Annual Capacity Building Plans. Based on these plans, Urban LGs will receive support for implementing investments through: (i) the Continuous Territorial Coaching provided by the ADM and ARDs, in collaboration with the Training Department of the MGT; (ii) training of LG administrators; and (iii) where necessary, systematized modalities for delegating contract management of specific investments. The DGAT in the Ministry of the Interior, through its regional and local level representatives (préfets, sous-préfets) will provide control over municipal budgets, programming and contract management. It will also be involved in supporting, advising and training LGs. The DEEC and DREEC at the Ministry of Environment will ensure that projects being designed and implemented by LGs abide by the national environmental and social safeguard requirements.

40. Control and Verification. The Court of Auditors is juridically responsible for conducting external controls over the management of public resources in Senegal. This includes both jurisdictional controls

52

with respect to all public accounts, audits to assess the quality of budget management20, and technical audits. The audits can encompass all aspects of budget management including ‘the achievement of the objectives set, the adequacy of the means used, the costs of the goods and services produced, the prices charged and the financial results as well as the impact on the environment.’ Given its mandate, the capacity of the institution to conduct both financial and technical audits and its relative independence, the Court of Auditors was selected to play a central role both in in auditing the use of public resources by LGs selected under the Program and verifying LG performance under the national system for performance evaluation. The specific roles and responsibilities of the Court of Auditors under the Program are as follows:

• given the significance of the resources channeled to LGs, the Local Government Chamber of the Court of Auditors will receive support from Program to fulfill its institutional mandate of conducting technical audits on a larger sample of LGs; and

• the Local Government Chamber of the Court of Auditors will play an integral role in the allocation of conditional grants under the FECL, by verifying the annual PAs of LGs both based on documentary evidence and field visits and spot checks. A firm will be recruited to conduct this verification role for the first three years of the Program implementation, and ensure knowledge transfer. The Local Government Chamber will take over this role once its capacity is deemed adequate. A joint capacity assessment will be conducted by the Government and the World Bank at the end of the second year to determine whether the Chamber is ready. If not, the firm will continue to undertake the verifications for one more year and the Chamber will take over in the fourth year.

41. In addition to its role in procurement and contract management training and capacity building, the Procurement Regulatory Authority (ARMP) will expanding its audit coverage to ensure that at least 30 percent of Urban LGs covered by the Program are audited at least once during the life of the Program. The ARMP will also strengthen its procurement related grievance mechanism.

42. Further, the Internal Inspectorate of Local Administration in the MGT will be in charge of conducting annual control missions on selected LGs to orient them towards further improving their municipal management practices.

20 Arts 30-31, Organic Law 2012-23 of 27 December 2012.

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Figure 1.3: Overall institutional arrangements

43. A firm will also be recruited as IVA and will be charged with verifying the achievement of Program DLIs on a yearly basis.

44. Reporting Arrangements. The ADM is responsible for consolidating and submitting all report on Program implementation, including the annual assessment consolidated reports, progress reports and accounting and financial; reports The ADM will also prepare bi-yearly implementation progress reports for presentation to the STC.

Institutional Performance

45. Considering the critical role that national level institutions will play in supporting the attainment of Program objectives, a Performance Agreement will be signed, no later than three months following effectiveness, between ADM and each structure. Each Agreement will be cleared by the World Bank, and will include the performance target expected for each year of Program implementation. A note will be prepared by each structure and submitted to ADM by March 1st of each year, starting March 1st 2019, summarizing previous year activities and performance. ADM will consolidate those notes and submit to the OTC by April 15, who will approve, reject, or seek additional clarification. The final consolidated report will be submitted to the World Bank on May 15 of each year for No Objection. On the basis of this No Objection, ADM will send an official letter to MEFP to inform them of the agreed-upon resources to be allocated to each structure. The Program will retain the possibility of making selected changes to the nature of engagement with selected structures, if under-performance is poses a significant risk to the proper implementation of the Program.

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E. Expenditure Framework

Program (PforR) Expenditure Framework:

Source of Funding

Use of resources State (million US$)

World Bank (million US$)

AFD (million US$)

Total (million US$)

LG Equipment 50 (FECL) FECL Global TGs

97 FECL MMC and PI

77 FECL MMC and PI

224

DCL - 0.3 0.3 0.6 CTC ARDs Services - - - - CTC ADM Services 1.5 - - 1.5 Training Unit MGT - 0.82 0.82 1.64 DGID - 1.3 1.3 2.6 DSPL - 0.55 0.55 1.1 Court of Auditors - 0.44 0.44 0.88 ADM Program coordination and management

5.5 0.5 0.5 6.5

AMS - 0.19 0.19 0.38 DGAT - 0.25 0.25 0.5 DEEC (DREEC) - 0.2 0.2 0.4 IAL - 0.1 0.1 0.2 ARMP - 0.1 0.1 0.2 DCMP - 0.1 0.1 0.2 DCFE - 0.12 0.12 0.24 Other or Unallocated* 3 1 1 3.36 TOTAL 60 103 83 246

* Unallocated resources, will be used as financial contingencies for non-LG equipment expenditures under the Program and for unplanned expenditures identified at Mid-term.

46. For IDA and AFD resources to result in annual budget allocations for the programs appropriated by the National Assembly, ADM and the DGB) of the MEFP need to work closely. ADM will work closely with DGB to ensure that all Program allocations are inserted in its budget proposals at each stage of the budget process. In addition, the National Treasury (DGCPT) will need to ensure that conditional grant top-ups are captured in the yearly FECL allocations. This joint effort and close coordination is geared towards ensuring that:

• All program resources are reflected in the budget ceilings and annual budget estimates for MASP from 2018 onwards.

• The maximum LGs MMC and PI allocations are reflected in the FECL from 2018 onwards.

47. The Government committed 4 billion FCFA over 5 years to finance ADM operation costs as well including its dual functions to ensure Program coordination, Project implementation, and the conduct of the CTC function.

Project (IPF) Costing

48. The IPF funding for will appear as a separate project in the development budget, in support of the attainment of MASP development objectives. These resources will be used to finance activities that will help the achievement of both results areas 1 and 2. Detailed list of IPF funded activities in the table below.

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Activities to be funded in complement to Program Results Areas Amount (million US$)

Results Area 1 1.9

Supporting the design and implementation of LG financial transfer mechanisms, and Supporting the restructuring of the National Committee for Local Governments

0.35

Building DCL capacity to manage the newly reformed transfer systems 0.16 Set-up of a LG platform 0.44 Acquisition of equipment for the Court of Auditors 0.25 Hiring an audit firm for MMC and PI annual verification for the first three years of the Program

0.4

Organizing a national conference on decentralization and local governance 0.3

Results Area 2 6.8

TA and Capacity building to finalize the reform on LG Organization Charts, and initiate national dialogue with LGs

0.1

Designing, running, and yearly evaluation of the Continuous Territorial Coaching activities. This activity includes the acquisition of needed equipment to conduct the coaching activities.

6.4

TA and capacity building on Citizen Engagement 0.3

Operation Coordination and Management 4.3

Support to Steering Committee and Operational Technical Committee 0.6 Set-up of a M&E system and unit, set-up of an Environment and Social management coordinating unit, and conduct the strategic screening

1

Support for overall Program Coordination, including the costs of technical and financial audits, kick-off, communication, capitalization and dissemination costs

1.4

Program Communication and Dissemination 0.5 Annual financial audit of the Program (PforR and IPF) 0.2 Support to MGT Cabinet for the supervision and conduct of critical studies to implement the PROACTSEN and PACASEN

0.6

Contingencies 1

Total 14

Table 1.5: List of 123 Program LGs, and MMC and PI Conditional Grant estimated total five-year allocation21

Region Department Program LGs Program Allocation (Thousand US$)

Cities DAKAR 7,838 GUÉDIAWAYE 2,600 PIKINE 8,843 RUFISQUE 1,746 THIÈS 2,293

COMMUNES

21 Details on Conditional (MMC and PI) Grant allocations by LG available in Annex 7 of the Technical Assessment.

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DAKAR DAKAR GOREE 562 DAKAR DAKAR PLATEAU 562 DAKAR DAKAR MEDINA 1,163 DAKAR DAKAR GUEULE TAPEE FASS COLOBANE 681 DAKAR DAKAR FANN POINT E AMITIE 562 DAKAR DAKAR GRAND DAKAR 673 DAKAR DAKAR BISCUITERIE 997 DAKAR DAKAR HLM 562 DAKAR DAKAR HANN BEL AIR 1,117 DAKAR DAKAR SICAP LIBERTE 562 DAKAR DAKAR DIEUPPEUL DERKLE 562 DAKAR DAKAR OUAKAM 1,016 DAKAR DAKAR NGOR 562 DAKAR DAKAR YOFF 1,103 DAKAR DAKAR MERMOZ-SACRE COEUR 562 DAKAR DAKAR GRAND YOFF 2,487 DAKAR DAKAR PATTE D'OIE 562 DAKAR DAKAR PARCELLES ASSAINIES 2,007 DAKAR DAKAR CAMBERENE 935 DAKAR PIKINE YEUMBEUL NORD 2,622 DAKAR PIKINE YEUMBEUL SUD 1,679 DAKAR PIKINE MALIKA 562 DAKAR PIKINE KEUR MASSAR 2,972 DAKAR PIKINE PIKINE OUEST 562 DAKAR PIKINE PIKINE EST 562 DAKAR PIKINE PIKINE NORD (SUD) 562 DAKAR PIKINE DALIFORD 562 DAKAR PIKINE DJIDAH THIAROYE KAO 1,537 DAKAR PIKINE GUINAW RAIL NORD 562 DAKAR PIKINE GUINAW RAIL SUD 676 DAKAR PIKINE THIAROYE SUR MER 646 DAKAR PIKINE TIVAOUANE DIACKSAO 653 DAKAR PIKINE DIAMAGUENE SICAP MBAO 1,985 DAKAR PIKINE THIAROYE GARE 562 DAKAR PIKINE MBAO 1,133 DAKAR RUFISQUE BARGNY 1,283 DAKAR RUFISQUE SEBIKOTANE 749 DAKAR RUFISQUE DIAMNIADIO 768 DAKAR RUFISQUE RUFISQUE NORD (CENTRE) 1,591 DAKAR RUFISQUE RUFISQUE EST 1,108 DAKAR RUFISQUE RUFISQUE OUEST 679 DAKAR GUEDIAWAYE GOLF SUD 983 DAKAR GUEDIAWAYE SAM NOTAIRE 1,205 DAKAR GUEDIAWAYE NDIAREME LIMAMOULAYE 562

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DAKAR GUEDIAWAYE WAKHINANE NIMZATT 1,557 DAKAR GUEDIAWAYE MEDINA GOUNASS 751 ZIGUINCHOR BIGNONA BIGNONA 1,003 ZIGUINCHOR BIGNONA THIONK ESSYL 717 ZIGUINCHOR OUSSOUYE OUSSOUYE 562 ZIGUINCHOR ZIGUINCHOR ZIGUINCHOR 9,180 DIOURBEL BAMBEY BAMBEY 804 DIOURBEL DIOURBEL DIOURBEL 4,293 DIOURBEL MBACKE MBACKE 1,917 DIOURBEL MBACKE TOUBA MOSQUEE 16,612 SAINT-LOUIS DAGANA DAGANA 622 SAINT-LOUIS DAGANA RICHARD-TOLL 1,818 SAINT-LOUIS DAGANA ROSSO SENEGAL 562 SAINT-LOUIS PODOR PODOR 562 SAINT-LOUIS PODOR NDIOUM 562 SAINT-LOUIS PODOR GOLLERE 562 SAINT-LOUIS PODOR NIANDANE 562 SAINT-LOUIS SAINT LOUIS SAINT LOUIS 4,599 TAMBACOUNDA BAKEL BAKEL 562 TAMBACOUNDA BAKEL DIAWARA 562 TAMBACOUNDA TAMBACOUNDA TAMBACOUNDA 4,345 TAMBACOUNDA GOUDIRY GOUDIRY 562 TAMBACOUNDA KOUMPENTOUM KOUMPENTOUM 562 KAOLACK KAOLACK KAOLACK 6,157 KAOLACK KAOLACK KAHONE 562 KAOLACK KAOLACK GANDIAYE 562 KAOLACK KAOLACK NDOFFANE 562 KAOLACK NIORO DU RIP NIORO DU RIP 562 KAOLACK GUINGUINEO GUINGUINEO 562 THIES MBOUR JOAL FADIOUTH 1,267 THIES MBOUR MBOUR 7,401 THIES MBOUR NGUEKOKH 802 THIES MBOUR THIADIAYE 562 THIES MBOUR SALY PORTUDAL 562 THIES THIES KHOMBOLE 562 THIES THIES POUT 633 THIES THIES KAYAR 795 THIES THIES THIES NORD 1,617 THIES THIES THIES EST 1,927 THIES THIES THIES OUEST 892 THIES TIVAOUANE MEKHE 611 THIES TIVAOUANE TIVAOUANE 1,585 THIES TIVAOUANE MBORO 648 LOUGA KEBEMER KEBEMER 562

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LOUGA LINGUERE LINGUERE 562 LOUGA LINGUERE DAHRA 719 LOUGA LOUGA LOUGA 2,263 FATICK FATICK FATICK 1,161 FATICK FATICK DIOFFIOR 562 FATICK FOUNDIOUGNE FOUNDIOUGNE 562 FATICK FOUNDIOUGNE SOKONE 562 FATICK FOUNDIOUGNE PASSY 562 FATICK GOSSAS GOSSAS 562 KOLDA KOLDA KOLDA 3,292 KOLDA VELINGARA VELINGARA 1,040

KOLDA MEDINA YORO FOULAH MEDINA YORO FOULAH 562

MATAM MATAM MATAM 1,474 MATAM MATAM OUROSSOGUI 562 MATAM MATAM THILOGNE 562 MATAM KANEL KANEL 562 MATAM KANEL SEMME 562 MATAM KANEL WAOUNDE 562 MATAM RANEROU RANEROU 562 KAFFRINE KAFFRINE KAFFRINE 1,775 KAFFRINE BIRKELANE BIRKELANE 562 KAFFRINE KOUNGHEUL KOUNGHEUL 782 KAFFRINE MALEM HODDAR MALEM HODDAR 653 KEDOUGOU KEDOUGOU KEDOUGOU 1,255 KEDOUGOU SALEMATA SALEMATA 562 KEDOUGOU SARAYA SARAYA 562 SEDHIOU SEDHIOU SEDHIOU 1,213 SEDHIOU SEDHIOU MARSASSOUM 562 SEDHIOU BOUNKILING BOUNKILING 562 SEDHIOU GOUDOMP GOUDOMP 562 TOTAL 184,000

Annex 2: Results Framework

Indicator

Cor

e

DL

I

Unit of Measure

ment

Baseline 2018 2019 2020 2021 2022 Frequency Method Responsibility for Data

Collection

The objectives of the Operation are: (i) to improve local government financing; and (ii) to enhance the performance of selected LGs in managing public investments.

PDO Level Results Indicators Modalities for the repartition of State transfers to LGs for recurrent and investment spending (FECL and FDD) and for the repartition of the LVATF reformed and applied in the timely allocation of resources to LGs, to the satisfaction of the World Bank.

X

DLI 1

Yes/No

No Promulgated FECL Decree

published

Allocation of FECL resources to LGs in

conformity with the FECL Decree

Promulgated decree/s22

on the allocation criteria for FDD and LVATF

Allocation of FECL resources to LGs in

conformity with the FECL Decree

Allocation of FECL,

FDD resources to LGs in

conformity with the

regulatory framework

Allocation of FECL,

FDD resources to LGs in

conformity with the

regulatory framework

Annual Publication of Decrees in the Official Gazette Annual Inter-Ministerial Orders on FECL and FDD allocations to LGs

MGT; MEFP

Increase in State- financed intergovernmental capital and recurrent grants (FECL and FDD) to LGs (in billion FCFA).

X

DLI 2

Amount in

billion FCFA

42 45 50 55 60 65 Annual Audited National Budget Execution Report; CNDCL Annual Report

CNDCL; MEFP

Increase in local taxation revenues in the Principle Urban Center LGs

% - Baseline established

10 20 30 40 Annual Audited Accounts of selected LGs; Independent verification report

ADM; MEFP; Court of Auditors

Proportion of Urban LGs that receive FECL conditional grants based upon satisfaction of

X

DLI 4

% N/A Baseline established

50 60 70 80 Annual Independent verification report on LG Annual PAs; Inter-ministerial Order

MGT; Court of Auditors

60

22 Alternative legal and regulatory modalities may be accepted by agreement with the World Bank.

annual Minimum Mandatory Conditions (MMC)

on FECL allocations

Principle Urban Center LGs that reached the required execution rate of their Annual Investment Plans in terms of expenditures disbursed

X

DLI 6

Percentage

No Baseline

60 70 80 90 Yearly Independent verification Report

MGT; Court of Auditors

Intermediate Results Indicators

Window 1: Improved Financial Viability of LGs

IR Indictor 1.1: Functional Review of the Intergovernmental Transfer System

Yes/No No No No Annual Functional Review of

the Intergovern

mental Transfer Systems

No Strategy for the

Consolidation of the

Intergovernmental

Transfer Systems in

Senegal

Annual Report prepared by DCL and approved by CNDCL

MGT (DCL)

IR Indictor 1.2: Urban LGs with a functioning Local Fiscal Commission

X DLI 3

Number

1 1 20 40 80 115 Annual DGID report; Independent verification Report

ADM; MEFP; Court of Auditors

IR Indicator 1.3: Reduction in time taken for payment of investment expenditures from the Program Special Account

Days 5 5 3 3 2 2 Annual GFILOC report Treasury

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IR Indicator 1.4: Increase in the physical execution rate of public investments identified in the Annual Investment Plans of Urban LGs

% No baseline

Baseline established

20 40 50 70 Annual Consolidated execution report generated by ADM

ADM

Window 2: Improved performance of urban LGs in managing public investments

IR Indictor 2.1: Urban LGs that received at least 80 percent of the training identified in their Annual Capacity Development Plans

Number

0 60 80 100 123 123 Annual Consolidated annual report on implementation of Annual Capacity Development Plans

MGT; ADM

IR Indictor 2.2: Proportion of Urban LGs that received at least 80 percent of the Territorial Coaching support identified in their Annual Capacity Building Plans

X

DLI 7

% 0 Annual Capacity Building

Plans elaborated

80 90 95 95 Annual Consolidated annual report on implementation of Annual Capacity Development Plans

MGT; ARD; ADM

IR Indicator 2.3: Information on fiscal transfers and LG performance in year n-1 is publicly accessible by 31 March in year n

Yes/ No

No Yes Yes Yes Yes Yes OBFILOC Website; MGT E-Portal

DGTCP; MGT

IR Indictor 2.4: Proportion of Principle Urban Center LGs that receive FECL conditional grants

X DLI 5

Percentage

N/A Baseline Established

40 50 60 70 Yearly Inter-ministerial Order of FECL allocations; independent verification report

MGT; Court of Auditors

62

based upon achievement of annual Performance Indicators (PI)

on LG annual PAs

63

Annex 3: Disbursement Linked Indicators, Disbursement Arrangements and Verification Protocols

Disbursement-Linked Indicator Matrix

Total Financing Allocated to DLI (US$ equivalent)

As % of Total

Financing Amount

DLI Baseline

Indicative timeline for DLI achievement

Year or Period 1

Year or Period 2

Year or Period 3

Year or Period 4

Year or Period 5

DLI 1 Modalities for the repartition of State transfers to LGs for recurrent and investment spending (FECL and FDD) and for the repartition of the LVATF reformed and applied in the timely allocation of resources to LGs, to the satisfaction of the World Bank

19%

No Promulgated FECL Decree published

Allocation of FECL resources to LGs in conformity with the FECL Decree

Promulgated decree/s23 on the allocation

criteria for FDD and LVATF

Allocation of

FECL resources to

LGs in conformity

with the FECLDecree

Allocation of FECL, FDD resources to LGs in conformity with the regulatory framework

Allocation of FECL, FDD resources to LGs in conformity with the regulatory framework

IDA Allocated amount: 20 5 4 5 3 3 AFD Allocated amount: 16 4 3 4 3 2 DLI 2 Increase in State-financed intergovernmental capital and recurrent grants (FECL and FDD) to LGs (in billion FCFA)

10% 42 45 50 55 60 65

IDA Allocated amount: 10 2 2 2 2 2 AFD Allocated amount: 8 1.6 1.6 1.6 1.6 1.6 DLI 3 Urban LGs with a functioning Local Fiscal Commission

12% 1 1 20 40 80 115

IDA Allocated amount: 12 2.4 2.4 2.4 2.4 2.4 AFD Allocated Amount: 10 2 2 2 2 2 DLI 4 Proportion of Urban LGs that receive FECL conditional

19% 0 MMC baseline established

50% 60% 70% 80%

23 Alternative legal and regulatory modalities may be accepted by agreement with the World Bank.

64

grants based upon satisfaction of annual Minimum Mandatory Conditions (MMC) IDA Allocated amount: 20 4 4 4 4 4 AFD Allocated Amount: 16 3.2 3.2 3.2 3.2 3.2 DLI 5 Proportion of Principle Urban Center LGs that receive FECL conditional grants based upon achievement of annual Performance Indicators (PI)

19% 0 IP baseline established 40% 50% 60% 70%

IDA Allocated amount: 20 4 4 4 4 4 AFD Allocated Amount: 16 3.2 3.2 3.2 3.2 3.2 DLI 6 Proportion of Principle Urban Center LGs that have executed their Annual Investment Plans on schedule in terms of expenditures

12% No Baseline 60 70 80 90

IDA Allocated amount: 12 3 3 3 3 AFD Allocated Amount: 10 2.5 2.5 2.5 2.5 DLI 7 Proportion of Urban LGs that received at least 80 percent of the Territorial Coaching support identified in their Annual Capacity Building Plans

9% 0

Annual Capacity Building Plans developed

80% 90% 95% 95%

IDA Allocated amount: 9 1.8 1.8 1.8 1.8 1.8 AFD Allocated Amount: 7 1.4 1.4 1.4 1.4 1.4

Total IDA Financing Allocated (US$ million): 103 55% 19.2 21.2 22.2 20.2 20.2

Total AFD Financing Allocated (US$ million): 83 45% 15.4 16.9 17.9 16.9 15.9

Total Combined Financing Allocated: 186 100% 34.6 38.1 40.1 37.1 36.1

65

Annex 3-1: DLI Verification Protocol Table

# DLI Definition/ Description of achievement

Scalability of Disbursements (Yes/No)

Protocol to evaluate achievement of the DLI and data/result verification Data

source/agency Verification Entity Procedure

1 Modalities for the repartition of State transfers to LGs for recurrent and investment spending (FECL and FDD) and for the repartition of the LVATF reformed and applied in the timely allocation of resources to LGs, to the satisfaction of the World Bank

Measured at the national level.

By Program Effectiveness: promulgation of a decree to reflect the core elements of the FECL capital grant reform including the introduction of a formula based allocation and two-tiered conditional grant window.

Year 2: FECL allocations specified an Inter-Ministerial Order issued no later than 31 March reflect the application of the allocation criteria specified in the FECL decree.

Year 3: promulgation of Presidential decree/s or other legally acceptable form to reform the modalities for allocating FDD and LVATF and FECL allocations specified in the Inter-Ministerial Order issued no later than 31 March reflect the application of the allocation criteria specified in the FECL decree.

Years 4 & 5: FECL and FDD allocations specified in the relevant Inter-Ministerial Orders issued no later than 31 March

Yes MEFP/ MGT IVA For years 1 and 3: Submission to the World Bank of relevant promulgated decrees as published in the Official Gazette. The World Bank team will review the compliance of the promulgated decrees with the prior set commitments. For years 2 to 5: Submission to the World Bank by 15 April of the relevant inter-ministerial orders allocating FECL (years 2 to 5) and FDD (years 4 and 5) resources to LGs, together with a verification report issued by the IVA identifying the degree to which actual allocations reflect the application of criteria outlined in the relevant decrees.

66

reflect the application of the allocation criteria specified in the relevant decrees.

2 Increase in State- financed intergovernmental capital and recurrent grants (FECL and FDD) to LGs (in billion FCFA)

Measured at the national level.

Amounts allocated to the FECL and FDD, excluding external financing, reach or exceed the annual target in billions FCFA.

Yes MEFP IVA ADM will share with the World Bank the annual approved national budget reflecting the annual allocations to the FECL and FDD. Verification from the IVA that the allocated amount is equal or superior to the one agreed upon with the Government and indicated in the PAD and Legal Documents.

3 Urban LGs with a functioning local fiscal commission

Measured at the level of Urban LGs

Functioning local fiscal commissions are those that (i) are created by a formal written decision issued by the Head of the relevant Fiscal Services Centre (DGID); (ii) meet at least once a year as reflected in the minutes of meetings; and (iii) prepare an annual report to track progress against the performance agreement signed between the members of the Committee

Yes MEFP (DGID) IVA DGID will provide to the World Bank via ADM the formal written decisions creating each commission; the minutes of meetings held annually including signed attendance sheets; the signed performance agreement for each commission and the annual report tracking progress against the performance agreement for each commission. Verification by the IVA annually based on information shared.

4 Proportion of Urban LGs that receive FECL conditional grants based upon satisfaction of annual Minimum Mandatory

Measured at the level of Urban LGs

By April 30 Year 1: Baselines for all MMCs are established for all Urban LGs and Performance Assessment Procedural Manual produced by the MGT to the satisfaction of the World Bank.

Yes ADM; MGT (DCL)

IVA Year 1: The Operations Manual to be submitted no later than three months after the effective date will detail operating modalities of the MMC, outlining methods of MMC measurement and yearly MMCs to be applied in the annual performance evaluation. DCL will also provide a consolidated report on the level of achievement of all

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Conditions (MMC)

Year 2: at least 50% of LGs achieve the applicable MMCs for that year and are notified of their first-tier conditional grant allocations by Inter-Ministerial Order no later than 31 March.

Year 3: at least 60% of LGs achieve the applicable MMCs for that year and are notified of their first-tier conditional grant allocations by Inter-Ministerial Order no later than 31 March.

Year 4: at least 70% of LGs achieve the applicable MMCs for that year and are notified of their first-tier conditional grant allocations by Inter-Ministerial Order no later than 31 March.

Year 5: at least 80% of LGs achieve the applicable MMCs for that year and are notified of their first-tier conditional grant allocations by Inter-Ministerial Order no later than 31 March.

MMCs for the preceding year, as a baseline. Years 2-5: the DCL, through the ADM, will submit to the Inter-Ministerial Order reflecting the allocation of first-tier conditional grant allocations under the FECL. The IVA will verify the allocations against the independent verification report of the independent auditor for years 1 and 2, and of the Court of Auditors for years 3 to 5 on the annual LG PAs.

5 Proportion of Principle Urban Center LGs that receive FECL conditional grants based upon achievement of annual Performance Indicators (PI)

Measured at the level of Principle Urban Center LGs

By April 30 Year 1: Baselines for all PIS are established for all Principle Urban Centre LGs and Performance Assessment Procedural Manual produced by the MGT to the satisfaction of the World Bank.

Yes Court of Auditors; ADM; DCL

IVA Year 1: The Operations Manual to be submitted no later than three months after the effective date, will detail operating modalities of the performance mechanism. The DCL will also provide a consolidated report on the level of achievement of all PAs for all Principle Urban Center LGs for the preceding year, as a baseline. Years 2-5: the DCL, through the ADM, will submit to the Inter-

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Year 2: 40% of Principal Urban Centre LGs achieve the minimum score in their verified Performance Assessment and are notified of their second-tier conditional grant allocations by Inter-Ministerial Order no later than 31 March

Year 3: 50% of Principal Urban Centre LGs achieve the minimum score and are notified of their second-tier conditional grant allocations by Inter-Ministerial Order no later than 31 March

Year 4: 60% of Principal Urban Centre LGs achieve the minimum score and are notified of their second-tier conditional grant allocations by Inter-Ministerial Order no later than 31 March

Year 5: 70% of Principal Urban Centre LGs achieve the minimum score and are notified of their second-tier conditional grant allocations by Inter-Ministerial Order no later than 31 March

Ministerial Order reflecting the allocation of second-tier conditional grant allocations under the FECL. The IVA will verify the allocations against the independent verification report of the independent auditor for years 1 and 2, and of the Court of Auditors for years 3 to 5 on the annual LG PAs.

6 Proportion of Principle Urban Center LGs that have executed their Annual Investment Plans on schedule in

Measured at the level of Principle Urban Center LGs Percentage of LGs which have executed at least the minimum annual target levels of expenditures as compared to their annual investment plan. The annual target levels are Year 1: 10% of LGs Year 2: 20% of LGs

Yes ADM/ARDs IVA Each year, the Principle Urban Center LGs will prepare a progress report on the execution of their investment budget supported by the ARDs. ADM will compile the progress reports in a consolidated progress report for the same year. The IVA will verify the achievement of the target through sample audits.

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terms of expenditures

Year 3: 30% of LGs Year 4: 40% of LGs

Year 5: 60%

7 Proportion of Urban LGs that received at least 80 percent of the Territorial Coaching support identified in their Annual Capacity Building Plans

Measured at the level of Urban LGs

Year 1: At least 95% of Urban LGs produce an Annual Capacity Building Plan.

Year 2: At least 80 percent of Urban LGs have prepared and received at least 80 percent of the coaching missions specified in their Annual Capacity Build Plan.

Year 3: At least 90 percent of Urban LGs have prepared and received at least 80 percent of the coaching missions specified in their Annual Capacity Build Plan.

Years 4 and 5: 95 percent of Urban LGs have prepared and received at least 80 percent of the coaching missions specified in their Annual Capacity Build Plan.

Yes ADM/ARDs/MGT

IVA Each LG, supported by the respective ARD, conducts a capacity assessment and prepares an Annual Capacity Development Plan including a CTC action plan for the following CY and submits it to ADM by the required date of the preceding year. ADM submits to the World Bank the following year a consolidated execution report on the CTC action plans for all Urban LGs for the preceding year. The IVA verifies the consolidated execution report based upon supporting documents (coaching mission documentation signed by LGs) and annual satisfaction surveys of participating Urban LGs.

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Annex 3-2: World Bank Disbursement Table

# DLI World Bank financing allocated to the DLI

AFD financing allocated to the DLI

Of which Financing available for Prior results

Deadline for DLI Achievement

Minimum DLI value to be achieved to trigger disbursements of World Bank Financing

Maximum DLI value(s) expected to be achieved for World Bank disbursements purposes

Determination of Financing Amount to be disbursed against achieved and verified DLI value(s)

1 Modalities for the repartition of State transfers to LGs for recurrent and investment spending (FECL and FDD) and for the repartition of the LVATF reformed and applied in the timely allocation of resources to LGs, to the satisfaction of the World Bank

20 16 9 Program effectiveness: FECL reformed through a decree; Year 2 application of FECL decree in allocations to LGs no later than 31 March Year 3: FDD and LVATF decrees passed and application of FECL decree in allocations to LGs no later than 31 March Year 4 application of FECL and FDD decree in allocations to LGs no later than 31 March

N/A If delays in attaining year X target, then X+1 disbursement will equal the amount allocated for X+1 and X target achievement if both are achieved by year X+1.

Yes/No The reform of the FECL is a prior result and disbursement will take place upon Program effectiveness. In year 2, funds will be disbursed if FECL allocations are made before 31 March and apply the formula outlined in the decree. In year 3, funds will be released if both the FDD and LVATF modalities for repartition of resources have been reformed to the satisfaction of the World Bank and if FECL allocations are made before 31 March and apply the formula outlined in the decree. Partial disbursement will apply where any part of the requirement is fulfilled. In years 4 and 5, funds will be disbursed if FECL and FDD allocations are made before 31 March and apply the formula outlined in the relevant decree. Partial disbursement will apply where any part of the requirement is fulfilled.

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2 Increase in State- financed intergovernmental capital and recurrent grants (FECL and FDD) to LGs (in billion FCFA)

10 8 3.6 December 31st of each year July 15 of each year for communication of annual allocation. March 1st of each year for grant transfer

50% of yearly increase target

Yearly target + deficit value of previous years’ target

If minimum DLI value is achieved, the resources to be disbursed will be proportionate to the increase in total government allocations to both FECL and FDD grant transfer funds. D=A*G D= annual disbursement A= annual allocation G= annual goal in percentage If the target is not met at a given year, the amount can be compensated in the following year(s) if the percentage annual increase in grant transfer exceeds in the following year(s) target, without exceeding the amount of year X and the accumulated non-disbursed. Yes/No The sub indicator for each year must be verified in full for the disbursement to occur. If the target is not met for year X, the undisbursed amount will be disbursed in year X+1 provided that the year X target is met.

3 Urban LGs with a functioning local fiscal commission

12 10 December 31st of each year

50% of yearly target

Yearly target + deficit value of previous years’ target

If yearly minimal value is achieved, the amount to be disbursed will be directly proportionate to the number of functioning local fiscal commissions. If the target is not met for year X, the undisbursed amount will be disbursed in year X+1 provided that the year X target is met.

4 Proportion of Urban LGs that receive FECL conditional grants based upon satisfaction of annual Minimum Mandatory

20 16 December 31st of each year

Not applicable in CY 2018 30%

CY2019: 50%

CY2020: 60%

The achievement of this DLI will be assessed every year for each LG on a Yes/No basis. Disbursement from the World Bank will proportionate to the number of LGs achieving the DLI.

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CY2021: 70%

CY2022: 80%

D=A*(C/T)/G Where: D= annual disbursement A= annual allocation C= number of LGs compliant and in receipt of grants T= total number of LGs G= annual goal in percentage (*)= multiplied (/)= divided (>)= greater than (<)= lesser than If C/T < 0.3, D = 0 If C/T > G, D=A If the target is not met for year X, the undisbursed amount will be disbursed in year X+1 provided that the year X target is met.

5 Proportion of Principle Urban Center LGs that receive FECL conditional grants based upon achievement of annual Performance Indicators (IP)

20 16 December 31st of each year

Not applicable in CY 2018 20%

CY 2019: 40%

CY 2020: 50%

CY 2021: 60% CY 2022: 70%

Amount allocated for CY2018 and 2019 targets will be disbursed on a yes/No basis. The sub indicator for each year must be verified in full for the disbursement to occur. If the target is not met for year X, the undisbursed amount will be disbursed in year X+1 provided that the year X target is met. For CY 2019, 2020. 2021 and 2022 disbursement from the World Bank will be determined by the proportion of LGs in receipt of a second-tier conditional grant based on achievement of annual. The DLI is scalable proportionate to the percentage of LGs that achieve the target – above the minimum threshold of 20 percent. If the target is not met for year X, the undisbursed amount will be disbursed in year X+1 provided that the year X target is met.

6 Principle Urban Center LGs that have executed their Annual

12 10 0 December 31st of each year

15% CY 2019: 60% CY 2020: 70%

Achievement of the DLI objective of at least the annual target percentage of implementation of

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Investment Plans on schedule in terms of expenditures

CY 2021: 80% CY 2022: 90%

the annual investment plan will be assessed on a Yes/No basis for each LG and disbursement will be proportional to the percentage of LGs passing against the annual target. D=A*(C/T)/G Where: D= annual disbursement A= annual allocation C= number of LGs compliant T= total number of LGs G= annual goal in percentage (*)= multiplied (/)= divided (>)= greater than (<)= lesser than If C/T < 0.15, D = 0 If C/T > G, D=A If the target is not met for year X, the undisbursed amount will be disbursed in year X+1 provided that the year X target is met.

7 Proportion of Urban LGs that received at least 80 percent of the Territorial Coaching support identified in their Annual Capacity Building Plans

9 7 December 31st of each year

20% CY2018: Yes/No CY2019: 50% CY 2020: 60% CY2021: 70% CY2022: 80%

For Program years 2, 3, 4, and 5 targets, the achievement of this DLI will be assessed every year for each LG on a Yes/No basis. The DLI will be achieved for each LG if 80% of the capacity building plan has been completed. Disbursement from the World Bank will proportionate to the % of LG achieving the DLI. D=A*C/T Where: D= annual disbursement A= annual allocation C= number of LGs compliant T= total number of LGs G= annual goal in percentage (*)= multiplied

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(/)= divided (>)= greater than (<)= lesser than If C/T < 0.15, D = 0 If C/T > yearly target, D=A If the target is not met for year X, the undisbursed amount will be disbursed in year X+1 provided that the year X target is met.

Annex 4: Summary Technical Assessment

1. STRATEGIC INTEREST AND PROGRAM TECHNICAL VALIDITY

1.1. The Program’s Strategic Relevance

1. The proposed Program is firmly anchored in the Government’s commitment to reinforce the process of decentralization in Senegal. In 2012, President Macky Sall came to power on a platform of change, promising to act upon the conclusions of the historic Assises Nationales in 2008-9 in ‘remaking’ the nation. The national consultative process had highlighted, as a priority, the need to advance a unitary and decentralized state by strengthening the foundations of local governance. The Commission on Decentralization was one the three reform commissions established by the government immediately upon taking office. It gave rise to the third Decentralization Act (Acte III de la Décentralisation, Act III) which was launched in December 2013 with the passage of the General Code for Local Governments (la loi portant Code général des Collectivités locales). Act III underscores the Government’s commitment to empowering LGs and cities to drive economic growth and improved access to services. It extensively redefines the configuration of local governance institutions across the of the national territory, with the number of municipalities increasing from 172 to 557. It also sets out a vision for empowering LGs through the transfer of responsibilities, modernized public management processes, reform of local government financing and the development of qualified and capable local government administrations. Act III underscores the Government’s ambitious Emerging Senegal Plan, which is the “reference for the social and economic policy [of the country] in the mid- and long-term”24 and seeks to address spatial inequities in access to services, while building regional hubs to boost economic growth across the territory.

2. LGs have long existed in Senegal but are largely positioned as beneficiaries of central government and development partner project-based support. Earlier phases of decentralization in Senegal have largely been structured around a ‘project’ approach in which external and state-financed operations have focused on specific investment and capacity-building programs in a limited number of LGs. The design of these programs relied principally upon external expertise, while the management and execution of investments was conferred upon state execution agencies. Between 1996 and 2015, the World Bank supported the financing of local investments through the implementation of urban development programs, notably the Urban Development and Decentralization Project (Programme d’Appui aux Communes, UDDP) and the Local Authorities Development Project (Programme d’Equipement et de Renforcement des Collectivités Locales, LADP). These programs put in place city contracts, multi-year investment programming instruments and strengthened the capacity of state agencies, such as the Municipal Development Agency (Agence de Développement Municipale) and AGETIP to implement investments on behalf of LGs. Ongoing government programs, including the PUDC and PROMOVILLE, support local infrastructure development by delegating the management of investment contracts to state agencies.

3. While the ‘project approach’ certainly yielded positive outcomes in closing the service delivery infrastructure gap, it is now reaching its limits. The temporal nature of project-based support meant that few of the planning and management initiatives engaged were sustained beyond the duration of projects, while LG resort to parallel project financing diminished the significance of state transfers and distorted accountability incentives away from local populations. In addition, the dramatic expansion in the number of LGs brought about by Act III and the need to build LG capacity across the territory presents particular challenges for selective project based support. Acknowledging these limitations, the Government’s program for implementing Act III, the PROACTSEN, seeks to adopt a ‘system’ based

24 See the MEFP website.

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approach to equipping LGs with sustainable capacities to manage local development in a more coherent and holistic manner. It recognizes the importance of reinforcing existing arrangements for channeling resources to LGs, while placing greater emphasis on developing LG capacity with support from central government institutions.

4. The proposed Program has high strategic relevance. On the one hand, it conforms with the logic of shifting the prevailing emphasis on ‘project-driven’ support to prop up LGs to one anchored in the creation of viable and autonomous elected local government institutions. It does so by strengthening the structural foundations for the equitable, objective and transparent allocation of resources to LGs, providing incentives for LGs to build their own administrative and fiscal capacity and re-orienting central government support to LGs to empower them to become leading actors in the local development space. On the other hand, the Program also responds to the strategic priorities of the Government in ensuring equitable access to services across the territory and building centers of economic growth. Through the reform of the intergovernmental transfer system and the increase in central government transfer allocations, impoverished rural LGs with limited capacity to mobilize their own revenues will benefit, in particular, from increased resources for investments and recurrent expenditures. At the same time, through the introduction of conditional capital grants for the country’s urban LGs’, the Program will provide much needed resources to close the widening infrastructure gap brought on by urbanization and the growth of urban populations in secondary and principal cities.

5. The proposed Program also aligns with the strategic priorities emerging from the Systematic Country Diagnostic for Senegal under preparation. The SCD identifies the spatial challenges involved in creating productivity-enhancing urban spaces, including secondary cities, to promote transformational growth and job creation, while bridging the urban and rural divide by securing basic service provision across the territory. It also highlights the importance of shifting the prevailing centralized and low level governance equilibrium by promoting local level contestation and citizen engagement. The proposed Operation seeks to lay the foundations for empowering LGs across the territory to invest in public service delivery infrastructure by increasing inter-governmental investment transfers, enhancing the predictability, transparency and equitable allocation of resources and enhancing local revenue mobilization. At the same time, it focuses on equipping urban LGs, including Dakar and secondary cities, with the necessary support and capacity to plan, budget and manage public investments, while creating performance incentives for selected LGs to improve their management of public resources, engage with local populations and execute public investments to stimulate local economic activity and improve the livelihoods of local populations.

1.2. The Technical Validity of the Program

6. The Program development objectives are to: (i) improve local government financing; and (ii) enhance the performance of participating urban LGs in managing public investments25. The Program is designed to meet these objectives and is considered technically sound. It draws upon international best practice and combines structural support to address critical dysfunctionalities with respect to fiscal and administrative decentralization in Senegal with a phased approach to achieving tangible improvements in LG performance in selected municipalities over the short to medium term.

25 For the purposes of the Operation, the participating ‘urban local governments’ referred to in the PDO are comprised of 123 LGs, incorporating over 50 percent of the national population. ‘Urban LGs’ consist of five cities (Dakar, Thies, Rufisque, Guediawaye, and Pikine), all regional and departmental capitals, all LGs with more than 30,000 inhabitants with a density per ha above 10, and all LGs previously targeted by World Bank and AFD urban municipality projects. The ‘Principle Urban Center LGs’ refer to all five cities, all regional capitals, and the city of Touba, which is Senegal second largest and fastest growing city (4 percent annual growth). A comprehensive list of LGs targeted by the Operation is featured in Annex 1.

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7. The Program draws from international experience and conforms to key principles for advancing effective decentralization:

• It works with the grain of existing government institutions and phases reform efforts to the political and operational realities in Senegal. The Program is oriented to support the existing local government institutions that have been conferred with authority for local governance by Act III. At the central level, the Program supports a gradual process for reforming the intergovernmental transfer system by targeting the restructuring of existing transfer modalities. In providing incentives for the Government to increase aggregate recurrent and investment financing of LGs, the Program considers the fiscal constraints on the national budget and the limited absorptive capacity of LGs, by setting targets that will allow for a gradual increase in financing. The conditional capital grants financed by the Program will only be available to selected LGs that have been assessed to have a basic level of capacity to absorb additional investment resources, with support from central government institutions. Finally, the Program promotes the gradual evolution of central government support to the decentralization process, shifting from a system of doing the work for LGs and restrictive ex ante tutelle controls to one of accompanying LGs and improving the quality of tutelle control.

• Breaking from the past, the Program puts LGs in the ‘driver’s seat’. By channeling capital grants through the national intergovernmental transfer system and building sustainable central government support mechanisms, the Program will assist selected LGs to better and more consistently control local development processes. Through adapted tools, it will empower them to assess their own institutional needs and to identify the local development needs of their communities rather than resorting to costly one-off in-depth assessments conducted by external actors (as was the case in earlier urban development projects). It will also encourage LGs to engage in systematic annual planning, rather than only when new projects are introduced. Thus, investments funded by Program resources through the conditional grant window of the FECL will be drawn from the LG’s three-year investment program (Programme Triennal d’Investissement, PTI), which will be further articulated in an Annual Investment Plan. Internationally, multi-year investment programming is considered good practice, promoting the articulation of a clear and strategic priorities at the local level. Furthermore, the Program will uphold the principle of ‘free administration’ enshrined in Article 1 of the General Code for Local Governments by giving LGs the discretion to determine the manner in which they execute their investments – whether directly, with project management assistance or through the complete delegation of project management to a state agency. National agencies will accordingly need to re-align their operating strategies to promote the incremental development of municipal capacity rather than acting as local development execution substitutes. This integrated approach has had tangible results in other countries26. Lessons learned from these experiences highlight the importance of first testing the approach on a limited number of LGs that are the most likely to respond favorably to results-oriented incentive mechanisms.

• The Program aligns the adequacy of performance incentives with the areas considered most critical for strengthening LG capabilities and reinforces institutional arrangements aimed at enhancing the absorptive capacity of eligible LGs. Simulations conducted in preparation of the Program confirm that the amounts that Urban and Principle Urban Center LGs stand to receive under the tier 1 and 2 conditional grant windows will, based on emerging international experience, provide an adequate pecuniary incentive to motivate improvements in performance. Annex 2 contains a detailed assessment of the adequacy of the performance incentives envisaged. At the

26 The approach has been used primarily in Anglophone countries: Uganda (Local Government Development Program, LGDP; Uganda Support to Municipal Infrastructure Development program, USMID), Tanzania (Local Government Support Project, LGSP ; Urban Local Government Strengthening Program, ULGSP), Ethiopia (first Urban Local Government Development Program, ULGDP-I and ULGDP-II) or Bangladesh (Local Government Support Project I et LGSP II). Tunisia is the first French-speaking country to have adopted this approach since 2014 with the implementation of the urban development and local governance program (Programme de Développement Urbain et de Gouvernance Locale, PDUGL).

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same time, the selection of the performance criteria for the conditional capital grants (MMCs and IPs) reflects key requirements considered necessary to (i) bring LGs into conformity with planning, budgeting and reporting requirements in the case of MMCs; (ii) boost the performance of LGs in delivering public service infrastructure in a timely, transparent, inclusive and accountable manner. The criteria were selected from a national long-list of performance criteria already endorsed by LGs and their formulation was guided by earlier experiences with conditional grant criteria in countries including Kenya, Tunisia and Ethiopia. The Program’s support for central level support mechanisms has been designed to ensure that LGs in receipt of additional program financing are equipped with the necessary absorptive capacity.

8. The design of the Program directly addresses core dysfunctionalities of the existing system, namely:

• Local government financing is limited. Despite increasing since 2015, state transfers to LGs remain low, representing only 14 percent of total LG financing. Yet they continue to represent a critical resource for most LGs, particularly rural LGs with high rates of poverty that have limited capacity to mobilize revenues, especially those that are poor and rural. Transfers from the state dedicated to financing local investment cover 85 percent of municipal investment budgets. For the LGs that pre-dated Act III, revenue collection rates are low and unevenly distributed. The Program provides immediate incentives for the State to increase the resources that it transfers to LG for recurrent and investment spending. It also provides incentives and support to the Principle Urban Center LGs to enhance revenue collection through improved tax administration.

• The current system for allocating state grants has created inequities in the distribution of resources across LGs and impeded LG capacity to plan investments strategically. The fragmentation of the intergovernmental fiscal transfer system, together with the lack of clearly defined and objective allocation criteria result in a situation in which fiscal transfers (i) are not reflective of the financing needs of LGs; (ii) their allocation is characterized by opacity and significant disparities between the level of financing afforded per capita to LGs and (iii) the limited predictability of overall transfers limits the capacity of the LGs to plan and invest strategically for local development. The reform of the FECL under the Program will involve the introduction of measurable and objective criteria based on population, poverty levels and population density to redress existing imbalances in the allocation of investment resources per capita across the territory and to prioritize financing for poor, rural LGs. The reform will also enable LGs to predict more easily their unconditional grant allocations and to receive timely notification of allocations for planning purposes.

• The central and deconcentrated institutional arrangements intended to support LGs have ultimately undermined their administrative capacity. Although deconcentrated structures are well-established across the territory, the limited capacity of these structures, shortages in personnel, together with weak incentives to support LGs have hampered the processing of tutelle approvals, and limited revenue mobilization and LG capacity-building efforts. The creation of national agencies that were conferred with delegated responsibility for realizing local investments and managing basic urban services on behalf of LGs provided limited opportunities or incentives for LGs to develop their own implementation and managerial capacity. The Program proposes to strengthen the quality of tutelle controls and the timeliness of tutelle approvals while re-orienting the national government support arrangements to progressively build the capacity of LGs.

• Existing systems for assessing and monitoring the performance of LGs are in their infancy and provide few incentives to encourage LG adherence. Though several initiatives have, or are in the process of being piloted through projects, Senegal does not currently have an institutionalized performance monitoring system and grant allocations are all unconditional. The Program will finance the introduction of conditional capital grants in a set of pilot LGs and will support the creation of a system for performance evaluation anchored in the state’s existing institutional framework.

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• LG accountability towards citizens beyond the ballot box remains limited. The limited investment resources available to LGs, combined with the opaque way resources are allocated, the ‘delegation’ of management of investments to state agencies and the lack of an effective system for measuring LG performance have ultimately provided a limited basis upon which citizens can hold their locally elected representatives to account for service provision at the local levels. In addition to increasing investment resources to LGs, the Program will provide incentives through conditional grants for LGs to systematically engage with citizens in the planning, budgeting and execution of investment processes and to develop local level complaints handling mechanisms. At the national level, it will also promote constructive engagement of non-state actors in the decentralization process by promoting improved access to information on local governance and local government financing.

9. LGs have been actively involved in the technical formulation of the Program. Territorial actors (locally elected officials, representatives of civil society and the private sector) participated in the formulation and validation of PROACTSEN. In addition, the Association of Mayors of Senegal (Association des Maires du Sénégal, ASM), the Association of Departments of Senegal (Association des Départements du Sénégal, ADS) and the Union of Locally Elected Officials (Union des Associations d’Elus Locaux, UAEL) directly contributed to the development of this Program through consultative meetings and seminars at different stages of the Program’s conception. They were also engaged in validating the MMCs and PIs that will form the basis of the performance-based grants.

10. The Program has also been designed to ensure the sustainability of interventions beyond the duration of the Program.

• At the institutional level, the Program’s support of legal and regulatory reforms with respect, for example, to intergovernmental transfers, institutional mandates of central government institutions and local taxes will provide a solid foundation upon which pilots initiated by the Program can be sustained and scaled up. For example, the system for evaluating the performance of municipalities is firmly anchored in the creation of a conditional grants window under the FECL which is envisaged by the proposed decree.

• At the level of selected LGs, experience with the UDDP and LADP highlighted the challenges of sustaining capacity development activities in the context of a high turn-over of local administrators. While this remains a critical challenge, the combined impact of (i) promoting local territorial administration reforms; (ii) improving training and capacity building of local actors; (iii) restructuring the FDD with the possibility of incorporating resources for personnel; and (iv) the inclusion of performance criteria related to the inclusion of personnel for specific departments within the eligible communes, will help to limit the negative impact of staff turnover.

• Financing for the conditional grant window. As indicated in Annex 1, the FECL restructuring will be phased and will likely, in the medium term, involve an evolution towards the inclusion of the MMCs as a condition for LGs to receive a basic grant allocation (which is currently an unconditional grant). Thus, State funding for the existing unconditional grant window would ultimately be used in this context. In addition, the Program’s promotion of increased State spending for the FECL could eventually be partially allocated to the performance-based conditional grants based on PIs.

• The Program also seeks to ensure the sustainability of infrastructure financed through the conditional capital grants through (i) a restructuring of the FDD to better reflect financing needs for maintenance; and (ii) the inclusion of incentives to plan and budget for maintenance costs in the PI’s for the second-tier conditional grant window.

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1.3. The Institutional and implementation arrangements

11. A detailed description of the Program’s institutional and implementation arrangements is available in Annex 1 of this PAD.

12. The assessment of the institutional setup for this Program reflect maximizing the use of existing country systems. Due to the weak identified capacity in numerous stakeholders involved in the value chain of the implementation of the Program, capacity building activities were identified and planned to be implemented in year 1 of this Program. Numerous options have been adopted by this Operation namely:

a. Increasing budget allocation allocating adequate supplementary budget to ensure proper staffing, and proper operating resources to account for the incremental efforts needed to ensure effective implementation of this Program. Prior agreement with different beneficiary stakeholders on their respective action plans needed to ensure they attain expected results.

b. TA via the IPF component, including hiring temporary staffing for specific targeted activities. The IPF component will also allow targeted knowledge sharing and training for diverse stakeholders based on a pre-approved institutional gap analysis and capacity building needs.

2. ASSESSMENT OF THE PROGRAM’S EXPENDITURE FRAMEWORK

13. The proposed Operation is a hybrid Program for Results and IPF. The IPF funded component, which covers a targeted set of TA activities at the national level, will use World Bank Procedures. The Program for Results will use government systems. The Program's expenditure framework consists of a total of US$260 million, of which US$234 will be channeled directly to LGs via the FECL. World Bank and AFD resources will complement the Program’s financing gap through two results areas. Results Area 1 (DLIs 1 to 3) for a total US$76 million and Results Area 2 (DLIs 4 to 7) for a total of US$110 million.

14. The PforR-financed results areas will be appropriately embedded in the budget and expenditure management processes of both the national and LGs. IDA funds will be deposited in a Special Account in the National Treasury to mitigate risks associated with liquidity shortfalls or cash rationing. Program allocations will be incorporated into the budget of the MGT as appropriated by the National Assembly. The bulk of resources will be allocated to selected LGs in the form of conditional capital grants. These grants will be reflected in the FECL annual Budget and will be transferred from the Special Account in the National Treasury to the participating LGs. The capital grants will be reflected in the annual budgets of the LGs that qualify for these allocations under the Program. The remainder of Program resources will be allocated to other national level government institutions and will be transferred from the Special Account in the National Treasury to the relevant institutions in line with approved national budget allocations for the year. Figure 1 depicts the flow of funds under the Program Expenditure Framework.

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Figure 4.1: Fund Flows under the Program Expenditure Framework

In blue IDA/AFD financing of the Program; In purple, Government contribution to the Program

15. Table 4.1 below provides a summary of the indicative proposed expenditure framework, which incorporates both the capital transfers to selected LGs through the FECL and the budget allocations to the principal national level institutions involved in Program implementation. It is important to note that actual expenditures for the conditional grants funded with the PforR resources will depend upon the proportion of LGs that qualify for allocations through PAs. Thus, the figures indicated reflect aggregate annual amounts based on estimates of communal compliance with performance criteria.

Table 4.1: Program Expenditure Framework (US$ million)

Classification 2018 2019 2020 2021 2022 2023 Total

Performance based fiscal transfers

to LGS and cities achieving a set of Minimum Mandatory Conditions (MMC)

to LGS and cities achieving a set of specific performance indicators (PI)

10 32 48 48 36 - 174

Non-conditional capital grants transfers to pilot 123 LGs

8 9 10 11 12 - 50

Performance based fiscal transfers to other government institutions ADM, ARD, DCL, Court of Auditors, AGETIP, etc.27

2.0 3.0 2.3 2.1 1.8 0.8 12

Government resources allocated to institutions ADM, ARDs, DSPL, to ensure proper implementation of the Program

1.6 1.8 1.8 1.8 1.8 1.2 10

27 Detailed allocations by institutions involved in the implementation of the Program available in Annex 1 of this PAD.

Special Account

US$186 million

Govt Institutions

US$12 million

FECL

GLOBAL FECL

Departments Other Municipalities

Municipalities' ProgramUS$50 million

US$174 million

MMC

US$125 million

Performance

US$49 million

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Total 21.6 47.8 62.1 66.9 55.6 2.0 246

o/w Government of Senegal 9.6 10.8 11.8 12.8 13.8 1.2 60

o/w IDA PforR 8.5 19.5 24.2 28.4 22.0 0.4 103

o/w AFD PforR 7.5 17.5 22.1 25.7 19.8 0.4 83

16. To ensure that the Program activities can be executed effectively to achieve Program results, the annual budget appropriations approved by the National Assembly will need to reflect the Program expenditure framework. The following will be required:

• All program resources will need to be reflected in the budget ceilings and annual budget estimates for the MGT from 2018 onwards. The MGT will need to work closely with the General Directorate of Budget and the National Treasury.

• The PAs will not be finalized in time for the national budget process, thus the initial allocations for FECL conditional grants proposed by the MGT will need to reflect the maximum allocation. The final conditional grant allocations will be less than or equal to annual appropriations, to allow for full disbursement during the financial year.

• The conditional capital grant allocations will also need to be reflected in the budgets of the LG’s that qualify for these allocations. MGT will ensure that eligible LGs are informed of the maximum capital grant allocations no later than 31 July FY N-1. This will give the LGs time to prepare and submit their FY N budgets to local councils by 31st December FY N-1. Actual allocations for the conditional grants will be announced no later than 30 April FY N and LGs will then need to submit rectified budgets to reflect any changes between indicative and actual allocations based on performance. A more detailed description of deadlines for the conditional grant and performance evaluation system is reflected in Annex 4 of the Technical Assessment.

17. The fight against fraud and corruption which could impact the achievement of results during the Program implementation will be carried out while strengthening the implementation of associated policies and measures at the national and territorial levels. In addition to a national complaint handling mechanism, a capacity building module on control-related issues will be developed and applied through the CTC modality. An MMC has also been introduced for beneficiary LGs to ensure that their eligibility for conditional capital grants will be automatically blocked for year N+1 if national procurement processes have not been entirely observed during year N.

3. DESCRIPTION AND ASSESSMENT OF PROGRAM RESULTS FRAMEWORK AND MONITORING AND EVALUATION

18. The Program’s M&E system will generate timely and relevant information on the implementation progress of the Program. The M&E system is designed to strengthen the capacity of existing national and local level structures to ensure regular and in-depth monitoring of implementation progress and outcomes. The Results Framework (Annex 2 of this PAD) provides the basis on which the ADM, in close coordination with the DCL, the National Treasury, LGs and supporting agencies, will measure and report on progress. The existing M&E unit within the ADM will be reinforced through the inclusion of an additional M&E expert to coordinate data collection and prepare mid-year and annual Operation Progress Reports. Performance Focal Points will be nominated within each of the national structures charged with the implementation of the Operation, as well as in each of the targeted LGs. These focal points will meet regularly with the M&E unit within the ADM to share feedback and data on implementation progress. A dedicated M&E electronic platform will be established to facilitate the collation

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of inputs and to provide a real-time mechanism for stakeholders to review progress, address issues as they arise and, where necessary, adjust the Operations’ parameters to evolving conditions. The M&E electronic platform will incorporate the annual investment plans of all Urban LGs and will enable real time monitoring of the physical works in these LGs.

19. The M&E system will rely primarily upon data generated from the government’s own system for tracking local government financing and monitoring the performance of Urban LGs in meeting MMCs and PIs. Given this, particular emphasis will be placed upon supporting specific governmental systems and structures. With respect to local government financing, support for the introduction of the GFILOC information system and the OBFILOC will help to consolidate data on government transfers to LGs and on LG budget execution. The DSPL will provide training to selected LGs in the use of the GFILOC system to ensure the effective use of the system and to enhance the reliability of data generated through the system. The performance system established to measure LG progress in achieving MMCs and PIs will also be critical to the Program’s M&E arrangements. The Annual PAs prepared by LGs with the support of the CTC will be verified by the Court of Auditors and will constitute the principal source of data for DLIs 3, 4, 5 and 6. TA in the IPF focuses specifically on strengthening the capacity of the Court of Auditors to verify the LG Annual PAs through the recruitment of a firm to coordinate the verification process in the first three years of implementation. The table below summarizes the various inter-linked tools which will be used to monitor and report on the Program:

Table 4.2: M&E Data Generation and Collection

Type of Information M&E Tool Frequency

Local government financing information

GFILOC; OBFILOC Quarterly

Performance of eligible communes linked to the performance evaluation system; achievement of MMC and IP targets

Annual PAs Annual

Physical progress and outputs, technical aspects of the Program, implementation performance;

ADM M&E electronic platform Monthly

Review of implementation experience, achievement of key performance indicators and progress towards PDO

Mid-year and Annual Progress Reports Annual

Financial Reporting (use of funds, expenditure composition)

Annual financial statements; semi-annual financial reports, internal municipal audit reports of the Court of Auditors, annual external audit report (independent firm)

Twice a year

Detailed review of implementation experience, achievement of the key performance indicators and progress towards the PDO

Midterm review Once in the Program (2021)

20. Operation Progress Reports: The reports will include consolidated financial statements that will cover all Program activities, expenditures and sources of funds, implementation status, progress in achieving the DLIs, result indictors, and evidence of compliance with the requirements of the Program Action Plan. The mid-year and annual Operation Progress Reports prepared by the ADM will be shared with the STC, CTO, World Bank and AFD. The format and content of these reports will be outlined in the OM.

21. The mid-year report on the Operation will cover the following issues:

• A summary of the overall expenditure of the Program and Project.

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• Summary of progress towards performance indicators and aggregate infrastructure and service expenditures in Urban LGs.

• Execution of the annual Capacity Building Plans in Urban LGs. • Summary of aggregate environmental and social performance reports from each of the Urban LGs,

as well as complaints handling mechanisms reports. • An update of Operation indicators, with justifications. • An assessment of key risks to be resolved upstream of the annual Operation Progress Report.

22. The Annual report on the Operation will, in addition to the abovementioned elements, include:

• Summary of the MMC and IP evaluation exercise and the conditional capital grants and performance grants disbursed to Urban LGs and Principal Urban Centre LGs respectively.

• Summary of aggregate information on procurement grievances and fraud and corruption issues.

23. Program resources will be disbursed based on the achievement of seven Disbursement Linked Indicators (DLIs). The formulation of the DLIs was conducted jointly by various ministries and public institutions involved in the Program. The DLIs are assessed as being: (i) fully aligned with Government priorities; (ii) achievable during the time horizon of the Program; (iii) sufficiently ambitious to allow the Program to substantively contribute to addressing key challenges in the sector; (iv) objectively measurable and capable of independent verification; (v) adequate for ensuring sustained disbursements over the entire implementation period. The DLIs are mutually reinforcing and create incentives to encourage the diversity of central and local government institutions to coordinate the attainment of results. Among the seven DLIs, three focus specifically on national level reforms or actions that require a degree of inter and intra-institutional coordination at the central level. The four remaining DLIs require efforts on the part of both national and LG structures. The uniform way disbursements will be allocated provides further incentives for all institutional actors to coordinate their efforts.

24. The DLIs have been selected to reflect critical performance milestones towards the achievement of the PDO. They are complemented by a series of intermediate and PDO level indicators, as reflected in the results framework set out in Annex 2. The DLI’s focus on six critical areas:

• Enhancing the intergovernmental transfer system to improve the objective, equitable and timely allocation of resources to LGs (DLI 1)

• Increasing local government financing (DLIs 2 and 3) • Improving LG performance in the management of public resources for local service delivery (DLIs

4 and 5) • Improving access to basic services infrastructure in targeted LGs (DLI 6) • Improving institutional and technical for targeted LGs (DLI 7)

25. Table 4.3 illustrates the Program’s results chain, demonstrating how critical challenges to the decentralization process in Senegal are linked to inputs, outputs and results under the Program and how these are then translated into DLIs. PDO-level DLIs are framed in red, while intermediate indicators are framed in blue:

Table 4.3: Program’s results chain Challenges Activities/inputs Outputs Results DLI

Res

ults

Are

a 1

State transfers are not allocated on an objective and timely basis and allocations create inequities across LGs.

1. Preparation of technical studies

2. Preparation of decrees

Restructuring of FECL, FDD and LVATF transfer modalities

Restructured intergovernmental transfer system ensures the transparent, objective and predictable allocation of

DLI 1: Modalities for the repartition of State transfers to LGs for recurrent and investment spending (FECL and FDD) and for the repartition of

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resources and an increase in transfers allocated to LGs.

the LVATF reformed and applied in the timely allocation of resources to LGs, to the satisfaction of the World Bank

National government transfers to LGs are not sufficient to enable them to achieve their mandates

1. Support to national reflections on increasing state transfers through the FECL and FDD to align with international benchmarks

2. Targeting of allocations to poverty reduction objectives through the introduction of allocation criteria for the FECL and FDD.

Costing assessment of LG competencies Simulations to identify optimum levels of state transfers required

Increased transfer of State resources to LGs for capital and recurrent expenditures

DLI 2: Increase in State- financed intergovernmental capital and recurrent grants (FECL and FDD) to LGs (in billion FCFA)

Low revenue mobilization rates (resulting from weak and poorly coordinated tax administration and outdated taxpayer data)

1. Taxpayer censuses in the Principle Urban Center LGs

2. Framework for performance-based local tax administration coordination

3. Operationalization of Local Tax Commissions (Commissions de Fiscalité Locale, CFL) in targeted TGs

1. Evaluation of performance targets of Local Tax Commissions. 2. Updated data on taxpayers at the local level

Increased revenue mobilization

DLI 3: Urban LGs with a functioning local fiscal commission

Res

ults

Are

a 2

LG management of public resources does not conform to applicable planning, budgeting and reporting laws and procedures

Identification of Minimum Mandatory Conditions for improving local governance and the management of resources by LGs. Introduction of a performance evaluation system

Eligible LGs submit required documentary evidence and receive conditional capital grants based upon their compliance with MMCs

LGs comply with standard planning, budgeting and reporting requirements

DLI 4: Proportion of Urban LGs that receive FECL conditional grants based upon satisfaction of annual Minimum Mandatory Conditions (MMC)

Weak LG management capacity and

Identification of performance criteria to improve LG

Eligible LGs submit required documentary evidence and receive

Enhanced LG performance in managing public

DLI 5: Proportion of Principle Urban Center LGs that receive FECL

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limited incentives to improve performance

management of investments for service delivery. Introduction of a performance evaluation system

conditional capital grants based upon their attainment of PIs.

investments for service delivery

conditional grants based upon achievement of annual Performance Indicators (PI)

Limited capacity of LGs to execute local investments as planned.

TGs prepare an annual plan and a three-year investment plan based on FECL performance resources

TGs chose the project management option best fitted to each investment (based on each TG capacity and each type of project) Studies and works are executed in conformity with annual investment program.

Improved access to basic services infrastructure in targeted LGs

DLI 6: Proportion of Principle Urban Center LGs that have executed their Annual Investment Plans on schedule in terms of expenditures having executed their annual investment plan (in terms of actual spending) in conformity with the programming.

LGs lack the institutional and technical support needed for them to plan, budget and manage local service delivery infrastructure

LGs define their capacity needs through an annual capacity assessment plan

The Continuous Territorial Coaching and Training support are provided to LGs to address their capacity needs (piloted respectively by ADM and the Training Directorate)

Enhanced technical and institutional support to LGs

DLI 7: Urban LGs that received at least 80 percent of the Territorial Coaching support identified in their Annual Capacity Building Plans

26. The weighting of DLIs reflects both the significance of the result with respect to the achievement of the PDO and the importance of aligning disbursements with the financial burdens entailed in achieving DLI targets. The weighting of DLIs does not align exclusively to financing requirements involved in achieving the result. For example, DLIs 1 and 3 are relatively low cost, but critical, measures for achieving the overall objective and accordingly, a significant percentage of Program financing is allocated to the achievement of these DLIs. At the same time, given that the vast majority of Program resources will be channeled into annual conditional grants under the FECL, the programming of DLI disbursements also reflects the need to ensure consistent and regular financing across the life of the Program. Furthermore, in order to prevent too wide a gap between treasury needs and resources, a start-up advance not to exceed 7.5 percent of the total credit amount will be made available to the Borrower.

27. Verification protocols. The achievement of all DLIs will be reviewed on an annual basis by the Program’s Operational Technical Committee (Comité technique opérationnel, CTO) and endorsed by the Program’s Strategic Inter-Ministerial Steering Committee (Comité interministériel de pilotage stratégique, STC). The STC endorsed results will be submitted to the World Bank for clearance. The task team will send the cleared results to the disbursement team at the World Bank to release the funds in the amount determined by the assessment to the National Treasury. An independent verification agency will be hired to conduct third-party verification for all Program DLIs prior to their submission to the STC. Given that the Program seeks to build institutional capacity to monitor the performance of the LGs, the Court of Auditors with a support of independent firm will also play a critical role in verifying the Annual PAs produced by each LG in order to receive FECL conditional grants covered by DLIs 4 and 5. The World Bank will retain the right to make the final decision on whether a DLI has been achieved or not, and may undertake regular independent quality assurance checks of selected DLIs to ensure continued robustness of the system. The Verification Protocols are explained in detail in Annex 3.

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4. ECONOMIC EVALUATION OF THE PROGRAM

4.1. Expected Economic Impact

28. Emerging evidence from similar operations indicates that the reforms supported by the proposed Operation will likely result in a reduction of transaction costs associated with the delivery of local services due to (a) improved predictability and reliability of transfers from the central government to local government; (b) improved revenue collection and PFM capacity at the local level resulting in better budget planning and execution, reporting and accounting practices; and (c) improved administrative capacity at the local level resulting in improved responsiveness of LGs to the needs of citizens. While the Program is expected to contribute to improved public service delivery, the benefits accrued are not easily quantified. By design, the proposed Program provides LGs with discretion in deciding on the types of infrastructure investments that will be financed through the conditional capital grant system. It is therefore impossible to determine a priori which infrastructure services will be implemented. Infrastructure investments under the Program would include, inter alia, roads rehabilitation, drainage, economic and social infrastructure, public space, water supply, sanitation and solid waste management would spur the demand in Senegal for labor, goods, and services and ultimately support income levels and consumption capacities of the local populations. For the purposes of the economic evaluation, the analysis focuses on the financial, economic and social impact of the Program.

29. In terms of financial benefits, the Program is expected to generate financial gains in excess of US$290 million (US$100 million increase in state transfers and US$190 million in conditional transfers financed by the Program) from central government and Program-financed conditional and unconditional transfers (increased local taxation has not been evaluated but will further increase financial gains). With a discount rate of 3 percent, this represents a financial real NPV of US$281,553,398 (US$276,190,476 if the discount rate is 5 percent) or the equivalent of 2.02 percent of the country’s average GDP over the period 2010-2014.

30. In terms of economic benefits, an analysis was undertaken to estimate the economic impact of local government spending (through FECL and FDD allocations) on socio-economic outcomes (see Annex 5 for further details). The analysis used regional level school enrollment outcomes and LG level poverty rates as dependent variables and LG level expenditure data as the control variable. The results of the analysis show evidence of a positive correlation between the fiscal variable and education outcomes and a negative correlation between the fiscal variable and poverty rates. Those increases in local expenditures would increase local school enrolment rates and reduce poverty rates. Predicting the impact of fiscal decentralization on education and poverty outcomes is relevant to understanding the impact of decentralization, not only with respect to these indicators but also with respect to other socio-economic indicators. Though comprehensive datasets on other socio-economic outcomes are not available, by extrapolation, if the education and poverty indicators are affected by improvements in fiscal decentralization, it is more likely that socio-economic outcomes including health care, water and sanitation, transportation and electricity would be impacted as well. This would in turn yield returns in terms of : (i) higher economic mobility; (ii) health gains; and (iii) increase in property-values. Access to all-seasons roads will accelerate the movement of people and goods and diminish operation costs such as vehicle maintenance. Similarly, improved access to health facilities increases the well-being of the direct beneficiaries and carries important externalities by creating a healthier environment and opportunities for human development for the whole community. Finally, lower congestion and higher economic mobility and a healthier and more efficient workforce would have a have significant impact on land and housing values.

31. In terms of social impact, the Program is expected to yield: (1) better efficiency of public expenditures – the incentives and support provided to Urban LGs will enable a more efficient and better use of public resources which is expected to result in improved value for money and pro-poor targeting of

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infrastructure for service delivery; (2) improved compliance with tax obligations – in addition to enhancing tax administration capacity, improvements in the efficiency of public expenditures and better service delivery has been shown to contribute to behavioral changes in favor of tax compliance by local populations; and (3) increased trust in LGs, which could create favorable conditions for the crowding in of new private investments.

4.2. Rationale for Public Sector Provision and Financing

32. The Operation will fund capacity building and institutional capacity activities in support of Senegal’s decentralization policy (improvement of the mechanism of State financial transfers to all TGs and strengthening of the local governance and management to improve the quality and sustainability of investments and local public services). The Operation will also fund basic infrastructures using an approach based on demand and performance which should contribute to improving TGs’ governance and accountability while reducing the funding cost of local public investment. Consequently, the Operation will produce public assets, notably in terms of service and infrastructure delivery. Investments in terms of institutional strengthening (through the support of important reforms) will also contribute to the improvement of urban management and to the increase in the provision of public assets. Should these not generate profits likely to attract private investors, funding of this type of investment by public authorities will become indispensable.

4.3. World Bank Value-Added

33. The World Bank is uniquely placed to support the decentralization process in Senegal. The World Bank and the AFD are long-standing partners in the sector, having engaged for the last two decades in supporting local development and decentralized local governance through the UDDP and LADP projects. The lessons learned from these operations are reflected in the design of the proposed operations, specifically the need to shift from project-based support to a program approach focused on strengthening the institutional foundations for effective fiscal and administrative decentralization. In addition, the 2016 Urbanization Review, the 2017 Spatial Assessment and policy notes on local government financing developed in 2017 provide a strong analytical basis for supporting the proposed reforms. Finally, the extent of financing proposed under the Program is substantial and places the World Bank and the AFD as leading development partners in the financing of decentralization reform in Senegal. Through this support and the active engagement of the World Bank and the AFD in the decentralization donor coordination committee, both partners are well positioned to leverage and coordinate support from other development partners.

Annex 5: Summary Fiduciary Systems Assessment

SECTION 1: INTRODUCTION

1. The objective of the Fiduciary Systems Assessment (FSA) was to conclude whether the Program fiduciary systems provide reasonable assurance that the financing proceeds will be used for the intended purposes, with due attention to the principles of economy, efficiency, effectiveness, transparency, and accountability. The World Bank fiduciary team carried out an FSA in accordance to the Program-for-Results Fiduciary Systems Assessment Guidance Note issued on June 30, 2017. The FSA identified key fiduciary risks that may affect the development outcomes and identified systems- and capacity-strengthening and/or mitigating measures to be implemented by the government during the life of the Program.

2. The overall conclusion of the Fiduciary System Assessment is that provided some actions listed in the Action plan are implemented, the Procurement and FM systems capacity and performance are adequate to provide reasonable assurance that the funds will be used for the intended purposes with due attention to the principles of economy, efficiency, effectiveness, transparency, and accountability.

1.1 Program Design and expenditure framework (IDA/AFD)

3. The Program is designed to support the implementation of the second phase of the third Decentralization Act (Act III) in Senegal. It seeks to improve and guarantee the transparency and predictability of resources for LGs as well as enhance the latter's performance in the execution of investments included in their development Plans. Two financing instruments will be used. The investment project financing (IPF) instrument of up to US$14 million and the PforR instrument amounting to US$186 million. The IPF instrument will serve to finance pre-requisite activities including the strengthening of capacities needed to achieve the program’s results, according to the World Bank's applicable procedures for IPFs. The bulk of resources will be mobilized through the PforR instrument. 28

4. The overall program cost is US$260 million, including US$200 million from the World Bank and French Development Agency and US$60 million from the government. The program will primarily finance the eligible LGs and, to a lesser extent, other agencies involved in the implementation of the program. About 90 percent of the amount of the results-based program will be disbursed through the FECL to the eligible 123 LGs eligible. The bulk of resources will be mobilized through the PforR instrument.

5. Although a well-defined and exhaustive list has not been established, it was decided that the following investments would be excluded from the program: (i) classified highways; (ii) solid waste management, and (iii) regional slaughterhouses.

6. The rest will be used to finance capacity building activities for LGs through: (i) continuing training of LGs, (ii) continuous territorial coaching and (iii) contract management support, if necessary. All these activities will be under the responsibility of ADM, ARDs and AGETIP depending on the needs expressed by LGs.

1.2 Institutional arrangements for the implementation of the program

7. Existing government institutions at both national and local levels will implement the program, in accordance with the prevailing legal and regulatory framework. Responsibilities for the program’s implementation will be shared among structures at the national and local levels in an integrated manner. The government, through the MGT and MEFP, will play a key role with regard to the policy, regulation, financing, assistance and supervision, and will seek the support of national agencies, where necessary. The LGs will be responsible for the planning, implementation and management of infrastructure at the local 28 In this document, PforR means Program and IPF means Project.

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level, for the delivery of services to citizens. The Municipal Development Agency, a structure with experience and the institutional mandate to provide such technical support, will be entrusted with the technical level operational coordination support to the implementation of the operation. The overall operational supervision will involve a broad range of stakeholders engaged in the implementation and will ensure that (i) the results of the program are examined and approved at a higher level; (ii) the inter-sectoral coordination mechanism is functioning; and (iii) the municipalities are well-represented at the strategic level.

8. A Strategic Inter-Ministerial Steering Committee (STC) will be set up to oversee the Program implementation and mobilize around the program the multitude of institutional actors involved in the operation. Chaired by the MDGT and co-chaired by the MEFP, the STC will include representatives of key ministries, local government associations (AMS and ADS) and civil society. An Operational Technical Committee (CTO) will be entrusted with overseeing the technical implementation of the Program.

9. The MGT, formally responsible for the implementation of Senegal's policy on decentralization, territorial governance and regional planning, will have overall responsibility over the operation.

10. The Ministry of the Economy, Planning and Finance intervenes both in the financial and tax reforms envisaged within the framework of the Operation and in the allocation of government resources to municipalities and the fiduciary management of the program using national procedures applicable to decentralization. The MEPF departments such as the Directorate-General of Budget (DGB), the Directorate-General of Treasury and Public Accounting (DGTCP) will be responsible for budget planning, providing resources to structures benefiting from the Program and for accounting. The Court of Accounts will perform the function of external auditor of the Program.

11. The municipalities targeted by the program will implement the program at the local level with the support of CTC, and manage the investments financed through “conditional grants”

12. The ADM will play a central part by providing technical support both for the coordination and implementation of the Operation. The ADM will support the MGT in the day-to-day coordination of the program, but will also directly fulfil project coordination responsibilities. The IPF component of the Program will be fully implemented by the Municipal Development Agency (ADM), which has extensive experience in the management of similar projects financed by the World Bank.

SECTION 2: PROGRAM FINANCINAL MANAGEMENT SYSTEMS

13. The financial management of the program will be conducted based on systems and procedures applicable to public finance management in Senegal. The program will be implemented through the integrated public expenditure system and will be based on national procedures and systems applicable at the central and local level.

2.1 Budget Planning and Management

14. At the national level, the 2011 PEFA (Public Expenditure Financial Accountability Assessment) report on financial management performance rated the credibility of the budget and the planning and budgeting arrangements as globally satisfactory. Moreover, Senegal has embarked on major reforms to strengthen the institutional framework of Public Finance Management and shift towards performance-based budgeting, with budget programs and the deconcentration of commitment authority to line ministries. These reforms are under way and will be implemented gradually until 2020.

15. Every year, the State provides capital grants to LGs (Fonds d’Equipement des Collectivités Locales - FECL) to accompany their investment efforts, as well as operating grants (Fonds de Dotation de la Décentralisation - FDD). The budget lines relating to these allocations are shown in the State budget.

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16. Within the framework of the MASP, the reasonable annual provision of resources, once finalized with the support of ADM, will be included in the State budget. For reasons of traceability, a dedicated sub- line could be created for allocations to eligible LGs. With regard to other agencies and structures eligible for the program’s funds, the resource provisions will be included directly in their respective budgets.

17. At the municipal level, the vast majority of LGs manage to prepare, within the prescribed timeframe, a participatory budget adopted by the municipal council and approved by the Representative of the State (Prefect or Sub-Prefect). The low budget quality reflects the poor technical capacities of both municipalities and State representatives. The quality is also affected by other constraints relating to: (i) unreliability of the tax base and tax revenue, and (ii) unpredictability of State transfers (FECL, FDD, etc.).

18. Indeed, the unreliability of the tax base and unpredictability of expected State transfers (FECL, FDD, etc.) impact negatively on the budget planning process: On the one hand, the municipalities are not responsible for determining the tax base and their financial autonomy is impaired by problems relating to the reliability of taxpayers' records and the completeness of tax revenue collection. In addition, the terms and conditions governing the allocation of FECL resources to LGs are not transparent, and do not guarantee the predictability of the said resources since the amounts are disclosed tardily. Consequently, most LGs do not include estimates of resources expected from the State in their original budgets, but prefer to wait until the actual allocations are disclosed (generally in May, long after the adoption of the initial budget). Besides, the bulk of the FECL is allocated directly to national agencies (50 percent on average), which intervene directly in the municipalities, not at the request of municipalities but for investment funding which is not often included in Municipal Development Plans. These shortcomings relating to the direct allocation of part of the FECL to national agencies and the delay in transferring to municipalities their FECL share will be corrected by the FECL reform envisaged in the program which aims inter alia, to enhance predictability and transparency in the allocation of resources assigned to municipalities.

2.2 Payments and flow of funds.

19. Resources to be mobilized from IDA, AFD and the State will be used to essentially finance the program's expenditures. Regarding the program, the funds flow arrangement is expected to increase predictability and availability of financial resources for municipalities, once they fulfil the conditions of access to resources (results achieved) agreed beforehand. The description provided below concerns the program.

20. An account dedicated exclusively to the program's expenditure and through which IDA/AFD resources will be channelled, will be opened at the central level. The availability of funds will be constantly indicated through statements of account. The availability of funds at the central level should guarantee the timely implementation of MASP activities. In addition, the Treasury will be required to adhere to defined payment timing requirements to ensure that the funds in the account are released in a timely manner to LGs. This will be achieved through a performance memorandum between the Treasury and the program (contained in the Priority Action Plan) and measured through an intermediate results indicator.

21. The program funds. IDA/AFD funds for the program will be disbursed, after the achievement of disbursement-related indicator targets (DLI) which will be verified by an independent verification agency recruited by ADM under the IPF.

22. At the central level: The central level will have two accounts:

• A dedicated account will be opened at the Central Bank (Treasury account) and managed by the Treasury Directorate. Only the contributions of IDA and AFD will be released into this account to be administered per the same rules and procedures used for the State’s FECL account, with respect to the performance window (window 2).

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• State grants will be paid into the traditional FECL account. Part of this grant (window 1) will be directed towards national agencies, while the other (window 2) will be allocated to all LGs. Thus, there will be no special treatment or specific account for the 123 LGs of MASP. For accounting purposes, FECL allocations meant for the 123 LGs are disclosed immediately after the CNDCL approves the allocations proposed by the DCL. The retention of window 1 which complies with current practice is a transitional step, which, will end after the FECL is fully reformed. The State grant provided for in the program is the window 2 amount to be allocated directly to the 123 LGs of MASP and estimated at US$70 million during the program implementation.

23. The opening of the dedicated account is a mitigation measure meant to guarantee the availability of resources intended to finance program’s activities, but to also ensure that the resources reserved for LGs eligible under the MAP are not used for other expenditures. It is a transitional measure that could be reassessed during the mid-term review. As a matter of fact, if the budget resources are communicated and released as scheduled, the funds from IDA and AFD can be channelled through the FECL single account.

24. Regarding the agencies and stakeholders other than the eligible LGs, the resources mobilized under the MASP will be included in the State budget and the funds released directly into the State budget.

25. At the local level, the funds are channelled through a central account at the Treasury29 to LG accounts kept by public accountants for the payment of municipal expenditures. Because of the segregation of the duties between the commitment authority and accounting/payment tasks, information on the availability of funds and LG expenditure payment deadlines are held exclusively by public accountants. LGs do not systematically receive feedback on payments made at the Treasury regional unit. To overcome these shortcomings and guarantee an expeditious processing of LGs’ financial operations, the program envisages to set up an integrated information system to enable LGs to track payments and send alerts to the program coordination in the event of serious payment delays.

26. A rolling advance up to $15 million representing 7.5 percent of IDA/AFD financing could be made to the government to reduce cash constraints associated with the fact that the Program disbursement schedule is not aligned with the national budget cycle. This advance will be gradually recovered as the results are attained. Under the program's start-up phase (first year), the allocations to LGs of the MASP will be paid based on the MMC distribution method, as advances to enable the 123 target LGs to start their preparations for the assessment of MMCs and PIs from year 1 to year 2

Flow of funds Chart:

State IDA/AFD Treasury-BCEAO Account Treasury ADM, CC, ARD, etc. Other stakeholders MASP LGs Treasury Suppliers and Service providers

29 Part of the funds is directly meant for national agencies. This part is not included in the program.

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27. FECL State funds as well as the donors' contribution will be kept at the Central Bank (BCEAO) under the responsibility of the Treasury. Part of the funds will go to partner agencies and stakeholders of the program. The bulk of the funds will be mobilized for LGs.

2.3 Accounting and Financial Reporting

28. At the national level, public spending is effected through the integrated public finance management system SIGFIP (budgetary module) and the accounting system ASTER (accounting module). Data on revenue is published monthly at the aggregate level, and quarterly at a level of detail comparable to that of the Finance law. Data on foreign and domestic debts are published quarterly. Data extracted from the SIGFIP on expenditure other than wages, debt and funded projects are published monthly. The monthly and quarterly reports mentioned above are posted on the MEFP sites within a very short time.

29. At the local level, municipalities-some of which use the software COMMAIR- implement the administrative phase of public expenditure. The accounting phase is under the responsibility of the public accountant who uses the software package COLLOC. The LG accounts are consolidated in the national accounts.

30. Public accountants are required to close and transmit their management accounts to both the Treasury and the representatives of the State, no later than 30 June. This timeline is generally complied with.

31. The administrative accounts of year n-1 prepared by the mayors must be approved no later than 1st October of year N. In several cases, the administrative accounts are prepared and approved with some delays. Most LGs are confronted with poor technical capacities, delayed reception of the required information on the implementation of revenue or feedback on the payments of expenditure warrants. They therefore wait until the management accounts are available to extract the information needed to finalize the administrative accounts. Only a few LGs use the COMMAIR software even though it was designed to help them automate the preparation and production of their administrative accounts. Some accountants periodically (monthly) but informally provide municipalities with a statement of revenue and expenditure. The reforms supported by the MASP concern aspects of transversal capacity building as well as the information system on budgetary and accounting management. Resources are earmarked to replace the current system with an improved and integrated public finance management system (GFILOC) in urban LGs. The administrative accounts could be prepared within the set timeframe and invite more discussion in the LGs.

32. Within the MASP framework, information on planning and implementation will be generated through the different existing information systems. In LGs, apart from the innovations envisaged by GFILOC, no major change is expected. The ADM will prepare the reports by gathering and consolidating all information from various sources, to produce periodic statements on the program's implementation status.

2.4 Control and internal audit

33. Internal audit measures are generally integrated throughout the public expenditure chain to ensure transparency of the budgetary process, procurement and the control of service provided, but their effectiveness is debatable. The internal audit system run by ministerial in-house inspectorates is operational for all entities of the central administration. All 30 ministries have an in-house inspectorate. For the majority of entities that have been audited, reports are prepared and transmitted to the higher institution of administrative audit, notably the General State Inspectorate (IGE) that publishes its annual report on verifications conducted on its site. The Coordination and Monitoring Office within the Prime Minister's Office and under the technical oversight of IGE oversees the systematic follow-up of recommendations from audit missions and, by the end of October 2016, about 60 percent of the audit reports were acted on. The risk-based audit approach was also introduced with the preparation of 12 risk maps of sectoral

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ministries and MEFP directorates. However, to further improve the efficiency of the internal audit system, emphasis should be laid on audit quality since the strengthening of the internal audit system of sectoral ministries is a measure in support of the devolution of the commitment authority to line ministries.

34. At the municipal level, lack of capacity is a major challenge. Most LGs do not have sufficient skilled human resources to ensure acceptable segregation of some functions. However, some controls are already in place but need to be reinforced. The control by the Treasury prior to payment makes it possible to reject expenditures that do not comply with the rules of conformity. Contracts which exceed certain thresholds –albeit rare- are subject to prior review by the Public Procurement Control Directorate. The administrative control bodies such as IGE and IGF can also conduct ex-post reviews of the communes. Finally, the Internal Audit Directorate within the Line Ministry is also responsible for the internal audit of LGs, but it is not very operational. Provisions have been made in the program to improve the effectiveness of the overall internal audit system. The program will support coaching and capacity development in LGs, an enhanced citizen participation, access to information and accountability mechanisms in addition to the elaboration of a manual of procedures applicable for all LGs.

35. To enhance internal control throughout the program lifespan, there are plans to strengthen the internal audit unit of the Line Ministry. TA will be provided to strengthen the internal audit unit of the ministry as well as contribute, in collaboration with this unit, to strengthening and improving internal audit in both the ministry and the LGs.

2.5 External audit

36. At the national level: External auditing and legislative oversight are performed by the Court of Auditors, and the Parliament. The Court of Auditors is the Supreme Audit Institution (SAI). It has three essential missions: (i) a jurisdictional mission with the verification of the public accountants’ accounts; (ii) external technical audit of all structures benefiting from public funding and (iii) a mission to support and advise Parliament; in this respect, the Court issues a report on the budget execution act and a notice of its compliance.

37. Every year, a draft budget review act (LdR//BRA) is submitted, on time, to the Court of Auditors for verification. The draft budget review act 2016 has already been transmitted to the Court of Auditors.

38. At the local level:

• Judicial control: The Local Governments' Chamber of the Court of Auditors is entrusted with reviewing the accounts prepared by the public accountants.

• Technical audit: Serious delays have been encountered, and the possibility of cleaning up existing backlog is uncertain. The Court does not currently have the required human and financial capacities or a clearance plan to absorb the delay registered in the audit of the 600 LGs.

39. The Program provides the Court of Auditors with the opportunity to increase the coverage of LGs undergoing technical audit, with a focus on the 123 LGs financed by the MASP.

40. In addition to the financial statements, LGs prepare administrative accounts that are adopted by the municipal council and transmitted to the State representatives and MGT.

41. Financial audit of the Program. The Court of Accounts is the only external audit body independent of the government, and should be responsible for the external audit of the Program. However, because of human resource constraints, an independent external auditor will conduct the financial audit of MASP. The terms of reference (ToR) of this audit will be finalized three months following effectiveness. The audit will cover both the program and the Project. The audit report will be transmitted to the World Bank within six months following the end of the fiscal year.

42. Performance verification of LGs of the program. A multi-disciplinary firm recruited by the ADM, in collaboration with the Court of Auditors, will conduct verification of the LGs annual performance

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evaluations for the first two years on the basis of the ToR approved by the World Bank. During this time, the firm will help to build the capacity of the Court of Auditors. After the second year, an assessment will be conducted. If the capacity of the Court of Auditors is deemed adequate, it will take over the verification process in the third year. In the alternative, it will take over the process in the fourth year.

43. Intergovernmental transfer review. The good performance of MASP will, to a large extent, depend on the effectiveness of the reformed FECL and FDD. The DCL will conduct a bi-annual assessment of the functionality of all transfer modalities to ensure that the revised regulatory framework aligns with the evolving objectives of the transfer system.

44. Verification of DLIs. The disbursement indicators and verification protocols were described in the PAD and will be further detailed in the manual of procedures. A report will be prepared every year to provide information about the level of attainment of DLIs. An independent verification agent will be recruited by ADM.

45. For beneficiaries, other than LGs, such as ADM, DCL, ARDs, AGETIP, DGID, DGCPT, Court of Auditors, DGAT, results indicators will be defined in individual conventions to be signed with the concerned parties.

SECTION 3: PROCUREMENT

3.1 Procurement planning

46. Article one of Decree No 00865 of 22/01/2015 on the organization of the procurement process and the functioning of the procurement units provides that the latter (procurement units) have the responsibility to prepare, annually, the consolidated procurement plan (PPM) of contracting authorities under their responsibilities as well as a general procurement notice. These two documents are submitted to the Central Directorate of Procurement (DCMP) or their representations at regional level, for approval.

47. All municipalities confirmed that they have approved annual procurement plans. However, these procurement plans do not derive from strategic planning resulting from a LG development plan. Indeed, very few LGs have valid development plans. While some cities are in the process of preparing a development plan, there is still a long way to go to finalize Annual and Multiannual Investment Plans.

48. Even though LGs have been provided with manifold tools to plan their local development and activities, it is noted that they lack technical resources for effective procurement planning. Through Continuous Territorial Coaching and Contract Management Support, the program will assist LGs to: (i) prepare municipal council development plans over the program’s duration and (ii) develop skills in the planning and monitoring the said plans. These municipal development plans will make it possible to prepare more realistic Procurement Plans (PPMs) adapted to the developmental needs of the populations.

49. The inconsistency between budget and planning was also noted. The municipal council approves the budget while the DCMP or the Regional Procurement Poles approves the procurement plan. None of the texts made mention of the obligation to prepare a draft procurement plan during the drafting of the budget. Moreover, the fact that resources to be allocated to LGs cannot be predicted, makes it difficult to plan the activities properly. It is recommended that with the reformed FECL a draft Procurement Plan (PPM) should be submitted together with the budget. Once the budget is approved, the draft Procurement Plan can be finalized and sent to the competent authority, for approval.

3.2 Procurement procedures

50. The program's resource-based procurement will follow the national procedures of Senegal. The World Bank and the African Development Bank conducted the last assessment of the procurement system in 2003. This assessment revealed several weaknesses relating to lack of transparency, lack of efficiency and low capacities. Based on recommendations made and within the framework of the transposition of the

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Economic Community of West African States (UEMOA) Directives, the government of Senegal developed a new procurement code in 2007.

51. In connection with the pilot project for the use of country systems in projects financed by the World Bank, the World Bank fielded a team in 2009 to assess the procurement system. The assessment noted the enormous progress made by the government of Senegal with regard to procurement. The system was considered effective and in line with international practices. Only 9 of the 54 sub-criteria used for the assessment did not earn the minimal score required.

52. After successfully completing the assessment of the first stage for the pilot project, regarding the use of country procurement systems in projects with World Bank funding, the Senegalese system was assessed for the second phase in 2010. This second phase consisted in assessing the consistency and equivalence of procedures as well as Senegal's procurement documents with those of the World Bank. The assessment report concluded that the methods used for works, goods, services and intellectual services as well as the biddings documents are generally consistent and acceptable. Nevertheless, most of the recommendations made were reflected in the Public Procurement Code developed by the government of Senegal - Decree No 2014-1212 of 22 September 2014.

53. The open tender procedure is the procurement method used as a matter of principle. This method is mandatory for contracts above a certain threshold. For LGs, these thresholds are fixed at 70 000 000 CFAF for works and 50 000 000 for services, routine supplies and intellectual services. The use of national standard tendering documents is mandatory for open tender calls. The evaluation criteria must be clearly defined in the tender documents and be used for the evaluation of tenders.

54. The information and price request procedure and the direct contract option are other methods accepted by the code, under certain conditions. The 2015 ARMP report reveals that since the beginning of the reform, an average of 17 percent of contracts were concluded through direct contracting. Although this rate is below the threshold fixed by IMF, Senegal should ensure that it continues to decline.

55. All the cities and municipalities have confirmed that they are subject to the Public Procurement Code. Indeed, Title 1 Article 2 of Decree n° 2014 - 1212 of 22 September 2014 establishing the Public Procurement Code includes LGs among the contracting authorities under its scope of application. Order n° 00862 of 22 January 2015 specifies the composition of the regional and departmental commissions for public contracts in the regions and Decree n°00863 of 22 January 2015 provides a certain number of reliefs in favour of municipalities with annual budgets of less than 300 million francs. More than 60 percent of municipalities that answered the questionnaire have annual budgets above the 300 million CFA franc threshold. However, the discussions reveal that only a small portion of the budgets (15 to 30 percent) is implemented in the form of contracts; which shows that although the majority of LGs award contracts for small amounts, they do not benefit from reliefs.

3.3 Control and integrity

56. In Senegal, the contract files go through two types of control: Ex ante control and ex post control.

57. Ex ante control: The Public Procurement Directorate (DCMP) and the Procurement Units are responsible for ex ante control. The ex-ante control thresholds of contracts are fixed by an Order of the Ministry of Economy, Finance and Planning. The Study on the Implementation of investment budgets in UEMOA countries, undertaken by the World Bank in 2013 revealed that ex ante review thresholds were low and that this control caused delay in the implementation of budgets. Two key recommendations of this study were: (i) to set timelines for ex ante review, and (ii to raise the ex-ante review thresholds. Senegal implemented these recommendations and through Order No 001016 of 7 January 2015, the new thresholds for ex ante review of the DCMP applicable to contracting authorities like LGs are: (i) 300 million for works contracts, (ii) 200 million for supply contracts and (iii) 150 million for contracts relating to services and intellectual services. Contracts below these thresholds will be subjected to the internal control of the

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Procurement Units of contracting authorities. These Units are supervised by the DCMP, but some lack the capacity to discharge this mission. To facilitate this review, the DCMP prepared guides that describe the points of control. It is recommended to reproduce and propagate these guides in the Procurement Units of Local Governments.

58. Ex post control: Ex post control is the responsibility of the Public Procurement Regulatory Authority (ARMP). According to article 145 of the Public Procurement Code, in addition to its advisory role, the ARMP is also mandated to conduct the annual audits of contracts awarded by all contracting authorities. In practice, the ARMP recruits private firms to audit contracts on an annual basis. The ARMP sampling is based on the amount of the annual budget of contracting authorities. For example, `only 25 percent of the contracting authorities with an annual budget of less than 5 billion is audited per annum. Moreover, this sampling particularly with regard to LGs cannot be covered because of resource shortage. Indeed, the 2015, 2014 and 2013 audit reports published in the ARMP web site disclosed that out of a total of some 200 audit reports published, 25 concerned municipalities, and this provides evidence that less than 5 percent of the communes were audited during this period. Per evaluation sheets, about 15 have confirmed they have received an ARMP audit mission. It is noted however that efforts have been made since 2015, and the ARMP is willing to accompany the program if it is provided with more resources and a multiannual program of structures to be audited is defined beforehand.

59. Citizen control: Of all the municipalities visited, only that of Thies has tried to institute citizen control from its results. During the discussions, it was revealed that this third level of control could assist the program significantly, but it is yet to be familiarized with the mechanism. The recommendation is that the program supports the LGs through training and mechanisms to convince them to develop and organize citizen control.

3.4 Procurement capacity:

60. Authority to approve contracts: The Public Procurement Code, in its article 29 and in compliance with the Local Government Code, provides that the Representative of the State: Governor, Prefect, Sub-Prefect are the authorities empowered to approve contracts whose amounts are above certain thresholds defined in the article. Contracts below these thresholds are approved by the Mayor or his representative. For LGs, whose budgets exceed 300 million CFAF, the threshold required for State Representative approval is 50 million CFAF while for other LGs it is set at 15 million CFAF. Some of the municipalities visited complained about delays in getting approval.

61. The procurement unit. In accordance with article 35 of the Public Procurement Code, municipalities and cities must have procurement units and contract award commissions. Every year, the LG submits to the General Directorate of Public Procurement (DCMP) or the Regional Public Procurement Pole, which has jurisdiction over it, the decrees appointing members of these two bodies. Per Decree n° 00865 of 22 January 2015 which specifies the composition and attributions of the procurement unit, the Unit is primarily mandated to conduct ex ante control of the procurement procedure for contracts whose amounts are below the thresholds defined in Decree n° 00106 of 7 January 2015. Per the texts, the size of the unit depends on the workload. But in any case, it must be headed by a person with the required skills appointed by decree or any other appropriate act.

62. All LGs covered by the program said that they have procurement units. However, except for cities, these units mostly have one staff member appointed by the mayor, who does not have the required qualifications and competence. Moreover, it was revealed that when a mayor is newly elected, he generally changes the staff of the municipality, including the person in charge of the Unit and this situation is not conducive to the capitalization of existing experiences. Depending on the size of municipalities, it is recommended that the latter acquire the required technical skills and lay down rules to guarantee their stability and safeguard the investments made to train the staff.

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63. Delegated Contract Manager and Contract Management Support: Within the framework of certain programs, AGETIP and ARDs respectively served as Delegated Contract Manager and Contract Management Support.

64. AGETIP, in its role of Delegated Contract Manager (MOD), implements infrastructure construction activities on behalf of the LGs, through MOD agreements. It concludes contracts, signs, makes payments and manages them on behalf of the LGs. Once the works are completed, AGETIP receives and hands them over to the municipality for exploitation. Although the LG is involved throughout the procedure, its responsibility is limited.

65. There are 14 Regional Development Agencies (ARDs) in the regions of the country. They receive 90 percent of their operational budget from the FDD and common costs from the MEFP, and the remaining 10 percent should be provided directly by the LGs in the concerned region. The ARDs provide municipalities with support in the planning and development of investment plans, procurement and project implementation documents. This support is very helpful and important for medium and small-sized municipalities with inadequate project management capacities. The ARDs work closely with various decentralized technical services. Although in the short and medium terms, the assistance of would be indispensable for LGs, there is need to ensure that: (i) ARDs build their own capacities; (ii) the assistance is directed towards strengthening the capacities of LGs; (iii) LGs are increasingly empowered, and; (iv) there is a performance contract between ARDs and LGs.

66. In addition to ex ante control, the DCMP provides support-advice to cities and municipalities. It has seven decentralized services referred to as Regional Public Procurement Poles. These regional poles do not have sufficient human resources to assist all the municipalities. This is the case, for example, of the Regional Pole of Thiès, which has only six agents for 86 municipalities. These poles should be provided with more skilled human resources to help them step up their assistance to municipalities in public procurement.

3.5 Contract administration:

67. Title IV of the Procurement Code describes the contract performance conditions while Title V refers to contract cancellation procedures and penalties applied to the different parties. The approach described seems simplified and equitable.

68. Senegal’s report of the study on “Stimulating the implementation of capital budgets in UEMOA countries” highlighted a certain number of shortcomings consisting in: (i) the non-existence of an integrated system to ensure traceability of project implementation and related financial transactions; (ii) the absence of statistics and lack of clarity in the definition of responsibilities. Indeed, the technical services in charge of implementation monitoring do not always have information on the effectiveness of payments. This observation was confirmed during the visit of sites and in the answers to the questionnaire provided by the LGs.

69. With regard to payments, strictly speaking, the same study revealed that, due to the weight of the budget regulation system in the implementation process, the actual overall capital expenditure payment period is still long and does not comply with the contractual obligations. The questionnaire shows that the payment period for providers is 30 days, on average, but can go up to 60 to 180 days. The direct consequences of this finding are that:

• The tenderers are reticent to participate in tender calls financed through State funds, and no longer trust the reliability of State commitments.

• The tenders are higher because tenderers justifiably estimate the cost of payment delays and include it in their proposals (rolling stock securement, storage costs, resources on hold and possible bank charges in case of loans and various guarantees)

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• The successful tenderers with limited financial capacities may have to interrupt the works or confiscate the supplies to be delivered pending payment, which can lead to serious delays

• The CAs do not apply penalties on ongoing contracts because the State’s commitments are not fulfilled and the interests for delayed payments stipulated on the contracts are never paid.

70. Most LGs do not have an implementation manual. Invoices are transmitted and processed by various actors depending on the LG. It is strongly recommended to prepare implementing manuals defining the circuits, timelines, supporting documents related to payment operations from a standpoint of prevention and risk management.

3.6 Complaints management

71. In Senegal, the provider may complain both during the procurement phase and during the contract performance period. During the procurement process, three levels of complaints are possible: (i) appeal to the contracting authority for reconsideration, (ii) contentious appeal to the Dispute Settlement Committee and (iii) seeking legal remedy before the competent courts. Articles 89 to 92 of the Public Procurement Code describe the stages of the different levels of redress, the prescribed timelines for each actor. The “Tenderer's Guide”, a document prepared by the ARMP with the support of the Senegalo-German Program in Support of the Competitiveness and Growth of SMEs and the Performance of the Micro Finance Sector (PACC-PME/PMF), explains that redress during the procurement phase may involve all stages of the process.

72. The code provides for two levels of complaints that can be used during the contract performance, namely: amicable settlement before the Dispute Settlement Commission (CRD) and contentious appeal before the competent courts, or tribunals or an arbitration court, in accordance with the conditions set by the OHADA uniform Act.

73. ARMP publishes on its web site, all decisions taken by the Dispute Settlement Commission (CRD) on dispute settlement. It also publishes statistics on applications for redress, every year. In 2013, for example, only 16 out of 269 applications for redress concern LGs. These figures stood respectively at 239 and 8; 361 and 21 for 2014 and 2015. The questionnaire filled by LGs confirms that they receive very few grievances. This situation is due to the fact that LGs conclude very few contracts and the ARMP is distant from providers living far from Dakar, considering that this structure has not been decentralized. Besides, during the procurement phase, providers must pay a deposit before the application for redress is receivable. This deposit meant to discourage groundless grievances could also represent an obstacle for tenderers.

SECTION 4: FRAUD AND CORRUPTION, RISK AND MITIGATION MEASURES

74. The government of Senegal confirmed its commitment to fight against fraud and corruption by ratifying the United Nations Convention against Corruption on 3 August 2005 and that of the African Union on Preventing and Combating Corruption in February 2007. It established new institutions including: (i) the Public Procurement Regulation Agency (ARMP); (ii) National Financial Intelligence Processing Unit (CENTIF), specialized in the fight against money laundering; (iii) National Committee to Eliminate Non-transparency, Corruption and Embezzlement (CNLCC) and (iv) National Office for Combating Fraud and Corruption (OFNAC) by law n° 2012 - 30 of 28 December 2012.

75. In accordance with the requirements of the United Nations Convention against Corruption (CNUCC), OFNAC is an independent structure entrusted with two main missions, namely preventing and fighting against fraud, corruption, similar practices and related offences. Grievances and denunciations are the main sources of information for OFNAC. To that end, a toll-free number was set up. The 2014-2015-activity report shows that there is growing use of the toll-free number compared to other methods of denunciation. The report further observes that 70 to 80 percent of grievances concern Dakar.

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76. Thanks to these arrangements, Senegal 's classification by “Transparency International” in the 2016 report on the perception of corruption slightly improved.

77. Regarding procurement, article 148 of the Public Procurement Code lists the penalties applicable in the event of fraud and corruption related to contracts. The standard procurement documents prepared based on those of the World Bank also contain clauses on fraud and corruption. The ARMP through the Regional Development Committee (CDR) is in charge of applying sanctions.

SECTION 5: PROGRAM FIDUCIARY RISK ASSESSMENT

78. Most actions to be implemented to improve fiduciary management are already incorporated into the program. The table below summarizes the risks and mitigation measures.

Risk description Mitigation measures Program Support / Entity in charge

Deadline

1. Human Resources for program implementation Low human resource capacity of LGs for financial management, procurement and management of technical aspects.

Finalize the standard organizational charts and encourage LGs to have the personnel required for both resource and technical management.

Already scheduled and incorporated into the program/DCL

At start-up

Low procurement and technical capacities of LGs to implement investment projects. Risk of non-compliant and low quality contracts

(i) The procurement units and commissions will undergo training in contracting to strengthen their capacities; (ii) for projects whose complexity is beyond the competence of LGs, they may turn to ARDs to provide Contract Management Support or AGETIP as Contract Manager

Already scheduled and incorporated into the program/ADM and ARDs

Ongoing

Great mobility of LG staff which does not leave room for continuity in the occupation of functions and the recognition of gained experience.

Territorial coaching, which will be provided by the ADM and ARDs will help bridge certain capacity gaps in the Local Government. Each LG will develop a capacity building plan according to its needs, which the ADM will help implement.

Already scheduled and incorporated into the program/ADM

Ongoing

2. Planning and budgeting 2.1. Procurement Planning

Nonexistence of a municipal development plan, which makes it difficult to have sound procurement planning and limited capacity in multi-annual planning

Encourage and assist target LGs to develop municipal planning and programming covering the program's lifespan

ADM/ARD During the 1st year

Assist LGs to develop planning and monitoring-evaluation skills

ADM/ARD Ongoing

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2.2. Budgeting Delay in the preparation of the budget and poor budget quality,

Strengthening the capacities of stakeholders (municipalities and State) including Citizens, Predictability of resources with reviewed FECL

Already scheduled and incorporated into the program/ADM

Ongoing

2.3. Financial flows and management of funds. Non-availability of funds at the local level for the implementation of the program's activities.

WB/AFD program funds in a separate account managed by the Treasury Increase in resources allocated to municipalities by the State

Already scheduled and incorporated into the program

At start-up

SICA STAR fully operational to optimize treasury management

Already scheduled and incorporated into the program

Ongoing

Delays in payments due to lack of payment tracking by LGs.

Preparation of the manual of procedures and deadline monitoring

Already scheduled and incorporated into the program

At start-up

Establishment of an integrated information system Treasury/Municipalities: GFILOC

Already scheduled and incorporated into the program

A year after program start-up

2.4. Control, and internal audit Risk of poor management, fraud and embezzlement, inappropriate decision-making, non-completion of results within the set timeline

. Already scheduled and incorporated into the program/ADM

At start-up

Capacity building: Technical support to LGs and the different stakeholders involved in the internal audit

Already scheduled and incorporated into the program/ADM

Ongoing

Limited capacity of the control entities

Establishment of an integrated information system Municipalities/Treasury:

Already scheduled and integrated into the program

A year after program start-up

Improving the internal audit of the line ministry including support with external skills Follow-up of audit recommendations

ADM/Line Ministry Court of Auditors/ADM/internal audit

A year after implementation. Periodic

Donor supervision Donors Periodic

2.5. Control, Integrity and External audit Low capacity of procurement units to carry out ex ante reviews. Overburdened Regional Public Procurement Poles, which also conducts the ex-ante review of contracts based on a threshold as well as assist the Unit to implement this ex ante review.

The DCMP has agreed to strengthen its teams and improve the supervision of units in LGs benefiting from the program's resources. The DCMP developed a guide for contracting authorities. This guide will be reproduced and

DCMP/ADM

Ongoing

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Delay and inadequate coverage of LG audits. Delay in the verification of the DLI which would delay the disbursements Delay in auditing the performance of municipalities under the program.

popularized within LGs with training tailored to their needs Strengthening the capacities of the Court of Auditors, and increase in State allocation to the Court of Auditors Timely preparation of report Independent Verification agent to verify the achievement of DLIs Timely preparation of performance reports Strengthening the Court of Auditors with competent independent auditors Recruitment of an independent multi-disciplinary firm under the responsibility of the Court.

ADM ADM and Court of Auditors

6 months after implementation. 6 months after implementation

• Very few LGs are subject to ex post control of public contracts

Conduct an audit of LG contracts annually on the basis of a representative sampling

ARMP/ADM Every year

2.6. Procurement System and Procedures 2.7. Management of contracts

Long payment periods that can discourage private sector participation

Prepare manuals of procedures defining the circuits, timelines, supporting documents related to payment operations

Already scheduled and incorporated into the program/ADM

At the start of the program

2.8. Grievance management system. Centralized grievance management system and absence of mechanism at the local level. This could discourage tenderers from lodging grievances but also cause delays in the procurement process

Strengthen the capacities of LGs to manage grievances and set up a regional grievance management system closer to municipalities.

ARMP/ADM Ongoing

2.9. Fraud and Corruption Risks and Mitigation Lack of citizen control Assist LGs to develop citizen

control ARMP/ADM At the start of

the program, and ongoing

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SECTION 6: IMPLEMENTATION SUPPORT

Fiduciary activities Frequency

Desk review

Municipalities’ annual performance reports Before any payment

Financial audit report of the Program Annual

Reports on the audit of municipalities’ management accounts As and when available

On-site supervisions

Implementation Support mission (ISM) to program Twice a year

Follow-up the recommendations of previous audits and Implementation support missions

If need be

Capacity Building During ISM and when needed

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Annex 6: Summary Environmental and Social Systems Assessment

1. The ESSA examines the environmental and social management systems in Senegal applicable to PACASEN to assess their conformity with provisions of the World Bank for PforR. The objective is to ensure that the systems enable the identification and management of potential risks. More specifically, ESSA identifies and analyzes possible gaps between national systems and basic principles of the program, and recommends improvement measures aiming to ensure that environmental and social management systems are consistent with the World Bank’s requirements.

2. In contrast to conventional investment projects or programs, PforR supports a government program targeting the following objectives: (i) financing the Borrower’s specific program expenses; (ii) linking fund disbursements directly to the achievement of specific results; (iii) utilizing and strengthening systems to ensure funds are used in an appropriate manner, with due consideration to the program’s environmental and social impact; and (iv) strengthening institutional capacities required to attain expected goals.

3. The World Bank is responsible for conducting the ESSA, whereas the client (Government of Senegal) is responsible for assessing impacts associated with activities (sub-projects) financed by the Program.

ESSA Process

4. ESSA preparation and the development of measures aiming to strengthen the environmental and social management systems have benefited from various information and a broad consultative process, including:

• A desk review of available documents and data on national environmental and social procedures and their regulatory frameworks; the analysis of environmental and social safeguard capacity of institutions intervening in the Program; and the World Bank documentation on PforR and ESSAs.

• Interviews and work meetings with representatives of State and non-State institutions involved in the Program and stakeholders, including public consultations at the regional level.

• Consultation meetings to clarify results expected from ESSA, identify the Program’s environmental and social challenges, assess TA and capacity development needs to improve environmental and social management systems, develop a better understanding of procedures, standards and the approach to adopt with the technical staff of involved ministerial departments.

• Wrap-up meetings on the ESSA preliminary report were held from October 9 to 21, 2017, in Senegal, with the participation of locally-elected officials, the ARDs, the DREECs and civil society organizations. The outcome of these meetings is documented in an annex to the present ESSA (with a complete list of participants).

• A public consultation workshop was held on October 23, 2017 with the participation of representatives of the technical staff from the Government and from Territorial governments, development partners, civil society organizations and the private sector. The findings of this workshop are documented in an annex to the present ESSA (with a complete list of participants).

• The draft ESSA report has been made available to the public on the World Bank external website and also on the site of the Ministry of Territorial Governance (MGT). Public feedback was solicited during the defined period after which the ESSA was finalized.

• The finalized ESSA was published both on the World Bank external website and on the site of ADM.

Key partners and agencies involved in the Program

5. Given the integrated nature of the Operation, many central actors will be directly involved with its implementation.

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• MGTDAT’s DCL will play a key role, namely in the drafting, implementation and monitoring of various law and decree projects needed to operationalize decentralization in Senegal;

• The Environment and Classified Establishments Directorate (Direction de l’Environnement et des Établissements Classés, DEEC) of the Ministry of Environment and Sustainable Development will be in charge of environmental and social assessment (ESA) validation, implementation and monitoring;

• The National Treasury (Direction Générale de la Comptabilité Publique et du Trésor, DGCPT) of the Ministry of Economy, Finances and Plan (Ministère de l’Économie, des Finances et du Plan, MEFP), will be in charge of grant transfers to TGs and will also manage the dissemination and availability of financial information through the Local Governments Finance Online Platform (Observatoire des Finances Locales, OBFILOC).

• The National Treasury’s Local Government Department (Direction du Secteur Public Local, DSPL) and the General Tax Directorate (Direction Générale des Impôts et des Domaines, DGID) will be responsible for moving forward fiscal reforms and accompany TGs in local resources mobilization.

• The Court of Auditors (Cour des Comptes, CDC) will as well play a key role as Independent Auditor of the attainment of Indicator-linked Disbursement (ILDs) but also of the performance of TGs on an annual basis.

• National or regional agencies, the Municipal Development Agency (Agence de Développement Municipal, ADM), the Agency for the Execution of Public Works (Agence d’Exécution des Travaux d’Intérêt Public, AGETIP), Regional Development Agencies (Agences Régionales de Développement, ARD) will support TGs’ empowerment efforts in investment programming and implementation through the setup of a TA adapted to the need of each TG.

• The MGT Training Service (Service de la Formation, SF), responsible for implementing the national training strategy for territorial actors (Stratégie nationale de formation des acteurs territoriaux, SNFAT) will support the « Continuous Training » segment of Annual Capacity-building Plans (Plans annuels de Renforcement des Capacités, PARC) of urban TGs. Other actors will also be involved in the Operation through a consultative and/or decisional role.

6. The institutional structure for the Program implementation will include the following entities:

• ADM will play the role of technical unit for functional coordination and will support MGTDAT in the daily steering and monitoring of the Operation. It will also supervise the technical support mechanism for urban TGs (Continuous Territorial Coaching, CTC) in cooperation with ARDs. ADM will also be responsible for standard project implementation tasks (procurement awards, financial management and safeguards).

• A Strategic Steering Inter-Ministerial Committee (Comité Interministériel de Pilotage Stratégique, STC), chaired by the MGTDAT and co-chaired by the MEFP, will be set up to supervise the Program implementation, namely by guaranteeing the commitment and proactive engagement of all institutional actors involved.

• A Functional Technical Committee (Comité Technique Opérationnel, CTO) will be responsible for steering the Program on a more regular basis and will also have the mission of assisting the STC. It will meet each trimester to ensure Program monitoring is steady and it will also prepare STC reunions. Its secretariat will be provided by ADM.

• Workgroups (Groupes de Travail, GDT) created and coordinated by ADM may be created depending on needs in managing specific themes during implementation of Program activities.

• Territorial Governments targeted by the Program will have an important responsibility in the implementation of various activities at the local level.

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GLOBAL EFFECTS OF THE PROGRAM

Overall results of the Program

7. PACASEN planned activities are not yet defined in detail (they will be defined incrementally during TGs’ planning). Generally, investments will focus on the following aspects: (i) restoration of roads with investments linked to dependencies; (ii) drainage of wastewater; (iii) building of local health centers; (iv) improvement of urban landscapes and development of public spaces; etc.

8. In general, Program activities will have beneficial environmental, social and economic impacts on hygiene, sanitation, efficiency, etc., and the population (improvement of living conditions). These positive effects are numerous and should hold in the long-term.

9. By contrast, negative environmental and social impacts of investments (works, infrastructures, services) will in general be limited, of low to medium extent, reversible and easily controllable and manageable. It will be fairly easy to identify them in advance, prevent them, and minimize them with simple good practices and efficient mitigating measures. The national systems in place (DEEC/DREEC, ARD, ADM, AGETIP) are largely equipped to manage and mitigate these impacts.

10. The environmental and social diagnostic of various sub-projects submitted by TGs will enable identification of required planning tools and the simple and efficient control of monitoring systems (through a simple and efficient screening system, see Section II). But the large majority of these sub-projects which qualify for financing relate to works that generate environmental and social risks determined to be moderate to low.

11. Thus, in general, PACASEN not only does not contain major environmental and social risks, but it will have globally positive effects.

A. SUMMARY OF ENVIRONMENTAL MANAGEMENT SYSTEM

Environmental Effects of the Program

Limited negative environmental impacts

12. The lack of PACASEN’s major negative environmental impacts is due to:

• The exclusion, by the very nature of PforR, of any investment containing major environmental risks (namely, projects classified under Category A by the World Bank).

• The nature and type of developments and infrastructures, which are limited and of small scale, usually spatially contained, and involve only excavation work that is limited in depth and surface area;

• Works and development operations which do not cause major incidences of air pollution or noise pollution or a significant deterioration of the urban environment;

• The feasibility, efficiency and practicality of planned activities, based on results of diagnostic studies conducted beforehand that take into account specific social, economic and environmental factors;

• The application of various efficient and controllable measures to mitigate potential risks and ensure impact monitoring, during both the construction work phase and program implementation;

• The presence of specialized institutions, proficient in managing most environmental and social aspects of the Program;

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• The existence of an adequate legal framework which allows for the efficient management of all environmental and social aspects of the Program.

Beneficial environmental impact

13. In general, the Program investments will have a positive environmental impact, both direct and indirect, temporary and permanent, to the extent that they will contribute to improving the quality of life of Senegalese populations. In fact, through activities it seeks to finance, PACASEN will contribute, among other things, to:

• Decreasing recurring neighborhood flooding hazards as a result of rainwater drainage works; • Decreasing air pollution by improving urban traffic conditions, with benefits in local and global

gas emissions, such as carbon dioxide (CO2), nitrogen oxides (NOX) and volatile organic compounds (VOC);

• Improving air quality by reducing greenhouse gas emissions. GHG emissions reductions will impact on long-term mitigation goals for municipalities and land use change. Municipalities will need to both mitigate and adapt to avoid harmful climate impacts, with the two strategies being complementary because more mitigation action reduces the need for future adaptation. Climate policies often involve incorporating climate issues will be considered into the design of strategies for equitable and sustainable development at local levels to give a range of co-benefits;

• Reducing greenhouse gas emissions; • Improving urban and rural populations’ quality of life, mostly for those who live in disadvantaged

neighborhoods, by providing better access to drinking water and sanitation services; • Reducing the frequency and incidence of diseases (particularly waterborne diseases) and medical

costs of treatments of diseases associated with water pollution and inadequate sanitation infrastructures;

Negative environmental effects during the preparation phase

14. PACASEN activities present potential environmental risks. During the preparation phase, the main risk is negligence in the preparation of procurement packages; the low consideration of environmental and social aspects during the preparation of technical studies; and/or the preparation of unsatisfactory environmental studies. This risk may be exacerbated where technical alternatives to project concepts have not been rigorously thought out and aspects of public information and participation have not been taken into consideration in a culturally appropriate and socially acceptable manner.

15. Furthermore, structural interventions planned in the PACASEN framework could create risks for public and worker safety. Protection against such risks will be ensured in accordance with applicable national and international regulations. Mitigation measures for such risks will specifically involve: (i) consulting the public and stakeholders during site selection and preparation and validation of studies; (ii) quality control in implementing validation procedures and dissemination of environmental and social studies; and (iii) worksite supervision by environment experts.

16. The main mitigation measures advocated during this phase essentially consist in screening all sub-projects based on agreed upon criteria, establish an environmental management plan (EMP) before implementation and include in the specifications of bid tender packages a section on compliance of construction sites with environmental and safety provisions.

Negative environment effects during construction work

17. The construction work phase could generate solid waste (cement bags and other types of packaging, remnants of drinking water systems, workers’ household waste, etc.), cause nuisances of vehicle and machinery (dust, noises, gas emission and waste oil spills) or harmful effects (uprooting of trees, loss of green areas, etc.).

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18. Even though effects of these impacts are not permanent (since they do not continue beyond the end of construction work), they may nevertheless persist (mainly effects of solid waste and engine oil spills) if ongoing and closing construction work are not subjected to environment protection procedures. More specifically:

• Construction work could require use of fill materials – which could be retrieved from near-by quarries.

• Construction site machines and noisy equipment (jackhammers, air compressors, etc.) will create noise pollution.

• Dust will be generated by excavation work, inadequate storing of construction materials and rubble, and the movement of heavy equipment.

• Circulation of heavy equipment coupled with the non-observance of safety measures might cause work accidents.

• Worksite vehicles will generate greenhouse gas from engine exhaust, odor nuisances, sanitary risks and pollution.

• Worksites will generate waste that typically result in various forms of pollution. • Construction or rehabilitation work might require vehicle route deviations or restriction to foot

traffic and generate disturbances in daily activities of urban neighborhoods. • Some work will require the use of vehicles and various types of engines which might cause an

increase in volumes of used oils (for hydraulic machines, engine oils, gear boxes and lubricant and insulating oils and heat transfer fluids)

• Work could contaminate groundwater tables. • The program activities could affect drinking water sources, which could in turn impact water

quality and cause a concentration of pollutant. • Some work could require uprooting of trees and loss of green areas. However, specific mitigating

measures will be implemented, in particular tree planting to make up for the shortfall in carbon sequestration capacity.

19. Still during the construction work phase, other Program activities could have a negative impact on economic activities of some socio-professional categories, with a loss of income (temporarily or permanently) and/or employment (formal or informal).

20. Mitigation measures that accompany this construction phase consist in monitoring on a regular basis the implementation of worksite mitigation measures as defined in EMPs, establishing non-compliances and identifying corrective measures and tracking their implementation.

Environmental effects during the exploitation phase

21. Negative environmental effects of structural investments resulting from this phase could be due to an inappropriate design, a lack of maintenance, inadequate use and deterioration of infrastructures or an insufficient implementation of safety measures. They might cause work dysfunction or deterioration and generate negative impacts.

22. Recommended mitigation measures in this regard are aligned with good practices in construction site management. Generally, they consist in putting in place emergency measures in case of accidental contamination.

23. The environmental monitoring system of the exploitation phase should enable identification in real-time of these shortcomings to make necessary corrections.

24. In summary, taking into account the above:

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The negative environmental and social effects of the Program will be in general low to moderate, least harmful, controllable and manageable.

However, even when taken individually, all potential impacts of the Program appear minimal and, over time, the cumulative aspect of these negative effects could turn out to be moderate. Consequently, environmental and social mitigation measures will be identified in order to reduce any potential negative impact.

Moreover, a rigorous environmental and social control and monitoring system will allow for the minimization of these effects.

Appropriateness of Systems

25. In general, Senegalese legislation in environmental and social management is relatively developed and includes several legal texts and documents which cover a large number of aspects of the subject-matter.

26. The national EIA system in place since 2001 establishes the base rules in terms of environment protection. Strengthened several times over the past few years, it is currently well seasoned and enables the proper management of environmental impacts of new projects subjected to EIA.

27. Furthermore, on the expertise level, there are several engineering and consultancy firms with professional references which have solid capacities in environmental and social management.

Weaknesses and Shortcomings

28. However, analysis of the system also reveals weaknesses and shortcomings, at least with regard to World Bank policy for PforR financing. In this respect, the following may be noted:

• The Department of Environmental Impact Assessments (Division des Évaluations d’Impact Environnemental, DEIE) has a restricted staff and only two to three persons have the technical capacity to properly conduct an EA. This staff is largely insufficient to properly handle all requests for environmental and social assessment.

• The Regional Departments of the Environment and Classified Establishments (Divisions Régionales de l’Environnement et des Établissements Classés - DREEC), with a very insufficient staff and very limited human and equipment assets, do not have the means to properly conduct their environmental and social monitoring mission for projects and programs.

• The National Technical Committee is a unit for the management of environmental impact studies which, normally, should assume very important functions. However, most of its members have a limited knowledge of EA procedures – furthermore, they are designated by their respective entities only when available. Possible consequences for such shortcomings are that environmental and social concerns addressed by these entities are not taken into account during assessment phases and might have negative impacts during implementation phases.

• Most meetings of the Regional Committee for Environmental and Social Monitoring (Comité Régional de Suivi Environnemental et social, CRSE) are limited to EA validation and, in most cases, its members do not participate in field missions on EMP monitoring. It is therefore important to define roles and responsibilities of various stakeholders and strengthen their technical capacities to ensure better monitoring of EA procedures.

• The Regional Development Agencies (Agences Régionales de Développement, ARD) do not yet have a procedural manual to help them optimize the administrative, technical and financial management of their interventions. Such document is being developed with ADM. ARDs have a limited qualified staff, even though their personnel include an environment focal point responsible for environmental and social matters.

• The main constraints at the Territorial government level, in particular with regard to environmental management, reveals many blockage factors due in part to the fact that the knowledge transfer of capacities related to quality of life management has not been supported by information and training

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initiatives or adequate funding for the coordination of environmental and social monitoring activities.

• At the local level, in the domain of information, public consultations and grievance management, citizen participation mechanisms in place are moderately effective. Despite the emphasis on public hearings, populations are still not consulted on planned developments in their respective localities, which hinders their ability to take ownership.

• The lack of guidance and information on citizens’ participation in municipal investment and development activities is also reflected in the absence of recourse to clearly defined mechanisms for grievance resolution.

29. In general, with regard to project implementation, the absence of an environmental and social control and monitoring system constitutes a significant weakness. National and regional institutions, like LGs, have a shortage in technical managers able to efficiently carry out this function; while they may systematically resort to external engineering firms, it does not guarantee consistency and continuity.

30. Moreover, beyond limitations in human resources, these institutions do not either have a comprehensive guide on social and environmental management of local investments. For example, ARDs do not even have a procedural manual to help them optimize the administrative, technical and financial organization of their interventions.

B. SUMMARY OF SOCIAL ASPECTS SYSTEM

31. LGs are subject to the prevailing rules on national environmental and social safeguards. Following an Environmental and Social Systems Assessment of the Program, these rules have been adjusted per the recommendations of the WB and the AFD.

32. This Program is not expected to involve any major civil works that will have significant adverse environmental impacts as the civil works under the Program will likely focus on investment in local infrastructure to enhance local development and local service delivery.

33. A list of investments ineligible to Program financing has been developed in the ESSA. These types of investments have been excluded as they could potentially have non-reversible environmental and social impacts. This “negative” list of investments includes landfills, slaughterhouses of a certain size, projects generating physical or economic displacement of the population, etc.). It will be applied even in case of co-financing (LG self-financing, loan, or other grant provided by the State or by a development agency).

34. The ESSA was elaborated by the World Bank team in a participatory manner including with the various national and subnational institutions which will be implementing the program activities. The ESSA analyses the human and institutional capacities as well as the legal procedures in place to ensure that the overall environmental and social framework in place can manage potential risks.

35. The main findings of the ESSA were that the existing management systems at local and municipal level were largely able to mitigate adverse impacts. However, the assessment also recommended that the information chain between LGs and Deconcentrated structures and more specifically the DREEC, be reinforced. In particular, at the local level, capacity building and human resources in environment be reinforced for the various national and subnational agencies to be involved namely the ADM, ARDs, DEEC/DREEC, and municipal councils.

36. The main identified Social risk is a poorly managed and monitored land acquisition process, that can lead to loss of access to resources and livelihoods and / or displacement. This risk is major, given that the capacity of the various partners (particularly the decentralized structures) is weak. The unfamiliarity of the staff (of these deconcentrated units and services) with the tools such as the sorting form, data collection

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and analysis processes, added to their difficulties to develop ToR, and the absence of environmental and social monitoring system is a handicap. Other aspects to consider are:

• In the Senegalese legislation, persons or infrastructures displaced from the public domain, are not entitled for compensation.

• Vulnerable and disadvantaged people can be excluded from the project. • Informal occupants are also at risk.

37. To comply with the World Bank safeguard policy requirements, the project will exclude all activities exposing people to expropriation. Further, some mitigation measures include:

• A preliminary selection of activities that require land mobilization with potential negative social impacts such as expropriation and large-scale resettlement,

• An effective compensation mechanism, • Capacity building of actors at the national and decentralized levels • Informal occupants should be considered as affected. Where necessary, this category should receive

compensation and assistance for resettlement as well as the restoration of their economic situation. • Ensure the participation of vulnerable and marginalized groups.

38. Social considerations are present in the Senegalese legal and institutional frameworks. These are supported through various laws and regulations. The assessment notes that the legal and regulatory framework in Senegal relates to land legislation (land-use legislation, land status), public participation, land acquisition, resettlement and economic restructuring mechanisms. It also considers other social aspects, such as the social protection of the vulnerable, workforce management, child labor and other forms of abuse on local communities. The legal framework is composed of national texts addressing involuntary resettlement and related compensation. Land ownership in Senegal covers three main categories of lands:

• National domain: described as vacant lands and lands without owner; • State domain: consisting of all the properties pertaining to the State, including public and private

domain; • Private property.

39. The land to be used for MASP can be categorized as urban or classified. If some project activities affect the classified areas, the State would carry out a decommissioning, in order to remove these areas from their primary vocation. Given that most of the activities related to MASP will take place on the public domain, the use of private land will be limited.

40. The constitution recognizes expropriation for public utility. No activities requiring expropriation will be financed by the project. At the national level, several institutions intervene in the expropriation, the land acquisition and the resettlement processes.

41. The program implementation builds on the existing institutional structures. The MGT, in charge of preparing and implementing the Senegalese policy on decentralization, territorial governance and local development, will lead all the operations. The urban LGs targeted by MASP will also have key responsibilities for the implementation of the Program at the local level.

42. The ADM will steer and coordinate the system at the national level on the technical aspects. It will ensure the coordination of the ARD and their training in the context of the PforR. ADM and ARDs will ensure effective linkage between LGs and the relevant Environmental and Social Authorities.

43. The ADM has a staff member in charge of environmental and social issues, commonly known as an environmental focal point. The focal point must verify the quality of environmental and social aspects in the planning, construction and operation of communal or intercommunal infrastructures.

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44. LGs are subject to the prevailing rules on national environmental and social safeguards, in the spirit of the World Band and AFD procedures (following an environmental and social assessment of the Program).

45. The ESSA was disclosed publicly with relevant stakeholders, consulted upon by a representative sample and published at national and World Bank level before appraisal. Preliminary consultations were carried out in the context of preparing the ESSA, in April 2017. A second round of consultations took place in October 2017. The initial findings helped identify the main weaknesses of the system, and the possible mitigations as described below. During the initial consultation, it was found that there are insufficient personnel at the DEEC for the processing and validation of the studies, which explains the heavy workload and the delays.

46. The key actions and measures identified in the ESSA have been included as part of the Program Action Plan, for improved environmental and social due diligence in the program. Further, other suggested actions will be included in the Performance Memorandum that will be signed between the Program and the DEEC/DREECs.

47. Summary of proposed measures. In view of the social risks associated with the project, the ESSA recommendations are summarized in the following table:

Risk Suggested Measures Responsible party for implementation

Responsible entity (ies) for M&E

Inclusion of vulnerable persons, including persons with disabilities

Ensure that ramps and other access arrangements are considered in constructions

Enterprises -ADM -Decentralized environmental structures

Knowledge of relevant laws and regulations pertaining to land and Basic capacity of central and deconcentrated actors

Build the capacity of social structures ADM ADM

Appropriation of ESSA Disseminate the ESSA and spread the information to all stakeholders involved in ADM

ADM ADM

Operationalization of environmental and social measures

Include in the project Operational Manual, a chapter detailing the applicable procedures related to environmental and social aspects

ADM ADM

Documentation of the land mobilization process

Empower local structures ADM Decentralized structures

Inform, consult and give the PAPs an opportunity to participate in all stages of the compensation process. Allow the PAPs to express their views on the proposed options Establish a clear and transparent grievance mechanism and a conflicts management system Provide a selection of construction sites, minimizing or avoiding travel within the framework of the program using a sorting sheet Pay special attention to vulnerable and disadvantaged groups, by providing them with better living conditions and special assistance. Consider informal occupants: compensate and assist them. Adequately monitor the PAPs to ensure that they regain their pre-project living conditions, Give privilege to compensation in kind

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Ensure that the negotiation phase is adequate and sufficient Have copies of the indicated documents available to local structures and the ADM Keep the World Bank informed of each land issue mobilization process through the ADM

48. The TA component will use the IPF instrument to support a set of TA activities that are critical to the successful implementation of environmental and social safeguards given the unpredictability of national budgeting and cash flow management processes. Activities will include capacity building on environmental and social safeguards of the main actors in charge of environmental and social assessment, studies on specific inter-governmental transfer systems, the introduction of integrated local PFM information systems and the roll out of taxpayer censuses. Environmental and social impact under the TA component is negligible.

49. Communities and individuals who believe that they are adversely affected as a result of a Bank supported PforR operation, as defined by the applicable policy and procedures, may submit complaints to the existing program GRM or the WB’s Grievance Redress Service (GRS). The GRS ensures that complaints received are promptly reviewed in order to address pertinent concerns. Affected communities and individuals may submit their complaint to the WB’s independent Inspection Panel which determines whether harm occurred, or could occur, as a result of WB non-compliance with its policies and procedures. Complaints may be submitted at any time after concerns have been brought directly to the World Bank's attention, and Bank Management has been given an opportunity to respond. For information on how to submit complaints to the World Bank’s corporate Grievance Redress Service (GRS), please visit http://www.worldbank.org/GRS. For information on how to submit complaints to the World Bank Inspection Panel, please visit www.inspectionpanel.org.

C. ESSA ACTION PLAN

50. The following table provides a summary of all elements of the ESSA Action Plan that will be an integral part of the PACASEN Global Action Plan. The cost of all identified actions concerning the ESSA environmental and social segments will be integrated into the Program’s global budget. By contrast, for the various investment sub-projects, the costs of environmental and social corrective measures will be integrated to the sub-project budgets.

N° Measure Activity Responsible Entity Schedule

1. STRENGTHENING OF THE ENVIRONMENTAL AND SOCIAL MANAGEMENT SYSTEM

1.1 Technical Manual for PACASEN environmental and social management

(i) Preparation of TORs for the engineering/ consulting firm responsible for creating the Manual (ii) Preparation of a Manual intended for participating TGs and their technical services. This Manual will be an integral part of the PACASEN OM (iii) Organization of a workshop for validating the technical Manual

ADM/DEEC ADM, DEEC with ARDs

Three months following effectiveness During the first semester following Program implementation

1.2 Focal point Designation of the two Focal points for the environmental and social management of LG investments (nested with ADM).

ADM

ToRs available three months following effectiveness

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At the beginning of Program implementation

1.3 Grievance management

Set up a simple and efficient grievance management system within each participating Local government, dissemination of the system and definition of a complaint follow-up system

Each LG with support from ADM

During the third trimester following Program effectiveness

2. CAPACITY BUILDING IN ENVIRONMENTAL AND SOCIAL MANAGEMENT

1.1 Information and awareness

Organization of several annual initiatives to bring awareness to and inform a large audience on environmental and social challenges of the Program structural activities, and strengthen citizen engagement on a regular basis. This includes, among other things, the publication and dissemination of environmental and social procedures for sub-projects and decisions on approved projects.

ADM in collaboration with ARD/DEEC-DREEC

Mostly during the first year of the Program. And also throughout the Program duration

2.1 Specialized trainings

Organization of specialized training sessions intended for stakeholders directly involved in the implementation of Program investments. Based on a capacity-building plan, these training sessions will focus on: • Initiation to Senegal’s legal and regulatory

provisions in the domain of environmental and social management;

• Proficiency in the technical Manual; • Proficiency in filling out the Simplified

Diagnostic Form (Fiche de Diagnostic Simplifié, FIDS)

• Proficiency in developing the EIE in accordance with national and WB procedures (with added sections on PGES and public consultations)

• Proficiency in developing the Environmental and Social Management Plan (PGES), for sub-projects with medium-moderate environmental and social impact

• Proficiency in the preparation of an Environmental and Social Information Form (Fiche d’Information Environnementale et Sociale, FIES) for sub-projects with a low environmental and social impact

• Proficiency in preparation of a Resettlement Action Plan (Plan d’Actions de réinstallation, PAR) for each sub-project with moderate social impacts.

ADM with ARD/DREEC, with external specialized TA as needed

Sessions start during the first semester following Program implementation. Refresher sessions all throughout the Program duration (frequency to be determined based on the allotted budget)

3. CAPACITY-BUILDING IN M&E 3.1 Monitoring

Definition and set up of a monitoring and control system for the environmental and social management of sub-projects and the control of all planned mitigation measures (in EMPs and RAPs).

ADM with DEEC-DREEC In collaboration with the Regional Committees on Environmental and Social Monitoring (CRSE) of each participating TG.

During the first semester following PACASEN implementation

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Each approved developer or sub-project owner. With support of a specialized TA.

3.2

Training in monitoring and control

Training of stakeholders in monitoring social and environmental management tools.

ADM, with DEEC-DREEC. In collaboration with the Regional Committees on Environmental and Social Monitoring (CRSE) of each participating TG.

During the first semester following the launch of the first sub-projects and every six months throughout the Program duration.

Annex 7: Implementation Support Plan

1. The Implementation Support Plan is based on the implementation support guidelines for Program for Results operations, adapted to the design and risk profile of the Operation. The Government of Senegal is responsible for the Program’s overall implementation, including its technical aspects. The World Bank will commit significant resources to support program implementation to enable: (a) regular review of implementation progress, including that of the PAP, achievement of DLIs and Program results for institutional development and capacity building; (b) provide support on resolving emerging Program implementation issues and on building institutional capacity; (c) monitor the adequacy of systems, performance and compliance with legal agreements; and (d) support the government in monitoring and managing program risks.

2. The SORT shows that the overall risk rating for the program is substantial. The Program design and the measures in the PAP will help minimize the challenges and risks during implementation. However, successful implementation of Program will require close collaboration and coordination between MGT, MEFP, other agencies and the beneficiary LGs. The role of the ADM in coordinating across institutions, managing the Steering Committee secretariat and leading the Continuous Territorial Coaching modality will be critical to ensuring the success of the Program. The conditional grant performance system will rely upon the coordinated engagement of the DCL, ADM, ARDs and Court of Auditors. In addition, the DGID and DSPL will play a critical role in supporting LGs to enhance revenue collection and manage public finances. During preparation, the ADM used a program preparation advance to identify critical institutional capacity gaps. This will need to be followed up with intensive training of the relevant institutional actors in the lead up to Program effectiveness.

3. The World Bank and the AFD will complement the efforts of the MGT and ADM with regular implementation support missions and the provision of TA activities to support national and LG level initiatives. Regular engagement with the ministerial leadership will help to ensure that the relevant institutions are appropriately equipped with full-time staff to manage key areas of the Program. The World Bank and AFD will also continue to foster regular dialogue and collaboration with other development partners to ensure a coherent alignment of support for the government’s PROACTSEN. Internally, the World Bank will coordinate with other task teams and global practices to leverage support for broader policy dialogue with the Authorities on decentralization reform, local development and fiscal reform. Corrective measures will be implemented at midterm to address emerging issues that the operation may have not addressed during preparation.

4. Particular attention will need to be given to ensure that the support and incentive modalities for encouraging improved performance of LGs operate effectively. The development of the Performance Assessment Manual and the recruitment of a firm to support the Court of Auditors in verifying LG performance will need to be carefully monitored to ensure the integrity of managing the process.

5. The Program includes several measures to ensure that Program implementation proceeds effectively:

• First, the World Bank will ensure that at least one international team member is based in the country office to facilitate overall implementation and timely communication with the client, and various stakeholders involved in the implementation phase;

• Second, the World Bank will conduct routine implementation supervision missions and provide TA to boost implementation. The AFD will delegate supervision responsibilities to the World Bank and supervision missions will include the World Bank’s financial management, safeguards specialists, procurement staff and other specialists as required. A number of technical and fiduciary specialists are based in the country office and this will allow timely follow-up on specific issues and/or areas of concern if needed;

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• Third, the World Bank will focus on strengthening the Program’s systems and institutional activities necessary to achieve the DLIs. The first implementation support mission will take place after the Operation becomes effectiveness to provide direct and timely feedback on the quality of the systems put in place to support the MGT, ADM, LGs and other stakeholders.

• The task team will work closely with the National Treasury and MGT on inclusion of the conditional grant transfers the National and LG budgets. Ensuring that the Program resources reach the selected LGs will require that LGs incorporate the conditional grant allocations in their budgets. The task team will also work closely with the the MGT, MEFP, MINT and LGs to ensure the grants are used for the intended purposes. As part of regular program reporting arrangements, the ADM will put in place a monitoring mechanism that allows for timely feedback on program implementation.

Table 7.1: Focus of implementation support Time Focus Skills Needed Resource Estimate Partner Role

First twelve months

# Implementing the PAP; strengthening the capacity of the DCL, ADM and ARDs. # Communication and coordination between ministries, agencies and LGs. # Supporting ADM, ARDs and LGs to install the Continuous Territorial Coaching and Training modalities, as well as the Conditional Grant Performance System. # Strengthening the capacity of the Court of Auditors to monitor LG performance # Establishing arrangements for independent verification of compliance with the DLIs; # Enhancing the LG and national planning and budgetary processes;

Decentralization specialists, legal, financial management, procurement, social, environment, institutional/capacity building, M&E, implementation support/change management

Two implementation support missions 2x10 people 2 weeks =40 weeks Total 40 weeks over 12 months

Joint missions with AFD and, possibly, other development partners.

12-48 months

# Reviewing implementation progress, # Monitoring compliance with legal covenants;

Decentralization specialists, engineers, legal, financial management, procurement, social, environment, institutional/capacity

2 implementation support missions per year including midterm review 2x3years 10 people x2 weeks=120 weeks.

Joint missions with AFD and, possibly, other development partners

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# Monitoring operational performance;

building, M&E, implementation support/change management

Total 12-weeks over 36 months Total 80 weeks over

Other

Table 7.2: Task team skills mix requirements for implementation support

Skills Needed Number of Staff Weeks Number of Trips Comments Decentralization reform experts (including governance and urban specializations)

24 9 and field trips as required

A mix of country office and DC based staff, as well as consultants and firms.

Procurement 10 9 and field trips as

required Financial management 10 9 and field trips as

required Social systems 10 9 and field trips as

required Environmental Systems 10 9 and field trips as

required Legal 10 4 and field trips as

required Capacity Building 10 9 and field trips as

required Local finance and institutions

18 9 and field trips as required

Implementation support 18 9 and field trips as required

Role of Partners in Program Implementation

6. Development partners currently active in supporting decentralization reform in Senegal include, The United States Agency for International Development (USAID), the Luxemburg Development Cooperation Agency (Lux Dev), the United Nations Development Program (UNDP), the Islamic Development Bank and the French Development Agency. The Islamic Development Bank has pledged to invest USD80 million to support the Government’s PROACTSEN. The project is in the process of being designed and is intended to complement the Program by focusing on territorial governance issues related to inter-municipal cooperation. LuxDev, USAid and other bilateral donors have expressed an interest in complementing the Government program through spatially interventions focused in rural areas. A donor’s committee on decentralization has been established to optimize coordination and harness complementarities in development partner support for the government’s PROACTSEN.

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Annex 8: IPF Component – Project Appraisal

Institutional and Implementation Arrangements

1. ADM will be responsible for overall coordination and implementation of the operation. This entails: (a) providing technical leadership and coordination in the planning and implementation of activities; (b) leading the CTC towards coaching and capacity building support to urban LGs to facilitate implementation; (c) coordinating the APAs as agreed; (d) mobilizing technical and financial resources for implementation of MASP; (e) ensuring that Program funds are channelled to the LGs on a timely basis; (f) M&E; and (g) preparing progress reports on MASP implementation activities and results in accordance with the outline and timing agreed with the World Bank. The Project will be implemented by the Program Coordination Unit and will include at all times of implementation the following key staff30: (i) A project coordinator; (ii) One Procurement Specialist; (iii) One Financial Director; (iv) One Communications Specialist; (v) One M&E Specialist; (vi) One Civil Engineer with Municipal Works experience; and (vii) One Safeguards Specialist.

2. Within the MASP, ADM will be more directly responsible for performing the roles and functions presented above. ADM has been Senegal’s focal agency for Municipal Development and management for many years. It has been the implementing agency for World Bank and French Development Agency (AFD) funded urban development projects through decades. On the whole, ADM has the technical capacity to discharge its roles and functions, as evidenced by its performance in the implementation of the LADP and UDDP, and the range and numbers of skilled personnel in its establishment.

3. ADM will prepare the Operation Manual (OM). The OM will include a specific chapter on the Project Component. This chapter will be aligned with IPF Project Operations Manuals including all information related to implementation arrangements, procurement, financial management modalites, among others. The OM will also detail modalities of intervention of all stakeholders involved in the implementation of the IPF component.

4. The Project will benefit from the Strategic Inter-Ministerial Steering Committee (STC), and the OTC. Once a year, the Project Procurement plan will be shared with the PSC and cleared prior to be sent to the World Bank for clearance. The OTC will follow-up closely with ADM on the execution of project related activities. OTC will be comprised, among others, of all structures benefiting from the IPF component.

5. The project will bring selected capacity building activities to numerous structures. The project includes numerous targeted capacity building activities to stakeholders involved in the implementation of the Program. This will include training, selected and targeted workshops, knowledge exchange activities among others.

6. The Project will play a key role is the setup and implementation of the Continuous Territorial Coaching. The Project will finance the operation of the CTC both at ARDs and ADM levels. Being a pilot set-up, this will allow ADM to have a stronger control over the predictability of the CTC resources which are critical to the implementation of the Program.

Financial Management

7. The financial management arrangements for the IPF will be based on the existing arrangements in place under the Municipal Development Agency (MDA) which is implementing the Drainage and Flood

30 Those key staff will be allocated to the Project and Program based on need. This said, their presence will be required at all times during Project implementation.

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Prevention Project. The overall performance of the MDA in financial management is Satisfactory. Staffing has remained adequate and proper books of accounts and supporting documents have been kept in respect of all expenditures. MDA is familiar with the World Bank FM requirements. The audit for the year ended December 31, 2016 for the MDA was submitted in record time, and was unqualified. The interim un-audited financial reports for the on-going project are also submitted on time and their overall quality is satisfactory.

8. The overall FM risk for the Project is rated Moderate. It is considered that the financial management satisfies the World Bank’s minimum requirements under World Bank Policy and Directive - IPF, and therefore is adequate to provide, with reasonable assurance, accurate and timely financial management information on the status of the project required by the World Bank.

9. Budgeting arrangements. The budgeting process and monitoring will be clearly defined in the FM Manual and the budget will be adopted by the Program Steering Committee before the beginning of the year and the execution will be monitored on a quarterly basis. Annual draft budgets will be submitted to the World Bank’s non-objection before adoption and implementation.

10. Accounting arrangements. The current accounting standards in use in Senegal for on-going World Bank-financed projects will be applicable. SYSCOHADA is the assigned accounting system in West African Francophone countries. Project accounts will be maintained on an accrual basis, supported with appropriate records and procedures to track commitments and to safeguard assets. Annual financial statements will be prepared by the MDA in accordance with the SYSCOHADA.

11. Disbursements arrangements. Disbursements would be IFR based. Direct Payment will apply as appropriate. A DA will be opened at a commercial bank to facilitate payment for eligible expenditures. The DA will be managed according to the disbursement procedures described in the FM Manual and Disbursement letter. The DA would be managed by Investment Directorate of the DCFE in coordination with the MDA.

12. Financial Reporting Arrangements. ADM will produce quarterly unaudited Interim Financial Reports (IFRs) which will include sources and uses of funds by project expenditures classification and a comparison of budgeted and actual project expenditures (commitment and disbursement) to date and for the quarter. The IFRs are to be produced on a quarterly basis and submitted to the World Bank within 45 days after the end of the calendar quarter.

13. External Auditing arrangements. The IPF will require the submission of Audited Financial Statements for the project to IDA within six months after year-end. External auditor with qualification and experience satisfactory to the World Bank will be appointed to conduct an annual audit of the project’s financial statements. A single opinion on the Audited Project Financial Statements in compliance with International Auditing Standards will be required. The external auditors will prepare a Management Letter giving observations and comments, and providing recommendations for improvements in accounting records, systems, controls and compliance with financial covenants in the financing Agreement

Procurement

14. Applicable Procurement Procedures. Procurement under the proposed project will be carried out in accordance with the World Bank guidelines: “Guidelines: Procurement of Goods, Works and Non- Consulting Services under IBRD Loans and IDA Credits and Grants by World Bank Borrowers” dated January 2011 and revised July, 2014, “Guidelines: Selection and Employment of Consultants under IBRD Loans and IDA Credits and Grants by World Bank Borrowers” dated January 2011 and revised in July, 2014, and the “Guidelines on Preventing and Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA Credits and Grants”, dated October 15, 2006 and revised in January 2011, and other provisions stipulated in the Financing Agreement.

15. All procuring entities as well as bidders, and service providers, i.e. suppliers, contractors and consultants shall observe the highest standard of ethics during the procurement and execution of contracts

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financed under the project in accordance with paragraphs 1.16 of the Procurement Guidelines and paragraphs 1.23 of the Consultants Guidelines.

16. A General Procurement Notice (GPN) will be prepared and published in United Nations Development Business (UNDB) online, on the World Bank’s external website, and in at least one national newspaper after the project is approved by the World Bank Board and before Project effectiveness. Specific Procurement Notices for all goods and works to be procured under International Competitive Bidding (ICB) and Requests for Expressions of Interest (REOIs) for all consulting services to cost the equivalent of US$300,000 and above will also be published in the United Nations Development Business (UNDB) online, World Bank’s and the Borrower’s external websites, and the national press. For works and goods using NCB procedures, the Specific Procurement Notice (SPN) will only be published nationally.

17. Capacity assessment and remedial actions. ADM will have the fiduciary responsibility and will be carry out all procurement activities under this IPF. Since 2012, ADM has been implementing the Stormwater Management and Climate Change adaptation project in Senegal. An additional financing of this project was prepared and approved during this FY. ADM recently strengthen his procurement unit by recruiting a qualified procurement specialist. The World Bank team conducted an assessment and found that ADM has in place the appropriate arrangement and the capacity to carry out procurement activities for this IPF.

18. Procurement Plan. The Borrowers and their Implementing Agencies prepared a detailed 18-month procurement plan. This plan was concluded and agreed on by the Government and the World Bank at the loan negotiations. The Procurement Plan will be updated in agreement with the World Bank Team annually or as required to reflect the actual project implementation needs and improvements in institutional capacity.

19. The recruitment of civil servants as individual consultants or as part of the team of consulting firms will abide by the provisions of paragraphs 1.9 to 1.13 of the Consultants Guidelines. 20. Training, workshops, seminars, and conferences. “Training” means the reasonable costs, included in the Annual Work Plans, of provision of training to persons under the Project, including seminars, workshops, knowledge sharing activities and study tours, consisting of the following: travel and subsistence costs for training participants, costs associated with securing the services of trainers, rental of training facilities, preparation and reproduction of training materials, and other costs directly related to training preparation and implementation. All training and workshop activities will be carried out on the basis of approved annual programs that will identify the general framework of training activities for the year, including (i) the type of training or workshop; (ii) personnel to be trained; (iii) institutions that will conduct the training; and (iv) duration of the proposed training as well as the outcome and impact of the training. 21. Operating costs. The operating costs will include: (i) staff salaries; (ii) travel expenditures and other travel-related allowances with prior clearance from IDA; (iii) equipment rental and maintenance; (iv) vehicle maintenance and repair; and (v) utilities and communication expenses. Operating costs financed by the project will be procured using the administrative procedures described in the PIM that were reviewed and found acceptable to the Association.

22. Procurement methods. The methods as indicated in the below table and within the thresholds indicated in the below tables can be used. The thresholds for the World Bank’s prior review requirements are also provided in the table below:

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Table 8.1. Thresholds for Procurement Methods and Prior review. Expenditure

Category Contract Value

(Threshold, US$) Procurement

Method Contract Subject to

Prior Review 1. Works No works under this project 2. Goods ≥ 1,000,000 ICB All of $2,000,000 and above

< 1,000,000 (*) NCB None

< 100,000 Shopping None

No threshold Direct contracting All of $2,000,000 and above 3.Consultants Firms

No threshold QCBS FBS QBS

All of $2,000,000 and above

< 300,000

QCBS

CQ LCS

None

No threshold Direct contracting All of $2,000,000 and above Individuals > 100,000 IC (at least 3 CVs) All of $300,000 and above < 100,000 IC (at least 3 CVs) No

No threshold

Single Source

All of $300,000 and above

ICB: International competitive bidding

QCBS: Quality and Cost-based Selection

CQ: Selection based on Consultants’ Qualifications

NCB: National competitive bidding FBS: Fixed Budget Selection LCS: Least-Cost Selection QBS: Quality-Based Selection IC: Individual Consultants

23. National Competitive Bidding (NCB) Procedure. The procurement method designated as Appel d’Offres Ouvert to be acceptable to IDA and used for NCB, the following special requirements will need to be followed: (i) bids shall be advertised in national newspapers with wide circulation; (ii) bid evaluation, bidder qualification and award criteria shall be specified clearly in the bidding documents; (iii) bidders shall be given minimum four weeks following the date of the invitation to bid or the date of availability of the bidding documents, whichever is later to prepare and submit bids; (iv) bids shall be awarded to the lowest evaluated bidder; (v) eligible bidders, including foreign bidders, shall not be precluded from participating; and (vi) no preference margin shall be granted to domestic contractors. In addition, the following provisions of the national procurement code will not apply: (a) 3.4c(i) related to the procurement of fuel for vehicles for the public administration, and 3.4c(iii) referring to the procurement of hotel services; if such goods and services need to be procured reference will be done to the relevant methods described in the Procurement Guidelines; (b) 52 containing the possibility of excluding foreign bidders’ participation in direct contracting; (c) 76 2(b) and 2(c) involving political decisions in the use of direct contracting in the context of emergency; and (d) 108 related to quality control and possible price reduction.

24. Procurement documents. Procurement will be carried out using the World Bank’s Standard Bidding Documents (SBDs) or Standard Request for Proposals, respectively for all International Competitive Bidding (ICB) for goods and works and recruitment of consultants. For National Compeative

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Bidding (NCB), while waiting for the Government and the World Bank to respectively validate and give the no-objection on the national bidding documents in preparation, the Recipient will use the SBD for ICB for goods and works, and the World Bank’s Standard Request for Proposals for recruitment of consultants. In the same vein, the Sample Form of Evaluation Reports developed by the World Bank will be used until the new national samples are reviewed and found satisfactory to the World Bank.

25. Frequency of procurement supervision. In addition to the prior review supervision to be carried out from World Bank offices, the capacity assessment of the implementing agency has recommended (i) supervision missions every six months to visit the field, and (ii) at least one annual post procurement review.

Environment and Social

26. The potential impacts of the associated PforR Operation are addressed through the ESSA instrument OP 4.01 – Environmental Assessment, which is triggered as the proposed Operation is a PforR. The assessment and management of environmental and socially related impacts is dealt with through the ESSA.

27. The following IPF Component, does not entail any negative impacts. The Project component will not support any works related activities. It will only support activites related to capacity building, TA, and the acquisition of selected equipment that will ensure stakeholders have adequate resources to contribute effectively to attain the overall Program Development Objective. This component will also support activities related to improving the capacity of implementing agencies in environment and social management. It will support National and Regional Environment Departments, but also adeaquately support the CTC that will ensure LGs are properly guided to well implement Program related activities, and to ensure that social and environmental national policies and procedures are followed.

MAP