Programmatic Fiscal and Public Financial Management Development Policy Credit ( II )

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This second operation in the programmatic DPC series (DPC2) is supported through other World Bank and donor engagements. DPC2 supports reforms under two pillars. Pillar one supports measures to establish a framework to move towards fiscal federalism through various legislations, policies and regulations while Pillar two supports reforms to improve the policy framework for public financial management at the provincial and local levels. The DPC series is complemented by other WBG instruments and activities of other donors supporting various aspects of the federalism transition. The Integrated Public Financial Management Reform Project (IPFMR), effective since October 2018, supports implementation of key reforms linked to strengthening budget execution and systems for reporting under the new federal structure. The Government has also embarked on reforms to strengthen legislation and the related framework for public investment management and Public Private Partnerships (PPPs), and define the role of provincial and local governments. This is being supported through the upcoming Maximizing Finance for Development (MFD) DPC. The reforms supported by this fiscal and PFM DPC series also complement the overall support to federalism being provided by Development Partners (DPs) through the multi-donor trust fund (MDTF). World Bank-UNDP supported Federalism Capacity Needs Assessment including assessments of all three tiers of government, as well as a mapping of DP’s support is being undertaken to assess capacity gaps for the transition to federalism at the request of the Government and its development partners. There is also a ‘federalism DPs working group’ comprising several DPs that meets regularly to harmonize assistance to the government on federalism transition. Overall, substantial risks to the operation stem largely from the level of capacity, as well as the political and stakeholder context. Jurisdictional overlap between the three tiers of government, lack of clarity and coherence between policies and devolved powers could undermine coordination across government agencies, impede reform implementation and disrupt service delivery. Resistance from some stakeholders that benefit from the current policies and status quo could further slowdown reforms. Weak institutional capacity and enforcement of rules and regulations, particularly at the provincial and local government levels, form significant sources of fiduciary risks and fragility. These risks are mitigated by strong government commitment to needed reforms, including those supported by this operation and extensive donor engagement to build institutional capacity.