Unleashing Capacity Through the Use of Country Systems

1. Unleashing Capacity Through the Use of Country Systems

2. Mexico Decentralized Infrastructure Reform and Development Project

3. Main Features of DIRD project • Strategic use of multi-sector SWAP to support a “program” rather than individual subprojects • Emphasis on policy, financial integration, functioning of institutions, while maintaining strong focus on most relevant outcomes • Disbursements linked to both outputs and eligible expenditures, while allowing State to smooth out financing provided to reduce volatility in availability of other resources • Same fiduciary and safeguard policies for entire investment program of State in key sectors (roads, water and housing) not just Bank-financed portion

4. Main Features of DIRD project • Reliance on country systems (albeit reinforced to materially meet Bank’s own standards) • Building on national and state-wide procedures and practices in a way that maximizes chances of being fully owned and replicated in Mexico • Long term resource package denominated in local currency for the convenience of Borrower • Uses WB’s swap transactions in the international financial markets to offer loan in Mexican pesos

5. Achieving Bank Safeguard Objectives through the ESMF Country systems pilot covers 6 Bank safeguard policies Bank Standards Policy and Operational Objectives Additional requirements to improve systems/practices Operational Manual binding through Loan Agreement Institutionalization of State Practices Full use of State Systems

6. Main concerns during preparation • Designing a (half-way) framework that tests use of country system, yet addresses concerns: • Diluting Bank safeguard standards • Exposing the Bank to excessive risks • Allowing any possibly affected people to bring complaints forward as in other Bank projects • Impairing ability of outside evaluators to judge whether Bank best practice is being followed in the case of a pilot (role of Inspection Panel) • Demonstrating “value added” of country system approach

7. Main concerns in implementation • Insightful supervision to build credibility, both externally and internally, in support of SWAPs and country systems: • Avoiding that our risk aversion turns project into business as usual or overwhelms Borrower/State with excessive requirements (reduce hassle factor!) • Proper handling of ESMF in partnership with State agencies and (local) NGOs for enhanced impact (efficient application of framework by agencies) and accountability for results (avoiding reputational risk) • Informing the pilot (lessons learned, achievements)

8. What we learned so far • Not everywhere --some basic conditions in place to succeed • Good institutional capacity, track record, ownership • Country system close enough to WB safeguard system to support introduction of improved framework for functional equivalence, maintaining client ownership (no imposition of new legislation) • Appropriate project scope to inform future guidance --neither too far not too little • Range of interventions to test different levels of reliance in, and supervision of “country system” framework by State agencies and Bank

9. What we learned so far • Benefits/capacity building of “country system” framework result from institutionalization of formal and informal practices, and their systematic application to whole program • Objectives of Bank policy often met by combination of legislation, regulation and practices (and even supplemental measures) rather than single legal instrument • Performance of many country institutions as important as legislation and regulations

10. What we learned so far • “Country Systems” approach is essential to mainstream broad SWAPs in infrastructure and remain relevant for MICs, but comes at high cost (at least so far) breadth • Broader scope of assessments increases cost of project preparation –coverage/breadth of WB core reports not enough to design operation • Enhanced supervision (+3 norms) to ensure implementation of framework meets its both development and pilot objectives • Need to keep country perspective –framework should allow country agencies efficiently manage the programs and related risks