Multilateral Development Bank Meeting on Debt Issues The World Bank, Washington, DC

1. "Building today, a better Africa tomorrow" AfDB’s Policy on Engagement with Fragile States Multilateral Development Bank Meeting on Debt Issues The World Bank, Washington, DC 9-10 July, 2008 John K. Baffoe Principal Resource Mobilization Officer, (ORPC.1)

2. Outline of the Presentation • Rationale for Enhanced Engagement • Objectives of the Enhanced Engagement • Pillars of the Fragile States Engagement Framework • Focal Areas • Identification of Fragile States 2

3. Outline of the Presentation (Cont’d) • Formula For Allocating Supplementary Resources • Operationalization • Financing under the Pillars • Source of Funding/Financing Mode 3

4. Rationale for Enhanced Engagement in Fragile States • Resources Allocated under the PBA System for Fragile State • tend to be low relative to the needs and legitimate demands • The CPIA Assessment on which the Allocations are based, are • only able to capture the performance deficiencies • Annual Allocations may bring considerable uncertainty for • medium term budget planning process needed for smooth • multi-year recovery and reconstruction 4

5. Rationale for Enhanced Engagement in Fragile States (Cont’d) • Arrears to institutions are large relative to prospective new flows • and negotiations for arrears clearance take considerable time • Field presence are limited and not well tailored to the specific • needs of the country • Prolonged crisis undermine the knowledge base of the country • Standard operational systems and methods can result in • substantial delays and hamper the quantity and effectiveness of • operations 5

6. Objectives of the Enhanced Engagement in Fragile States • To more effectively assist Fragile States transit out of fragility • To help prevent countries from slipping back into conflict and • crisis situation • To assist countries in post crisis and post-conflict transition • move forward towards more stable political and economic • development 6

7. Pillars of Engagement Framework • The Bank’s enhanced engagement is built around three (3) Pillars: • Pillar I : Supplementary financing mechanism on top of regular PBA-based country allocation • Pillar II : Integration of the Bank’s ongoing arrears clearance program with the operational support to fragile states • Pillar III : Provision for additional support for capacity building, and knowledge management

8. Focal Areas • Pillar I : Capacity building in state administration, state accountability and economic management; infrastructure – transport, water and sanitation, energy and power, ICT; regional integration – cross-border infrastructure; mainstreaming cross-cutting – women and other vulnerable groups, gender issues, environmental challenges, HIV/AIDS epidemic. • Pillar II : Arrears Clearance – The supplementary support will be co-ordinated with arrears clearance. The PCCF will be combined with the FSF. Countries that have benefited from HIPC could apply and will be evaluated on a case-by-case basis. • Pillar III : Targeted Support – Secondments for capacity building for service delivery – non-sovereigns supported to provide services capacity building, knowledge building, and economic and sector work.

9. Eligibility Criteria for Supplementary Support • A two-stage process is used to identify Fragile States • First Stage • Assessment of Key Conditions of Peace and Security • signed a comprehensive peace or reconciliation agreement • absence of significant hostilities • legitimate government authority • Evaluation of Unmet Social Needs • Bottom quintile of UN Human Development Index • 10% contraction of GDP per capita since 1990 • Nine RMCs currently identified as Fragile States. They are: Burundi, Central African Republic, Comoros, Democratic Republic of Congo, Cote D’Ivoire, Guinea Bissau, Liberia, Sierra Leone, and Togo 9

10. Eligibility Criteria for Supplementary Support (Cont’d) • Second Stage • Assessment of country’s commitment to a sound program to improve macroeconomic conditions and pursue sound debt policy, sound financial management practices and transparency of public accounts • Prudent Macroeconomic and Debt Management Policies • Sound Financial Management Practices • Transparency in Public Accounts • Specific proposal to be submitted to the Board 10

11. Formula for Supplementary Resources • Baseline Allocation: The average of the two highest annual • allocations under the previous ADF • period.This will • Capture the relative size and economic differences among the Fragile States • Give the best available measures of Performance through the CPA • Not reflect prior judgement on post-conflict funding needs • An additional amount to bring the supplementary resources to • twice the baseline allocation 11

12. Formula for Supplementary Resources (Cont’d) • A Floor and a Cap: • Given the wide range in population of potential eligible countries, it is possible that large countries would crowd-out resources for smaller eligible small countries. Similarly, a minimum level of supplementary resources would be needed for small countries. Hence a floor of UA 10 million and a cap of UA 60 million are established. Example: Assuming an average of 2 years of UA 10 million, The additional supplementary amount will be UA 20 million. If the regular ADF allocation through the PBA is UA 15 million, then the total pool for the country will be UA 35 million.

13. Operationalization • Performance Benchmarks :There will be simple, monitorable and country specific performance benchmarks, including benchmarks for public financial management, transparency in public finance and debt management policy, plan for normalization of relations with other partners, and sound program for arrears clearance • End-of-cycle Assessment with a six(6) year limit : There will be a limit of six(6) years on access to supplementary operational support. Continuation after the first three (3) years would require satisfactory performance during the first cycle determined through an assessment on a case-by-case basis. Assessment will be based on progress with respect to benchmarks. • Premature Exit :Significant departures from agreed terms would trigger a rapid review that could result in premature exit. • Disbursement profile :Disbursement would avoid potentially disruptive drop-off of support.

14. Financing of the FSF • The proposed available resources for the FSF for ADF-11 is estimated at UA 407.05 million. The breakdown is as follows: • Pillar I : UA 259.65 million for supplementary operational support in post-conflict/transition countries • Pillar II : UA 224.37 for arrears clearance. UA 121.43 from ADF=11 resources and UA 102.94 carried over from PCCF • Pillar III : UA 25.97 million for targeted additional selective capacity building activities.

15. Sources of Funding and Financing Mode • Sources of Funding • ADF=11 Resource • Transfer of residual from PCCF • Contributions from ADF donors beyond basic ADF-11 commitments • Contributions from non-ADF members • Financing Mode • The Fragile State Facility (FSF) would be the channel for support under all the three (3) pillars

16. "Building today, a better Africa tomorrow" Thank You For Your Attention