Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No: 59122-PK

PROJECT PAPER

ON A

PROPOSED ADDITIONAL CREDIT

IN THE AMOUNT OF SDR 32.1 MILLION

(US$ 50 MILLION EQUIVALENT)

TO THE

ISLAMIC REPUBLIC OF PAKISTAN

FOR THE

PUNJAB EDUCATION SECTOR PROJECT

February 28, 2011

Human Development Department (Education Unit)

South Asia 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 February 2, 2011)

Currency Unit = PKR

PKR 85.70 = US$1

US$ 0.55 = SDR 1

FISCAL YEAR

July 1 – June 30

ABBREVIATIONS AND ACRONYMS

Vice President: Isabel Guerrero

Country Director: Rachid Benmessaoud

Sector Director: Michal Rutkowski

Sector Manager: Amit Dar

Co-Task Team Leaders: Sofia Shakil and Huma Waheed

ADP Annual Development Plan

CAD Canadian Dollars

CIDA Canadian International

Development Agency

CPD Continuous Professional

Development

DAC Departmental Accounts

Committee

DfID Department for International

Development

DLI Disbursement Linked Indicators

DMO District Monitoring Officer

DSD Directorate of Staff Development

DTEs District Training Educators

EDO Executive District Officer

EEP Eligible Expenditure Program

EMIS Education Management

Information System

ESMF Environmental and Social

Management Framework

FAS Foundation Assisted Schools

FM Financial Management

GBP Great Britain Pound

GOP Government of Pakistan

ISR Implementation Status Report

IDA International Development

Association

IUFRs Interim Un-audited Financial

Reports

MEA Monitoring and Evaluation

Assistant

MDGs Millennium Development Goals

MTSF Medium-Term Sector

Framework

NER Net Enrollment Rate

PEAS Punjab Education Assessment

System

PEC Punjab Examination

Commission

PEF Punjab Education Foundation

PESRP Punjab Education Sector

Reform Program

PMIU Program Monitoring and

Implementation Unit

PSLM Pakistan Social and Living

Standards Measurement Survey

PTBB Punjab Textbook Board

SED School Education Department

SC School Council

SMIS School Management

Information System

TPV Third Party Validation

ISLAMIC REPUBLIC OF PAKISTAN

PUNJAB EDUCATION SECTOR ADDITIONAL FINANCING PROJECT

TABLE OF CONTENTS

I. Introduction ........................................................................................................................1

II. Background and Rationale for Additional Financing in the amount of $ 50 million. ..............1

III. Proposed Changes ...............................................................................................................4

IV. Appraisal Summary.............................................................................................................5

TABLES

Table 1: Allocation of Credit Proceeds ...........................................................................................6

Table 2: Indicative Disbursement Schedule ....................................................................................7

Table 3: Audit Requirements .........................................................................................................7

ANNEXES

Annex 1: Results Framework and Monitoring ...............................................................................9

Annex 2: Operational Risk Assessment Framework (ORAF) .............................................................. 19

ADDITIONAL FINANCING FOR THE PUNJAB EDUCATION SECTOR PROJECT

DATA SHEET

Basic Information (Original Project)

Project ID: P102608 Project Name: Punjab Education Sector

Project

Team Leader: Sofia Shakil Expected Closing Date: June 30, 2012

Environmental category:

B - Partial Assessment

Lending Instrument: Specific Investment Loan

Joint IFC: NA

Basic Information (Additional Financing)

Date: January 13, 2011 Team Leaders: Sofia Shakil and Huma

Waheed

Country Director: Rachid Benmessaoud

Sector Manager/Director: Amit Dar/Michal

Rutkowski

Sectors: General education sector (100%)

Themes: Education for all (40%);

Administrative and civil service reform (30%);

Natural disaster management (30%)

Project ID: P122756 Environmental category: Partial Assessment

Lending Instrument: Specific Investment Loan Additional Financing Type: Financing Gap

Joint IFC: NA

Joint Level:

Project Financing Data

[ ] Loan [X] Credit [ ] Grant [ ] Guarantee [ ] Other:

For Loans/Credits/Others:

Total Bank financing (US$m.): 50.00

Proposed terms: Standard IDA terms; 35 year maturity including a 10-year grace period.

Financing Plan (US$m)

Source Local Foreign Total

BORROWER/RECIPIENT 2950.00 0.00 2950.00

International Development Association

(IDA)

50.00 0.00 50.00

International Development Association

(IDA) – Cr. 4586-PAK

350.00 0.00 350.00

Total: 3,350.00 0.0 3,350.00

UK Department for International

Development

GBP 45.00

Canadian International Development

Agency

CAD19.00

Borrower:

Islamic Republic of Pakistan

Responsible Agency:

Program Monitoring and Implementation Unit (PMIU)

School Education Department, Government of Punjab

22-B, New Muslim Town

Pakistan

Tel: (92-42) 9923-2291 Fax: (92-42) 9221-2012 pd5.pmiu@gmail.com

Estimated disbursements (Bank FY/US$m)

FY 11

Annual 50.00

Cumulative 50.00

Project implementation period: Start April 1, 2011 End: June 30, 2012

Expected effectiveness date: April 1, 2011

Expected closing date: June 30, 2012

Does the project require any exceptions from Bank policies?

Ref. Section Appraisal of Project Activities

Have these been approved by Bank management?

[X]Yes [ ] No

[X]Yes [ ] No

Does the project include any critical risks rated “substantial” or “high”?

Ref. Section Project Risks and Mitigating Measures [X]Yes [ ] No

Project development objective Ref. Section Bank Response

The Additional Financing Project’s development objectives are the same as the original Project

which are to improve access and equity, and the quality and relevance of education in Punjab.

Project description Ref. Section Bank Response

The proposed AF, having the same PDO as the original Project, would help finance the Punjab

Education Sector Reform Program and the gaps in the education sector that have arisen due to

the Government of Punjab’s need to divert resources to flood relief and rehabilitation efforts.

The AF will be designed to disburse in the same manner as PESP, against a smaller set of most

relevant Eligible Expenditure Programs. All institutional and monitoring arrangements will

remain the same as for PESP.

Which safeguard policies are triggered, if any? Ref. Section Appraisal of Project Activities

No new safeguard policies triggered; remain the same as for PESP.

Significant, non-standard conditions, if any, for: Ref. Section Appraisal of Project Activities

Board presentation: None

Covenants applicable to project implementation: Same as for the Punjab Education Sector

Project (P102608). For two covenants, the timeline of achievement is being changed, as follows:

a) GoPunjab shall hold at least two Department Accounts Committee meetings at the

district level in each district by June 30, 2011 (instead of March 2011) for FY09 advance

audit paras; and by April 30, 2012 (instead of March 2012) for FY10 advance audit paras.

b) GoPunjab shall prepare, notify and disseminate a design and execution manual for

construction by December 31, 2011 (instead of May 31, 2010)

Disbursement Conditions:

Disbursement of the proceeds of the Credit will be done on the basis of fulfillment of at least

80% of the DLIs as defined in Annex 1 to the Project Paper. DLIs will be monetized equally

and the authorized amounts for each disbursement will be the sum of the achieved DLIs

multiplied by the unitary DLI price.

I. Introduction

1. This Project Paper seeks the approval of the Executive Directors to provide an additional

credit in the amount of US$50 million to the Islamic Republic of Pakistan for the Punjab

Education Sector Project (PESP) – P102608; Cr. 4586-PAK.

2. The proposed additional credit would help support the Government of Punjab’s continued

implementation of the medium term sector framework of the Punjab Education Sector Reform

Program (PESRP) supported by PESP.

3. Punjab, Pakistan’s largest province, suffered huge losses from the devastating floods that

hit Pakistan in August 2010. In response, the Government of Punjab developed a strategy for

rehabilitation of damaged infrastructure and livelihoods which relied heavily on self-financing.

The province has since financed relief and reconstruction largely out of reallocation of its own

resources: by rationalizing the Annual Development Program and managing more tightly its

recurrent expenditures. This has had a significant impact on the fiscal space available for all

other expenditures, including education. The proposed Additional Financing (AF) would help

finance the gaps in the education sector that have arisen due to the Government of Punjab’s

diversion of resources to flood relief and rehabilitation efforts. The Government of Punjab has

requested this Additional Financing to help ensure that the medium term sector framework

remains on track, by continuing uninterrupted funds flow to the core education sector programs.

4. The objectives, design, and scope of the Additional Financing will remain the same as

that of the original PESP. The institutional arrangements for implementation and results

monitoring will also remain intact. The AF will provide programmatic financing for the

Government’s reform program following the results based design of PESP. Disbursements will

be made against a subset of PESP’s Eligible Expenditure Programs (EEPs), which represent key

education budget line items. The event and amount of disbursements will depend on the

verification of satisfactory achievement of the set of 10 Disbursement Linked Indicators (DLIs),

which represent pre-specified implementation progress and performance targets that had been

agreed with the Government of Punjab for FY11 under PESP. If the Government meets all 10

FY11 PESP DLIs, the AF will fully disburse within this fiscal year. The AF will close on the

same date as PESP; June 30, 2012.

5. Partnership Arrangements: UK’s Department for International Development (DfID) is

providing parallel financing in the amount of GB£ 45 million in support of PESRP with

synchronized disbursements and using the same supervision mechanisms. The Canadian

International Development Agency (CIDA) is supporting PESRP through a co-financing

arrangement of CAD 19 million with IDA. Together, Development Partner assistance to the

education sector in Punjab comprises less than 12 percent of the total Punjab education sector

budget.

II. Background and Rationale for Additional Financing in the amount of $ 50 million.

6. The Punjab Education Sector Project (PESP) aims to improve access and equity, and the

quality and relevance of education in the province of Punjab. The $350 million Project was

2

approved on June 4, 2009 and became effective on June 11, 2009. The Project closes on June

30, 2012.

7. PESP supports the Punjab Education Support Reform Program (PESRP) with the key

objectives of: (i) enhancing fiscal sustainability and the effectiveness of public expenditures

including in education; (ii) enhancing the quality of school education; (iii) improving and

expanding access through improvements in school participation and completion rates and

reduction in gender and regional disparities; and (iv) strengthening school management and

governance in the education sector. The Project has two components: (i) Component 1 which

amounts to $ 340 million provides programmatic financing to PESRP linked to the achievement

of pre-specified disbursement-linked indicators (DLIs); and (ii) Component 2 finances technical

assistance activities to support strengthening of existing capacities for implementation and

monitoring of the sector program. The proposed Additional Financing will provide enhanced

financing to Component 1 of PESP. Component 2 will remain the same and support both PESP

and the proposed AF. There have been no changes in the objectives, design or scope of Project.

8. The last two Implementation Status Reports archived on 7 September 2010 and 29

January 2010 rated progress in implementation and achievement of development objectives as

either satisfactory or moderately satisfactory. DLIs for the first two years of the operation were

met, and the third year’s DLIs are expected to be on track, with two at risk of being met with a

delay1. The Project’s loan/implementation covenants are largely in compliance. Implementation

of the Environment and Social Management Framework has improved after a slow start.

9. PESP has contributed significantly to strengthened implementation of the PESRP with an

enhanced focus on achievement of results and strengthening of monitoring systems through an

innovative design which links disbursements to achievement of results. Some key achievements

of selected sub-programs of PESRP include:

Delivery of free textbooks to over 95% (against a target of 90% in year 3) of public

schools within the first month of the academic year. The streamlining of the delivery

process positioned the Government of Punjab well to re-distribute textbooks to all

impacted schools within a month of the floods. This ensured availability of textbooks to

schools at the same time that classes were resuming in the affected areas.

The public private partnership program of the Government of Punjab has grown

substantially, with more than 800,000 students in 1800 schools supported under the

Foundation Assisted Schools (FAS) program against an end-of-project target of 1500

schools, and an addition of over 300,000 students since the project started. As a result of

explicitly targeting the program at high illiteracy districts, the majority of program

students and schools (70% and 68%, respectively) are in the seven most lagging districts

1 In the second year, the DLI relating to school up-gradation was delayed due to slower progress in this activity, and

was in advance stages of completion when the floods occurred and caused set back in progress. As a result of these

delays, there is slow, but steady, progress in the up-gradation program. The Government and the task team are

closely monitoring to ensure completion of the targets during the project period. The Whole School Improvement

Program (missing facilities) has also suffered set back in timely implementation. The AF will enable room for

Government to ensure flow of funds for these two programs, and even with delays, there is provision until June 30,

2012 to meet the targets in these two DLIs.

3

of the province. In addition, close to 230 new private primary schools have been

established in underserved rural areas of the province, which have enrolled almost 20,000

students to date, out of which approximately 7,000 are girls.

The Continuous Professional Development Program has been expanded rapidly to 24 of

Punjab’s 36 districts. All teachers in these districts are being provided comprehensive

support, including on-site support at a cluster level.

Over 1350 schools throughout the province have been provided all basic facilities on a

whole school approach basis which uses a single scheme per school for timely and

efficient provision of facilities. The schools prioritized for receiving the facilities were

selected based on need and enrolment loads.

School Councils throughout the province have been re-mobilized through focused

capacity building efforts. The Capacity Building program for School Councils has

covered nearly 70% of schools in the province in the last two years. This support has

been matched by timely transfer of School Council grants to all SC accounts to provide

them adequate resources to play an active role in school management and improvement.

The Punjab Examination Commission has been conducting examinations for Grades 5

and 8 regularly in all districts of Punjab. In 2009, 93.4% of students enrolled in Grade 5

took the PEC exam and 93.5% in 2010.

10. The results framework (including the disbursement linked indicators) of the Project had

been implemented at a moderately satisfactory pace before the floods hit vast areas of the

country and province in August 2010. The districts that were most affected by the floods are

congruent to those areas where gaps in access to schooling, and poverty, are already the highest

in the province, as this region owes the status of its social and human indicators to its

disadvantaged and disparate demographic and economic characteristics. The Government has

used a sizeable part of the current year’s budget for the emergency relief and rehabilitation

efforts in the impacted areas of the province. For instance, spending on social protection

programs during the first half of the fiscal year was over 5 times the full-year budget. These

much-required efforts are taxing the Government’s own resources, and reducing the funding

space available for other expenditures including the education reform program supported by

IDA.

11. Increased focus on implementation and a strengthened system of service delivery is

expected to lead to improvements in access and quality over the medium term. It is critical for

the province to maintain the pace of implementation, and reverse the trends observed recently

with stagnation in primary net enrollments, in order to remain on a trajectory to meet its

education development outcomes and millennium development goals. A slowdown at this stage

of the reform program could be detrimental to the long term goals of education development of

the province and will be hard for the Government to regain given the ambitious nature of the

reforms that have been achieved in the past few years. The Government of Punjab has shown

continued commitment to maintaining and expanding the core education sector program despite

the extreme fiscal stress it has been faced with. The Bank is proposing to provide additional

financing to the Government at this time of extreme fiscal stress, compounded by the additional

4

burden due to the damage caused by the floods, to enable it to maintain its course and ensure that

adequate funds are allocated to the education sector reform program.

12. The AF proposes to support the same results framework as under PESP, specifically

linked to the satisfactory implementation of the third year of the program (including the

disbursement linked indicators). To this end, the same institutional, implementation and

disbursement mechanisms as under PESP will be used for the AF.

13. Given its increasing financial burdens after the floods and reduced revenue collections at

both the federal and provincial levels, the Government has been actively exploring other means

of financing including through bilateral and multilateral donors. A number of donors have

indicated enhanced support for the education sector, including DfID and USAID. However, this

additional support is unlikely to materialize in the current financial year when needs are most

acute.

III. Proposed Changes

14. The PDO for the Project will remain unchanged, with modifications in the PDO targets to

reflect the achievement of some targets ahead of time in some cases and the recent stagnation in

primary level indicators.2 The AF is expected to assist the Government of Punjab maintain and

step up progress towards meeting the original Project’s outcome indicators. The original sector

wide approach of the Project which provides programmatic support to the PESRP and disburses

against Eligible Expenditure Programs (EEPs) on the achievement of pre-specified DLIs will

also remain intact. PESRP’s program costs are expected to remain the same. IDA’s contribution

to the Program costs, however, would increase from 8.2% to 11.9% for FY11. The existing

arrangements for implementation, results monitoring, fiduciary and safeguards management will

apply to the AF.

15. Disbursement Arrangements: The mechanism of making disbursements upon the

verification of achievement of 80% of the DLIs will remain the same. The same set of 10 DLIs

will be applied to the AF, and the AF will only disburse if the DLIs are met as per the existing

threshold conditions of the original Project. Each DLI will continue to be priced equally and the

price per DLI would be approximately $16 million, after applying Additional Financing.

However, disbursements for the AF will be made against a limited set of EEPs which will

include Girls’ Stipends Program, School Council Recurrent Expenditure, Public/Private

Partnership Grants (PEF), School Council Capacity Building Program, Performance Based

Incentive Program and Monitoring Systems (CM Monitoring Force). These EEPs have been

selected to ensure the required financing to achieve the third year DLIs of the Project.

2 Punjab witnessed steep increases in primary net enrolments – from 45% in 2001-02 to 62% now, higher than other

provinces. In recent years, there is a visible stagnation in primary enrollments, while improvements in middle and

secondary net enrollments continue. At the primary level, gaps in in frastructure are large and the program for

missing facilities/whole school improvement aims to fill this gap, although the pace of supply has not kept up with

demand. A major focus on quality has been initiated under the present program and the dividends from the quality

initiative may not be immediately visible in the classroom level. With continued focus of these major elements of

the reform program, supported by additional innovative initiatives to consider in the future phase of reforms, Punjab

could reverse these stagnant trends.

5

16. Financial Management: The arrangements for staffing, budgeting, accounting, internal

controls, financial reporting, external audit, funds flow and disbursement in place for PESP will

apply to the AF.

17. Closing Date: The timeframe for implementation of the current year’s DLIs which will

be supported by the Additional Financing is not expected to change. Therefore, the closing date

will remain unchanged as June 30, 2012. As noted earlier, even with delays in meeting two key

DLIs where progress has been affected due to the delays in financing and implementation, these

targets are achievable prior to the closing date.

18. Project Covenants: The same set of covenants used for the original Project will apply to

the Additional Financing operation. For two covenants, the timeline of achievement is being

changed, as follows:

a) GoPunjab shall hold at least two Department Accounts Committee meetings at the district

level in each district by June 30, 2011 (instead of March 2011) for FY09s advance audit

paras; and by April 30, 2012 (instead of March 2012) for FY10 advance audit paras.3

b) GoPunjab shall prepare, notify and disseminate a design and execution manual for

construction by December 31, 2011 (instead of May 31, 2010)4

IV. Appraisal Summary

19. Fiscal Analysis. The economic analysis for the AF does not differ from that of the

original Project. However, there have been significant changes in the fiscal situation of the

province. Provincial finances in Punjab underwent deterioration between 2007/08 and 2008/09.

Due to burgeoning development, wage and subsidy expenditure, the province, which had sizable

cash balances with State Bank of Pakistan (SBP) by the end-2007/08, not only had to rely

heavily on ways and means advances from SBP to discharge its obligations, but was also unable

to pay back these advances to SBP. As a result, these accumulated advances were converted into

a medium-term debt with significant debt servicing implications.5 This added to fragility of

provincial finances and led to acute cash flow problems unduly compressing even high-priority

expenditures. Cognizant of the unsustainability of its fiscal situation, provincial authorities

adopted strong expenditure control measures in 2009/10 to improve its fiscal position. While

these efforts were successful in lowering the provincial fiscal deficit, a lot more was required to

improve the overall situation. In the first half of 2010/11, revenue shortfalls continued to

exacerbate provincial government’s cash flow problems. In addition, large expenditure needs

arising from the devastating floods that inundated large areas of the province are further leading

the government to cut back on other expenditures. The Additional Financing will create some

fiscal space to ensure that key education expenditures continue to be financed in th is fiscal

scenario, and allow for the momentum of implementation to be maintained.

3 This target date has slipped due to the diversion of activities caused by the flood, as a result of which timely DAC

meetings could not be held in all districts. 4 Due to the multiple stakeholders involved in preparation and roll out of this manual, which requires ownership to

make its implementation meaningful, the manual is under advanced stages of preparation but has not yet been

finalized and disseminated. This requires additional time. 5 Presently, the provincial government is paying about Rs 1.5 billion a month on account of interest and debt

amortization payments to SBP.

6

20. Financial Management Arrangements: The Financial Management (FM) performance of

the ongoing project is rated as Moderately Satisfactory. Overall FM risk for the AF, as for the

ongoing PESP, is considered Moderate. The FM arrangements in place are considered adequate

and there will be reasonable assurance that funds are used for intended purposes with economy

and efficiency and that the requirements of OP/BP 10.02 will be met. The EEPs for the AF are a

sub-set of the EEPs under PESP and therefore the format of Interim Un-audited Financial

Statements agreed for PESP will also be used for the AF. Report-based disbursement will

continue to be used and the AF will disburse against the following EEPs contingent upon the

successful achievement of DLIs:

Object code / Scheme ID Description

1. A03977 Girls’ Stipends Program

2. A03975 School Councils’ Recurrent Budget

3. A06507 Grants to Punjab Education Foundation

4. LO08000001 School Council Capacity Building

5. A01250 Performance Based Incentive Program

6. LQ5296 Monitoring Systems (CM Monitoring Force)

21. The Credit proceeds will be allocated as indicated below.

Table 1: Allocation of Credit Proceeds

Category Amount of Credit

(expressed in USD)

Percentage of

Expenditures to

be Financed

Eligible Expenditures Program 50,000,000 100%

TOTAL AMOUNT 50,000,000

22. IDA financing is inclusive of duties and taxes. As for PESP, there will be no segregated

Designated Account for the AF and disbursements from the Credit will be made to the Provincial

Government Consolidated Fund – Account No. 1 (Non-food) based on Withdrawal Applications

duly prepared by the PMIU and approved by the Finance Department of the Government of

Punjab.

23. Similar to the ongoing PESP, disbursement of the Credit proceeds will be on advance

basis. Meeting 80% of the DLIs under PESP by the annual verification date for the disbursement

cycle for FY2010-11 will constitute the primary basis for triggering Credit disbursements under

the AF. For any DLIs not met (provided that the 80% rule is met), disbursements will be

deferred and made only upon verification of completion but must take place prior to the end of

7

Project date (June 30, 2012). As already noted, the price per DLI would be approximately $16

million, after applying Additional Financing. The following table provides the indicative

disbursement schedule for the AF:

Table 2: Indicative Disbursement Schedule

Number Estimated

Date

Type of

Disbursement

Capped

Allocation

Disbursement Basis

1.

April 2011 2 months’ estimated EEP

expenditures against

budget for FY11 (April –

May 2011)

50% of

Credit

Advance payment against potentially meeting 10

DLIs to be evaluated by May 15, 2011 and any missed

DLIs to be deducted from the June 2011 final

disbursement amount at an allocation of 10% of

Credit.

2. June 2011 6 months’ estimated EEP

expenditures against

budget for FY12 (Jul. –

Dec 2011)

50% of

Credit

Conditioned on achievement of minimum of 80% of

DLIs. Any missed DLIs to be deducted at an

allocation of 10% of Credit. Amount netted with any

under-spends in April 2011 advance.

24. Withdrawal Applications will be supported by IUFRs showing expenditures in the AF

EEPs since the last IUFR. These expenditures will be based on Budget Execution Reports

(BERs) of the Education Sector generated from the national Financial Accounting and Budgeting

system implemented under PIFRA. Withdrawal application for the first advance of AF will be

submitted subsequent to the Signing. Since the AF’s EEPs are also part of the EEPs under PESP,

the expenditures will count towards the AF as well as the total EEP expenditures for PESP.

Expenditures from the advance disbursed against budget for April-May, 2011 will be

documented through the IUFRs to be submitted in June 2011. Similarly, IUFRs submitted in

January 2012 will document expenditures against advance disbursed for the period July –

December 2011.

25. Project Financial Statements for PESP will include the AF. These are audited by the

Auditor-General of Pakistan.6 Acceptable audited financial statements have been received for the

original project and there are no outstanding ineligible expenses or overdue audit reports in

PESP.

Table 3: Audit Requirements

Audit Report Due Date

Project Financial Statements (PESP including

AF) for the year ended June 30 each year

December 31 each year

26. There are nine IDA-financed projects in Pakistan which have not refunded or provided

documentation on the use of Designated Accounts/Special Accounts (DA/SA) after the deadline

6 The role of the Auditor-General to carry out the annual audit of the financial statements of the Bank-financed projects is

generally acceptable to the Bank. The Auditor-General being the Supreme Audit Institution in Pakistan has formally adopted the

INTOSAI Standards on auditing. In addition, the Financial Audit Manual enshrines the principles contained in the International

Standards on Auditing issued by International Federation of Accountants.

8

of two months after the end of the “grace period” (i.e., the “lapsed loan” date , normally six

months after the Closing Date). Under Bank policy (OP12.00, disbursement paragraph 12),

failure to refund unused Designated Accounts/Special Accounts balances results in the Bank not

permitting the use of DA under new loans/credits. Management endorsement for a waiver of the

requirements of OP12.00 has been secured for a period of 12 months ending on October 31, 2011

to allow for continued use of DAs for loans and credits to Pakistan. It is hereby requested that

the waiver be confirmed by the Board for this AF.

27. The proposed AF does not included any modified or new activities that raise or impact

the environmental category of the original Project, and neither are any new safeguard policies

triggered. The Environmental and Social Management Framework will continue to be

implemented and monitored.

9

ANNEX 1: RESULTS FRAMEWORK AND MONITORING PAKISTAN: Punjab Education Sector Project

Results Framework

Revisions to the Results Framework Comments/

Rationale for Change

PDO

Current (PAD) Proposed

To improve access to access and equity, and the

quality and relevance of education in Punjab.

No change

PDO indicators

Current (PAD) Proposed change*

Learning levels monitored through assessments in 4

key subjects at the Grade 4 and 8 levels and through

examinations (all subjects) at grade 5, 8 & 10 levels.

Continued

Increase in net enrollment rates at primary level

(Grades 1-5; age group 5-9) Overall: 62 percent to 65 percent Girls: 59 percent to 66 percent Boys: 64 percent to 65 percent

Continued, with

targets modified to

reflect current

situation

Recent trends of stagnation

in primary net enrollments

(especially for boys)

Increase in net enrollment rates at middle level

(Grades 6-8; age group 10-12) Overall: 20 percent to 24 percent

Continued Outer year targets modified

to reflect the increase

Primary school completion rate: 50 percent to 55

percent

Indicator continued,

with revised

methodology /

source, which

corrects the baseline

Baseline and target revised

to use household survey

data instead of public

sector data only (see

below)

Intermediate Results indicators

Current (PAD) Proposed change*

Annual education budget consistent with Medium-

Term Sector Framework and Medium-Term Fiscal

Framework

Continued

Education expenditures in line with budget targets Continued

At least 60 percent reduction in outstanding advance

audit paragraphs (provincial and district levels) in the

education sector for FY09 and FY10

Continued

40 percent improvement in procurement performance

in education sector as measured by improvement in: a)

publication of awards, b) time for preparation of bids;

c) bidder Participation; d) bid acceptance; e) bid

processing lead time; f) cancelled bidding procedures;

g) contract amendments; h)contract dispute resolution;

i) completion rate; and j) late payment

Continued

Teachers in all districts provided training and on-site

support by DSD under the CPD Framework

Continued

Development, piloting and evaluation of program for

enhanced use of teacher resource and supplementary

Continued

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Revisions to the Results Framework Comments/

Rationale for Change

learning material

Establishment of a certification and licensing program

for teachers

Revised National teacher standards

are being developed,

whereas the province will

only develop a certification

and licensing program.

Implementation of textbook reform; Number of books

developed by authors selected through an open

competitive process; Number of textbooks field tested

Continued

Number of schools awarded performance-linked

incentives for teachers in best-performing schools

Continued

Decrease in number of schools with missing facilities

from 2009 baseline

Continued

Number of schools upgraded from primary to middle;

Number of schools upgraded from middle to

secondary; (percent of girls’ schools upgraded)

Continued

Free textbooks delivered to public schools within the

first month of the academic year

Continued

Timely delivery of stipends to eligible girls Continued

Public financial support for students in low cost

private schools expanded and evaluated

Continued

Percent of SCs that received non-salary budget in a

timely manner

Continued

Percent utilization of school-based budgets Continued

Percent of SCs provided capacity support Continued

Percent reduction in teacher absenteeism from 2008

baseline

Continued

Number of teacher recruited in accordance with a

recruitment plan based on the approved recruitment

policy

Transparent examination and assessment system,

providing quality information on student learning

Continued

Monitoring and evaluation system strengthened at

province and district levels

Continued

School census conducted annually Continued

* Indicate if the indicator is Dropped, Continued, New, Revised, or if there is a change in the end of project target value

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REVISED PROJECT RESULTS FRAMEWORK7

Project Development Objective (PDO):

To improve access to access and equity, and the quality and relevance of education in Punjab.

PDO Level Results Indicators C

ore UOM

Baseline Original Project Start (2008)

Progress To Date (200()

Cumulative Target Values

Frequency Data Source/ Methodology

Responsibility for Data

Collection Comments

2010 2011 2012

1. Overall NER, primary level (5-9 age group, Grades 1-5) [female, male]*

% 62%

[59%, 64%]

62% 62% 63% 65% Annual

Pakistan Social and Living Standards Measurement Survey (PSLM):

Federal Bureau of Statistics

Target at appraisal for 2008/09 was 63%. NER for 2009/10 are expected to be impacted negatively due to the floods, so it is being revised downwards from 64% at appraisal to 62% and showing an increase henceforth.

2. Overall NER, middle level (10-12 age group, Grades 6-8)*

% 20% 22% 22% 23% 24% Annual PSLM Federal Bureau of Statistics

The end of Project target for Middle NER was achieved much ahead of time. Given this trend, the targets for the remaining years were increased.

3. Female-male ratio NER, primary level in rural areas (5-9 age group, Grades 1-5)*

% 89% 90.2% 90.5%

91.3% 92% Annual PSLM Federal Bureau of Statistics

4. Female-male ratio NER, middle level in rural areas (10-12 age group, Grades 6-8)*

% 74% 85% 85% 86% 86% Annual PSLM Federal Bureau of Statistics

Targets were achieved ahead of time and thus enhanced for the remaining years.

5. Primary school completion rate % 50% 51% 51% 53% 55% Annual PSLM Federal Bureau of Statistics

The source/methodology used initially relied on the Annual School Census which collects data only for public schools. It was calculated as the students in Grade 6 in year x/ students in Grade 1 five years earlier. This methodology had several deficiencies since it did not account for children who may have moved to private schools for further education or

7 Changes to the Results Framework include: (i) an increase in targets for PDO indicators 2 and 4 given that end-of-Project targets were achieved ahead of time; and (ii) change in data source/methodology for PDO indicator 5given the shortcomings of the methodology used at appraisal.

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dropped out after completing primary school. The revised indicator uses data for completion available from the PSLM which measures population above age 10 that has completed grade 5. The targets have also been revised accordingly.

6. Teacher absenteeism rate % 15.1% x% 12.6%

11.3% 10% Annual District monitoring reports

PESRP PMIU based on DMO Reports

District monitoring reports from December 2010 are being compiled. There was reportedly an increase in teacher absenteeism after the floods, but intensive monitoring and resumption of school operations is expected to keep this indicator on track.

7. Learning levels monitored through assessments and examinations

Yes/N

o Yes Yes Yes Yes Yes Annual

PEC Gazette; PEAS database

Punjab Examination Commission; Punjab Education Assessment System

* The baseline for these indicators is from the 2007/08 and the progress to date from the 2008/09 PSLM surveys. This is the latest data available.

Intermediate Results and Indicators

Intermediate Results Indicators

Core

Unit of Measurement

Baseline Original Project Start (2008)

Progress To Date

(2010)

Target Values

Frequency

Data Source/

Methodology

Responsibility for Data

Collection Comments 2011 2012

Intermediate Result 1: Enhance education sector expenditure and improve fiduciary environment

1. Annual education budget consistent with Medium-Term Sector Framework and Medium-Term Fiscal Framework

Yes/No N/A Yes Yes Yes Annual

MTSF prepared/approved by Education Dept/Provincial budget

Finance Department; School Education Department

13

Intermediate Results and Indicators

Intermediate Results Indicators

Core

Unit of Measurement

Baseline Original Project Start (2008)

Progress To Date

(2010)

Target Values

Frequency

Data Source/

Methodology

Responsibility for Data

Collection Comments 2011 2012

documents

2. Reduction in outstanding advance audit paragraphs (provincial and district levels) in the education sector for FY08 and FY09

%

1022 total outstanding advance audit paragraphs for FY07

40% - 60% Annual Auditor General’s reports

Auditor General’s office

Intermediate Result 2: Improve teaching practices and effective use of teaching and learning materials

3. Number of districts where teachers provided training and on-site support by DSD under the CPD Framework

No. 6 24 24 36 Annual

Department for Staff Development reports

Department for Staff Development (DSD)

The Continuous Professional Development Program (CPD) for teachers to be expanded to al 36 districts.

4. Development, piloting and evaluation of program for enhanced use of teacher resource and supplementary learning material

Yes/No No - - Yes One time

School Education Dept reports/notifications

School Education Dept (SED)

5. Establishment of a certification and licensing program for teachers

Yes/No No No - Yes One time

School Education Dept reports/notifications

School Education Dept

6. Percent of schools awarded performance-linked incentives for teachers in best-performing schools

No. 0 20% 20% 20% Annual PMIU reports/TPV reports

PMIU/SED

Intermediate Result 3: Provide incentives for school participation and improved equity

14

Intermediate Results and Indicators

Intermediate Results Indicators

Core

Unit of Measurement

Baseline Original Project Start (2008)

Progress To Date

(2010)

Target Values

Frequency

Data Source/

Methodology

Responsibility for Data

Collection Comments 2011 2012

7. Decrease in number of schools with missing facilities from 2009 baseline

No. 30,854 1377 3000 4500 Annual PMIU reports/TPV reports

PESRP PMIU

The baseline is the number of schools with at least one missing basic facility; the targets are the number of schools that are provided all basic facilities

8. Number of schools upgraded from primary to middle; Number of schools upgraded from middle to secondary; (percent of girls’ schools upgraded)

No.

44,684 public

primary schools, 7,397 public middle schools, 4,545

public high schools

195 800 1800 Annual PMIU reports/TPV reports

PMIU/SED

9. Free textbooks delivered to public schools within the first month of the academic year

% 80% 95% 90% 90% Annual PMIU reports/TPV reports

PESRP PMIU

10. Timely delivery of stipends to eligible girls

% - 92% 90% 90% Annual PMIU reports/TPV reports

PESRP PMIU

11. Public financial support for students in low cost private schools expanded and evaluated

PKR bln

3.0 4.0 4.5 - Annual

Finance Dept releases/Punjab Education Foundation

Finance Dept/PEF

Intermediate Result 4: Improve school management, governance and monitoring and assessment and examination systems

12. Percent of SCs that received non-salary budget in a timely manner

% - 75% 95% - Annual PESRP PMIU monitoring reports

PESRP PMIU

15

Intermediate Results and Indicators

Intermediate Results Indicators

Core

Unit of Measurement

Baseline Original Project Start (2008)

Progress To Date

(2010)

Target Values

Frequency

Data Source/

Methodology

Responsibility for Data

Collection Comments 2011 2012

13. Percent of SCs provided capacity support

% 20% 75% 95% - Annual PESRP PMIU monitoring reports

PESRP PMIU

14. Transparent examination and assessment system, providing quality information on student learning

Yes/No Yes Yes Yes Yes Annual

Punjab Examination Commission Gazette /PEAS reports

Punjab Examination Commission/PEAS

15. School census conducted annually

Yes/No Yes Yes Yes Yes Annual PMIU database

PESRP PMIU

16

DISBURSEMENT LINKED INDICATORS

8

Area Indicator Baseline DLIs for FY11 disbursement

Protocol

DLI 1: Fiscal and budget management

Preparation of MTSF

FY11 sector program approved with financing levels in accordance with MTSF

(i) Funding for the core education program included in the Medium Term Fiscal Framework (MTFF) and approved by Finance and Planning and Development Departments; and (ii) subsequent annual budgets in accordance with the approved sector framework.

DLI 2: Improving teacher performance

Improved quality of teaching

Limited teacher incentive programs currently underway

(1) Disbursement of performance-linked awards for FY11 to 20 percent highest performing schools and to most improving schools in all districts based on approved criteria and validated by third party

(i) Initial criteria (for FY09) to be based on (a) student performance as verified by achievement in PEC/matric exams; and (b) school performance as verified by increase in enrollment and decrease in dropouts using SMIS data; (ii) Final criteria (based on simulation exercises) agreed with DPs and notified for implementation of the program by September 2009; (iv) Program implemented on the basis of approved criteria; (v) the lists of schools provided awards publicly disclosed; (vi) TPV conducted in FY11 and (vii) criteria for most improving schools to be agreed with the DPs.

DLI 3: School improvement

Decrease in number of schools with missing facilities9

30,854 public schools (Primary, Middle, High and Higher Secondary) with one or more missing facility10

An additional 1,500 schools provided missing facilities on a whole school approach basis and validated by a third party organization

(i) Guidelines for selection of schools to be provided missing facilities to be agreed with DPs and to include: (a) One scheme for each school by SED to provide all missing facilities, (b) lists of qualifying schools to be prepared using SMIS data, (c) list provided to districts for review by the District Steering Committees for selection and preparation of individual PC-1s; (ii) Program implemented in accordance with the guidelines agreed with the DPs; and (iii) TPV completed in FY11 on a sample basis to assess if: (a) all missing facilities were provided to each school; and (b) schools provided missing facilities in accordance with the guidelines for provision of missing facilities agreed with DPs.

DLI 4: Increased access to higher levels of education

Increased transition from Primary to

44,684 public primary

An additional 800 Primary Schools and 200 Middle Schools upgraded; validation

(i) Criteria for selection of school to be upgraded to be based on: (a) land area {for Primary to Middle(boys:25 marlas; girls: 20 marlas) for Middle to High (boys:60 marlas; girls:40

8 No changes to FY11 DLIs agreed with the Government of Punjab under the original project have been made. 9 Missing facilities defined as boundary wall, clean drinking water, toilet and electricity 10 October 2008 census

17

Area Indicator Baseline DLIs for FY11 disbursement

Protocol

Middle, Middle to High and High to Higher Secondary

schools, 7,397 public middle schools, 4,545 public high schools

by a third party organization.

marlas) for high to higher secondary: min. 16 kanals} (b) total enrollment {for Primary to Middle (boys:100; girls:80) and in grades 4 and5 (boys:20; girls:15) for Middle to High (boys:200; girls:150) and in grades7and 8(boys:40; girls:30); (c) For High to Higher Secondary, no college/higher secondary school in 10km radius and 20km for boys; (ii) criteria to be agreed with DPs; (iii) medium-term school up-gradation plan to prioritize schools on the basis of enrollment needs using data provided by the PMIU developed and sent to District Steering Committees for implementation; (iv) schools up-gradation implemented in accordance with the approved criteria agreed with the DPs and the medium-term up-gradation plan; and (v) TPV conducted in FY11.

DLI 5: Provision of textbooks to public schools

Continued timely delivery of free textbooks to public schools

Free textbooks delivered to 80% of public schools (grades 1-10)

(1) Free textbooks delivered to at least 90 percent of public schools within the first month of the academic year beginning April 2010; and (2) Commence field testing of selected new books on a sample basis.

(i) All books continue to be published through an open competitive process for development, printing/publishing of textbooks; (ii) TPV conducted in FY10; and (iii) At least 5 new textbooks developed under the new curriculum guidelines field-tested on a sample basis in 8 districts.

DLI 6: Girls Stipend Program

Timely provision of stipends to eligible girls enrolled in grades 6-10 in public schools

% of eligible girls enrolled in grades 6-10 in public schools received stipends within the quarter for the preceding quarter

Delivery of stipends to at least 90 percent of eligible girls (grades 6-10 in public schools) as per the schedule agreed with IDA.

Quarter By date

Oct-Dec‘09 Apr 1 ‘10

Jan-Mar‘10 July 1 ‘10

Apr-Jun‘10 Oct 1 ‘10

Jul-Sep‘10 Jan 1 ‘11

(i) Streamlined process for delivery of stipends: (a) Funds transferred to Account- IV in the first half of the disbursement month (April for Jan-March quarter); (b) Funds transferred from Account IV to PSA within 1 month of the beginning of the disbursement month; and (c) issuance of money orders to eligible girls commenced from week 4 of the disbursement month; and (ii) TPV conducted in FY10.

DLI 7: Support to the low cost private sector schools

Increase in public financial support for students in low cost private schools

Foundation Assisted Schools (FAS) providing support to 494,958 students; New Schools

Over 1,500 schools supported under the FAS program, and over 200 schools supported under the NSP program with appropriate resources (PEF budget for FY11 approved in line with the Medium Term Sector Framework along

Timely is defined as within one month of beginning of the financial quarter

18

Area Indicator Baseline DLIs for FY11 disbursement

Protocol

Program (NSP) initiated

with a timely quarterly transfer of allocated funds.

DLI 8: Strengthening school level management

(i) Enhanced accountability of teachers; (ii) Increased capacity of SCs for effective school management; and (iii) Reduced teacher absenteeism

School Council capacity support being provided in 6 districts of Punjab

95 percent of public primary and middle School Councils in all 35 districts provided capacity building through arrangement with RSPs, and receiving School Council grants in their accounts.

(i) MOUs with RSPs signed for capacity building for School Councils, including mobilization and training; (ii) Funds transferred to SC Accounts within the first quarter of the fiscal year for FY10 and FY11; (iii) TPV to assess the capacity support provided by the RSPs to SCs conducted in FY10 and FY11; (iv) School Council operational guidelines to include simplified procurement, financial record-keeping procedures; and (v) SC Policy implemented effectively including the hiring of voluntary teachers.

DLI 9: Public school teacher recruitment

Teachers recruited on a merit and need basis

Merit-based teacher recruitment policy in place. Number of teachers to be recruited identified based on annual demand.

Implementation of teacher recruitment as per the agreed recruitment plan and validated by a third party organization

(i) Recruitment consistent with merit based recruitment policy; (ii) The recruitment plan to take into account: (a) subject specialist needs (at least one teacher of each subject in all schools), (b) enrollment loads (STR 40:1) and (c) Recruitment Policy(2008) implemented in past years; and (iii) recruitment plan to be agreed with DPs; (iv) TPV

DLI 10: Examination and assessment systems

(i) Transparent examination and assessment system; and (ii) Good quality information on student learning

3 rounds of Grade 5 & 8 exams conducted in AY07-08; province-wide assessment of students in grade 4 undertaken for all 4 key subjects in AY07

(1) A province-wide mathematics, language and social studies assessment of students in grade 4 in a district-representative sample of public schools successfully implemented by PEAS in Academic year beginning April 2010. (2) Analysis of mathematics assessment data undertaken in previous year completed by PEAS.

(i) PEC Exams conducted by March 2009 for AY08; (ii) technical staff for PEC to include research staff and Examination Coordinator and their ToRs to be agreed with the DPs;(iii) funds transferred in accordance with MTSF; and (iv) Successful implementation of PEAS assessment is defined as

complete fielding of the test. Assessments are those developed by PEAS. Completion of data analysis verified by using PEAS data analysis reports. Test sample documentation for each round to be provided by PMIU. Use of assessment by teachers in public schools verified by using PEAS reporting documentation; and (v) Program to provide additional support to low performing schools and districts developed

19

ANNEX 2: OPERATIONAL RISK ASSESSMENT FRAMEWORK (ORAF)

Project Development Objective(s) The project’s development objectives are to improve access and equity, and the quality and relevance of education in Punjab.

Success of the Project in meeting its main objectives will be measured by the following outcome indicators: Baseline End of Project (2012)

Primary NER (%) 62 (59 female; 64 male) 65 Middle NER (%) 20 24 Rural Female: Male NER ratio, primary (%) 88.7 92 Rural Female: Male NER ratio, middle (%) 73.7 86 Primary School Completion Rate (%) 50 55 Learning levels monitored through assessments and examinations

Grades 4 & 8 national assessments in 4 key subjects; Grades 5 & 8 School Examinations, and Grade 10 matriculate exams

Improved quality of Grade 5 provincial assessments in at least 2 key subjects; improved quality of national and school exams

Risk Category

Risk Rating Risk Description Proposed Mitigation Measures

Project Stakeholder Risks

Medium-I There are multiple stakeholders including district governments, teachers, parents, School Councils, provincial departments, and political agents among others, which may have different stakes and incentives in the implementation of the Project’s activities. There are also a number of donors, which can be challenging to coordinate around a common framework given varying institutional priorities and processes.

The Punjab Education Sector Reform Program with support from the Bank has been able to establish a track record of successful implementation of reforms. Going forward, these successes will be shared with stakeholders in a more structured manner to gain further support for the Program. The task team is in dialogue with key donors to align their support to the education sector in Punjab by investing in the same program. There has been significant success in this regard with all major donors providing financing through either parallel or co-financing arrangements to the same reform program of the Government.

Implementing Agency Risks

Medium-I The key implementing agency, the PMIU, remains the same as under PESP and has demonstrated strong capacity. However, the main responsibility

To ensure effective implementation and monitoring of the DLIs, the task team has already raised the need to re-energize district monitoring and the provincial

20

for implementation of the slow moving aspects of the program are largely dependent on the district governments, which may have conflicting priorities as well as low capacities to implement.

government has taken steps to focus the efforts of the District Monitoring Officers (DMOs) on education including returning administrative control of the DMOs to the education department, which the Government has already taken steps for implementing. Further, capacity development of SCs which is ongoing will enable some level of accountability of districts towards the schools to ensure timely completion and delivery of all key inputs. The AF relies on the capacity building efforts supported by PESP, such as that of school councils which are envisaged to increase accountability pressure in the system; fiduciary aspects aimed at timely reconciliations, improved budget management through the SAP R/3 system, and enhanced level of financial accountability at the district level to help address some of the risk emanating from the district level.

Project Risks

Medium-I

Design

Low The operational design of the proposed AF is aligned to that of the associated project, PESP, which has shown a track record of successful risk mitigation.

There are no new design related aspects in the AF, so the mitigation strategies of the associated PESP will continue to remain valid.

Social and Environmental

High The ESMF prepared for the implementation of PESP will continue to be used for the AF. There are risks associated with slow implementation of the ESMF, particularly relating to capacity of districts to integrate many of the simple elements of the ESMF in the checklist for school construction and other civil works activities, however, a program to strengthen capacity is underway and is being monitored.

The Environment and Social Management Framework developed by the Government of Punjab is being implemented province wide. Its implementation will ensure safety in the design aspects, site selection for any new/rehabilitated schools, and during the construction activities. PMIU several steps to improve implementation of the ESMF including:

Incorporating the environmental checklist in the School Proforma being used by the MEAs during their routine monitoring.

Integrating the environmental checklist in the PC-I for school construction works.

21

Increasing the field presence of its Environment Officer to ensure continued capacity building of the district personnel and direct environment monitoring of the construction activities at the schools.

The Task Team will continue supporting and supervising the PMIU for the above-noted specific actions in particular and for effective ESMF implementation.

Program and Donor

Medium-I Successful implementation of the supported education reform program depends on financing and a coordinated dialogue from a number of contributing donors. All existing donors are currently financing the same program and relying on the Bank’s assessment of verification of achievement of results when making disbursements which have been timely to date. Efforts are also being made by the task team to encourage new donors to align their support to the same framework and utilize (and strengthen) the existing implementation and monitoring mechanisms.

Continued dialogue and coordination on technical work with donors is envisaged, with the objective of keeping the medium term sector framework on track. Further, donors will continue to use a common supervision strategy which relies on coordinated dialogue with and messages to the client.

Delivery Quality

Medium-I The proposed project provides partial financing for a strong Government owned program which has been in place for several years. There is a robust monitoring system in place and a track record of evidence based decision making in the program. There are inefficiencies and slow pace of implementation (which also impacts quality of implementation), but these are being addressed through intensive monitoring.

No new mitigation measures are proposed. The emphasis on monitoring will continue to remain high.

Overall Risk Rating at Preparation

Overall Risk Rating During Implementation

Comments

Medium-I Medium-I The design of the proposed AF responds to the needs of the Government to fill a financing gap to keep the ongoing program on track. To this end, the proposed AF does not include additional DLIs, and therefore the overall risk is assessed to be Medium-I.