Document of
The World Bank
Report No: ICR00003905
IMPLEMENTATION COMPLETION AND RESULTS REPORT(IDA-H8380)
ON A
GRANT
IN THE AMOUNT OF SDR 2 MILLION
$3 MILLION EQUIVALENT
TO THE
REPUBLIC OF THE MARSHALL ISLANDS
FOR A
FIRST ICT SECTOR DEVELOPMENT POLICY OPERATION
February 21, 2017
Transport and ICT
East Asia and Pacific Region
Currency Equivalents
(Exchange Rate Effective August 15, 2016)
Currency Unit = $
1.00 = $ 1.00
$ 1.00 = $1.00
FISCAL YEAR
October 1 to September 30
Abbreviations and Acronyms
$ All dollars are in United States dollars unless otherwise indicated
CPS Country Partnership Strategy
CTF Compact Trust Fund
DPO Development Policy Operation
Gbps Gigabits per second
GDP Gross domestic product
GNI Gross national income
ICT Information and communication technologies
MoF Ministry of Finance
MTC Ministry of Transportation and Communication
NTA National Telecommunications Authority
RMI Republic of the Marshall Islands
SOE State-owned enterprise
TA Technical Assistance
Senior Global Practice Director:
/Jose Luis Irigoyen
Country Director:
/Michel Kerf
Sector Manager:
/Jane Treadwell
Project Team Leader:
/Natasha Beschorner
ICR Team Leader:
/James L. Neumann
Republic of the Marshall Islands
First ICT Sector Development Policy Operation
Contents
Data Sheet i
1. Program Context, Development Objectives and Design 1
2. Key Factors Affecting Implementation and Outcomes 6
3. Assessment of Outcomes 12
4. Assessment of Risk to Development Outcome 17
5. Assessment of Bank and Borrower Performance 18
6. Lessons Learned 21
7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners 23
Annex 1. Bank Lending and Implementation Support/Supervision Processes 25
Annex 2. Beneficiary Survey Results 24
Annex 3. Stakeholder Workshop Report and Results 26
Annex 4. Borrower's ICR and/or Comments on Draft ICR 27
Annex 5. Comments of Cofinanciers and Other Partners/Stakeholders 30
Annex 6. List of Supporting Documents 31
MAP: IBRD 33444
A. Basic InformationCountry: / Republic of the Marshall Islands / Program Name: / MH: First ICT Sector Development Operation
Program ID: / P128013 / L/C/TF Number(s): / IDA-H8380
ICR Date: / 02/23/2017 / ICR Type: / Core ICR
Lending Instrument: / DPL / Borrower: / MARSHALL ISLANDS
Original Total Commitment: / XDR 2.00M / Disbursed Amount: / XDR 2.00M
Revised Amount: / XDR 2.00M
Implementing Agencies:
Ministry of Finance
Cofinanciers and Other External Partners:
B. Key Dates
Process / Date / Process / Original Date / Revised / Actual Date(s)Concept Review: / 12/19/2011 / Effectiveness: / 06/03/2013
Appraisal: / 07/05/2012 / Restructuring(s):
Approval: / 03/19/2013 / Midterm Review:
Closing: / 12/31/2013 / 12/31/2013
C. Ratings Summary
C.1 Performance Rating by ICROutcomes: / Unsatisfactory
Risk to Development Outcome: / High
Bank Performance: / Moderately Unsatisfactory
Borrower Performance: / Unsatisfactory
C.2 Detailed Ratings of Bank and Borrower Performance (by ICR)
Bank / Ratings / Borrower / Ratings
Quality at Entry: / Moderately Unsatisfactory / Government: / Not Applicable
Quality of Supervision: / Moderately Unsatisfactory / Implementing Agency/Agencies: / Not Applicable
Overall Bank Performance: / Moderately Unsatisfactory / Overall Borrower Performance: / Unsatisfactory
C.3 Quality at Entry and Implementation Performance Indicators
Implementation Performance / Indicators / QAG Assessments (if any) / Rating:
Potential Problem Program at any time (Yes/No): / No / Quality at Entry (QEA): / None
Problem Program at any time (Yes/No): / No / Quality of Supervision (QSA): / None
DO rating before Closing/Inactive status:
D. Sector and Theme Codes
Original / ActualMajor Sector/Sector
Information and Communications Technologies
Telecommunications / 100 / 100
Major Theme/Theme/Sub Theme
Private Sector Development
Business Enabling Environment / 63 / 63
Regulation and Competition Policy / 63 / 63
ICT / 12 / 12
ICT Solutions / 12 / 12
Urban and Rural Development
Rural Development / 25 / 25
Rural Infrastructure and service delivery / 25 / 25
E. Bank Staff
Positions / At ICR / At ApprovalVice President: / Victoria Kwakwa / Axel van Trotsenburg
Country Director: / Michel Kerf / Franz R. Drees-Gross
Practice Manager/Manager: / Jane Lesley Treadwell / Randeep Sudan
Program Team Leader: / Natasha Beschorner / Natasha Beschorner
ICR Team Leader: / James L. Neumann
ICR Primary Author: / James L. Neumann
F. Results Framework Analysis
Program Development Objectives (from Project Appraisal Document)The objective of the Program is to increase the availability of ICT services and enable the more widespread application of ICTservices supporting improvements in economic and social development in the Marshall Islands. The objective of this first Operationis to support policy development and prepare the foundation for the legal, regulatory and institutional reforms needed to supportsector liberalization.
Revised Program Development Objectives (if any, as approved by original approving authority)Not applicable.
(a) PDO Indicator(s)Indicator / Baseline Value / Original Target Values (from approval documents) / Formally Revised Target Values / Actual Value Achieved at Completion or Target Years
Indicator 1: / Increase in the level of competition in the ICT sector to two licensees (assumes increase in the numberof Internet service providers)
Value
(quantitative or
Qualitative) / No competition for the supply of ICT services. / Two licensees (assumes increase in the number of Internet service providers) / No new licenses issued.
Date achieved / 03/19/2013 / 12/31/2013 / 12/31/2013
Comments
(incl. %
achievement) / Not achieved.
Indicator 2: / Percentage of population with access to ICT services on Outer Islands (without coverage underthe Baseline scenario) increases.
Value
(quantitative or
Qualitative) / Without ICT services (Program Document, para. 4.03) / No data available.
Date achieved / 03/19/2013 / 12/31/2013
Comments
(incl. %
achievement) / Not measurable.
Indicator 3: / Reduction in prices of core ICT services (mobile and fixed local and international calls; Internet services).
Value
(quantitative or
Qualitative) / Not defined / No data available.
Date achieved / 03/19/2013 / 12/31/2013
Comments
(incl. %
achievement) / Not measurable.
(b) Intermediate Outcome Indicator(s)
Indicator / Baseline Value / Original Target Values (from approval documents) / Formally Revised Target Values / Actual Value Achieved at Completion or Target Years
Indicator 1: / An open and competitive ICT market
Value
(quantitative or
Qualitative) / No. / No.
Date achieved / 03/19/2013 / 12/31/2013
Comments
(incl. %
achievement)
G. Ratings of Program Performance in ISRs
No. / Date ISRArchived / DO / IP / Actual Disbursements
(USD millions)
No ISRs were completed during the DPO Program.
H. Restructuring (if any)
The DPO was not restructured.
- vi -
1. Program Context, Development Objectives, and Design
1.1 Context at Appraisal
Country Development Context
1. At the time of appraisal of the First ICT Sector Development Policy Operation (DPO) in 2013, one of the main challenges facing RMI was its remoteness and dispersed geography. Limited connectivity imposed high business and social costs, including the isolation of Outer Island communities and missed opportunities for economic and social development. Key reasons for the limited and costly service included the high costs of connecting remote and sparsely populated islands, the monopolistic market structure, and the constrained financial position of Marshall Islands National Telecommunications Authority (NTA), which limited access to funds for new infrastructure. ICT sector reforms implemented in similar countries, including elsewhere in the Pacific (e.g., Fiji, Samoa, Solomon Islands, and Vanuatu), demonstrated linkages between market-based reforms to attract new private sector investment and improved economic and social indicators.
Sectoral and Institutional Context
2. RMI was one of the least “connected” countries in the world. There was a single service provider, the majority state-owned NTA. Survey data from 2013 indicated that only around 35 percent of the population subscribed to ICT services. Mobile phone penetration was around 26 percent of the population. Less than 2 percent of the population subscribed to an Internet connection. Mobile broadband was not yet available. Total broadband Internet take-up was approximately 520 subscribers, or around 1 percent penetration of the population. This was despite the fact that, in 2010, Majuro and Kwajalein were connected to an 80 Gbps capacity fiber-optic cable system linking RMI to Guam via the HANTRU-1 cable system (including 10 Gbps of “lit” capacity). Submarine fiber optic cable capacity in RMI was heavily under-used, in part due to the monopolistic market environment.
3. NTA presented a significant fiscal risk for the government. The RMI section of the HANTRU-1 cable system was installed at a cost of $21.5 million. It was financed by a loan of $18.5 million from the United States Department of Agriculture’s Rural Utilities Service to NTA, unconditionally guaranteed by the Government of RMI. NTA’s financial situation was deteriorating due to the burden of repayments under the Rural Utilities Service loan. The total level of debt and loan obligations of NTA was approximately $26 million and comprised one of the largest fiscal risks to the government of all state owned enterprises (SOEs). The company was generating insufficient cash flow from its operations to meet its repayment obligations without additional financial support. The government was making annual transfers to NTA of approximately $1.5 million. An analysis of its financial position determined that NTA was unable to undertake the investments in new infrastructure that were required to improve access and services in line with demand.
4. A new legal and regulatory framework was needed to attract new investment. At the request of the government, in 2010/2011 the World Bank provided technical assistance in relation to ICT sector development options and strategy. This included an assessment of existing network infrastructure, a supply and demand analysis, and an initial review of the current ICT policy and legal environment. The nation’s remoteness and small size were recognized as significant challenges to attracting foreign investment, and the government agreed that it would need to undertake policy and legislative reforms to improve the investment climate and to attract new investment into the ICT sector. ICT Sector Policy was the responsibility of the Ministry of Transport and Communications (MTC), which undertook primarily technical regulation (spectrum management and numbering). At appraisal, it was identified that the capacity of the MTC to lead an engagement on ICT sector policy was constrained and would need to be enhanced.
5. Rationale for World Bank involvement. The Program was intended to build upon the analytical and advisory technical assistance that the Bank provided in 2010. The Program recognized and built upon the extensive experience of the Bank in the field of telecommunications policy, regulatory reform and rural access issues. The appraisal identified the role that the Bank had performed in providing advice to governments in the Pacific and globally on ICT issues. The proposed Program was also designed to draw upon lessons learned from the implementation of similar reforms in the Pacific region and in other comparable countries. It was consistent with the Country Partnership Strategy (CPS) for the Marshall Islands that was presented to the Board with the First DPO, and which focused on strengthening economic governance and promoting the effective use of public resources to enhance living and service delivery standards. Support for the liberalization of the telecommunications sector, with the aim of connecting more Marshallese to social and economic opportunities, was also identified in the CPS as a key component in helping the Marshall Islands to mitigate the effects of economic isolation and to take advantage of opportunities from closer regional and global integration.
Economic Context
6. At the time of appraisal, RMI had an undiversified economic base and persistent current account deficits. With limited opportunities for exporting and domestic production, public administration and social services constituted the largest share of the economy at around 40 percent of gross domestic product (GDP). Since 2007 the current account deficit excluding grants averaged 47 percent of GDP, which was financed largely by grant inflows. Aid and fiscal transfers, primarily from the United States, supported reasonable standards of living for the majority of the population, with GNI per capita of $3,910 in 2011. On-budget grant income from various sources was equivalent to 49 percent of GNI, and official development assistance per capita was over $3,450 in 2010. The combination of economic recovery and expenditure control measures allowed the government to avoid cash-flow problems in FY2011 and to generate a fiscal surplus equivalent to about 3.7 percent of GDP. However, the FY2012 budget deficit was estimated at about 1.1 percent of GDP.
7. RMI was struggling to address key vulnerabilities in the management of SOEs. SOEs were economically significant, holding assets of $116 million as at the end-FY2008 (about 76 percent of GDP). Performance of many SOEs was poor, with government subsidies to the SOE sector reaching an average of $7.2 million per annum between FY2007 and FY2010 (around 4 percent of GDP). Poorly performing SOEs represented a key fiscal risk for the government while also constraining growth through poor service delivery and high prices. The government was continuing to carry out key economic and public sector reforms, but challenges remained. A review of the status of the Public Sector Program at appraisal indicated that, while some reforms were on track (energy sector and tax reform), others were not (generation of a sustained fiscal surplus and expenditure compression).
8. The prospective end of funding from the United States Government through the Compact of Free Association (“Compact”) presented a key challenge to fiscal sustainability. A Compact Trust Fund (CTF) had been established to replace Compact grants from 2024 onward. However, expenditure and revenue trajectories, including international donor support, showed that current contributions to the CTF would be inadequate to assure a smooth transition. Public sector and structural reform measures were expected to help to significantly increase accumulation in the CTF if successfully implemented. However, for the CTF to reach adequate capitalization by 2023, additional grant support would be needed under any realistic scenario.
9. RMI was at high risk of debt distress. A joint Bank-Fund debt sustainability analysis was not available for RMI at the time of appraisal. However, an informal Bank assessment carried out using the joint framework showed RMI exceeding several policy thresholds under baseline and stress-test scenarios. External debt at appraisal was around 67 percent of GDP, mostly in the form of concessional Asian Development Bank loans and government guaranteed debts in the SOE sector. Debt servicing obligations were equivalent to 16 percent of exports and around 20 percent of revenue, although both were expected to decline. Previous arrears to the Asian Development Bank had been cleared, but the government had yet to develop a clear debt management strategy on how to meet the looming service payments.