the world bank · 2016. 7. 8. · 1 document of the world bank report no: icr00003605...

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Document of

The World Bank

Report No: ICR00003605

IMPLEMENTATION COMPLETION AND RESULTS REPORT(TF-95472)

ON A

TRUST FUND TF-95472 IN THE AMOUNT OF US$7.49 MILLION

TO THE

KYRGYZ REPUBLIC

FOR A

CAPACITY BUILDING IN PUBLIC FINANCE MANAGEMENT PROJECT

November 24, 2015

Governance Global Practice

Europe and Central Asia Region

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CURRENCY EQUIVALENTS (Exchange Rate Effective September 14, 2015)

Currency Unit = Kyrgyz som som 1.00 = US$ 0.0148

US$ 1.00 = 66.62 FISCAL YEAR

January 1 – December 31

ABBREVIATIONS AND ACRONYMS

CBPFM Capacity Building in Public Financial Management CDS Country Development Strategy BIS Budget Information System DFID U.K. Department for International Development GoKR Government of the Kyrgyz Republic GTAC Government Technical Assistance IA Internal Audit IPSAS International Public Sector Accounting Standards M&E Monitoring and Evaluation MoE Ministry of Economy MoF Ministry of Finance MTBF Medium-term Budget Framework MTDF Multi-Donor Trust Fund MTV Midterm Vision PCN Project Concept Note PDO Project Development Objective PEFA Public Expenditure and Financial Accountability PFM Public Finance Management PIU Project Implementation Unit TF Trust Fund TMIS Treasury Management Informational System

Senior Global Practice Director: James Brumby

Sector Manager: Adrian Fozzard

Project Team Leader: Stepan Titov

ICR Team Leader: Hassan Aliev

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KYRGYZ REPUBLIC Capacity Building in Public Financial Management

CONTENTS

ABBREVIATIONS AND ACRONYMS ........................................................................... 2

CONTENTS ........................................................................................................................ 3

Data Sheet ........................................................................................................................... 5

B. Key Dates ................................................................................................................... 5

C. Ratings Summary ....................................................................................................... 5

D. Sector and Theme Codes ........................................................................................... 6

E. Bank Staff .................................................................................................................. 6

F. Results Framework Analysis ...................................................................................... 6

G. Ratings of Project Performance in ISRs .................................................................. 21

H. Restructuring (if any) .............................................................................................. 21

I. Disbursement Profile ................................................................................................ 22

1. Project Context, Development Objectives and Design ...................................... 23

1.1 Context at Appraisal ....................................................................................... 23

1.2 Original Project Development Objectives (PDO) and Key Indicators ........... 24

1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and

reasons/justification ...................................................................................................... 24

1.4 Main Beneficiaries .......................................................................................... 25

1.5 Original Components (as approved) .............................................................. 25

1.6 Revised Components ...................................................................................... 26

1.7 Other Significant Changes .............................................................................. 26

2. Key Factors Affecting Implementation and Outcomes ...................................... 26

2.1 Project Preparation, Design and Quality at Entry........................................... 26

2.2 Implementation................................................................................................... 28

2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization 29

2.4 Safeguard and Fiduciary Compliance ............................................................. 29

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2.5 Post-completion Operation/Next Phase .......................................................... 30

3. Assessment of Outcomes ................................................................................... 30

3.1 Relevance of Objectives, Design and Implementation ................................... 30

Relevance of Objectives: High ..................................................................................... 30

3.4 Justification of Overall Outcome Rating: Moderately Satisfactory ............... 35

3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops37

4. Assessment of Risk to Development Outcome: Significant .............................. 37

5. Assessment of Bank and Borrower Performance ............................................... 37

5.1 Bank Performance .......................................................................................... 37

5.2 Borrower Performance ................................................................................... 39

6. Lessons Learned ................................................................................................. 39

7. Comments on Issues Raised by Grantee/Implementing Agencies/Donors ........ 41

Annex 1. Project Costs and Financing ......................................................................... 42

Annex 2. Assessment of Achievement by Objective ................................................... 43

Annex 3. Outputs by Component ................................................................................. 50

Annex 4. Grant Preparation and Implementation Support/Supervision Processes ...... 52

Annex 5. Beneficiary Survey Results ........................................................................... 53

Annex 6. Economic and Financial Analysis ................................................................ 55

Annex 7. Stakeholder Workshop Report and Results .................................................. 56

Annex 8. Summary of Grantee's ICR and/or Comments on Draft ICR ....................... 57

Annex 9. List of Supporting Documents ...................................................................... 63

Annex 10. MAP of Kyrgyz Republic ........................................................................... 64

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Data Sheet A. Basic Information

Country: Kyrgyz Republic Project Name: Capacity Building in Public Financial Management

Project ID: P112713 L/C/TF Number(s): TF-95472

ICR Date: 09/16/2015 ICR Type: Core ICR

Lending Instrument: Technical Assistance Loan

Grantee: KYRGYZ REPUBLIC

Original Total Commitment:

US$ 4.56 million Disbursed Amount: US$ 7.49 million

Revised Amount: US$ 7.49 million

Environmental Category: C

Implementing Agencies: Ministry of Finance

Cofinanciers and Other External Partners: B. Key Dates

Process Date Process Original Date Revised / Actual

Date(s)

Concept Review: 10/15/2008 Effectiveness: 11/07/2008 12/16/2009

Appraisal: Restructuring(s):

Approval: 11/25/2008 Mid-term Review:

Closing: 06/30/2013 05/31/2015 C. Ratings Summary C.1 Performance Rating by ICR

Outcomes: Moderately Satisfactory

Risk to Development Outcome: Substantial

Bank Performance: Moderately Satisfactory

Grantee Performance: Moderately Satisfactory

C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings

Quality at Entry: Moderately Unsatisfactory

Government: Moderately Satisfactory

Quality of Supervision: Moderately Satisfactory Implementing Agency/Agencies:

Moderately Satisfactory

Overall Bank Performance:

Moderately Unsatisfactory

Overall Borrower Performance:


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C.3 Quality at Entry and Implementation Performance Indicators

Implementation Performance

Indicators QAG Assessments (if

any) Rating

Potential Problem Project at any time (Yes/No):

No Quality at Entry (QEA):

None

Problem Project at any time (Yes/No):

Yes Quality of Supervision (QSA):

None

DO rating before Closing/Inactive status:


D. Sector and Theme Codes

Original Actual

Sector Code (as % of total Bank financing)

Central government administration 100 100

Theme Code (as % of total Bank financing)

Public expenditure, financial management and procurement 100 100 E. Bank Staff

Positions At ICR At Approval

Vice President: Cyril E Muller Shigeo Katsu

Country Director: Saroj Kumar Jha Motoo Konishi

Practice Manager/Manager: Adrian Fozzard Ronald E. Myers

Project Team Leader: Stepan Anatolievich Titov Svetlana I. Proskurovska

ICR Team Leader: Hassan Aliev

ICR Primary Author: Hassan Aliev F. Results Framework Analysis Project Development Objectives (from Project Concept Note) The development objective for this Multi-Donor Trust Fund (MDTF) was to assist the government of the Kyrgyz Republic (GoKR) to improve service delivery by strengthening the effectiveness, efficiency and accountability of the Public Finance Management (PFM) through strengthening the budget process, the internal audit and control functions and the institutional and human capacity of the recipient’s Ministry of Finance (MoF) and that of other line ministries of the recipient. Revised Project Development Objectives (as approved by original approving authority) Not applicable

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(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 : A stronger budget process with improved internal management and accountability on spending and performance.

Value quantitative or qualitative)

Inconsistent budget process.Disconnect between budget policy and implementation Budget-related laws and regulations need drafting or updating.

100% of all spending departments use new regulations and bye laws in budget preparation and implementation.

There is some progress in introducing performance based budgeting, providing for budget comprehensiveness, expenditure and revenue consolidation, and enhancing budget transparency. However, the lack of proper legal basis and delay with adoption of a new Budget Code limits the progress.

Date achieved Comments (incl. % achievement)

Partially achieved

Indicator 2 : Deeper and more productive interaction between government and citizens on the budget.


No consistent external MoF publications on the budget related issues. No targeting of publications to different audience needs.Ad-hoc and limited media analysis regarding the budget issues.

Three MoF external publications on budget related issues targeted to different audiences Tangible improvements in the quality of budget related information. MoF hosts public hearings on the budget in at least four Oblasts, attended by local civil society organizations, local media and local governments

The MoF introduced the practice of regular and systematic publications on the budget. The MoF website contains information on all issues within the scope of activities of the Ministry. The Citizen Budgets for 2014-2015 were developed and published. Discussions of the Citizen Budget were organized and

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Data collection survey indicates heightened knowledge of budget related issues amongst the targeted audiences

conducted during which comments and suggestions were provided from the representatives of the civil society and nongovernmental organizations. Electronic copies of the Civil Budget were presented for publicity at the MoF web site Over the past two years regular budget hearings are being held.


Achieved

Indicator 3 : Increased predictability of the annual budget as a result of the medium-term budget framework (MTBF) use, which provides an effective tool for cost control and resource allocation.


Very limited connection between the MTBF and the annual budget. No rules to require that MTBF data is used as the baseline for the annual budget

Budget process reflected in the budget circular is amended such that preparation of the MTBF is closely coordinated with the annual budget formulation process. The first year of the MTBF is fully consistent with the draft of annual budget, submitted to Jogorku Kenesh.

Proper pre-requisites for introducing the MTBF process have been developed. However, lack of integrated and automated information system supporting the MTBF process and delay with adoption and implementation of a new Budget Code impede reforms.


Not achieved

Indicator 4 : A stronger public internal financial control environment. Value quantitative or qualitative)

Weak implementation of the Law on Internal Audit. Lack of strategy on the IA law, standards and methodology’ implementation.

All IA bye laws and regulations are passed and enacted and they make the IA law largely implementable.

Range of methodologies and regulations on IA have been adopted and implemented. IA

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Accepted IA documents being used in practice by trained auditors IA widely understood and accepted practice in government bodies and agencies of the Kyrgyz Republic. The MoF prepares the assessment of Internal control and IA functioning systems and recommendations on its further improvement.

understood and accepted in practice in government. A Provision on financial management and control in spending agencies was developed and adopted. The Internal Audit Methodology Unit operates within the Internal Audit Methodology and Accounting Department. IA units operate in 19 ministries and agencies; a legal basis for functioning of IA Services in additional 8 agencies has been developed. However, IA quality assurance mechanism is not available.


Partially achieved

Indicator 5 : Increased competence in management, administration and technical functions in the Ministry of Finance and key line ministries, specifically in PFM.


Current training for PFM is inadequate. Very few staff have core management and technical skills The GoKR has a PFM reform strategy (mid-term vision MTV) which is in the early stages of implementation

Consistent professional annual training plan in place. At least 20 management, 50 senior staff, and 200 other staff trained, with at least 50% of trainees in each category being female staff. Impact of trust fund (TF) capacity building on delivery of the GoKR PFM reform strategy is evident in all areas

Trainings for staff of the MoF and line ministries on key management and technical skills were conducted. Approved curriculum contains 37 key areas of PFM reform. 15,160 people have been trained within the Capacity Building in Public Financial Management (CB PFM) Project for 2010-2015.

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of reform relevant to the TF.


Achieved

(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: Budget Code of the Kyrgyz Republic under development contains relevant regulations to strengthen the overall PFM system consistent with the best practice.

Value (quantitative or qualitative)

Inconsistent budget process.Disconnect between budget policy and implementation. Budget-related laws and regulations need drafting or updating.


The Budget Code is not adopted and implemented.


Not achieved. The draft Budget Code is approved by the Government and discussed by the Jogorku Kenesh of the Kyrgyz Republic at first reading. Comments on the draft Budget Code, received from various stakeholders, were forwarded for the Government’s consideration, and the Government is finalizing the draft Code. It is expected the draft Code will be submitted to the Parliament on January 18, 2016.

Indicator 2: The Budget Department has a fully operational budget information system (BIS) integrated with Treasury Management Informational System (TMIS) which is used to prepare/analyze annual budgets.

Value (quantitative or Qualitative)

Local BIS only. Neither Treasury nor budget preparation is fully automated nor are staff trained in using automated systems.

Fully automated BIS and TMIS connecting central and regional treasuries is used to prepare and analyze 100% of budget The system maintains a historical record of changes to the budget by economic classification and is accessible to all authorized users within the MoF.

There is no nation-wide automated and integrated BIS and TMIS.

Date achieved

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Comments (incl. % achievement)

Not achieved. TMIS and BIS have not been developed and implemented under the Government Technical Assistance (GTAC) Project – another project implemented by the MoF, the primary goal of which was automating budget processes including budget preparation and execution.

Indicator 3: The MoF publishes reports on budget execution by line ministries on non-financial

indicators, using appropriate and accurate estimates of their activities. Value (quantitative or qualitative)

No framework for joint assessments between MoF and spending units for non- financial performance. None of the spending ministries report non-financial performance

At least three key sectors (including health and education) produce their budget performance reports.

Reports on the execution of non-financial performance indicators by the end of 2014 are prepared by 28 agencies. Reports of 10 agencies are published at the MoF website.


Achieved

Indicator 4 : Improved transparency and coverage of the budget to include all public sector revenue and expenditure.


Incomplete treatment of non-budget funds, the ‘Public investment program’ (PIP), including external aid, and quasi-fiscal operations (for example, energy sector).

PIP and non-budget funds are consolidated into the budget documentation and 100% accounted for in the budget.

The PIP is consolidated into the budget documentation and accounted for in the budget. Improved regulatory and legislative framework.


Partially Achieved

Indicator 5: Annual allocations to Ministries are consistent with an approved transparent financing plan that is based on the annual budget law.

Value (quantitative or Qualitative)

Annual budget allocations by the Treasury are inconsistent with the approved budgets 34% of inconsistency between the planned and actual expenditures in 2008 Public Expenditure and Financial Accountability

All line ministries report improved consistency between planned and actual expenditures. No more than 10% deviation between actual and planned expenditures

There is no consistency between the amounts of funds allocated annually to the ministries from the state budget and the approved by the budget plan, but there are improvements in

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(PEFA) (PI 2). Effectively, cash planning is monthly with no certainty about timing of availability of cash (PEFA PI 16 – D).

PI 16 – C. the coherence of planned and actual costs, as evidenced by the results of the PEFA assessment. According to the PEFA Assessment 2014 Report the value of indicator PI-16 "Predictability in the availability of funds for commitment of expenditures" has improved in comparison to 2009 (increased from the level of (D) to the level (C +)). PEFA 2014 reported on deviations between actual and planned expenditures: 22.7% in 2011, 9.8% in 2012 and 19.6% in 2013.


Not achieved

Indicator 6 : Improved system for intergovernmental relations. Value (quantitative or qualitative)

Legal base does not have clear definition of rights andresponsibilities. Procedures for dealing with allocations and payments are unsystematic and not transparent. No central information system on local budgets

Clear and transparent formula based system for allocations of intergovernmental transfers as well as tax-sharing arrangements with more authority transferred to local government in planning and implementing budgets. Methodology as well as standard system for budget management and reporting are

Improved efficiency and quality of the planning of intergovernmental transfers, revised allocation policy of intergovernmental transfers, changed system of financing the costs of education and incentive grants, and increased capacity of local self-governments. Equalization grants factoring utilities costs were applied beginning from 2014.

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developed for local government, and training delivery


Achieved

Indicator 7: The MoF publishes reports (on its website) of draft budgets and budget outturns compared to the approved and revised budgets whenever such reports are made available to Parliament


Budget execution reports are not undertaken systematically in terms of frequency or content. Draft budgets are not published when submitted to parliament. PI-24 Quality and timeliness of in-year budget reports C+ PI-25 Quality and timeliness of annual financial statements D+.

Draft budgets are published on MoF website; The MoF reports on budget outturns on half-yearly basis, indicating all expenditure categories and approved classifications. Summary information is included in a user-friendly format and accompanied by an explanation of spending increases not planned in the budget. The report includes tables and charts highlighting major differences between original and executed budgets by ministry/agency and program, being implemented in pilot ministries. All comments received via the website are reviewed by MoF PI-24: B+; PI-25: C+

There is a practice of regular and systematic publication of the draft budget and budget execution reports in the MoF website. The improvements were reflected in the last OBI and PEFA assessments. PEFA PI-25 Quality and timeliness of annual financial statements was improved and rated C+/


Achieved

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Indicator 8 : Government proactively publicizes budget-related information in a variety of user-friendly formats, tailored to specific audiences.


No consistent external MoF publications on the budget related issues. No targeting of publications to different audience needs.

Three MoF external publications on budget-related issues targeted to different audiences Tangible improvements in the quality of budget related information. The MoF hosts public hearings on the budget in at least four Oblasts, attended by local civil society organizations, local media and local governments Data collection survey indicates heightened knowledge of budget-related issues among the targeted audiences.

The MoF introduced the practice of regular and systematic publications on the budget. The MoF website contains information on all issues within the scope of activities of the ministry.


Achieved. Civil Budget is published regularly. Open Budget Index (OBI) for Kyrgyz Republic is up to 54 points compared to 20 points in 2012.

Indicator 9: Implementation of the Law “On access to information possessed by public administration bodies and local self-governance bodies of the Kyrgyz Republic” (28 Dec 2006) by the Ministry of Finance and local financial bodies.


Access to information is limited. Variable compliance with the law and limited knowledge of rights and responsibilities under the law

The MoF fulfils the requirements of the law and actively inform citizens of their rights under the Law Data collection survey indicates heightened awareness among citizens including amongst women and youth (as compared with baseline) of their right to budget information and

The law On access to information possessed by public administration bodies and local self-governance bodies of the Kyrgyz Republic is being implemented.

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increased demand for this information.


Achieved

Indicator 10 : Annual Budget Plans are based on a consistent MTBF. Value (quantitative or qualitative)

Very limited connection between the MTBF and the annual budget. No rules to require MTBF data to be used as the baseline for the annual budget

Budget process reflected in the budget circular is amended such that preparation of the MTBF is closely coordinated with the annual budget formulation process. The first year of the MTBF is fully consistent with the draft of annual budget submitted to Jogorku Kenesh.

The medium-term budget is not linked with the annual budget.


Not achieved. Failure could be partially explained by the lack of automated budget preparation system supporting the MTBF.

Indicator 11: Expenditure classification used in MTBF is consistent with the expenditure classification of the annual budget.


The MTBF includes forecast expenditures for the main 10 functions of the budget, but there is no data for economic classification (PEFA 2009, PI 12 (i)).

Economic classification included in the MTBF.

The MTBF for 2015-2017 applies only for functional and administrative classifications.


Not achieved

Indicator 12: Improved costing of sectorial spending programs (agreed with the medium term national strategy) under the sector resources, introduced in the MTBF. Inclusion of the forecasts of nonfinancial indicators into the pilot sectorial strategies.


Costed sector strategies exist for 6 line ministries, but they are inconsistent with fiscal forecasts(PEFA 2009, PI 12 (iii))

Estimation of the medium-term costs of sector strategies match with estimation of available resources. Non-financial performance

Non-financial indicators on 20 sectoral strategies are developed and enclosed into annual budget as an annex..

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indicators identified and included in the MTBF for pilot sectors.


Partially achieved. Line ministries are developing costed sectorial strategies, which includes non-financial indicators. This information is attached into annual budget.

Indicator 13: Clear links between capital expenditures and future recurrent costs and improved analysis of the impact of public investments on the budget over the medium-term.


Budgeting for investment and recurrent expenditures are separate processes (PEFA 2009, PI 12 (iv)

Recurrent and capital expenditure framed by the clear financial constraints for all three years of the MTBF.

Budgeting for capital and recurrent expenditures are separate. The PEFA score for PI 12 (iv) D (unchanged).


Not achieved

Indicator 14: Sector strategies include measurable performance indicators with baseline values and a system for monitoring.


The Country development Strategy (CDS) includes baseline and monitoring indicators, but no link to the budget.

Non-financial performance indicators identified in pilot sector strategies included in the MTBF to ensure linkage between the strategy and spending.

28 ministries and agencies have submitted their reports for 2014 on non-financial indicators. Mechanisms for monitoring and analyses of non-financial indicators are being developed.


Partially achieved

Indicator 15 : Review of the scope of all major systems of internal control in public bodies and agencies of the Kyrgyz Republic which clarify the formal responsibility, processes, structure and format of instructions.


No comprehensive analysis or description of the public bodies and agencies of the Kyrgyz Republic's internal control system on PFM

Relevant and up to date instructions on development the internal control for public bodies and agencies of the Kyrgyz Republic

The existing internal control systems were reviewed in 5 agencies to identify gaps in legislation and clarify formal responsibilities,

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are determined and adopted by the government. The government approves the plan on elimination of detected weaknesses in the internal control system.

processes, and procedures. As a result a draft Action Plan on Creation and Development of the System of Financial Control in the Public Sector was prepared. A Provision on financial management and control in spending agencies was developed and adopted.


Achieved

Indicator 16: Availability of basic elements of the IA system, including improved laws and regulations, and also the standards and methodology.


Poor implementation of the Law on Internal Audit. Lack of strategy on the IA law, standards and methodology’ implementation.

All IA bye laws and regulations are passed and enacted and they make the IA law largely implementable. Accepted IA documents being used in practice by trained auditors. IA is a widely understood and accepted practice in government bodies and agencies of the Kyrgyz Republic. The MoF prepares the assessment of Internal control and IA functioning systems and recommendations on its further improvement.

Range of methodologies and regulations on IA have been adopted and implemented. IA understood and accepted in practice in government agencies. The IA quality assurance mechanism is not available.

Date achieved Comments (incl. %

Partially achieved

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achievement) Indicator 17 : A functioning Central Methodology and Quality Unit providing training, normative

documents, guidance for internal auditors and monitoring internal audit quality and compliance.


The MoF has an IA Methodology Unit (department) but staff have limited capacity to oversee the overall IA system in the public sector.

All staff of department and IA service of the MoF passed the training The unit develops the normative documents and guidance on IA, creates the informational base on IA, and monitors IA quality and compliance

Starting from June 27, 2013 in accordance with the order of the MoF No 268/l, Internal Audit Methodology Unit operates within the IA Methodology and Accounting Department.


Achieved.

Indicator 18: Establishment of Internal Audit Units in the main government bodies and agencies. Value (quantitative or qualitative)

IA services have been established under the Law on Internal Audit, but with very limited capacity to conduct effective audits.

IA services function in main public bodies and agencies in accordance with existing normative framework. Pilot audits on functioning the system of internal control in 3 ministries were conducted.

IA units operate in 19 ministries and agencies; a legal basis for functioning of IA services in additional 8 agencies has been developed. Pilot audits were conducted in 8 ministries.


Achieved

Indicator 19: Number of staff trained in core management and technical skills in the MoF and line ministries increases the capacity to deliver effective PFM.


Current training for PFM is inadequate. Very few staff have core management and technical skills The GoKR has a PFM reform strategy (MTV) which is in early stages of implementation.

Consistent professional annual training plan in place. At least 20 management, 50 senior staff, and 200 other staff trained, with at least 50% of trainees in each

Training was delivered for the staff of the MoF and line ministries on key management and technical skills according to the training plan agreed

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category being female staff. Impact of TF capacity building on delivery of GoKR PFM reform strategy is evident in all areas of reform relevant to TF.

with the World Bank and approved by the MoF of the Kyrgyz Republic. More than 15,000 public sector employees received training.


Achieved

Indicator 20: Strengthened training capacity of the MoF Value (quantitative or qualitative)

Very limited capacity to deliver training programs

Internal capacity to deliver 100 training days per year. 10 certified Training of Trainers.

The training capacity of the MoF is strengthened by technical equipment of the training center of the MoF, transfer of 9 training modules on key PFM areas and training of potential trainers.

186 training days were delivered in 2014. At least 10 certified trainers were trained. A branch of training center was established in the Jalalabad.


Achieved

Indicator 21 : Strengthened MoF internal management and business processes. Value (quantitative or qualitative)

Ministry financial management and business processes are largely paper based and unsuited to a modern working environment

MoF internal financial management and business processes set best practice standards for the public sector in the Kyrgyz Republic.

Internal processes in the MoF are regulated, staff of the MoF is provided with job descriptions, the system of employees’ performance evaluation is - an

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automated workflow system «Landocs».


Achieved

Indicator 22 : Improved tax policy and tax administration Value (quantitative or qualitative)

There is no document outlining government tax policy for medium-long- term period. Poor linkage between tax policy and budget planning processes.

Concept on Tax Policy for 2015-2020 adopted and implemented.

Draft Tax Policy Concept for 2015-2020 has been developed and currently is being discussed within the government.

Date achieved 01/01/2015 Comments (incl. % achievement)

Not achieved. The Project stopped activities under this sub-component after the function of tax policy formulation was transferred from the MoF to the Ministry of Economy (MoE) in July 2014.

Indicator 23 : Improved public revenue forecasting and analysis Value (quantitative or qualitative)

Lack of unified methodology for revenue forecasting. Poor coordination between the MoF, Customs Service and Tax Committee over the process of revenue forecasting.

Unified methodology for revenue forecasting adopted and implemented. Coordination between agencies involved in revenue forecasting improved.

Unified methodology for revenue forecasting and the order of interaction of state bodies in the revenue forecasting process have been developed and is currently being discussed within the government

Date achieved 01/01/2015 05/31/2015 05/31/2015 Comments (incl. % achievement)

Partially achieved.

Indicator 24 : Improved public procurement process. Value (quantitative or qualitative)

Lack of legislation on e-procurement.

A new Public Procurement Law and respective bylaws are adopted and implemented.

A new Public Procurement Law and respective bylaws were adopted and implemented. Public procurement portal provides access to procurement information to all interested parties. More than 5,000 bidders are

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registered. All bidaare conducted through the portal. An average number of bidders per bid increased from 3 to 5 bidders and a share of competitive procurement in total public procurement increased by 6.1 percentage point in 2015. A bid evaluation period declined from 7-14 days to 3-7 days. The share of government organizations that publish procurement plans increased from 21.4% to 45.4%. Independent Complaint Commission to be established.

Date achieved 01/01/2009 05/31/2015 05/31/2015 Comments (incl. % achievement)

Achieved

G. Ratings of Project Performance in ISRs

No. Date ISR Archived

DO IP Actual Disbursements

(US$ millions) 1 06/24/2012 Moderately Unsatisfactory Moderately Unsatisfactory 1.77 2 04/08/2013 Moderately Unsatisfactory Moderately Satisfactory 2.19 3 09/30/2013 Moderately Satisfactory Moderately Satisfactory 2.68 4 02/25/2014 Moderately Satisfactory Moderately Satisfactory 3.59 5 09/07/2014 Moderately Satisfactory Moderately Satisfactory 5.08 6 05/06/2015 Moderately Satisfactory Moderately Satisfactory 6.38

H. Restructuring (if any) No restructuring.

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I. Disbursement Profile

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1. Project Context, Development Objectives and Design

1.1 Context at Appraisal

Country context

In the years running up to project appraisal, strong economic growth contributed to a significant reduction in poverty in the Kyrgyz Republic. GDP grew by 8.4 percent in 2008. Poverty rates declined from 43 percent in 2005 to 31.7 percent in 2008 and extreme poverty fell from 35 percent to 7 percent. Still the Kyrgyz Republic remained one of the poorest countries in the region, with GDP per capita of US$966. Cautious macro-economic and fiscal policies coupled with strong economic growth and improvements in tax administration, with revenues rising sharply to 20.7 percent of GDP, enabled the Government to consolidate its budget deficit. Firm fiscal policy supported by strong growth and Paris Club assistance resulted in a reduction in public debt, which is largely external, to 58 percent of GDP.

At appraisal the Kyrgyz Republic faced significant challenges in sustaining these positive developments. As the global economic crisis started to affect the region, the prospects for the Kyrgyz economy worsened owing to dependency on remittances and trade with Russia and Kazakhstan and vulnerability to the world commodity prices. Economic growth in the Kyrgyz Republic was expected to decline sharply and fiscal pressures were expected to increase. In this case, reforms aimed at improving the efficiency in managing public resources assumed prominence in the Kyrgyz Republic’s development agenda.

Sector context

Following the adoption of a systematic PFM Action Plan in 2006 that built on comprehensive analytic work, the Government made progress in a number of areas with the support of technical assistance, including: implementation of a new budget classification in the 2007 budget; development of Treasury procedures to strengthen budget preparation and execution; adoption of a new Chart of Accounts (COA); and approval of a Law on Internal Audit by parliament.

However, significant challenges remained. The second PEFA assessment published in 2009 pointed to some progress in budget comprehensiveness and transparency but identified poor budget credibility is one of the principle shortcomings of the PFM system, stemming partly from weaknesses in the budget preparation and execution processes and cash management. The assessment also highlighted the needed for assistance in: updating the legal framework for budgeting; strengthening annual budget preparation process; improving understanding of the internal audit function and supporting implementation of the Law on Internal Audit; and building the capacity of civil servants to lead the PFM reform process.

The Government adopted a Medium-Term Vision for PFM Reform in 2009. This document outlined a sequenced approach aimed to improve the performance in six PFM areas: the budget preparation; budget execution and reporting; the PFM legal framework; inter-governmental fiscal relations; a fiscal reform strategy and revenue management; and capacity building.

Rationale for Bank Involvement

The Country Development Strategy (CDS) of the Kyrgyz Republic for 2009-2011 emphasized the need to improve governance and transparency in public administration. The CDS recognized that the Government had made some progress in enhancing PFM but significant further work was needed in this area to support poverty reduction and economic growth. Kyrgyzstan’s

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experience with PFM reforms over the previous decade demonstrated that the authorities could make progress when supported by external technical assistance and capacity building in the Ministry of Finance (MoF) and line ministries. The CDS stressed the need for coordination among multiple development partners.

PFM reform figured prominently in the Bank’s Country Assistance Strategy (FY2007-FY2012), under the second of the Bank’s four priority areas: Improving governance, effective public administration and reducing corruption. The Bank had provided support to the preparation of the PFM Action Plan and the authorities and donors asked the Bank to establish a MDTF and support the preparation and implementation of the Capacity Building in Public Finance Management Project.

1.2 Original Project Development Objectives (PDO) and Key Indicators

The development objective for the MDTF was to assist the government of the Kyrgyz Republic in enhancing the effectiveness, efficiency and accountability in PFM through strengthening the budget process, the internal audit and control functions and the institutional and human capacity of the MoF and line ministries. The development objective of the project supported a higher level objective of improving service delivery. The PDO indicators included:

A stronger budget process with improved internal management and accountability for spending and performance

Intensified and more productive interaction between government and citizens on budget-related issues

Increased predictability of the annual budget as a result of the medium-term budget framework (MTBF) providing an effective instrument for expenditure control and allocation of resources

A stronger public internal control environment Increased competence in management, administration and technical functions in the MoF

and key line ministries, specifically in PFM.

1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification

The PDO and key indicators were not revised. However, an intermediate indicator on updating the Budget Law was introduced. In addition, over the course of project implementation, the Project Board excluded some intermediate indicators from the Logical Framework and added new indicators, which were more relevant to the new circumstances.

Revised intermediate indicator: The Budget Code of the Kyrgyz Republic that is under development contains relevant

regulations to strengthen the overall PFM system consistent with best practices Excluded intermediate indicators: Media contains more frequent and improved reporting on budget-related issues, with

increased budget literacy The MoF commissions and publishes independent studies related to the budget process,

and conducts monitoring of the quality of publications on budget-related issues The MoF human resources practices Policy development capacity of the MoF to align policy decision to budget funding

allocations

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Added Intermediate Indicators: Availability of basic elements of the IA system, including improved laws and regulation,

and also the standards and methodology A functioning Central Methodology and Quality Unit providing training, normative

documents, guidance for internal auditors and monitoring IA quality and compliance Improved tax policy and tax administration Improved public revenue forecasting and analysis Improved public procurement processes

1.4 Main Beneficiaries

The main beneficiaries of the project were the MoF and line ministries at the central government level, local governments, as well as all budgetary organizations since the PFM reform supported by the project covered many PFM functions and spanned across levels of government. These included budget preparation and budget execution, the medium-term budgetary framework and performance orientation of the budget, linkages between the current and capital budgets, budget comprehensiveness and fiscal transparency, internal audit and control, intergovernmental fiscal transfers, revenue forecasting and public procurement. The MoF, line ministries and budgetary organizations particularly benefited from the streamlined and more effective PFM processes and staff training and capacity building supporting the development of core PFM skills supported by the project. The local governments benefited from more effective equalization of intergovernmental fiscal transfers due to the new formula developed as part of this project. The public at large, including the private sector and citizens, benefitted from efficient public procurement and transparent budget reporting.

1.5 Original Components (as approved)

The project included five components:

Component 1. Strengthening the Budget Process. This component included the following activities:

(a) Strengthening the legislative framework of PFM, including updating the rules and regulations for budget preparation and execution, and optimizing the work processes and procedures used;

(b) Strengthening the relationship between Kyrgyz nationals and budget-related issues by supporting the process of systemic publication of budget information, public awareness of the budget process and the media’s literacy of budgetary issues.

Component 2. Improvement of Medium-Term Budget Framework (MTBF), including in Line Ministries. The component financed the following activities:

(a) Improving the quality of macroeconomic forecasting in the medium term and appraising fiscal implications of macroeconomic developments

(b) Improving a credible link between the MTBF and annual budget preparation and execution

(c) Improving the costing of budgetary expenditure in line ministries (d) Enhancing the link between realistic sector strategies and the budget process, including

in line ministries (e) Developing financial and non-financial sector performance indicators

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Component 3. Internal Audit and Control. The component comprised provision of goods, training and technical assistance to the MoF and line ministries to support the implementation of the Internal Audit Law, including the establishment of both an internal audit unit and a central harmonization unit, and building the capacity of these institutions.

Component 4. Capacity Building in PFM. The component financed for the following activities:

(a) Building management capacity within the MoF (b) Enhancing the capacity of specialists in key reform techniques (c) Developing the training capacity of the MoF (d) Capacity-building activities in direct support of PFM initiatives (e) Capacity-building for key PFM training providers in the Kyrgyz Republic (f) Enhancing the fiduciary capacity in the MoF

Component 5. Project Management. This component financed provision of goods, training and technical assistance in carrying out project implementation, procurement and financial management of the TF, including audit.

1.6 Revised Components

In the course of project implementation, Component 1 was revised by adding new activities, which reflected the MoF’s emerging needs and included:

(a) Establishing a new system of public procurement; (b) Improvement of inter-governmental relations; (c) Improvement of forecasting and analysis of public revenue; (d) Improvement of tax policy and tax administration, and (e) Introducing International Public Sector Accounting Standards (IPSAS).

1.7 Other Significant Changes

There was no change in the project design, scope, scale and implementation arrangements. However, there were two extensions of the project closing date through Level II restructuring on December 12, 2012 and April 4, 2014. As a result the project closing date was extended from June 30, 2013 to December 31, 2014 and then to May 31, 2015.

The project experienced delays in 2009-2012 due to political instability, changes in the MoF leadership and the failure of the recipient entity to appoint a project manager for over a year during that period. Project execution accelerated from 2012. The extensions enabled the completion of several key procurements that supported the achievement of the PDO. Notable project achievements following extension were the development of a system for more comprehensive disclosure of key budget documents and financial information and the preparation of training materials and manuals for the internal audit. However, the adoption of the Budget Code which was a key element for strengthening the budget processes was repetitively delayed in parliament and thus still remains on the agenda for the future.

2. Key Factors Affecting Implementation and Outcomes

2.1 Project Preparation, Design and Quality at Entry

A comprehensive analytical work laid a strong foundation for project preparation and design. This included a Country Financial Accountability Assessment (CFAA), a Country

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Procurement Assessment Report (CPAR), a Programmatic Public Expenditure Review (PPER), a PEFA assessment – published shortly after project approval, the IMF’s Report on the Observance of Standards and Code on Fiscal Transparency (fiscal ROSC) and technical notes on budget preparation and execution. This analytical work informed the design of the Government’s the Medium-Term Vision for PFM Reform which provided the basis for the project development. During the project preparation, consultations were carried out with the Ministry of Finance, the Ministry of Economy, the line ministries, donors and government bodies outside the executive, such as the Jogorku Kenesh and the Chamber of Accounts, so as to ensure that there was a shared understanding of the project design and commitment to project objectives.

Donors adopted a common program and robust coordination arrangements. All of the major donors supporting PFM reforms in the Kyrgyz Republic joined the MDTF and supported the project: DfID, SIDA, SECO and EU. The Project Board provided strategic direction for the project comprising top MoF officials and one representative from each of the MTDF donors. A Technical Expert Panel served as an advisory body comprising the PFM TF manager, key specialists from MOF, key experts (consultants) working on the Project, the Bank and MTDF donors and other key experts working on PFM. To facilitate project start-up, the existing project implementation unit (PIU) in the MoF, which provided support for the Bank financed Government Technical Assistance (GTAC) and Agribusiness Support Projects, was put in charge of procurement, financial management and disbursement and monitoring at the time of project preparation.

The project design was overly complex and ambitious. The project provided support in seven areas of PFM: policy-based budgeting, predictability and control in budget execution, accounting and reporting, budget comprehensiveness and transparency, revenue policy and forecasting, intergovernmental fiscal transfers and public procurement. The intermediate results framework incorporated 24 indicators for all the PFM areas covered under the project. This made it difficult to prioritize and sequence activities.

Successful completion of several reforms was dependent on the successful implementation of the parallel GTAC Project which supported implementation of an IFMIS. The implementation of a three-year budget planning, linkage between the annual budget and MTBF, capital expenditure forward planning and introduction of the Unified Chart of Accounts (UCOA) required the automation and consolidation of the budget preparation and execution processes. GTAC’s failure to implement the IFMIS hindered the achievement of project development indicators related to the MTBF and internal audit and control, which were left pending the development of appropriate automated processes.

The internal arrangements for implementation of the reform were inadequate. Within the MoF the assignment of personal responsibilities to the MoF officials for specific project activities was unclear. This undermined ownership of reform and effective communication between the project implementation team and top officials of the MoF. Implementation involved a large number of institutions beyond MoF, including: the MoF, line ministries, local governments, all the budgetary organizations. However, the project provided little support in this cross-governmental coordination function, instead coordination arrangements were primarily geared to manage MoF’s relationship with its development partners and between senior government officials and international experts.

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The design overestimated the MOF’s ability - and perhaps extent of commitment - to undertake far-reaching reforms. Eight major risks were identified, including political, technical, capacity, low incentives for reforms, government responsiveness to citizen’s opinion on budget issues, high turnover of qualified staff, government commitment to reforms and corruption. Only two risks were rated as High and the remaining as Medium, including political instability and consequently institutional and personnel instability. Some mitigating measures were identified, such as Government agreement to the capacity building plan, involvement of the MoF senior staff in the Project Board and the development of improved HR management processes. The risk framework also provided for exit triggers, which would require action by the MDTF donors to adjust or suspend MDTF implementation. However, the original design underestimated risks that were outside the Bank’s or project counterpart’s control, particularly risks institutional capacity in the public sector to internalize and implement complex PFM reforms, the Government’s commitment to push for such reforms and the role of stakeholders such as the legislature is delaying adoption of the Budget Code.

2.2 Implementation

The project experienced lengthy start-up delays and subsequently suffered some delays as a results of changes in key personnel. Actual project implementation began with one-year delay in early 2011. This was partly due to changes in the MoF leadership and the failure of the recipient entity to appoint a project manager. The pace of implementation accelerated from the start of FY 2012 as procurement picked up and then accelerated again from the second quarter of FY2014 through to project closing.

The Government’s project review argues that requirement for a prior-review of a large proportion of contracts in the procurement plan hindered implementation. Implementation also suffered from changes in key personnel. Over the course of the project, the Bank’s Task Team Leader, the MoF Project Director and the Project Manager were each replaced three times. Moreover, low wages of local consultants made it extremely difficult to attract and retain qualified staff in the implementation unit.

Discussions with the implementation unit reveal concerns regarding the effectiveness of international advisors. Language constraints played an important part but in some cases counterparts had limited understanding and ownership of assignments. Counterparts expressed a strong preference for hands on operational support over analytical and advisory reports.

While, the design became more complex over time, as restructuring in 2012 added new and ambitious activities and indicators, these adjustments helped revitalize a failing project, aligning the project’s activities with emerging priorities. These new activities, notably support for public procurement reforms, including introduction of e-procurement portal, and the work on intergovernmental transfers, led to some of the most important project achievements.

The project closing date was extended twice for an additional 23 months from its original closing date. Project extensions approved on December 12, 2012 and April 4, 2014 allowed the project to complete a number of important outputs that contributed to successful project outcomes: development of the regulatory framework for implementing the Budget Code; improvements budget transparency; introduction of methodologies for local revenue forecasting and a formula providing for better equalization of intergovernmental fiscal transfers; introduction of non-financial performance indicators in the public sector; strengthened internal audit in line

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ministries; implementation of a public e-procurement system; and development of MoF capacity for delivery of training.

While there was no formal mid-term review, under prevailing procedures for a MDTF, the Project Board and Technical Panel did take stock of implementation progress and approve adjustments to the project, notably in preparation for the December 2012 project restructuring and extension.

2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization

M&E design. The project design had a strong results focus. The project anticipated the use of PEFA assessments as a means of monitoring progress of the Government’s PFM reforms over the longer term, with the 2009 assessment providing a baseline and a follow-up assessment in 2014.

The project results framework complemented the PEFA assessments focusing on the reforms rather than the improvements in PFM system performance. Almost all of the PDO and Intermediate Outcome Indicators were framed as outputs, in terms of improvements in regulations and systems. None of the indicators had a quantitative dimension. Most required a qualitative assessment. Few of the indicators had clear intermediate milestones that would allow management to monitor progress towards delivery of the intended output. As such the results framework was not well suited to the assessment of progress towards the achievement of PDOs nor was it an effective project management tool.

Furthermore, the results framework did not cover all of the dimensions on the PDO. While numerous indicators monitored progress in effectiveness and accountability, the concept of efficiency was not clearly articulated. The only PDO indicator that measured some dimension of efficiency, together with the Intermediate Outcome Indicators, was related to the internal control function. Improvements in process efficiency were to be assessed solely in terms of an Intermediate Outcome Indicator related to implementation of FMIS automation which was not actually supported under the project. When the project scope was adjusted in 2013, Intermediate Outcomes Indicator were added related to public procurement but this too was focused on regulatory framework rather than system efficiency.

M&E implementation. Despite these deficiencies in design, project management regularly collected data and reported on progress in relation to the approved indicators. The data were closely monitored and the actual progress was compared with the target values. In the course of the project implementation, the results framework was updated and approved by the Project Board to reflect new activities implemented by the project and remove some activities, such as preparing a tax policy concept, for which the MoF was no longer in charge.

M&E utilization. Minutes of Project Board meetings and the ISRs reveal that the data collected from the project annual reports and supervision missions was reviewed, evaluated and used to keep track of implementation and for decision-making on project activities. Monitoring information informed decisions on adjustments in project timelines and adjustments in project activities prior to the 2012 project extension.

2.4 Safeguard and Fiduciary Compliance

Safeguard issues. Not applicable.

Fiduciary issues. There were no substantial issues with regard to procurement and financial management. Small discrepancies revealed during the annual audit reviews or supervision

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missions were effectively and promptly resolved. Audit reports were provided on time and were unqualified. Regular procurement post-review reports prepared during project implementation indicated some minor issues which were promptly addressed.

2.5 Post-completion Operation/Next Phase

MoF has requested that the World Bank lead the preparation of a follow-up PFM capacity building project, which will build on activities implemented under the MDTF. DfID, SECO and EU have confirmed their interest to provide financing for the project. The Government is currently finalizing an update of its PFM strategy. The follow-up project will reflect the Government’s new priorities. It will also address the unfinished agenda of the CBPFM project, notably the adoption of a new Budget Code and automation of the public financial management system.

3. Assessment of Outcomes

3.1 Relevance of Objectives, Design and Implementation

Relevance of Objectives: High

The project development objective, design and implementation are still relevant to the current needs of the PFM system in the Kyrgyz Republic. The government has started the development of a follow-up PFM Reform Strategy. The primary objective of this Strategy is to strengthen the effectiveness, efficiency and accountability of PFM through strengthening the budget processes and the internal audit and control functions. The project objectives are also consistent with the Bank Country Partnership Strategy for FY2014-2016 as one of the key priorities under Area of Engagement 1 is strengthening accountability and transparency in the management of public finances.

Relevance of Design: Substantial

The project design included relevant PDO indicators and financed the development and enhancement of key PFM systems of government that required significant technical assistance. But the scope of activities could have been more focused and selective. At the same time, despite the broad scope the project achieved substantial results in many important areas: budget comprehensiveness, fiscal transparency, improved allocation of inter-governmental fiscal transfers, a strengthened internal control environment and increased transparency and competition in public procurement. The project fully disbursed all funds at closing.

A number of design factors hampered implementation. Risk ratings and mitigation measures were not appropriately assessed. The project scope was unduly ambitious given the country circumstances, the institutional and technical capability of the institutions. Project management arrangements were also focused on coordination with and between donors, management arrangements that would ensure adequate ownership and participation of officials within and across the government institutions were much less prominent and much less effective. The monitoring framework focused on outputs and did not provide a basis for assessing progress towards the project’s development objectives.

3.2 Achievement of Project Development Objective

The development objective for the MDTF was to assist the government of the Kyrgyz Republic in enhancing the effectiveness, efficiency and accountability in PFM through strengthening the budget process, the internal audit and control functions and the institutional and human capacity

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of the MoF and line ministries. The development objective of the project was aimed to support a higher level objective of improving service delivery. The remainder of this section assesses progress drawing on MoF data, PEFA assessments, interviews with government officials and project supervision and other reports. Annex 2 recreates the results framework as provided in the Concept Note and includes a Table on Assessment of Achievement by Objective. It is important to note that some of the PDO indicators and intermediate results indicators contributed to several PDO objectives and thus reflected accordingly under the respective objectives.

PDO Objective 1: Effectiveness Rating: Modest

EFFECTIVENESS

PDO 1 A stronger budget process with improved internal management and accountability on spending and performance.

Partially Achieved

PDO 3 Increased predictability of the annual budget as a result of the medium-term budget framework (MTBF) use, which provides an effective tool for cost control and resource allocation.

Not Achieved

PDO 5 Increased competence in management, administration and technical functions in the Ministry of Finance and key line ministries, specifically in PFM.

Achieved

IO 1 Budget Code of the Kyrgyz Republic under development contains relevant regulations to strengthen the overall PFM system

Partially Achieved

IO 5 Annual allocations to Ministries are consistent with an approved transparent financing plan that is based on the annual budget law.

Not Achieved

IO 6 Improved system for intergovernmental relations. Achieved IO 10 Annual Budget Plans are based on a consistent MTBF. Not Achieved IO 11 Expenditure classification used in MTBF is consistent with the expenditure

classification of the annual budget. Not Achieved

IO 12 Improved costing of sectorial spending programs under the sector resources, introduced in the MTBF. Inclusion of nonfinancial indicators in the pilot sectorial strategies.

Partially Achieved

IO 13 Clear links between capital expenditures and future recurrent costs and improved analysis of the impact of public investments on the budget over the medium-term.

Partially Achieved

IO 14 Sector strategies include measurable performance indicators with baseline values and a system for monitoring

Partially Achieved

IO 19 Number of staff trained in core management and technical skills in the MoF and line ministries increases the capacity to deliver effective PFM.

Achieved

IO 20 Strengthened training capacity of the MoF Achieved IO 22 Improved tax policy and tax administration Partially Achieved IO 23 Improved public revenue forecasting and analysis Partially Achieved

The Concept Note included three PDO indicators that could contribute to improvements in effectiveness of public expenditure: PDO 1, 3 and 5. Progress against the PDO 1 was partially achieved by establishing the foundations for the introduction of a program structure and use of performance information in the budget. Very limited progress has been made in relation to PDO 3 strengthening the medium-term perspective in budgeting. The MTBF for 2015-2017 still applies only functional and administrative classifications. The annual budget is not linked to the MTBF. PDO 5, enhancing the effectiveness of public finance management through capacity building in the MoF and line ministries, was achieved.

Progress towards intermediate outcomes related to the effectiveness objective is also mixed. The Budget Code provides for fundamentally new approaches to budgeting, such as the consolidation of the Social Fund with the national budget, a Treasury Single Account, program budgeting,

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managerial budgeting and stronger linkages between the annual budget and the MTBF. However, the Budget Code has yet to be approved.

Considerable progress has been made in implementing reforms in inter-governmental fiscal relations. It contributed to the improvement in planning of intergovernmental transfers and supported the development and adoption of a new equalization formula. The project also contributed to introducing changes to a system for financing education costs and incentive grants by developing and implementing Guidelines for Preparation and Execution of Projects Financed from Incentive Grants. The equalization grants factoring utilities costs were implemented in 2014.

The program classification developed under the project was approved on September 27, 2015. It will be piloted in six ministries in 2016. The government plans to implement program budgets in all ministries from January 1, 2017. The project also supported the development of non-financial indicators for 20 sectoral strategies that were adopted. Subsequently, 28 ministries and agencies submitted their reports on non-financial indicators for 2014. Furthermore, the project assisted the preparation and implementation of Guidelines for Managing Public Investments and Guidelines for Assessing Public Investment Projects. The Public Investment Program (PIP) is consolidated into the budget documentation and fully accounted for in the budget. The project has put in place the foundations for program budgeting and public investment management, though these systems have yet to be defined.

The project supported strengthening training management capacity through technical modernization and functional reorganization of the MoF Training Center. In particular, a new technical equipment was delivered, nine training modules were developed and 10 certified trainers were trained. 15,160 staff received training in key PFM technical skills during 2010-2015. Additionally, the project has helped put the institutional framework for capacity building on a sustainable footing through changes in the legal framework for the MOF Training Center, allowing the center to recover funds for training to other government agencies.

Comparison of 2009 and 2014 PEFA assessments confirms the improvements in the budget process. Significant progress was made in transparency of intergovernmental fiscal relations and orderliness and participation in the annual budget process. There was no change in the performance of the multi-year perspective in budget planning.

PEFA Assessments for 2009 and 2014

Performance Indicators

2009 2014 Scoring Method

Comparable

Change Since 2009

PI-8 Transparency of Inter‐Governmental Fiscal Relations

i C i A M1 Yes Performance improvement

PI-11 Orderliness and participation in the annual budget process

iii D iii C M1 Yes Performance improvement due to timely approval of budgets

PI-12 Multi‐year perspective in fiscal planning, expenditure policy and budgeting

C+ C+ M1 Yes No change

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PDO Objective 2. Efficiency Rating: Substantial

EFFICIENCY

PDO 4 A stronger public internal financial control environment. Partially Achieved IO 2 The Budget Department has a fully operational budget information system (BIS)

integrated with Treasury Management Informational System (TMIS) which is used to prepare/analyze annual budgets

Not Achieved

IO 15 Review of the scope of all major systems of internal control in public bodies and agencies of the Kyrgyz Republic which clarify the formal responsibility, processes, structure and format of instructions.

Achieved

IO 16 Availability of basic elements of the IA system, including improved laws and regulations, and also the standards and methodology.

Partially Achieved

IO 17 A functioning Central Methodology and Quality Unit providing training, normative documents, guidance for internal auditors and monitoring internal audit quality and compliance.

Achieved

IO 18 Establishment of Internal Audit Units in the main government bodies and agencies. Achieved IO 21 Strengthened MoF internal management and business processes Partially Achieved IO 24 Improved public procurement process Achieved

The PDO indicator related to the efficiency objective is PDO 4 which is contributing to improvements in strengthening public financial control environment. The project provided support for establishing internal audit function in the MoF and line ministries. With the project assistance the Internal Audit Methodology Unit was established in the MoF, proper internal audit legislation was developed and Internal Audit units were opened in 19 line ministries. However, lack of Internal Audit quality assurance mechanism has limited the overall effectiveness of the internal audit function.

The project made significant progress in the area of public procurement by implementing an e-procurement system. A Law on Public Procurement and associated by-laws, which provide for functioning of an e-procurement system, were adopted and implemented. More than 5,000 clients have registered on the government e-procurement portal. There was an increase in competitive procurement as a percentage of public procurement and average number of bidders per bid. Time required for bid evaluation decreased by almost half. Additional information on the improvement of public procurement is provided in the Annex 4.

Some progress was achieved in improving the MoF’s internal management capacity. The project supported implementation of an automated workflow “Landox” system, which lowered the cost and enhanced efficiency of internal workflow management in the MoF. The project also financed investment in data access and data collection, communications and computer equipment for connecting ministries/territorial executive bodies to the network, and training for using the PFM information system. However the proposed integration of the budget and treasury automated information systems did not take place. As a result, the information management continues to be fragmented, requiring repeated data entry and reliance on manual processes. The project did not provide financing or support activities that would have delivered this Intermediate Outcome.

Comparison of 2009 and 2014 PEFA assessments confirms improvements in procurement and internal audit.

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PEFA Assessments for 2009 and 2014

Performance Indicators

2009 2014 Scoring Method

Comparable

Change Since 2009

PI-19 Competition, value for money and controls in procurement

D+ B M2 No Changed methodology but performance seems significantly better

PI-21 Effectiveness of internal audit

D C M1 Yes Performance improvement

PDO Objective 3. Accountability Rating: High

ACCOUNTABILITY

PDO 2 Deeper and more productive interaction between government and citizens on the budget.

Achieved

IO 3 The MoF publishes reports on budget execution by line ministries on non-financial indicators, using appropriate and accurate estimates of their activities

Achieved

IO 4 Improved transparency and coverage of the budget to include all public sector revenue and expenditure.

Partially Achieved

IO 7 The MoF publishes reports (on its website) of draft budgets and budget outturns compared to the approved and revised budgets whenever such reports are made available to Parliament

Achieved

IO 8 Government proactively publicizes budget-related information in a variety of user-friendly formats, tailored to specific audiences.

Achieved

IO 9 Implementation of the Law “On access to information possessed by public administration bodies and local self-governance bodies of the Kyrgyz Republic” (28 Dec 2006) by the Ministry of Finance and local financial bodies.

Achieved

The project made significant progress in strengthening engagement between government and citizens, which contributed to creation of enabling environment for strengthening accountability in public financial management. The MoF introduced a practice of regular and systematic publications on the budget. The Civil Budgets for 2014-2015 were developed and published. Over the past two years regular public budget hearings have been held. Draft budget and budget execution reports are published regularly. A Law on access to information possessed by public administration bodies was adopted and implemented.

The Kyrgyz Republic’s Open Budget Survey score increased from 20 to 54 points between 2012 and 2014 owing to the publication of the Pre-Budget Statement, Citizens Budget, Mid-Year Review, and Audit Report and improvements in the comprehensiveness of the Executive’s Budget Proposal. The Open Budget Report notes that the Kyrgyz Republic now publishes all eight key budget documents but still has to make progress in improving the comprehensiveness of the reports published during the budget implementation phase. Significant progress has also been made in public participation, notably by the executive through the introduction on budget consultations, with a score of 52 as compared with a global average of just 25.

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3.3 Efficiency

As an institutional capacity-building project, quantitative projections of rates of return are not applicable and were not developed during project preparation. However, even if the project did not pursue specific economic efficiency objectives, it is expected that capacities developed under the project on areas of performance budgeting, internal audit and public procurement administration would contribute to a reduction in the costs of government per unit of output as a result of administrative cost savings and reduced procurement costs. Table 5 shows improvements in public procurement after implementing e-procurement system.

Table 5 Public Procurement before and after implementing e-procurement system (over nine month period)

Indicators of progress 2014 2015 Change

Competitive procurement (as % of public procurement)

79.1 85.3 6.1

Direct contracting (as % of public procurement) 11.7 8.5 -3.2

Average number of bidders (per bid) 3 5 2.0

Bid evaluation period (days) 7-14 3-7 4-7

Procurement plans published (% of total government organizations registered)

21.4 45.4 24.0

The project was implemented within budget. Despite the twenty three month project extension (nearly 50 percent), there was a relatively modest increase in project management costs (21 percent). However, there were significant adjustments in costs between components, with a reduction in expenditures on the component supporting the budget process and a significant increase in costs of the capacity building component. These cost increases were partly owing to new activities added on client request, related to adoption and implementation of the Public Procurement Law, methodology for the formula-based allocation of equalization grants to local budgets, and the methodology for forecasting state budget revenue.

3.4 Justification of Overall Outcome Rating: Moderately Satisfactory

Table 6 Overall Project Outcome Rating

Relevance of Efficacy: Objective Efficiency Overall Outcome

Objectives Design 1 2 3

High Substantial Modest Substantial High Substantial Moderately Satisfactory

Even though the project failed to achieve its goals in adopting a new budget legislation and implementing the MTBF, significant progress was made in the areas of internal control, procurement reform, budget transparency, accountability, the establishment of basis for program budgeting and capacity development. The Kyrgyz Republic PEFA Report 2014 showed significant progress relative to 2009 in the areas of revenue forecasting, budget transparency, integration of public investment into the budget, access to information, accounting and reporting

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as shown in Figure 1. Fourteen PEFA indicators registered A or B scores as compared with only six in 2009 the number of D scores fell from fourteen to six. These improvements can be directly attributed to the support provided by the CBPFM project.

3.5 Overarching Themes, Other Outcomes and Impacts

(a) Poverty Impacts, Gender Aspects, and Social Development

There is no direct poverty, gender or social impact on the population. Indirectly, however, the project helped lay the basis for a strengthening of the government’s human resources, more efficient management of service delivery and public finance organization, and improved access to information by the public - all of which will benefit citizens and support the Government’s poverty reduction objectives.

(b) Institutional Change/Strengthening

The project focused on institutional strengthening and capacity building. Improvements in budget preparation, budget forecasting, the internal audit environment, the implementation of an e-procurement system were all supported by targeted training which sought to develop sustainable improvements in capacity to manage system improvements over the longer term. Particular attention was given to building capacity in management and delivery of training through the MOF Training Center given the potential for positive cross-cutting effects in the whole public sector.

(c) Other Unintended Outcomes and Impacts (positive or negative)

None.

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3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops

A survey was completed in May 2015, conducted by a private consulting company funded by the project, with 52 respondents drawn from the MoF and line ministries. The results were largely positive in terms of the project’s impact.

The majority of respondents noted positive changes in PFM but the pace of changes was slower than expected. The respondents considered public procurement as the area that had shown the greatest improvement as a result of strengthening institutional, legal and methodological frameworks as well as enhancing transparency in procedures. The respondents saw political instability, lack of public awareness and the economic crisis as negative factors hindering PFM reform, far more so than political commitment. Hence, they argued that action should be taken to promote the interaction between different agencies involved in PFM reform, strengthen the monitoring of PFM reform, raise public awareness of its objectives and progress, and motivate different segments in society to engage in the reform implementation.

Seventy three percent of the respondents believed that PFM reform would not have achieved its outcomes without the MDTF project. Eight percent believed that PFM reform outcomes would have been achieved even without the project. The respondents considered capacity building of civil servants, improvements in the regulatory framework and the general progress in PFM reforms as the most important achievements.

4. Assessment of Risk to Development Outcome: Significant

Further implementation and sustainability of part of the reforms implemented under the project, notably program budgeting, introduction of the functioning MTBF, capital expenditure and forward planning and public accounting reform are, largely, dependent on adoption of the new Budget Code and implementation of an automated budget management information system.

Advances in the capacity for the management and delivery of PFM training also face significant risks. While the project has helped put in place institutional arrangements that allowed the MoF Training Center to recover funds for training to other government agencies the Center retains only an insignificant part of the revenue earned from providing training to corporate clients. The Training Center’s limited resources make it difficult for the Center to attract and retain highly qualified trainers and hinder the expansion of the Center’s activities and delivery modalities such as distance learning.

The Government has continued to implement system reforms and sought to consolidate project achievements through a follow-up project. The Bank continues its policy dialogue on PFM issues and has included approval of the Budget Code as a prior action in a proposed Development Policy Operation that will be prepared in parallel to the follow-up Capacity Building in PFM project.

5. Assessment of Bank and Borrower Performance

5.1 Bank Performance

(a) Quality at Entry: Moderately Unsatisfactory

Although the project had a strong analytical basis and offered the Government a single instrument for managing development assistance for PFM reform, a number of design factors hampered implementation. Risk ratings and mitigation measures did not adequately reflect ongoing political, social and economic developments. The project scope and expectations

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regarding the progress of reforms was unduly ambitious given the country circumstances, the institutional and technical capability of the institutions. The level of ambition and priorities – such as the prominence given to program budgeting, a complex technique that was motivated in part as a framework for sector budget support – appear to have been inordinately influenced by donors. Project management arrangements were also focused on coordination with and between donors, management arrangements that would ensure adequate ownership and participation of officials within and across the government institutions were much less prominent and much less effective. The monitoring framework focused on outputs and did not provide a basis for assessing progress towards the project’s development objectives. However, it should be noted that the project design anticipated that PEFA assessments planned to monitor progress in PFM reforms would fulfill this function.

(b) Quality of Supervision: Moderately Satisfactory

The project was subject to close supervision from the start. Bank supervision missions visited the country 3-4 times a year. The Bank placed a full-time extended-term consultant in the field to support the project complemented by a strong headquarter-based team, including PFM and procurement specialists. At the donors’ request, the TTL was transferred to Bishkek and took up a field based assignment for over year to provide closer support in the period up to project extension at the end of 2012. Detailed aide memoires were regularly shared with the client and development partners regularly. Bank missions focused on key issues and their solutions and recommendations for further project implementation. Between missions, the team supported the daily work of the project by providing considerable advice and recommendations. While the project task team leader was replaced three times, each hand-over had a transition period. Dialogue between the team, donors and the Project Director and senior government officials was open and productive. Significant efforts were made to encourage the creation of the high level body to oversee the PFM reform effort. Sector and country management were also involved in project implementation and the Implementation Support and Results Report (ISR) ratings appear to have been realistic, signaling from the beginning the challenges to the project.

The decisions to seek for restructuring and extension of the project closing date were entirely appropriate allowing the project to complete planned activities and disburse all funds. While no formal project mid-term review took place, this was not a formal requirement for MDTF and the team did engage in a thorough review of project progress in preparation for the 2012 project extension. Furthermore the team used the opportunity to add important activities that responded to the Government’s emerging priorities. While these shifted the project’s focus, this appears justified given the failure of the parallel project that was intended to put in place an FMIS. The new activities revitalized a failing project and restored its relevance to key stakeholders. While the Bank team did not fundamentally restructure the results framework to include indicators that better reflected the PDOs, the results framework was adjusted in line with changes in the project scope, was regularly updated and was used as a basis for discussions with the Project Board.

(c) Overall Bank Performance: Moderately Unsatisfactory

The supervision team demonstrated the strengths of the Bank technical and country expertise, commitment to project goals and the partner, and willingness to go to additional lengths to ensure a successful project. However, its satisfactory performance cannot outweigh the design deficiencies which hindered project implementation.

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5.2 Borrower Performance

(a) Government Performance: Moderately Satisfactory

Government performance improved over the course of the project. There was a year-long delay in project effectiveness owing to delays in the appointment of a project manager. Once properly constituted, the project implementation team under the MOF proved to be highly effective and dedicated. Although political instabilities in early years of project implementation did not allow the government to get actively involved in project implementation, there was a generally high level of government commitment and ownership during the later phases of project implementation. The high-level Project Board and technical groups were established and they provided active assistance in project implementation by discussing the terms of reference and participating in procurement processes. The extent to which this ownership and commitment extended down through the institutions is more difficult to assess. There were instances where officials were unsure of the purpose of reforms, their roles and responsibilities and there were instances where officials failed to cooperate with consultants. When identified, these issues were addressed by the Project Director and Project Board.

(b) Implementing Agency or Agencies Performance: Satisfactory

The project management team provided effective coordination for all project activities. Requirements developed for project assignments were quite detailed and clear. The fiduciary functions including procurement, financial management and disbursement were delegated to the MoF PIU. The PIU was very effective in accomplishing all aspects of project management, such as financial management, procurement arrangements, reporting activities, and disbursements.

Financial management. The financial management system including accounting, internal controls and reporting was adequate and satisfactory to the Bank. Quarterly interim financial reports were submitted on time and were acceptable to the Bank.

Procurement Arrangements. PIU performed procurement in full compliance with the Bank’s procurement rules and requirements. The majority of contracts were subject to prior review which always showed good quality of procurement documents. Four post-review procurement supervision mission did not find any critical issues. In retrospect, the prior review requirements were unnecessarily onerous.

Reporting Arrangements. The PIU submitted all required quarterly and annual reports in promptly. Reports were of high quality providing valuable information on project progress. The status of performance indicators were incorporated in all progress reports and served as valuable input to Bank supervision mission reports.

(c) Overall Borrower Performance: Moderately Satisfactory

Overall borrower performance is Moderately Satisfactory. The inadequacies of the original project design, delays during the early period of implementation and frequent replacements of the key project implementing staff are factors impacted on project implementation. Nevertheless, the majority of project targets were met or partially met, which laid the foundation for further reforms in PFM.

6. Lessons Learned

The lessons learned are intended to inform the design of the follow-up CBPFM project.

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During the review of this ICR, donors highlighted the need for TF contributors should synchronize the processes for signing of Administration Agreements to avoid delays. In 2009 due to the fact that some donors joined the project at a later stage requiring multiple amendments to Administration Agreements, contributed to delays in project preparation and implementation process.

Project institutional arrangements should address coordination and implementation requirements within the implementing institutions to complement arrangements geared to coordination with external partners. Coordination arrangements engaging implementing agencies’ management would help avoid, identify and address instances where key stakeholders are not informed of purpose of reforms, their roles and responsibilities and tackle implementation constraints as they arise. Establishment of a robust management structure within the MoF and other key stakeholders would mitigate the risks of staff turnover by distributing responsibility for implementation across a wider range of staff.

The results framework for projects supporting PFM projects should be designed to support decision making during implementation as well as end-of-project evaluation. PDO concepts such as efficiency, effectiveness and accountability should be spelled out in terms of measurable dimensions of PFM performance that are relevant in the country context. Intermediate outcomes should include both performance measures and outputs that describe the regulatory and systems improvements. Key milestones in the delivery of these outputs should be identified to facilitate monitoring during implementation.

The results framework should not include results that are not within the scope of the project and the risks associated with activities that are critical to the project should be identified and mitigation measures put in place. In the case of the CBPFM – and follow-up project – two project related activities stand out: first, approval of the Budget Code; second, the automation of key budget processes. Delays in parliamentary approval of the Budget Code and the consequent uncertainty regarding the regulatory environment for PFM have prevented the project finalizing a number of outputs that were identified as intermediate outcomes. So too has failure of the parallel GTAC project to complete automation of the financial management information system. Project design should identify mitigation measures, such as alternative scenarios for project activities, should these kinds of risks materialize.

The risks posed by frequent changes in the Government’s core team – gaps in project implementation, lack of continuity and ownership – should be made explicit and mitigation measures identified. It is unclear to what extent the Bank to resolve the underlying of the low level of remuneration of Government officials and consultants relative to other market opportunities. However, mitigation strategies might include offering of professional development opportunities to attract staff and succession planning.

Flexibility to restructure project activities by responding to emerging opportunities can save a failing project. The adjustment of the project during implementation to incorporate reforms in public procurement, tax administration and revenue forecasting contributed to some of the projects important achievements. This flexibility in implementation was a design strength. It allowed the project to respond following the failure of the parallel FMIS project and restored the client and donors’ confidence in the project and its relevance to the changing priorities of the PFM reforms.

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7. Comments on Issues Raised by Grantee/Implementing Agencies/Donors

(a) Grantee/Implementing agencies

The MoF prepared a 61 page final report on the project. MoF overall assessment of the results achieved with the support of the MDTF was positive. The recipient believes that capacities in the MoF and line ministries were strengthened and the new regulations that were developed and implemented have contributed to enhanced PFM and training management. Public access to budget information has improved as a result of web-based access to the MoF portal. Public procurement procedures were simplified and bidders can submit their proposals electronically. Significant progress has been achieved in the areas of intergovernmental budget relations, revenue forecasting and result-based budgeting. However, the Ministry believes that reforms should be further implemented.

The report discusses the project progress by components. A detailed analysis of areas with lower progress is also conducted. These areas include developing the Budget Code, implementing MTBF, automation of budget processes, revenue forecasting, tax administration, capital expenditure management, and accounting and reporting. Poor coordination between project stake-holders and inadequate capacity and commitment in specific areas are among the reasons for poor performance.

The report raises some problems related to design and implementation of the project. Indicators developed by the project were process-oriented rather than result-based, which posed difficulties in measuring the progress. Also, excessive amount of prior-review contracts in the project procurement plan caused undesired delays in procurement process. The ministry believes that small contracts under specified threshold should be subject to post-review, which would contribute to smoother project implementation. The ministry also argues that lump-sum contracts should be preferred to time-based ones, since compared with time-based contracts deliverables are clearly specified in lump-sum contracts. Another issue that had a negative effect on project implementation was the low wages of local consultants maintained by the government, which limited opportunities to attract qualified staff.

In its final part, the report identifies challenges facing PFM reform and priority areas of future reform. These areas include improving legal framework, public investment management, public procurement, revenue administration, intergovernmental budget relations, public internal financial control, accounting and reporting. A list of specific activities that should be included into a new PFM capacity building project is provided in the report.

(b) Cofinanciers/Donors

The co-financing partners did not provide written comments on the program. Representatives of the EU and SECO, both key external partners, provided written comments on the ICR draft and participated in the ICR decision meeting. They endorsed the ICR findings and ratings. They requested that the ICR recognize the need for TF contributors to synchronize the processes for signing of Administration Agreements as an important lesson learned to avoid delays in project preparation and implementation.

(c) Other partners and stakeholders

Not applicable.

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Annex 1. Project Costs and Financing

(a) Project Cost by Component (in US$ million equivalent)

Components Appraisal Estimate

(US$ millions)

Actual/Latest Estimate

(US$ millions)

Percentage of Appraisal

Total Baseline Cost 7.49

7.49

100

Strengthening Budget Process 2.82 1.44 51

MTBF 0.97 1.07 110

Internal Audit and Control 0.66 0.47 71

Capacity Building 2.24 3.54 158

Project Management 0.80 0.97 121

Physical Contingencies 0.00 0.00 0.00

Price Contingencies 0.00 0.00 0.00

Total Project Costs 7.49 7.49

Project Preparation Costs 0.50 0.50 100

0.00 0.00 .00

Total Financing Required 7.99 7.99

(b) Financing

Source of Funds Type of

Cofinancing

Appraisal Estimate

(US$ millions)

Actual/Latest Estimate

(US$ millions)

Percentage of Appraisal

Trust Funds 0.00 0.00 - Free-standing Single Purpose Trust Fund

7.49 7.49 100

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Annex 2. Assessment of Achievement by Objective

Indicators Targets Actual value PDO Objective 1. Strengthening the effectiveness of public finance management through enhancing the budget process, internal audit and control and institutional and human capacity: Modest PDO Indicators #1. A stronger budget process with improved internal management and accountability on spending and performance.


Partially achieved. Progress in introducing performance based budgeting, providing for budget comprehensiveness, expenditure and revenue consolidation, and enhancing budget transparency. But the lack of proper legal basis and delay with adoption of a new Budget Code limited this progress.

#3. Increased predictability of the annual budget as a result of the MTBF use, which provides an effective tool for cost control and resource allocation.

Budget process reflected in the budget circular is amended such that preparation of the MTBF is closely coordinated with the annual budget formulation process. The first year of the MTBF is fully consistent with the draft of annual budget, submitted to Jogorku Kenesh (parliament).

Not achieved. Proper pre-requisites for introducing MTBF process developed. But lack of the integrated and automated information system supporting the MTBF process and delay with adoption and implementation of the new Budget Code impeded reforms.

#5. Increased competence in management, administration and technical functions in the MoF and key line ministries, specifically in PFM.

Consistent professional annual training plan in place. At least 20 management, 50 senior staff, and 200 other staff trained, with at least 50% of trainees in each category being female staff. Impact of TF capacity building on delivery of GoKR PFM reform strategy is evident in all areas of reform relevant to the TF.

Achieved. Training for staff of the MoF and line ministries in key technical skills conducted. Approved curriculum contains 37 key areas of PFM reform. 15 160 people trained during 2010-2015.

Other Indicators 1. Budget Code of the Kyrgyz Republic under development contains relevant regulations to strengthen the overall PFM system consistent with the best practice.


Not achieved. The Budget Code is not adopted and implemented.

2. Incomplete treatment of non-budget funds, the Public Investment Program (PIP) including external aid, and quasi-fiscal operations (for example, energy sector).

PIP and non-budget funds are consolidated into the budget documentation and 100% accounted for in the budget.

Partially Achieved. The PIP is consolidated into the budget documentation and accounted for in the budget. Improved regulatory and legislative framework.

34. Annual allocations to ministries are consistent with an approved transparent financing

All line ministries report improved consistency between planned and actual expenditures.

Not achieved. There are inconsistencies between the amounts of funds allocated

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plan that is based on the annual budget law.

No more than 10% deviation between actual and planned expenditures PI 16 – C.

annually to the ministries from the state budget and the approved by the budget plan, but there are improvements in the coherence of planned and actual costs, as evidenced by the results of the PEFA assessment. According to the PEFA Assessment 2014 Report the value of indicator PI-16 "Predictability in the availability of funds for commitment of expenditures" has improved in comparison to 2009 (increased from the level of (D) to the level (C +)). PEFA 2014 reported on deviations between actual and planned expenditures: 22.7% in 2011, 9.8% in 2012 and 19.6% in 2013.

4. Improved system for intergovernmental relations.

Clear and transparent formula based system for allocations of intergovernmental transfers as well as tax sharing arrangements with more authority transferred to local government in planning and implementing budgets. Methodologies, standard system for budget management and reporting are developed for local government, and training delivery

Achieved. Improved effectiveness and quality of the planning of intergovernmental transfers, revised allocation policy of intergovernmental transfers and changed system of financing the costs of education and incentive grants, increased capacity of local self-governments. Equalization grants factoring utilities costs were applied beginning from 2014.

5. Annual Budget Plans are based on a consistent MTBF.

Budget process reflected in the budget circular is amended such that preparation of the MTBF is closely coordinated with the annual budget formulation process. The first year of the MTBF is fully consistent with the draft of annual budget, submitted to Jogorku Kenesh.

Not achieved. The MTBF is not linked with the annual budget.

6. Expenditure classification used in MTBF is consistent with the expenditure classification of the annual budget.

Economic classification included in the MTBF.

Not achieved. The MTBF for 2015-2017 applies only functional and administrative classifications.

7. Improved costing of sectorial spending programs (agreed with medium term national strategy) under the sector resources, introduced in MTBF. Inclusion of the forecasts of nonfinancial indicators into the pilot sectorial strategies.

Estimation of the medium-term costs of sector strategies match with estimation of available resources. Non-financial performance indicators identified and included in the MTBF for pilot sectors.

Partially achieved. Non-financial indicators for 20 sectoral strategies developed and implemented. Program classification was approved on September 27, 2015. It is expected that the new

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classification will be piloted in 6 ministries in 2016 and then implemented nation-wide from January 1, 2017.

8. Clear links between capital expenditures and future recurrent costs and improved analysis of the impact of public investments on the budget over the medium-term.

Recurrent and capital expenditure framed by the clear financial constraints for all three years of MTBF.

Not achieved. Budgeting for capital and recurrent expenditures are separate. The PEFA score for PI 12 (iv) D (unchanged).

9. Sector strategies include measurable performance indicators with baseline values and a system for monitoring.

Non-financial performance indicators identified in pilot sector strategies included in the MTBF to ensure linkage between the strategy and spending.

Partially achieved. 28 ministries and agencies submitted their reports on non-financial indicators for 2014. Mechanisms for monitoring and analysis of non-financial indicators are being developed.

10. Improved public revenue forecasting and analysis

Unified methodology for revenue forecasting adopted and implemented. Coordination between agencies involved in revenue forecasting improved.

Partially achieved. Unified methodology for revenue forecasting and the order of interaction of state bodies in the revenue forecasting process have been developed and is currently being discussed within the government.

11. Improved tax policy and tax administration

Concept on Tax Policy for 2015-2020 adopted and implemented.

Not achieved/Stopped. Draft Tax Policy Concept for 2015-2020 has been developed and currently is being discussed within the government. The Project stopped activities under this sub-component after the function of tax policy formulation was transferred from the MoF to the MoE in July 2014.

PDO Objective 2. Strengthening the efficiency of public finance management through enhancing the budget process, internal audit and control and institutional and human capacity: Modest

PDO Indicators

1. A stronger public internal financial control environment.

All IA bye laws and regulations are passed and enacted and they make the IA law largely implementable. Accepted IA documents being used in practice by trained auditors IA widely understood and accepted practice in government bodies and agencies of the Kyrgyz Republic. The MoF prepares the assessment of internal control and IA functioning systems and

Partially achieved. Range of methodologies and regulations on IA have been adopted and implemented. IA understood and accepted in practice in government. A Provision on financial management and control in spending agencies was developed and adopted. The Internal Audit Methodology Unit operates within the Internal Audit Methodology and Accounting Department. IA

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recommendations on its further improvement.

units operate in 19 ministries and agencies; a legal basis for functioning of IA services in additional 8 agencies has been developed. However, IA quality assurance mechanism is not available.

Other Indicators 1. Budget Code of the Kyrgyz Republic under development contains relevant regulations to strengthen the overall PFM system consistent with the best practice.


Not achieved. The Budget Code is not adopted and implemented.

2. The Budget Department has a fully operational BIS integrated with TMIS, which is used to prepare/analyze annual budgets.

Fully automated BIS and TMIS connecting central and regional treasuries is used to prepare and analyze 100% of budget The system maintains a historical record of changes to the budget by economic classification and is accessible to all authorized users within the MoF.

Not achieved. There is no nation-wide automated and integrated BIS and TMIS.

3. Review of the scope of all major systems of internal control in public bodies and agencies of the Kyrgyz Republic which clarify the formal responsibility, processes, structure and format of instructions.

Relevant and up-to-date instructions on development of the internal control for public bodies and agencies of the Kyrgyz Republic are determined and adopted by the government. The government approves the plan on elimination of detected weaknesses in the internal control system.

Achieved. The existing internal control systems were reviewed in 5 agencies to identify gaps in legislation, clarify formal responsibilities, processes and procedures. As a result a draft Action Plan on Creation and Development of the System of Financial Control in the Public Sector was prepared. A Provision on financial management and control in spending agencies was developed and adopted.

4. Availability of basic elements of the IA system, including improved laws and regulations, and also the standards and methodology.

All IA bye laws and regulations are passed and enacted and they make the IA law largely implementable. Accepted IA documents being used in practice by trained auditors IA widely understood and accepted practice in government bodies and agencies of the Kyrgyz Republic. The MoF prepares the assessment of internal control and IA

Partially achieved. A number of methodologies and regulations on IA have been adopted and implemented. IA understood and accepted in practice in government agencies. The IA quality assurance mechanism is not available.

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functioning systems and recommendations on its further improvement.

5. A functioning Central Methodology and Quality Unit providing training, normative documents, guidance for internal auditors and monitoring IA quality and compliance.

All staff of department and IA service of MoF passed the training. The unit develops the normative documents and guidance on IA, creates the informational base on IA, and monitors IA quality and compliance

Achieved. Starting from June 27, 2013 in accordance with the order of the MoF No 268/l, Internal Audit Methodology Unit operates within the Internal Audit Methodology and Accounting Department.

6. Establishment of IA units in the main government bodies and agencies.

IA services function in main public bodies and agencies in accordance with existing normative framework. Pilot audits on functioning the system of internal control in 3 ministries were conducted.

Achieved. IA units operate in 19 ministries and agencies; a legal basis for functioning of IA services in additional 8 agencies has been developed.

7. Strengthened MoF internal management and business processes.

MoF internal financial management and business processes set best practice standards for the public sector in the Kyrgyz Republic.

Achieved. Internal processes in the MoF are regulated, staff of the MoF are provided with job descriptions, the system of employees performance evaluation is developed; an automated workflow system «Landocs» was implemented.

8. Improved public procurement process.

A new Public Procurement Law and respective bylaws are adopted and implemented.

Achieved. A new Public Procurement Law and respective by-laws were adopted and implemented. A public procurement portal provides access to procurement information to all interested parties. More than 5,000 bidders are registered. All biddings are conducted through the portal. An average number of bidders per bid increased from 3 to 5 bidders and a share of competitive procurement in total public procurement increased by 6.1 percentage point in 2015. A bid evaluation period declined from 7-14 days to 3-7 days. The share of government organizations that publish procurement plans increased from 21.4% to 45.4%. Independent Complaint Commission to be established.

9. Number of staff trained in core management and technical

Consistent professional annual training plan in place. At least

Achieved. Training was delivered for the staff of the MoF

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skills in MoF and line ministries increases the capacity to deliver effective PFM.

20 management, 50 senior staff, and 200 other staff trained, with at least 50% of trainees in each category being female staff. Impact of TF capacity building on delivery of GoKR PFM reform strategy is evident in all areas of reform relevant to TF.

and line ministries on key management and technical skills according to the training plan agreed with the Bank and approved by the MoF of the Kyrgyz Republic. More than 15,000 public sector employees received training.

10. Strengthened training capacity of the MoF.

Internal capacity to deliver 100 training days per year. 10 certified Training to Trainer trainers.

Achieved. The training capacity of the MoF is strengthened by technical equipment of the Training Center of the MoF, transfer of 9 training modules on key PFM areas, as well as training of potential trainers.

186 training days were delivered in 2014. At least, 10 certified trainers were trained. A branch of the Training Center was established in the Jalalabad.

PDO Objective 3. Strengthening the accountability of public finance management through enhancing the budget process, internal audit and control and institutional and human capacity: High PDO Indicators 1. Deeper and more productive interaction between government and citizens on the budget.

Three MoF external publications on budget-related issues targeted to different audiences Tangible improvements in the quality of budget related information. MoF hosts public hearings on the budget in at least four Oblasts, attended by local civil society organizations, local media and local governments Data collection survey indicates heightened knowledge of budget-related issues among the targeted audiences

Achieved. The MoF introduced the practice of regular and systematic publications on the budget. The MoF website contains information on all issues within the scope of activities of the ministry. The Civil Budget for 2014 was developed and published. Over the past two years regular budget hearings are being held.

Other Indicators 1. The MoF publishes reports on budget execution by line ministries on non-financial indicators, using appropriate and accurate estimates of their activities.

At least three key sectors (including health and education) produce their budget performance reports.

Achieved. Reports on the execution of non-financial performance indicators by the end of 2014 are prepared by 28 agencies. Reports of 10 agencies are published on the MoF website.

2. The MoF publishes reports (on its website) of draft budgets, budget outturns compared to the approved and revised budgets whenever such reports are made available to Parliament

Draft budgets are published on the MoF website; The MoF reports on budget outturns on half-yearly basis, indicating all expenditure categories and approved classifications.

Achieved. There is a practice of regular and systematic publication of the draft budget and budget execution reports.

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Summary information is included in a user-friendly format accompanied by an explanation of spending increases not planned in the budget. The report includes tables and charts highlighting major differences between original and executed budgets by ministry/agency and program, being implemented in pilot ministries. All comments received via the website are reviewed by the MoF PI-24: B+; PI-25: C+

3. Government proactively publicizes budget-related information in a variety of user-friendly formats, tailored to specific audiences.

Three MoF external publications on budget related issues targeted to different audiences Tangible improvements in the quality of budget-related information. The MoF hosts public hearings on the budget in at least four Oblasts, attended by local civil society organizations, local media and local governments Data collection survey indicates heightened knowledge of budget related issues amongst the targeted audiences

Achieved. The MoF introduced the practice of regular and systematic publications on the budget. The MoF website contains information on all issues within the scope of activities of the ministry.

4. Implementation of the Law “On access to information possessed by public administration bodies and local self-governance bodies of the Kyrgyz Republic” (December 28, 2006) by the MoF and local financial bodies.

The MoF fulfils the requirements of the Law and actively inform citizens of their rights under the Law Data collection survey indicates heightened awareness amongst citizens including amongst women and youth (as compared with baseline) of their right to budget information and increased demand for this information.

Achieved. The Law On access to information possessed by public administration bodies and local self-governance bodies of the Kyrgyz Republic has been implemented.

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Annex 3. Outputs by Component Component 1. Strengthening the Budget Process Strengthening the budget process

Development of a draft Budget Code, which contains fundamentally new approaches to budgeting such as consolidation of the Social Fund with the national budget, functioning of a Single Treasury Account, program budgeting, managerial budgeting, and stronger linkage between annual and medium-term budgets.;

Introduction of a new formula for equalization grants; Adoption of new guidelines on M&E of local budgets; Adoption of guidelines on order of preparation and implementation of projects financed from

incentive grants. Enhancing budget transparency

Implementation of a strategy on exchange and regular publication of eight major budget documents;

Holding regular public hearings on the draft National Budget; Establishment of information portals: Open Budget, Economic Map, and External Aid; Implementation of a Law on Access to Information.

Improvement of Management of PIP Adoption and implementation of Guidelines on Managing Public Investments; Implementation of Guidelines on Assessing Public Investment Projects.

Improvement of revenue forecasting and analysis Development of Methodology on Forecasting State Budget Revenue; Development of an Order of interaction of public agencies and exchange of information over the

process of executing revenue part of the budget; Developing a regulation on Administering Special Accounts of Budget Organization.

Improvement of tax policy and tax administration

Development of a concept on Improving Fiscal Policy for the Period until FY 2020; Development of a Code of Non-Tax Revenue.

Public Procurement Adoption and implementation of a new Public Procurement Law; Establishment of a public procurement portal; Phased implementation of e-procurement system.

Component 2. Improvement of the MTBF, including in line ministries

Development of a Budget Circular on Program Budgeting; Adoption of a Program Classification; Adoption of an Instruction on Order of Formation and Presentation of Report on Performance

Indicators. Component 3. Internal Audit and Control Strengthening Internal Audit System

Establishing IA units in 19 public agencies and developing legal basis for functioning of IA units in 8 additional agencies;

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Adoption of IA standards; Adoption of Ethical Standards for Auditors; Adoption of a Program on Establishing and Developing State Internal Financial Control in Public

Sector for 2015-2018. Introducing IPSAS

Adoption of a strategy to introduce IPSAS. Component 4. Capacity Building in PFM Capacity Building and Improving Training Management

Enhanced capacity of staff of budget organizations in PFM issues; Modernization of methodological and technical bases of the MoF training center; Development of a strategy for distance learning.

Strengthening MoF internal management and business processes Automated workflow system “Landocs” is implemented.

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Annex 4. Grant Preparation and Implementation Support/Supervision Processes (a) Task Team members

Names Title Unit Responsibility/

Specialty Lending/Grant Preparation Bernard Myers Task Team Leader (till 2010) GGODR Svetlana Proskurovska Task Team Leader (till 2011) GGODR Galina Alagardova Financial Management Specialist GGODR Supervision/ICR Hassan Aliev ICR Task Team Leader GGODR Stepan Titov Task Team Leader (since 2015) GGODR Adrian Fozzard Practice Manager GGODR Zhanybek Ybraiym Uulu Public Sector Specialist GGODR Zhyldyz Tynalieva Team Assistant ECCKG Nargiza Tynybekova Team Assistant ECCKG Irina Goncharova Procurement Specialist GGODR Maya Gusarova Public Sector Specialist GGODR

Constantin Constantinescu Senior FM Specialist GGODR

Yoko Kagawa Senior Operations Officer GPSOS David Nummy Task Team Leader (2013-2014) GGODR Svetlana Proskurovska Senior Public Sector Specialist GGODR Olga Sipka Consultant Migara de Silva Task Team Leader (2011-2012) GGODR Alexander Balakov Senior Procurement Specialist GGODR Henry Forero Ramires Senior Public Sector Specialist GGODR Lilia Saetova Consultant Dolly Teju Elizabeth Program Assistance GGODR (b) Staff Time and Cost

Stage of Project Cycle Staff Time and Cost (Bank Budget Only)

No. of staff weeks USD Thousands (including travel and consultant costs)

Lending

Total: 0.00 Supervision/ICR

FY09 0 0.02 FY10 7.75 56.18 FY11 12.95 50.00 FY12 35.64 146.79 FY13 36.47 152.50 FY14 37.94 105.68 FY15 28.49 54.05

Total: 159.24 565.22

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Annex 5. Beneficiary Survey Results

The survey was completed in May 2015, conducted by a private consulting company funded by the project, with 52 respondents drawn from the MoF and line ministries. The results were largely positive in terms of the project’s impact.

The majority of respondents indicated positive changes in PFM but a slower than expected pace of changes. They considered public procurement as an area that had shown the greatest improvement as a result of strengthening institutional, legal and methodological frameworks as well as enhancing transparency in procedures. In addition, the survey participants from the line ministries particularly noted substantial progress in improving the budget preparation and putting in place foundations for program budgeting, as well as strengthening the overall budgetary processes and internal audit. The respondents saw political instability, lack of public awareness and the economic crisis as negative factors hindering PFM reform, far more so than political commitment.

Factors Negatively Affecting PFM Reform

Factors %

1. Instability of political institutions 26

2. Poor support of reforms by population 20

3. Economic crisis 18

4. Unclear authorities of public institutions 12

5. Disagreements between stake-holders, including legislature and executive 10

6. Lack of political commitment 4

The survey participants stressed that successful implementation of the PFM reform depended on the automation of business processes; development of proper capacity, including through continuous professional training; and proper incentives to civil servants to push reform. They suggested that action should be taken to promote the interaction between different agencies involved in PFM reform, strengthen the monitoring of PFM reform, raise public awareness of its objectives and progress, and motivate different segments in society to engage in the reform implementation. The respondents also argued that future reforms would need to address the secretive mentality of civil servants, salary increases of civil servants should be linked to their performance and citizens should be consulted in assessments of the public administration’s performance.

Project Impacts (Percent of Respondents)

Project impact % 1.Strengthened capacity of civil servants 52 2. Improved PFM legislation 38 3. General progress in PFM reform 37 4. No impact 27 5. Enhanced budget transparency 8 6. Simplified budget procedures 6 7. Improved technical infrastructure 8 8. Automation of budget process 2

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Seventy three percent of the respondents believed that PFM reform would not have achieved its outcomes without the MDTF project. Eight percent believed that PFM reform outcomes would have been achieved even without the project. Respondents considered capacity building of civil servants, improvements in the regulatory framework and the general progress in PFM reforms as the most important achievements. Twenty seven respondents considered that the project did not have an impact. Improvements in transparency, procedures and technical infrastructure were identified as project impacts by less than ten percent of respondents.

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Annex 6. Economic and Financial Analysis Not applicable.

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Annex 7. Stakeholder Workshop Report and Results

Not applicable.

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Annex 8. Summary of Grantee's ICR and/or Comments on Draft ICR Brief Summary of the CB PFM Project Progress for 2009-2015

In accordance with the Medium Term Action Plan on PFM reform for 2009-2013 (the Kyrgyz Republic Presidential Decree № 396 dated by 22.10.2009) in 2009 with the help of donors the CB PFM Project was launched, which has a significant impact on the progress of reforms in the PFM system.

During the implementation of the MoF Medium-Term Action Plan, the following progress was achieved with the support of the CB PFM Project:

1. On June 15, 2015 a draft Budget Code of the KR was considered at the second session by the Parliament and was returned for revision.

2. Work was carried on improving the system of intergovernmental fiscal relations:

a) Work was carried out on improvement of the equalization grant formula;

b) Developed and distributed a methodological guidelines (manual) on monitoring and evaluation of local budgets;

c) Developed a draft temporary methodology for calculating the volume of targeted transfers;

d) Developed and disseminated methodological guidelines for the development and implementation of projects through equity incentive grants;

e) Developed and distributed methodological guidelines (manual) on "Formation and execution of local budgets".

3. A focused policy of greater budget transparency was carried out:

a) The MoF approved the annual Budget circular to provide information and practice of regular publication of eight key budget documents;

b) Practice of regular preparation of the civil budget is introduced;

c) Public hearings of the draft republican budget are held on annual basis;

d) The MoF receives an ongoing assistance for printing publications about budget and public finance;

e) Established and functioning information portals: "Open Budget", "Economic map", "External assistance", "Public Procurement", an electronic marketplace for citizens to participate in the discussion, evaluation and monitoring of projects implemented through public investments;

f) Enforced the law on access to information.

4. Improvement of public procurement procedures: a) Within the project there was developed an entirely new Law of the KR "On public procurement",

approved by the Decree of the Government of the KR №69 dated February 2, 2014. On April 3, 2015 the President of the Kyrgyz Republic signed this Law, which came into force on May 14, 2015;

b) Designed a content of the system of electronic public procurement in order to ensure the transparency of the procurement process and public access to information on public procurement;

c) Designed and implemented a Public Procurement Development Strategy; e) Developed draft regulations on application of the new law "On public procurement".

5. Aiming at improvement of procedures of the Public Investment Program, there were developed the following documents: a) Developed and approved Guidelines on public investment management; b) Draft Guidelines on assessment of Public Investment Program projects;

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c) Draft Guidelines on intergovernmental procedures in developing, agreeing, signing and ratification of international financial treaties;

d) Draft Provision on the technical and grant assistance (untied grants) provided to the KR.

6. Aiming at improvement of forecasting and analysis of Public Revenue, there were developed the following documents:

a) Draft Methodology for forecasting public budget revenues;

b) Draft Procedure of government bodies’ interaction and exchange of information within the process of generating and executing revenue (resource) part of the budget with definition of a range of information subject to information exchange;

c) Model for forecasting main taxes using a method of regressive analysis and elasticity of taxes;

d) Provision on the administration of special funds of spending agencies.

7. Improvement of the methodological and technical framework of the Ministry of Finance in order to transfer to the Financial Management Information System (FMIS) on public finance management at all stages of the budget process:

a) On September 3, 2014 the MoF approved an Action Plan for the automation of the PFM processes;

b) Developed project "Electronic area for citizens to participate in the discussion, evaluation and monitoring of investment projects of the Kyrgyz Republic";

c) A working group was established on the budget process automation, study tours were organized to Estonia, Turkey and Tajikistan to share experience of these countries. As of today, the Ministry of Finance is working in cooperation with Turkey on the automation and improvement of PFM, modernization of the financial system of the KR. The main priorities in the framework of cooperation are: automation of PFM, development of Treasury Management Information System, involvement of international expert-consultants on the methodology of budgeting and liquidity management, etc.

d) Information systems and software «IS: Treasury. Budget», existing in the Ministry of Finance, were examined and analyzed for their technical status, in particular, the analysis was focused at data structure, speed of saving extracted data, program interfaces and mechanisms of data protection;

e) Procured 379 sets of computer and office equipment for the MoF and its 60 MoF subdivisions in the regions in the amount of 591,586 US dollars;

f) Procured 246 sets of additional computer and office equipment for the MoF and its 60 MoF subdivisions in the regions in the amount of 409,200 US dollars;

g) Procured office furniture and equipment for the MoF in the amount of 87,651 US dollars to equip the conference hall and offices of the Ministry of Finance.

h) Procured server and IP equipment to create a communication system between the central office and regional offices of the MoF and the Central Treasury.

8. A mechanism of budgeting on program basis was introduced:

a) Extending coverage of public bodies, involved in the process of program budgeting – the Medium-Term Budget Framework (MTBF) for 2015-2017 has 20 sectoral Medium-Term Budget Expenditure Strategies (MTBES);

b) Prepared methodological and regulatory framework for program budgeting and monitoring the execution of program budgets:

i. Budget circular on program based budgeting;

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ii. Methodological guidance on development of Medium-Term Budget Expenditure Strategies within the Medium-Term Budget Framework;

iii. Draft regulation on improvement of coordination over the MTBES implementation process between public bodies and different levels;

iv. Instructions regulating generation and submission of a report about achieving performance indicators on budget programs and budget measures of state bodies of the KR;

v. Instructions on budget monitoring developed on the basis of experience received upon using them in practice;

vi. There is a program classification developed, which is currently under consideration of the MoF;

vii. Methodological recommendations, ensuring continuity of three-year budget MTBF projections and annual budget;

viii. Developed medium-term action plan for the GoKR on the integrated introduction of program budgeting in all ministries and agencies;

ix. Developed guidelines for assessing the quality of financial management main budget administrators;

x. Developed rules on improvement of interagency and interlayer coordination of implementation of the MTBES;

xi. Developed instructions for the main budget administrators on assessment of activities of subordinate institutions;

xii. Developed Models of action in introduction of a full cycle of program budgeting in pilot ministries.

c) The program budget introduction process is currently institutionalized:

xiii. Trainings were provided for MoF and line ministries / bodies on program budget with about 300 representatives of main budget administrators;

xiv. Trainings of trainers were provided on studying methodological aspects of budgeting on program basis and development of respective skills;

xv. The training modules on introduction of program budgeting are developed.

9. Improvement of the function of internal audit and control:

a) Implemented internal audit service (operates in 19 ministries and prepared legal framework for the creation of the Internal Audit Services (IAS) additionally in 8 agencies);

b) Improved legislative and methodological framework for internal audit; c) Developed and approved "Provision on financial management and control in spending agencies"; d) Developed and adopted "Ethical standards of internal auditors of state bodies and institutions of the

Kyrgyz Republic"; e) Developed draft Program on creation and development of Public Internal Financial Control in the

public sector of the Kyrgyz Republic for 2015-2020; f) Developed Methodological guidelines on the internal audit of the public sector; g) Increased capacity of the internal audit services of ministries and agencies and the staff of the

Internal Audit and Accounting Methodology Department by providing regular training and study tours to share the best practices;

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h) Provided methodological assistance to 7 ministries and 4 agencies in practical application of the Guidelines in conducting pilot audits;

i) Conducted review of the annual and strategic plans for the audit of 19 ministries and departments and provided consultations and recommendations for their improvement;

10. Introduction of IPSAS: a) Developed a draft Strategy of IPSAS implementation, updated legislative framework in the area of

public sector accounting; b) Developed and transferred to the Training Center of the Ministry of Finance training modules on

Internal Audit and the bases of International Public Sector Accounting Standards; c) Trainings conducted on accounting (basics, financial accounting 1, provisions of laws and

regulations) for the financial and economic employees.

11. Capacity building in PFM and strategic planning:

a) Work was carried out on building capacity of MoF staff and line ministries and agencies, the Government Office, Jogorku Kenesh, Chamber of Accounts, civil society, mass media as well as instructors from leading universities on key areas of PFM;

b) Developed and transferred to the Training Center of the Ministry of Finance 9 training modules on PFM areas, trained trainers from the staff of the Ministry of Finance and other agencies;

c) Prepared 120 trainers from the staff of MoF and line ministries;

d) Creating a technical basis of the MoF Training Center - procured furniture, equipment, and a minibus for the amount of 370 thousand US dollars;

e) Developed a strategy and a system of distance learning and prepared technical base for the introduction of distance learning in real time;

f) Developed a draft MoF Strategic Development Plan for 2014-2017; g) Conducted a functional analysis of the MoF KR and made recommendations on improvement of

the internal processes of the MoF KR; h) Developed draft Manual on evaluation, selection and encouragement of the MoF KR staff; i) Developed draft Medium-Term Strategic Program of Human Resources Management of the

Ministry of Finance of the KR for 2016-2019; j) Developed an action plan on further reforming the PFM system; k) Conducted PEFA 2014 assessment; l) Conducted an impact assessment of the project.

Recommendations to the World Bank The main issue requiring more attention from the side of the World Bank is assistance in bringing more international consultants that meet the requirements of the Ministry of Finance of the Kyrgyz Republic. Lessons Learned

Adaptation of procurement procedures for efficiency and effectiveness of the project

We can learn from the past that long duration of procurement procedures as well as of coordination of one or another activity with the WB and the MoF was affecting the project schedule and implementation. In this regard, it was agreed with the WB on the transfer to “post review” procedures as it is required by the WB procedures in that hiring of local consultants (when the proposed contract amount does not exceed 50 000 USD) will be under post review procedures, only ToRs of proposed positions will be sent to WB for “No objection letter”. The procurement plan was updated accordingly

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based on the decision made on the application of the principle of a post-review (instead of a prior-review) of some packages by the World Bank, which significantly speeded up the process of decision making and contract signing. As a result, we can notice a noteworthy increase and enhancement of the human capacity and resources of the project which affected the project team efforts for the timely and effective achievement of the project objectives.

Due to the big workload of the MoF management, key members of all tender committees it was suggested to change the membership of the tender committees, inclusion of heads of relevant departments in the tender committees of the project, and training of members of the tender committees. For the purpose of improvement of the procurement procedures and early decision making on tenders, amendments were introduced to the membership of the Tender Committees by the MoF order No. 82 dated May 27 of 2013 with replacement of senior management by the middle management of the concerned MoF departments.

Effective liaison between the interested parties

During the implementation of the project we could observe the lack of understanding, coordination and support for the promotion of PFM reforms between the major stakeholders/ interested parties of the project. As you know effective communication and controlled development of the project is the crucial element for the realization of reforms through the constructive dialogue and team work. For the purposes of improvement of the coordination and shared responsibility of the progress in the PFM reforms, the CB PFM Project initiated the issuance of the MoF Order No. 81 dated May 27 of 2013 on re-approval of the structure of the CB PFM Project Technical Boards on budget issues and internal audit and establishment of a Technical Board on capacity building of staff. According to this adopted Order the heads of structural subdivisions of the MoF have undertaken the personal responsibility for implementation the Project Logframe Indicators for the effective implementation of PFM reforms. Moreover, as PEFA 2014 assessment was to be launched, the MoF initiated an establishment of the working group on preparation and conducting the PEFA assessment as per the MoF order #132 dated August 5, 2014 and MoF Order #140 dated August 18, 2014 where there was assigned a responsibility for the MoF management and heads of the respective divisions of the MoF for the timely and quality provision of necessary materials and implementation of the corresponding PEFA indicators.

Result-based project implementation

Projects are driven by the deliverables they are meant to produce. For this reason all the project management activities (including planning) should be product focused rather than work based, since it should be the required product that dictates the necessary activity and not vice versa. Moreover, the definition and understanding of a product’s specification (including its quality and/or acceptance criteria) promote a much higher understanding of what is required and improve the chances of a successful project. In this connection we could learn that: Lump-sum contracts should be preferred to the time-based contracts as it turns out to be risky and

difficult to measure the time spent by the consultants during the implementation of the assignment and it makes no use if the result is not achieved. At the same time in awarding “limp-sum” contracts there shall be a more thorough monitoring from a beneficiary at the stage of implementation, as well as the tasks shall be clearly stated in order to eliminate the possibility of receiving a product not corresponding to the expectations.

As it occurs in various development projects the efforts of the stakeholders and the project staff may sometimes put in the recurrent activities and business processes related with them rather on the end products. Within this there is a lack of a result-based approach. The possible solution for it could be a delivery of the respective trainings for the stakeholders and the project management staff and coordinators of the respective components on the effective and result-based project management and implementation of the project.

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Lack of qualified consultants

It is important to mention the difficulty in building a team of highly qualified and competent local experts/consultants in view of the high qualification requirements versus law salaries to be awarded in accordance with the Government Decree of the KR dated June 30, 2011 N 348. Based on the project experience we could observe the problem of hiring of qualified and knowledgeable specialists which most of the times slowed down the project implementation and affected the achievement of the project objectives. The possible solution for this could be the introduction of the amendments into the respective Government Decree on the changes of the salary to be awarded to the local experts. New Challenges for PFM Reform

The priority areas of PFM reform are: Improvement of the budget process: the formation and execution of the budget in accordance

with the policies, procedures, automation of the planning and execution of the budget, control of revenues and expenses during the year, FMIS, unified treasury account;

Budget transparency, strengthening of interaction of the MoF with the civil society and the public;

Tax policy and revenue management; The system of intergovernmental relations; Public procurement; Public investment; Accounting and reporting: The system of internal audit and financial control; Capacity building (Ministry, Parliament, Court of Auditors).

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Annex 9. List of Supporting Documents

Project Concept Note; Project Progress Reports; Project Aid Memoires; Borrower’s Final Project Progress Report, August 2015; Assessment of Project Impact to PFM Reform, May 2015; Project restructuring paper, Report No RES14640.

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Annex 10. MAP of Kyrgyz Republic