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Document o f The World Bank
FOR OFFICIAL USE ONLY
Report No: 27962-KG
PROJECT APPRAISAL DOCUMENT
ON A
PROPOSED CREDIT
IN THE AMOUNT OF SDR 6.1 MILLION (US$9.0 MILLION EQUIVALENT)
TO THE
KYRGYZ REPUBLIC
FOR A
PAYMENTS AND BANKING SYSTEM MODERNIZATION PROJECT
February 19,2004
Private and Financial Sector Development Unit Europe and Central Asia Region
This document has a restricted distribution and may be used by recipients only in the performance o f their official duties. Its contents may not otherwise be disclosed without World Bank authorization
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CURRENCY EQUIVALENTS (Exchange Rate Effective January 15,2004)
CurrencyUnit = Som Som44.20 = US$1 US$1.4803 = SDR 1
ADB ATM BCS BIS CAS CPC CPS DITAC EBRD FDI FINBUS FMR FMS FSAP GDP GL GSAC GTAC IDA IFC IMF M o F N A C H NBKR NPRS PBSM P I U POS PRGF RTGS ssc
FISCAL YEAR January 1 - December 31
ABBREVIATIONS AND ACRONYMS
Asian Development Bank Automated Teller Machine Bulk Clearing System Bank for Intemational Settlements Country Assistance Strategy Card Processing Center Card Processing System Department on Investments and Technical Assistance Coordination European Bank for Reconstruction and Development Foreign Direct Investment Financial Sector and Business Development Project Financial Monitoring Reports Financial Management System Financial Sector Assessment Program Gross Domestic Product General Ledger Governance Sector Adjustment Credit Governance Technical Assistance Credit Intemational Development Association International Finance Corporation International Monetary Fund Ministry o f Finance National Automated Clearing House National Bank o f the Kyrgyz Republic National Poverty Reduction Strategy Payments and Banking System Modernization Project Project Implementation Unit Point o f Sale Poverty Reduction and Growth Facility Real Time Gross Settlement Savings and Settlement Company
Vice President: Shigeo Katsu Country Director: Dennis de Tray
Sector Manager: Tunc Uyaruk Task Team Leaders: Hormoz AghdaeyRochelle Hilton
FOR OFFlcLAL USE ONLY KYRGYZ REPUBLIC
Payments and Banking System Modernization Project
CONTENTS
Page
A. STRATEGIC CONTEXT AND RATIONALE ................................................................. 1 Country and sector issues .................................................................................................... 1
Rationale for Bank involvement ......................................................................................... 2
Higher level objectives to which the project contributes .................................................... 2
1 . 2 . 3 .
B . PROJECT DESCRIPTION ................................................................................................. 3 Lending instrument ............................................................................................................. 3 1 .
2 . 3 . 4 . 5 .
Project development objective and key indicators .............................................................. 3 Project components ............................................................................................................. 3 Lessons leamed and reflected in the project design ............................................................ 6 Alternatives considered and reasons for rejection .............................................................. 7
C . IMPLEMENTATION .......................................................................................................... 7 Partnership arrangements .................................................................................................... 7 Institutional and implementation arrangements., ................................................................ 8 Monitoring and evaluation o f outcomes/results .................................................................. 8
4 . Sustainability ....................................................................................................................... 8 Critical risks and possible controversial aspects ................................................................. 9 Loadcredit conditions and covenants ............................................................................... 10
1 . 2 . 3 .
. . .
5 . 6 .
D . APPRAISAL SUMMARY ................................................................................................. 10 1 . Economic and financial analyses ...................................................................................... 10
2 . Technical ........................................................................................................................... 10 3 . Fiduciary ........................................................................................................................... 11
4 . Social ................................................................................................................................. 11 5 . Environment ...................................................................................................................... 12
6 . Safeguard policies ............................................................................................................. 12 7 . Policy Exceptions and Readiness ...................................................................................... 12
This document has a restricted distribution and may be used b y recipients only in the performance o f their official duties . I t s contents may not be otherwise disclosed without W o r l d Bank authorization .
Annex 1: Country and Sector Background .............................................................................. 13
Annex 2: Major Related Projects Financed by the Bank and/or other Agencies ................. 17
Annex 3: Results Framework and Monitoring ........................................................................ 18
Annex 4: Detailed Project Description ...................................................................................... 20
Annex 5: Project Costs ............................................................................................................... 26
Annex 6: Implementation Arrangements ................................................................................. 27
Annex 7: Financial Management and Disbursement Arrangements ..................................... 28
Annex 8: Procurement ................................................................................................................ 33
Annex 9: Economic and Financial Analysis ............................................................................. 37
Annex 10: Safeguard Policy Issues ............................................................................................ 39
Annex 11: Project Processing .................................................................................................... 40
Annex 12: Documents in the Project File ................................................................................. 41
Annex 13: Statement o f Loans and Credits .............................................................................. 42
Annex 14: Country at a Glance ................................................................................................. 42
KYRGYZ REPUBLIC PAYMENTS AND BANKING SYSTEM MODERNIZATION
PROJECT APPRAISAL DOCUMENT Europe and Central Asia Region
Private and Financial Sector Development Unit
Date: February 19,2004 Country Director: Dennis de Tray Sector Managermirector: Tunc UyaniWAnil Sood Project ID: PO7488 1 Lending Instrument: TAL
T e a m Leaders: Hormoz AghdaeyIRochelle
Sectors: Payment systems, securities clearance and settlement (82%), Banking (8%), General finance sector (1 0%) Themes: Infrastructure services for private sector development (P), State enterprisehank restructuring and privatization (S) Environmental screening category: Not Required Safeguardreening category: N o impact
Hi l ton
Project Financing Data: [ ] Loan [XI Credit [ ] Grant [ ] Guarantee [ 3 Other: F o r Loans/Credits/Others: Total Project Cost (US$ million): Total Bank Financing (US$ million): Proposed Terms (IDA): Standard Credit Grace Period (years): 10 Years to Maturity: 40
10.49 9.0
IDA
Borrower: KYRGYZ REPUBLIC Responsible Agency: GOVERNMENT OF KYRGYZ REPUBLIC Implementing Agency: NATIONAL BANK OF THE KYRGYZ REPUBLIC
Project implementation period: 4.5 Years Expected effectiveness date: 07/16/2004 Expected closing date: 1013 1/2008 Does the project depart from the CAS in content or other significant respects? o Y e s om Does the project require any exceptions from Bank policies? Have these been o Y e s om approved by Bank management? o Y e s o N o 1s approval-for any policy exception sought from the Board? Does the project include any critical r isks rated “substantial” or “high”?
oYes o N o o w o N o
Does the project meet the Regional criteria for readiness for implementation? -
Project development objective The main objective o f the proposed project i s to develop a modem integrated national payments system that i s accepted and used by the commercial banks and their clients. This will provide basic infrastructure that i s essential for the development o f a modem banking system that wil l increase the efficiency o f payment services and facilitate the growth o f financial intermediation. The new payments system infrastructure will enable commercial banks to process a larger volume o f transactions in a more reliable, secure and affordable manner, and provide the population with access to better banking services. Project description The project will provide technical assistance for NBKR to implement the country’s national payments infrastructure modemization program. This will include the implementation o f a bulk clearing system, a central card processing center, a real-time gross settlement system, as well as the modernization o f NBKR’s General Ledger. I t will also support the institutional and operational strengthening o f SSC, which i s part o f the Government’s overall financial sector reform program. Which safeguard policies are triggered, if any? None.
Significant, non-standard conditions, if any, for: Board Presentation: None Credit effectiveness: The Subsidiary Loan Agreement on behalf o f the Borrower and NBKR has
been executed The Subsidiary Loan Agreement on behalf o f the Borrower and SSC has been executed
Establishment o f the Inter-bank Card Company by commercial banks will be a condition o f disbursement for goods under Part A2 o f the Project. The rules and regulations and operating procedures for the ICC wil l be established by March 3 1, 2005. If grant funding i s not secured for SSC institutional strengthening within six months o f signature o f the Development Credit Agreement, Part C2 (institutional strengthening and IT improvements for SSC) o f the project will be cancelled, unless IDA otherwise agrees.
Covenants applicable to project implementation:
A. STRATEGIC CONTEXT AND RATIONALE 1. Country and sector issues
The Kyrgyz Republic, with a population o f about 5 million, had a GDP o f about US$1.93 bil l ion in 2003. Since independence, the country has made substantial progress in achieving overall macroeconomic stability and has taken major steps to introduce the conditions necessary for the development o f a market-based economy. This includes equitable land reform, liberalization o f trade and membership in WTO, and financial sector reform. During this time, however, progress has been hampered by a number o f external shocks, especially the turmoil that followed the 1998 Russian financial crisis, which led to high inflation, currency devaluation and macroeconomic instability. Since then, the Government has reaffirmed i ts commitment to economic growth and poverty reduction. The details o f the Government's program are presented in i ts National Poverty Reduction and Strategy (NPRS) (September 2002), which was prepared in close coordination with international donors. The NPRS recognizes that private sector development i s the primary means for achieving sustainable growth.
Although many measures were taken early on to strengthen the banking sector, critical weaknesses remained and were exacerbated by the 1998 crisis. Following the crisis, several additional measures were taken to address the problems and restore stability in the system. These included bank closures and consolidation, portfolio carve out, and strengthened supervision. There are now 20 banks, o f which 2 -- Savings and Settlement Company (SSC) and Kairat -- are state-owned. The reforms to date have resulted in some improvement but much more needs to be done. The banking sector i s small, with U S 2 1 0 mi l l ion o f total assets as o f mid-2003 (about 1 1.5 percent o f 2002 GDP). Basic infrastructure is poor, depositors' confidence i s weak, quality and range o f banking products and services are limited, and financial intermediation remains low.
The National Payments system i s operated by the National Automated Clearing House (NACH), an affiliate o f the National Bank o f the Kyrgyz Republic (NBKR). The NACH, which provides for the clearing and pre-settlement o f large and small payments (settlement i s processed by NBKR), was automated in 2003. However, the improved N A C H has a number o f weaknesses and does not comply with international standards. I t does not support a complete standardized and automated interface between banks and the settlement system, and there are no documented plans or back-up facilities should the N A C H become inoperable for an extended period o f time. Moreover, i t i s running at full capacity and cannot accommodate further increases in volumes and fimctions. These weaknesses impede banks' efforts to provide and develop affordable, convenient and reliable payment services for their customers. The few individual card systems that exist in the country provide mostly debit cards services and the total number o f cards issued (less than 5,000) i s very low. There i s no nationwide Automated Teller Machine (ATM) network.
In regard to the state-owned banks, SSC i s a narrow (non-lending) bank, wi th the largest branch network in the country. Through this network, SSC operates as a banking and payments services' delivery mechanism and provides fiscal and quasi-fiscal payments for the Social Fund and other budgetary services for households. However, i t s operating costs are high as it lacks modem facilities, systems and banking practices. Kairat Bank was established in 1999 from the
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remains o f three liquidated banks. Subsequently, in 2000, to save the bank from collapse, the inherited bad loan portfolio was carved out, the bank was recapitalized, i t s lending activities stopped, and a robust restructuring plan initiated. The bank i s now generating profits and, in accordance with the banking sector reform program, the authorities offered the bank for privatization at end 2003. Support for this program has been provided from both the PHRD Grant and the FIRST Initiative.
Strengthening the banking sector, especially financial infrastructure, i s recognized as a high priority in the NPRS, as a fundamental requirement for stimulating private sector development and investment and improving access to banking services.
2. Rationale for Bank involvement
Consistent with the NPRS, the Bank will provide technical assistance in priority areas o f the Government’s banking sector reform agenda. The Payments and Banking System Modernization (PBSM) Project will focus on payments infrastructure reform and improvements in access to banking and electronic payment services, which are basic requirements for establishing an environment conducive to private sector growth and investment. The Government and NBKR, for the most part, have in place the policy framework for improving the banking sector.
The IMF, through i t s Poverty Reduction and Growth Facility (PRGF), provides the policy umbrella for implementation o f the Kyrgyz Republic’s financial sector reform agenda. The authorities look to the World Bank to provide guidance and technical assistance in the implementation o f specific areas o f this program. Additional support i s also provided by other donors, especially the Asian Development Bank (ADB), which focuses on the development o f credit unions, the regulatory environment for microfinance and the strengthening o f commercial banking skills. The European Bank for Reconstruction and Development (EBRD) and the International Finance Corporation (IFC) are also involved in the financial sector, with ownership interests in commercial banks and through lines o f credit.
The Bank involvement helps the Government coordinate the support o f the donor community and ensure maximum transparency in the policy decision-making and implementation process.
3. Higher level objectives to which the project contributes
The CAS for FY03-06 (No.25708-KG dated April 22, 2003 [IDA/R2003-0067, IFCR2003- 00641) was discussed on May 15, 2003, with the Governance Sector Adjustment Credit (GSAC) and the Governance Technical Assistance Project (GTAC). The CAS focuses on three key areas, which correspond to priorities o f the NPRS: supporting private sector-led growth; providing essential services; and strengthening the governance framework. Private sector-led growth i s the driving force in achieving sustainable economic growth and poverty reduction in the Kyrgyz Republic. In addition, a joint IMF-Bank Financial Sector Assessment Program (FSAP), which emphasizes the importance o f building confidence in the financial sector, was completed in 2002. Consistent with the NPRS and CAS, the FSAP provides a framework for financial sector reform. The proposed project i s consistent with the CAS and supports the first o f the above priority areas. I t wi l l contribute to increasing the efficiency o f the banking system, which wil l
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lead to increased confidence and savings mobil ization. It will thus enable higher levels o f f inancial intermediation, wh ich i s essential for private sector-led growth and development.
B. PROJECT DESCRIPTION
1. Lending instrument
The proposed PBSM Project will b e a technical assistance project to be implemented over about 4.5 years. A technical assistance credit i s the most appropriate instrument to address the institution-building needs o f the banking sector in the Ky rgyz Republic. A s such, the proposed project wil l provide the much-needed technical know-how and associated investments to help develop the capacity that i s necessary for a well-functioning banking system.
2. Project development objective and key indicators
The main objective o f the proposed project i s to develop a modem, integrated national payments system that i s accepted and used by the commercial banks and their clients. This will provide basic infrastructure that i s essential for the development.of a modem banking system that will increase the efficiency o f payment services and facilitate the growth o f financial intermediation. The new payments system infrastructure will enable commercial banks to process a larger volume o f transactions in a more reliable, secure and affordable manner, and provide the population with access to better banking services.
Achievements in meeting the principal project objectives will be measured based on a set o f quantitative and qualitative indicators, including in the following areas:
a) an increase in the number o f bank accounts; b) an increase in the volume o f transactions channeled through the national payments
system; increase in total number o f transactions processed through the bulk clearing system ;
c) an increase in the total number o f cards; d) an increase in average monthly volume o f transactions processed with bank cards
compatible with the shared system; e) an increase in the total value o f transactions processed through the RTGS; f) an increase in SSC's operating efficiency.
3. Project components
The project wil l include capacity building programs for NBKR to implement the country's national payments infrastructure modernization program, a complex and costly endeavor for the country, in l ine with the pr io r i t y objective o f improving the efficiency o f payment services passing through the banking system. The proposed project will finance the investment costs, most ly software and hardware and project support, incurred by NBKR for establishing the above-mentioned infrastructure. In addition, i t will finance technical advisory services, such as for the development o f technical specifications and bidding documents, evaluation o f bids, management o f the contract execution o f the components making up the payments system,
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monitoring and evaluation, the associated studies needed for the implementation o f the systems and training.
Support for the preparatory work has been provided by the IMF, as w e l l as from resources from the PHRD Grant for this project. The framework for the payments modernization program, as w e l l as the general ledger, has been designed taking into account similar reforms in other countries (especially Azerbaijan), and best international practices. The project will also support the institutional and operational strengthening o f the SSC. The project will support the establishment o f an integrated payments infrastructure that i s in l ine with the Bank for International Settlements’ (BIS) standards for payments and settlement systems and comprises the fol lowing components.
I. Payments System Infrastructure (total cost US$7.2 million), wh ich will comprise the fol lowing subcomponents:
a) Bulk-clearing system (BCS): technical assistance for advisory services and establishment o f a modern, fully automated bulk-clearing system. This will enable commercial banks to process debit and credit orders for high volume/low-value transactions, including utility payments, salaries, pensions and other fiscal and quasi-fiscal payments, in a more secure, reliable and efficient manner. This will, in turn, enable banks to attract more clients and possibly increase their deposit base. The project wil l also include advisory services to ensure that the necessary arrangements (legal, management and other) are in place to enable the B C S to operate effectively and securely.
b) Inter-bank card system, supported by a Card Processing Center (CPC): technical assistance for advisory services and establishment o f a national inter-bank card arrangement supported by a shared processing center. This will coordinate and strengthen Ky rgyz commercial banks’ init iatives in card activities, thus enabling bank customers to use any card accepted in the scheme in any ATM or merchant’s equipment (Points o f Sale - POS). G iven the social importance o f establishing a network o f this equipment outside o f Bishkek, this subcomponent also includes the supply o f a number o f A T M s and POS equipment to al low reasonable access for the population. All banks participating in the system will share the operational and investment costs and the management o f associated risks. A national ly operating scheme wil l reduce the need for cash payments and wil l improve access to banking services (cash withdrawal, electronic card payment and short-term advances) to a large share o f the population. Under the Project, an inter-bank card organization (the Inter-bank Card Company - ICC) wil l be established as a joint stock company by the participating commercial banks. The ICC wil l establish the rules and regulations o f the card scheme and will b e the governance arm. In consultation with the commercial banks, NBKR has drawn up a General Agreement, which, inter alia, provides the principles under which the scheme will operate and includes the agreement o f the commercial banks to use the CPC “core” inter-bank services and operating standards. Fourteen o f the twenty commercial banks have already signed this General Agreement. Given the importance o f establishing an effective structure under wh ich the scheme wil l operate, the establishment o f the ICC will b e a condit ion o f disbursement for goods to be provided under this subcomponent. During negotiations, i t was agreed that the regulations and operating procedures for this scheme, satisfactory to IDA, should be in place by M a r c h 3 1,2005.
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c) Real-time gross settlement system (RTGS): technical assistance for advisory services and establishment o f an RTGS to provide timely settlement o f large-value or urgent inter-bank transactions. The RTGS will enable banks to settle their large-value transactions and those f rom credit transfers o f major clients in a more secure and timely fashion eliminating paper-based recording, meanwhile providing NBKR with an accurate r isk management tool to better monitor intra-day liquidity positions, and, exceptionally, overnight collateralized credit. The RTGS will speed up transactions and reduce their costs and establish a safe and reliable system that i s essential for business activity. Furthermore, i t wil l enable bank managements to manage and optimize their liquidity positions (particularly through a single settlement account held in the central bank) o n a real-time basis.
d) Project management support for the payments infrastructure modernization program: NBKR is committed to completing a complex payments system within a tight timeframe. The project wil l provide project management support services, including studies and the establishment o f a monitoring and evaluation system, so that these activities can be carried out using a professional project management approach. This assistance, which wil l include local and international experts, will be provided to NBKR's Payments Systems Department (which will be responsible for the technical aspects o f the payments system program). This will be closely coordinated with the work o f the Project Implementation Unit (PIU).
11. General ledger of NBKR (total cost o f component - US$1.6 million): feasibility study, as well as advisory services and investment costs to enhance and strengthen " R ' s General Ledger (GL) so that i t i s fully compatible and consistent with the requirements o f the improved payments system. I t will provide full automation and interface between the RTGS and all components o f the payments system and NBKR. It will enable NBKR to integrate and adapt i ts accounting, treasury and financial information systems to accommodate the increased f lows and volumes generated by the improved payments system infrastructure.
111. Banking sector reform (total cost o f component - US$1.6 million): to help implement other areas o f the Government's banking sector reform program, the proposed project will support the strengthening o f the SSC, to improve i ts efficiency in delivering banking and payment services and thus better fulfill the banking needs o f its customers. T o this end, the project wil l support: (i) long term advisory services for institutional and operational capacity building. This could include exploring the possibility for SSC to enter into a partnership agreement with the Kyrgyz Postal System (Kyrgyz Pochtasy) to use selected post off ice windows for the delivery o f i ts payments services, to help improve SSC's outreach and the access o f rural populations to banking services; (ii) specialized assistance to complete an IT needs assessment and to implement the agreed recommendations, including the provision o f hardware and software for improving the bank's information systems, with a view to lowering SSC's operating and transactions costs and improving its outreach to the rural population; and (iii) international audits o f SSC's financial statements. The authorities have indicated a preference for using grant funding for the institutional development advisory services. A s i t i s unl ikely that the full benefits o f IT improvements would be realized without concomitant institutional and operational strengthening, during negotiations it was agreed that, unless within six months o f signature o f the Development Credit Agreement, the institutional development activity i s funded
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either f rom the Credit or from grants, a l l support for SSC, except for the carrying out o f the international audits, wil l be cancelled f rom the project.
IV. Project implementation and administration (total cost o f component - USSO. 1 million): This component will include support to the PIU for the implementation and administration o f the overall project. I t wil l include training and equipment for project implementation. In addition, a provision i s provided to cover some o f operating costs incurred by the PIU. A Unit within the Directorate o n Investments and Technical Assistance Coordination (DITAC) o f NBKR has been established as the PIU for the proposed project.
4. Lessons learned and reflected in the project design
Technical assistance projects have a mixed record. This experience has been taken into account and reflected in the design o f the proposed project. The main lessons learned are summarized below:
a) Ownership of and commitment to the project are critical for its success. NBKR is the main stakeholder o f the proposed operation and has been the driving force in i t s design. Furthermore, i t has established a large team (including steering committees and working groups) that i s dedicated to i ts realization. In addition, NBKR has developed the user requirements for each o f the components in close cooperation with the expected participants in the system (commercial banks, utilities, government agencies, etc.) The involvement and participation o f the working groups wil l continue throughout the project to coordinate activities and monitor performance.
b) A key condition for the success of a complex program is that implementation capacity is adequate and a professional project management approach is used. The technical management o f the program will be handled separately f rom the administrative and fiduciary finctions. The project will provide adequate resources to strengthen both the technical and administrative capacity o f NBKR. The planned monitoring and evaluation system will provide an early warning system to identify and remedy any weaknesses and deficiencies.
c) Recent experiences have demonstrated that synergies can be achieved by implementing payments system reform programs in a comprehensive manner. The project wil l address the key elements o f the payments system infrastructure, in l ine with a similar approach that i s being successfully implemented in West Af i ica and the Central Afr ica Region.
d) Project design should be simple and provide for flexibility in implementation, to allow for adjustments to better adapt the assistance to evolving priorities. The project design i s straightforward and the components are logically l inked and inter-dependent. Furthermore, the functional design o f each component o f the payments system infrastructure is we l l known, clear interfaces have been defined and tested in similar projects, and experience shows that this apparent complexity i s manageable. In addition, to maintain flexibility, activities for the first year have been agreed in detail; those subsequent years wil l be f i l ly defined as part o f project supervision.
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e) Delays in project implementation are a reality but need to be minimized in order to avoid jeopardizing the timely achievement of project objectives. The project design allows a reasonable period to complete the project investments, although NBKR intends to realize the payments system in a much shorter timefi-ame. T o reduce the r isk o f serious delays, activities to be financed under the proposed project have been designed to be completed in about three years and bidding documents for the key components o f the payments system are at an advanced stage o f preparation. However, the proposed project will provide about one additional year to allow for possible delays.
5. Alternatives considered and reasons for rejection
The original project design included a financial sector and a business development component. The business development activities remain a high priori ty (both in the Government’s NPRS and in the CAS). However, their inclusion complicated the project design, subjected the project to unacceptable delays and called for complex implementation arrangements. Consequently, the business development activities were separated fi-om the project fol lowing preappraisal since additional t ime was needed to complete their design and preparation. The financial sector parts o f the operation are fully justified as a stand-alone project, especially given the priority o f the banking sector in NPRS.
Early on, consideration was given to including a l ine o f credit but this was dropped because sufficient resources were already available from a number o f other donors (including IFC, EBRD and Swiss Cooperation, KfW, IDA-financed Rural Finance Project).
T o keep the project simple and straightforward, other areas o f financial sector reform have been excluded fi-om the project. These are being supported by other donors, in close coordination with the Bank. Support for banking supervision and regulations i s being provided by the IMF and USAID-US Treasury. ADB is taking the lead in strengthening regulations and supervision of microfinance institutions and credit unions. Flexibi l i ty has, however, been built into the design o f the project to allow: (a) funds to be targeted to alternative project-related activities, if donor funding becomes available for any subcomponent; and (b) currently excluded activities to be considered, should this become justified during implementation.
The availability o f additional grants was explored, including fi-om the new PHRD Grant facility for project implementation, but were not available o n the scale required for this project.
C. IMPLEMENTATION
1. Partnership arrangements
The possibility o f using donor financing, through parallel financing arrangements, for selected activities continues to be explored. Close cooperation i s being maintained with the IMF and other donors who are involved in the financial sector to ensure consistency o f approach and avoid duplication o f effort.
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2. Institutional and implementation arrangements
The funds for the payments system, general ledger and project administration components o f the project will be passed on to NBKR in accordance with the provisions o f a Subsidiary Loan Agreement to be entered into between the Kyrgyz Republic and NBKR. The funds for the international audits o f SSC wil l be passed on to SSC in accordance with the provisions o f a Subsidiary Loan Agreement to be entered into between the Kyrgyz Republic and SSC. The PIU within DITAC will be responsible for overall project implementation and administration. DITAC has already developed some capacity in the management and administration o f IDA- financed projects and i s currently managing the existing PHRD Grant for the preparation o f the proposed project. I t i s staffed by about seven people, which will allow responsibilities for the project to be distributed appropriately in the PKJ, without entailing any significant additional costs. D ITAC has appointed a disbursement specialist for the PIU. Project accounting and financial reporting will be managed by a qualified accountant from N B K R ’ s Accounting Department. This specialist has already been assigned to this task and, for the purposes o f project financial management, wil l report to the PKJ. Steps are underway, in accordance with an action plan that has been agreed with IDA, to put in place a financial management reporting system that i s adequate for the project. In recognition o f the fact that staff to be assigned these functions may not have adequate experience with the relevant World Bank procedures, provision i s included in the project for training o f financial management and procurement specialists in Bank-sponsored courses in these two areas. To allow for early start up o f the different components, a provision for retroactive financing i s included in the project.
The PIU staff have a good understanding o f the banking sector and have established a good working relationship with the beneficiary o f this component, the SSC. In addition, procedures for reporting to the Ministry o f Finance are already in place, as these have been established for other IDA-financed operations. These mechanisms ensure the timely and accurate provision o f the information needed for managing and monitoring external debt obligations, including details on the use o f funds from IDA credits.
3. Monitoring and evaluation of outcomes/results
Special mechanisms are being put in place to monitor and evaluate progress in implementing and operating the various elements o f the payments system. Given the importance o f the national payments system program, a Steering Committee, with executive powers under NBKR chairmanship, will monitor implementation o f these activities, to review progress and make decisions as necessary. I t will meet at least quarterly and report to N B K R ’ s Chairman. Progress will be measured against indicators established based on baseline results at end-2003. These indicators were confirmed during negotiations.
4. Sustainability
The payments system infrastructure i s designed to be technically and financially sustainable. Technicians required to operate and maintain the systems wil l receive on-the-job training from specialized consultants and systems suppliers. In addition, each participating institution will ensure that i t s staff i s fully conversant with the new technologies. The participating institutions
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will cover the operating costs o f the new systems from increased income generated f rom the improved payment services. In the longer run, it i s envisaged that the operations of both the bulk clearing and card processing systems wil l be transferred f rom NBKR to the private sector (with commercial bank ownership), with NBKR focusing o n the oversight o f the systems.
5. Critical risks and possible controversial aspects
R i s k s
To project development obiective Commercial banks elect not to fully participate in the system
To component results Bulk clearing system fails to meet the demands o f the banking community and the commercial banks refuse to implement the associated infrastructure investments needed to interface with the system As a result o f delays in realizing - the central, sharedcard system, commercial banks develop their own proprietary systems, thus increasing operating costs and fees and reducing the effectiveness o f plastic cards as a universally accepted payment mechanism Implementation o f the RTGS i s delayed so that large value payments cannot be processed in a timely and secure fashion
SSC i s not successful in implementing reforms to improve the access o f the rural population to banking services
Risk Mitigation Measures
Project design incorporates a participatory approach both during preparation and implementation, in close coordination with the domestic bankine communitv and utilities
The component has been designed taking into account international standards and best practices and should help reduce transactions costs. Furthermore, ancillary infrastructure needs are being developed, takmg into account requirements o f commercial banks. Banks have already confirmed their intention to participate in the system Most commercial banks have already signed a general agreement indicating their commitment to participate in the system. Mechanisms will be built into the system to guarantee that any existing, domestic proprietary system will interface with the central system. Workshops and publicity campaigns have been and will continue to be held- to familiarize the banks with the advantages o f participating in the system The project i s designed to accommodate some delays in implementation. In addition, the current system i s adequate to handle the forecast volume o f transactions for a limited time, without undermining the system Long-term advisory services are provided for under the project to help SSC in all areas o f i t s operations and administration. Although the project provides for technical assistance for SSC, the Borrower would prefer to use grants for this. However, given the importance o f these services to the success in strengthening SSC’s operations, during negotiations, i t was agreed that, unless the technical assistance i s funded through grants or the project proceeds, other support for SSC would be eliminated, except for the international audits
Risk Rating with Mitigation
M
N
S
N
H
9
Financial Risks. F r o m a financial management perspective, the Project i s considered a low-risk operation.
6. Loadcredit conditions and covenants Conditions o f effectiveness:
0
0
The NBKR Subsidiary Loan Agreement has been executed o n behalf o f the Borrower and NBKR; The SSC Subsidiary Loan Agreement has been executed on behalf o f the Borrower and ssc.
Condit ion o f disbursement: 0 The ICC has been duly established as a joint stock company with the participation o f
commercial banks.
Covenants: 0
0
The regulations and operating procedures for the ICC wil l b e established by M a r c h 3 1, 2005; If grant funding is not secured for SSC institutional strengthening within six months o f signature o f the Development Credit Agreement, Part C2 (institutional strengthening and IT improvements for SSC) o f the project will be cancelled, unless IDA otherwise agrees.
D. APPRAISAL SUMMARY
1. Economic and financial analyses
Extensive empirical evidence shows that the benefits to the economy o f an efficient payments infrastructure are substantial. These benefits include: acceleration o f transfer o f value for bank clients; increased opportunities for cash management at lower costs and higher returns for participating banks; reduced need for businesses and institutions to retain high cash balances; reduction o f r isk exposure for commercial banks because o f the real-time gross settlement process. The reduction o f cash use and the development o f electronic transactions and processing wil l enable better surveillance o f possible money laundering issues. The banking community has been closely involved in the preparation o f the project and cost estimates will b e carefully reviewed by the steering committee and working groups. Annual fees levied o n participating institutions are expected to cover, at a minimum, running costs as w e l l as the renewal and maintenance o f hardware and software systems.
2. Technical
The design o f the payments infrastructure components i s in l ine with best practices and the BIS standards for payment and settlement systems. Implementing a l l components o f the payments system within a relatively short time-frame will present a challenge for NBKR. However, the integrated and comprehensive approach to developing the entire system will provide synergies that justify this approach. NBFX has the technical expertise to manage these programs and will supplement i t s staff with international experts, if needed. Furthermore, it continues to receive technical advice from an IMF payments systems expert.
10
3. Fiduciary
Financial management issues (see Annex 7 for Financial Management Assessment Report): The PIU staff in DITAC are familiar with the Bank’s fiduciary requirements relating to procurement, financial management and disbursements. A manual, excel-based accounting system has been developed for the PHRD grant provided for this project, and has been used to prepare the required financial reports. However, financial management arrangements will be strengthened to ensure that they are adequate for the project. An action program has been agreed with IDA in this regard. In accordance with this program, a qualified accountant from N B K R ’ s Accounting Department has been assigned to the Project, with Terms o f Reference that are satisfactory to IDA. This individual will be responsible for budgeting, project accounting and financial reporting under the PBSM. In addition, NBKR management has committed to the establishment o f a fully automated project financial management system. N B K R ’ s IT Department, in coordination with the PIU and the accountant, are developing this system, which could b e established by about end-February 2004. In the meantime, a spreadsheet-based system has been designed and i s in place. This interim system will be used to report on the use o f project resources and expenditures, as well as produce financial monitoring reports in a format acceptable to IDA. I t wil l subsequently be replaced by the automated system. This will be subject to further monitoring by the Bank prior to and after effectiveness. In the meantime, a manual o f financial procedures, satisfactory to IDA, has been completed and a disbursement specialist appointed. Any fiduciary r isks associated with the project wil l be managed by: (i) a well-designed institutional structure with appropriately defined accountability arrangements; (ii) capacity building to improve financial management capacity, as needed; (iii) regular monitoring o f financial resources through reporting; and (iv) frequent supervision by IDA.
In regard to procurement, according to the findings o f the procurement capacity assessment that has been completed for the project, the PIU has limited experience in procurement organization and cycle. However, it has already undertaken some measures, such as sending i t s staff for training seminars, to strengthen i t s capacity for conducting procurement. The PIU staff include a procurement officer who has received training in conducting international procurement in two Bank-organized seminars. An additional D ITAC staff member will be designated and trained as a back-up procurement officer for the PIU. Given the limited experience o f P IU staff and the unfavorable public procurement environment in the country, this project i s placed in the high r i sk category. An action plan has been agreed to further strengthen the procurement capacity o f the PIU. This plan includes training and the preparation o f a brief operational manual, which will include details o f contract approval and supervision procedures and details o f the system for maintaining the project and procurement records.
4. Social
The payment system reform will, in the medium term, have a positive social impact, as the banks become more efficient, broaden their product and customer base and expand their outreach. The banking sector reform wil l also help improve the quality and volume o f financial intermediation in the economy, and the access o f the population in remote areas to reliable banking services, including enabling the development o f new means o f payments for the poor. The social impact o f the proposed project will be monitored in the short term through the component monitoring
11
indicators, which focus on changes in the aggregate volume o f non-cash based transactions channeled through the national payments system.
5. Environment
Not applicable
6. Safeguard policies
The proposed project i s rated C and does not require an Environmental Assessment (EA) or Environmental Assessment Plan (EAP).
Safeguard Policies Triggered by the Project Yes No Environmental Assessment (OP/BP/GP 4.0 1) [I Natural Habitats (OPBP 4.04) Pest Management (OP 4.09) Cultural Property (OPN 11.03, being revised as OP 4.11) Involuntary Resettlement (OP/BP 4.12) Indigenous Peoples (OD 4.20, being revised as OP 4.10) Forests (OP/BP 4.36) Safety o f Dams (OP/BP 4.37) Projects in Disputed Areas (OP/BP/GP 7.60)* Projects on International Waterways (OP/BP/GP 7.50)
[I E l
7. Policy Exceptions and Readiness
The proposed project requires no exceptions from Bank policies.
Counterpart funds budgetedkelease requirements were confirmed during negotiations. Preparation o f tender documents for the payments system infrastructure are nearing completion. To help ensure that funds are readily available for early start up o f project activities, retroactive financing, in accordance with Bank policy, i s provided. Disclosure requirements and co-financing arrangements were confirmed during negotiations.
' By supporting the proposedproject, the Bank does not intend to prejudice thejinal determination of the parties' claims on the disputed areas
12
Annex 1: Country and Sector Background KYRGYZ REPUBLIC: Payments and Banking System Modernization Project
The Kyrgyz Republic i s one of the more liberalized countries in Central Asia. Soon after independence, the country embarked on a comprehensive reform to transition to a market economy. The strategy included the divestiture o f state-owned assets, the introduction o f the Som, the national currency, and the establishment o f a modern financial and legal infrastructure to support private and financial sector development. The Kyrgyz Republic i s also the only country in the region that i s a member of the World Trade Organization (WTO, 1998).
Despite the intense reform efforts o f the early 1990s, Kyrgyz Republic has remained one o f the poorest countries in the CIS, with a per capita GDP o f about US$382 in 2003, according to preliminary figures. This i s due to the country’s geographical isolation, the scarcity o f natural resources, heavy dependence on gold and agriculture output, and the effects o f the Russian crisis o f 1998. Despite these adverse conditions, the country’s macroeconomic performance has improved significantly since 1998 - real GDP grew at an average annual rate o f 5.5 percent during 1996-2001, and at 6.7 percent in 2003, although i t contracted slightly in 2002.’ The 12- month average inflation rate has declined from 23.5 percent in 1997 to 2.1 percent in 2002, and about 3.1 percent in 2003.
The Government developed a reform agenda, included in i t s 2002 National Poverty Reduction Strategy (NPRS) paper, which focuses on reforming the public administration, improving debt management, supporting small and medium enterprises and agriculture development, and improving the environment for private sector investment and FDI. Additionally, as part o f the NPRS, the Government and NBKR have identified further reform o f the financial sector and improvement o f financial services and intermediation as a means for stimulating private sector led growth. To this end, the authorities are committed to further consolidation and rationalization o f the banking sector, development o f the non-bank financial sector and micro- finance, modernization of the payments system and enhancement the legal and regulatory environment for the functioning of the financial and private sectors including banking regulatory and supervisory framework and property and creditors’ rights.
The Financial and Banking Sector
The Kyrgyz financial system was created in 1992 with the establishment o f the National Bank o f the Kyrgyz Republic and the two-tier banking system. Banking sector development was substantially affected by two banking crises in 1995 and 1999 and by the difficult economic conditions which characterized the transition path o f the country to a market economy. The Government and NBKR addressed the 1995 crisis by tightening fiscal and monetary policy, and by embarking on a financial and sector reform program. The program supported: (i) the consolidation and rationalization o f the system; (ii) the development o f the legal and regulatory
’ GDP contracted by about 0.5 percent in 2002, mainly due to an accident at Kumtor goldmine. According to a World Bank Mining Sector Review, the gold mining sector’s share o f GDP was around 7 percent in 2001.
13
framework supporting intermediation; and (iii) the establishment o f an asset management agency (DEBRA) to recover the bad assets o f the banks.
As the system and the economy started to improve, the country suffered another setback in the aftermath o f the Russian financial crisis o f 1998. This crisis caused economic instability, the collapse o f the largest gas conglomerate in the country, high inflation (39 percent in 1999) and currency devaluation (50 percent). The quality o f loan portfolios o f banks sharply deteriorated as the economy slowed down and borrowers were unable to service their debts, which were mostly denominated in foreign currencies. As a consequence, three major state-owned banks and other small commercial banks were forced into bankruptcy. Other factors also contributed to the poor performance o f the banking sector and undermined confidence in banks. These included the inadequate legal and regulatory framework supporting banking and financial intermediation, the absence o f appropriate protection and enforcement o f property and creditors' rights (which was further undermined by weaknesses in the judiciary and widespread corruption), and the lack o f financial information which prevented NBKR from detecting and preventing bank bankruptcies.
The Government and NBKR attempted to address the effects o f the crisis through a number a measures. The Savings and Settlement Company (SSC) was established as a non-lending banking institution to provide basic banking and payments services to the population, particularly in rural areas. SSC was provided with the largest bank branch network in the country, inherited from the collapsed Savings Bank. In 1999, Kairat Bank was established with the mandate o f receiving assets and liabilities o f the three large insolvent banks and to collect their non-performing loans. However, the quality o f the loans transferred to the bank was extremely poor and the bank came close to bankruptcy in 2000. Kairat was rescued from collapse in September 2000, at which time about Soms 225 mill ion (US$4.9 million) in poor quality assets were carved out and transferred to DEBRA and Som 400 million in Government securities were provided to re-capitalize the bank. Kairat became a narrow bank, with a limited license, and it initiated a restructuring program, which included branch rationalization, retrenchment and management changes.
Furthermore, to deal with the underlying weaknesses o f the banking system, NBKR promoted bank consolidation and rationalization, phasing in an increase in minimum statutory capital requirements to Soms 100 mill ion for existing banks and Soms 300 mill ion for new banks by June 2002. In April 2002, NBKR introduced a minimum Tier 1 capital according to Basle minimum capital requirements o f Soms 30 mill ion for al l banks. NBKR also strengthened its on- and off-site supervision capacity so that i t could better monitor and regulate commercial banking activity. In addition, in response to N B K R ' s regulations, commercial banks adopted IAS-based accounting in 2001. Furthermore, the Government introduced measures to improve the environment for financial intermediation and banking: the Bankruptcy Law was amended in 2002, a new pledge law has been submitted to Parliament, a new law on leasing passed, the tax code revised and a land registration process initiated.
These measures have led to some improvement in the financial condition o f banks. There are now 20 commercial banks, o f which 5 are majority or fully foreign-owned, including some with shares held by IFIs. O f these banks, 18 are private and account for about 88 percent o f total
14
banking sector assets. According to NBKR, the banking sector was profitable for the second consecutive year in 2002. Capital adequacy has improved following the consolidation program and the increased minimum capital requirements. The volume o f credits to the private sector, albeit from a low base, increased by about 9 percent in 2002, and by more than an additional 10 percent in the f irst 6 months o f 2003. Household deposits also increased by about 12 percent and almost 8 percent, respectively, over the same periods, suggesting some improvement in confidence in banks.
However, the financial system remains small, fragile and dominated by the commercial banking system (the capital markets, pension and insurance sectors are largely underdeveloped). Depositors' confidence i s still low: only about 4 percent o f the population hold bank accounts and access to banking services i s limited. Intermediation deepening i s thin, with bank lending and total assets o f the banking sector being, respectively, only 2.6 percent and 9.2 o f GDP as o f the end o f 2002. Serious shortcomings in the payments system and a narrow range o f payments services l imit banking transactions. Lending i s mainly short-term, at high interest rates and heavily collateralized, in part because o f inadequate protection o f creditors' rights. Banking sector outreach is limited with a total network o f only about 150 branches. Weaknesses in the judicial system continue to undermine financial intermediation and the capacity o f NBKR to effectively perform its licensing, monitoring, supervision and resolution functions.
The Government Strategy
The Government's banking sector reform strategy aims at stabilizing and improving the financial and banking sector capacity to intermediate and support growth and poverty alleviation by restoring depositors' confidence, deepening bank intermediation and improving access to finance. The strategy, reflected in the NPRS, builds on the findings of the joint IMF/World Bank Financial Sector Assessment Program (FSAP - 2002). I t identifies a number o f priority actions, including reforming the payments system infrastructure, strengthening o f banking supervision and debt resolution, enhancing N B K R ' s authority and independence, and divestiture from commercial banking. I t also includes plans to extend the financial system to the poor and those in rural or remote areas. This includes: (a) support for microfinance institutions and implementation of the Law on Microfinance Organizations, which was adopted in August 2002; (b) development o f credit unions; (c) expansion o f credit resources to small and micro enterprises; (d) development o f the leasing industry; and (e) finalization o f the land registration process. In addition, the strategy provides for the full conversion to IAS for enterprises by end-2005 (commercial banks converted into IAS-based accounting in 2001) and the enactment o f new regulations in the area o f bankruptcy, pledges and collateral, governance and auditing requirements.
In l ine with recommendations o f the FSAP, the authorities adopted a National Payment System Reform Program in 2002. This was developed with extensive support from the IMF and includes the establishment o f comprehensive modem, automated payments and settlement systems for large and small payments, as well as a card system. The Government considers this comprehensive system essential for conducting efficient and transparent business transactions, improving access to banking and reducing costs, as well as being an important building block in restoring confidence in the banking sector by making banking and payment services more
15
efficient, transparent and affordable to the public. Support for the development and realization o f this system is the major focus o f the proposed project.
Under the divestiture program, the authorities aim to sell Kairat Bank to a fit and proper strategic investor. To this end, the authorities offered the bank for privatization at end 2003, with a v iew to attracting foreign investors. Expressions o f interest f rom potential investors are awaited. I t i s hoped that the privatization o f this bank, which is well-positioned to serve the top end o f the Kyrgyz private sector, will contribute to introducing more competition into the banking sector.
Because o f the important social function played by the SSC in providing payment services throughout the country through extensive branch network, the Government has decided that the bank will not be privatized in the short term. The strategy provides for the strengthening o f the SSC to improve its efficiency, outreach and effectiveness in delivering banking services to the rural areas, thus improving the access o f the population at large to banking services. This will include considering the use o f part o f the large post office network as additional outlets to deliver payments services. In addition to this, the authorities are exploring the possibility to enhance SSC through merger, privatization or other feasible alternatives and arrangements, possibly involving strategic investors andor IFIs. Support i s provided under the proposed project for the strengthening o f SSC.
The Government's strategy also includes actions to improve the legal framework to support intermediation and creditor rights, and enhancing the technical capacity o f DEBRA to perform its banking assets resolution and collection functions. DEBRA is expected to be restructured and transformed from a department of the M o F to an autonomous state-owned agency. A new Pledge Law i s under review by Parliament and amendments to the Banking L a w have been approved. All are expected to contribute to improved governance and accountability, as we l l as to the establishment o f a credit culture. NBKR is also drafting a new Law on Deposit Insurance Systems (DIS), although implementation of the D IS will be postponed until the sector i s better supervised, sounder and more transparent. In the meantime, NBKR is committed to continuing its efforts to improve banking supervision and regulation. NBKR has drafted new anti-money laundering legislation and an AML/CFT L a w i s under review by Parliament. Finally, the overall financial sector strategy calls for developing the microfinance sector (including establishing on- and off-site supervision departments in NBKR), the creation o f a private credit bureau system and the development o f an efficient and transparent capital market. However, taking into account the existing capacity in the country, proper sequencing i s important and the Government i s f i rs t focusing on the banking sector.
16
Annex 2: Major Related Projects Financed by the Bank and/or other Agencies KYRGYZ REPUBLIC: Payments and Banking System Modernization Project
IFC
IMF
ADB
USAID
Bank-financed
Banking sector investments in two commercial banks and Regional Credit line facility in partnership with EBRD and Swiss Cooperation.
PRGF (ongoing) and Technical Assistance to NBKR payments system (ongoing) and long-term Advisor to the Chairman o f NBKR
Corporate Governance Project (ongoing) and Financial Intermediation and Resource Mobilization I and 11. Main areas covered by the projects: (a) govemance, auditing and accounting; (b) microfiiance and credit union supervision and regulations.
TA to NBKR Bank Supervision and Licensing Department (ongoing)
FINSAC (completed in 1997): policy-based loan to support private and financial sector reform
FINSAC TA (completed in 2001): technical assistance to help implement financial sector reforms introduced under the FINSAC. FINSAC TA helped strengthen the financial and regulatory agencies; established special institutions for the restructuring/liquidation o f banks; improved accounting infrastructure and provided training for bankers and judges.
GSACJGTAC (ongoing) adjustment operation and related technical assistance supporting public sector reform, to improved govemance, responsiveness and transparency o f the public sector
Rural Finance I (completed June 2001): long-term financing and TA to the KAFC, a rural lending and non-deposit taking financial company owned by the Government.
Rural Finance I1 (ongoing): same as Rural Finance I
Private Enterprise Support Project (PESP) (completed June 2003): credit l i ne providing long-term financing to private enterprises through participating commercial banks, wi th TA for capacity building. Unsatisfactory rating reflects: (i) problems with the original project design; and (ii) adverse economic conditions, resulting in problems for enterprises to meet the financing requirements.
Implementation progress (IP)
Satisfactory
Satisfactory
Satisfactory
Satisfactory
Satisfactory
Satisfactory
Development objective (DO)
Satisfactory
Satisfactory
Satisfactory
Satisfactory
Satisfactory
Unsatisfactory
OED
S
S
N/A
M
N/A
N/A
17
Annex 3: Results Framework and Monitoring KYRGYZ REPUBLIC:
Results Framework
PDO Develop a modem, integrated national payments system that i s hl ly accepted and used by the commercial banks and their clients
Intermediate Results One Der ComDonent
Bulk Clearing System: establishment o f the bulk-clearing system
Inter-bank Card System: sufficient number o f commercial banks participate the national shared card system
RTGS: establishment o f the RTGS
Banking Sector: improvement in SSC’s service delivery capacity
Outcome Indicators Total value o f transactions channeled through and processed by the National payments system
Results Indicators for Each Comoonent
Total number o f transactions processed through the system
Total volume o f transactions processed with bank cards compatible to the shared system
Total value o f individual transactions
Operating efficiency o f SSC measured as percentage o f total operating expensesltotal deposits
Use o f Outcome Information Quantifying success and assessing the need for developing alternatives to increase the attractiveness o f the system
Use o f Results Monitoring
Improve know-how o f the users and promote agreements between commercial banks and utilities for salary and bill payments schemes. adjust fees for users o f the system
Corrective actions including additional promotional efforts and incentives, based on study results. adjust fees for users o f the system
Investigate malfunctioning and misuse o f the system by NBKR. provide, through system generated reports, data which could help the authorities in designing their AML program. Adjust fees for users o f the system
As a continuous tool to improve operational and managerial capacity and hence delivery o f services
18
8 8 0 VI
0 0
2 m
0 0
8 0 W
0 0
0 8 -” -
0 0
3 53
0 0
8 0 N
0 0
0 W 8
0 0
W 8
0 0
2
Annex 4: Detailed Project Description KYRGYZ REPUBLIC: Payments and Banking System Modernization Project
The proposed project comprises four components, the largest o f which supports the national payments system modernization program. I t wil l also support banking sector reform, as part o f the Government’s overall financial sector reform program.
I. Payments System Modernization Program
The payments system program aims to improve the efficiency and security o f payments in the Kyrgyz Republic through a bulk clearing system (BCS), an inter-bank card system (Card Processing Center), a real-time gross settlement system (RTGS), as wel l as the modernization o f the general ledger (GL) o f NBKR, which will complement the payments system infrastructure. With financing f rom the PHRD Grant, consultants assisted the NBKR team elaborate a business plan, strategy and cost-benefit analysis for this infrastructure, which i s expected to be implemented over about four years. The proposed project wil l provide resources for the investment costs (primarily the hardware and software and project support) incurred by NBKR for establishing these systems. In addition, i t wil l finance technical advisory services, such as for the development o f technical specifications and bidding documents, evaluation o f bids, and the associated support needed for the implementation o f such systems. The framework for this program has been designed taking into account similar reforms in other countries (especially Azerbaijan). The table below illustrates the linkages o f these components.
Sett lement I
20
(1) Bulk Clearing System (BCS) (a low-value electronic clearing system).
This will be the first priori ty and wil l process al l types o f high-volume and low-value transactions at a l o w cost, enabling the development o f new and modem payment instruments to be offered to the population, businesses and utilities, etc. I t will significantly improve the clearing and settlement o f low-value electronic payments instruments (e.g., credit orders, recurrent and direct debit, card transactions) and replace paper instruments and cash. In this scheme, any bank will submit i t s payments instruments to the BCS installed in NBKR office. Inter-bank clearing and settlement wil l be done only on the basis o f electronic data and files, and the legal framework and the banks' procedures will be adapted to support the validity o f electronic data and digital signature. It i s envisaged that settlements wil l ini t ial ly be made on a semi-manual basis at the end o f each clearing and settlement cycle through the posting o f net balances into a single settlement account o f each participating bank held at NBKR. Once the large value clearing and settlement system (RTGS) i s in place, settlement o f multilateral balances wil l be processed automatically. The BCS system design will include a protection mechanism to avoid any systemic r isk at the settlement stage.
(2) Inter-bank card system (Card Processing Center - CPC).
The development o f card operations (cash withdrawal and payment) is a critical means to decrease costly and unsecured cash and paper-based payment instruments and increase bank intermediation. This subcomponent will coordinate and strengthen commercial bank initiatives in card activity through the development o f an inter-bank card scheme at the national level to enable bank customers to use any card accepted in the scheme in any ATM or merchant's equipment (POS). The commercial banks wil l share the investment costs, risks and operational costs, for al l card processing hnctions to be covered, at least during the initial three years o f operation, to provide some time for the volume o f activity to develop. During this time, the init ial l ow volume o f activity would just i fy that a common processing center covers al l functions. Under the project, this new l ine o f products wil l be designed to be consistent with commercial banks' business strategies and client needs at the local and national levels). This inter-bank approach will enable rapid development o f this instrument and the acceptance network (ATM and POS) throughout the country and decrease the need for cash transactions (either for cash withdrawal o f salariesY2 the purchase o f goods or bill payments).
The operations and management o f the scheme will be ensured by two separate entities. The CPC will be the operating arm o f the system. I t is anticipated that all banks wil l either be full members o f the CPC and wil l fully benefit f rom its services, or they wil l contract directly with the CPC for selected services. The design o f the CPC wil l be split into two parts. One will cover the "common core and shared" functions to ensure that a real inter-bank card system could operate, including routing o f authorization requests generated by ATM and POS transactions to commercial banks; a r isk and fraud management data base. The other will cover functions such as authorization delivery, collection o f transactions f rom POS and ATMs, maintenance o f POS and ATMs, as well as cardholder and merchant management, that could be partially shared by banks that want to outsource them to the CPC on a cost plus fee basis. In the scheme any bank could opt to operate some o f these functions itself. For instance, one private (foreign) bank has
' Salaries would be paid by bank credit orders or credited to card accounts o f the individuals.
21
recently launched its own card system and i s likely to wish to continue to operate some functions i tself and outsource others to the CPC, at least in the medium term. Initially, the CPC wil l be located within the Bank Payment Cards unit o f the NBKR to ensure access to the system for al l commercial banks on an equal basis. T o ensure that the scheme reaches a critical mass o f card users, the CPC wil l also init ial ly own a number o f POS equipment and ATMs. The provision o f this equipment, which wil l be installed throughout the country, i s justified o n social grounds, in l ine with the program objectives to provide access to banking services to the population at large. The second entity wil l be an inter-bank card organization (the Inter-bank Card Company - ICC) to promote and govern the card scheme. The I C C will establish the rules and regulations o f the card scheme, and wil l be the governance arm. During negotiations, it was agreed that these rules and regulations, satisfactory to IDA, would be in place by March 3 1,2005.
T o ensure the acceptance o f the commercial banks in the system that will be developed under the project, extensive consultations have been held with them since the design phase and will continue through implementation. The I C C (which wil l be a jo int stock company) should be established before contracts for the supply and installation o f the system are concluded. It i s anticipated that most commercial banks will eventually participate in the ICC. To enable a l l KR card holders to benefit from the ATM and POS network, an agreement has been reached between NBKR and the commercial banks to use CPC “core” inter-bank services and operating standards. Given the importance o f establishing an effective management structure under which the scheme would operate, the establishment o f the I C C would be a condition o f disbursement for the equipment to be provided under this subcomponent.
This subcomponent also includes the design and implementation o f a pi lot scheme to test the technical, economic and social feasibility o f using smart card systems, such as pre-paid or pre- authorized smart cards, for small remittances or payments to be made by households that currently have no access to banking services. The choice o f a smart card technology accepting secured “off-line” payments wil l lower transaction processing costs and enable payment services in remote areas. The pi lot could initially focus o n the automation o f crediting salaries and pensions in card accounts and payment for services, such as electricity, health, education and water supply.
(3) Real Time Gross Settlement System (RTGS).
The RTGS wil l provide instant settlement o f large-value or urgent inter-bank transactions, large customer transactions, and, at a later stage, the securities markets. This system will also enable the automatic settlement o f multilateral balances o f the net low-value clearing systems in a t imely and secure manner. I t wil l enable the settlement o f individual large or urgent transactions within a few minutes under normal conditions and provide finality to transfers o f value in the books o f NBKR. Liquidity and risk management features will be included in the system’s fbnctionality in order to comply with international standards and avoid systemic risks. The RTGS system wil l process individual transactions sent by the head offices o f banks and other financial institutions through two different access modes: (i) a direct participant, managing i ts own account at NBKR, would have direct technical (on line) access to the RTGS; and (ii) an indirect participant, with a settlement account managed by NBKR, would use a direct participant’s technical platform to access the RTGS. A third mode i s also possible, where the
22
f inancial institution i s represented by a direct participant and has n o settlement account in N B K R ’ s books. The direct participant providing the service wou ld b e financially responsible for a l l transactions made o n behal f o f that “third mode” institution, as i s the case for “standard” bank clients.
(4) Project Management Support.
The proposed project wil l provide finding for professional project management support for the implementation o f the payments system modernization program. I t will include advisory services to ensure that the necessary arrangements (legal, management and other) are in place to enable the system to operate effectively and securely. This will comprise project management services, and public relations campaigns, as w e l l as the establishment o f a monitoring and evaluation system. This specific implementation support will help ensure the availabil ity o f the needed professional approach that i s required for the success o f this complex undertaking. I t i s anticipated that intemational and local consultants will b e needed to assist the NBKR team for this purpose. In addition, the following activities will b e added to each o f the above subcomponents as appropriate:
(i) Global Architecture Design: The ma in user requirements, f inctionalit ies and conceptual design o f the BCS, CPC, RTGS and their integration in a comprehensive framework have already been defined. Conceptual design documents have been prepared by the NBKR team. A workshop was he ld in Bishkek in September 2003, to present the results to commercial banks and validate the strategic options, design and implementation plan. Estimates o f volumes o f transactions and fees to b e pa id by participants for each system have already been discussed by the NBKR team and commercial bank representatives. Based on these estimates, an initial, comprehensive business plan has been elaborated by NBKR and presented to commercial banks. This will be revised once the investment and maintenance costs have been provided by the selected vendor and updated forecast o f volumes for 2005 and 2006 established by commercial banks and NBKR.
(ii) Advisory Services and Studies: Provision, appropriately sequenced to ensure that the necessary arrangements are in place by the t ime the BCS, CPC and RTGS come on- stream, wil l be included under the project for:
advisory services to upgrade the legal and regulatory framework to support the requirements o f the system, including in such areas as: the val id i ty o f electronic data and digital signatures; the rights and duties o f participants to the RTGS and the BCS. For card activi ty this could include the design and implementation o f a new regulatory framework, wh ich will need to take into account contractual arrangements between banks and their clients; minimum requirements for inter- bank services and standards; common r isk management rules and procedures; loss sharing agreements in case o f fraud; and the establishment o f a common legal entity in charge o f regulating the system.
23
a series o f studies in such areas as: the preparation o f standards, procedures and rules based o n international best practices; a review o f quality and coverage o f the telecommunication network to support transaction transfers; the design o f risk and fraud mitigation systems to detect fraudulent clients and transaction (this would help the authorities in its AMLKFT efforts); and identification o f actions needed to promote cultural and behavioral change and behavior (from cash to non-cash and e-money), access to payment services in rural areas; the benefits o f the payments system infrastructure for utilities; and standards and procedures for the payments system.
11. General Ledger (GL) system for NBKR
This will include a feasibility study o f a more comprehensive management information and accounting system and the eventual adaptation by NBKR o f some hnctionalities and interfaces o f the existing system. Implementation o f the GL will fol low that o f the other elements o f the payments system in order not to overstretch the capacity o f NBKR staff. An important element o f the GL will be the interface between i t and the RTGS. It i s envisaged that this wil l be kept simple, to transfer a f i le o f commercial banks’ opening balances to the RTGS at the beginning o f the day and transferring the closing balances back at the end o f the day. These closing balances will then be reflected in the daily balance sheet o f NBKR. This approach will help ensure that operations o f the RTGS and BCS would not be affected by any disruptions in the operations o f the GL or by the timing o f i t s modernization. The proposed project will include a provision for advisory services to define and design main elements o f the general ledger system, as wel l as supporting the recommended improvements to the GL.
111. The Banking System
This will include improving the efficiency and service delivery o f the SSC to improve access o f the population at large to banking services and financial intermediation through the banking sector. The SSC operates as the main, and in some areas o f the country, sole provider o f fiscal and quasi-fiscal payments for the Social Fund and other budgetary entities and basic banking services for households. However, the bank provides only a l imited range o f services, has a relatively l o w volume o f transactions and suffers from high operating costs due to the large branch network. Although in the longer term the Government intends to privatize the SSC, the authorities have decided that attention now needs to be paid to strengthening the bank to ensure that i ts important functions are not interrupted or jeopardized. With support from the PHRD Grant options were developed for the further development o f the bank and to improve i ts effectiveness, efficiency and outreach. Based on these recommendations, advisory services under the project wil l help strengthen SSC’s operational and administrative capacity with a view to: (a) improving its position as a universal payments system and basic financial services provider, serving its clients with household savings, tax collection and utility payments, pension and salaries payments, A T M s and debit cards (using the common infrastructure), etc; (b) increasing its customer base through product diversification and modernization o f the technical infrastructure; and (c) streamlining the branch network and improving i ts physical outreach. This activity will also consider the possibility for partnership agreements between SSC and the Kyrgyz Postal Service (Kyrgyz Pochtasy), a State department under the Ministry o f Transport
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and Communications. Support wil l also be provided for audits, in accordance with international auditing standards, o f SSC’s financial statements for at least three years. The project wil l provide the advisory services, investment costs (for hardware and software to upgrade the information technology infrastructure), and training. Although financing from the Credit i s provided for, the authorities indicated a preference for using grant funding for the institutional development advisory services. As i t is unlikely that the full benefits o f IT improvements would be realized without concomitant institutional and operational strengthening, during negotiations it was agreed that, unless within six months o f signature o f the Development Credit Agreement, the institutional strengthening i s funded either from the Credit or from grants, all support for SSC, except for the carrying out o f the international audits, wil l be cancelled from the project.
IV. Project Implementation and Administration:
This will comprise training for PIU staff at Bank-sponsored courses on procurement and financial management and a limited amount o f office equipment that i s required for project implementation, as well as support that might be needed to upgrade the financial management system. A provision i s also included to cover some o f the incremental operating costs (net o f taxes), such as for office supplies and materials, communication costs (including e-mail connections), support for information systems, advertising, bank charges, translation costs and other reasonable expenses directly associated with the implementation o f project activities. This support i s particularly important as the PIU wil l play a crucial coordinating role for the overall project activities. Salaries and other costs, including those o f the Project audit, associated with maintaining the PIU and administering the project, wil l be covered directly by NBKR from its own funds.
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Annex 5: Project Costs KYRGYZ REPUBLIC: Payments and Banking System Modernization Project
Local Foreign Total US$ mil l ion US$ mil l ion US$ mil l ion Project Cost By Component and/or Activity
I. Payments System Modernization 0.53 6.69 7.22
11. General Ledger (NBKR) 0.04 1.60 1.64
111. Banking Sector 0.20 1.36 1.56
IV. Project Implementation and Administration
0.03 0.04 0.07
Total Project Costs' 0.80 9.69 10.49
Total Financing Required 0.80 9.69 10.49
' Identifiable taxes and duties are US$0.68 m, and the total project cost, net o f taxes, i s US$9.81 m. Therefore, the share o f project cost net o f taxes is 93.5 percent.
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Annex 6: Implementation Arrangements KYRGYZ REPUBLIC: Payments and Banking System Modernization Project
The proposed project wil l be implemented over about four and one-half years, although many o f the activities are designed to be completed in the early years o f implementation. The Kyrgyz Republic will be the Borrower o f the Credit. The Borrower will pass on part o f the proceeds o f the Credit to: (i) NBKR to carry out the Payments System Modernization Program, General Ledger Modernization and Project Administration; and (ii) SSC for the international audits o f the SSC. Subsidiary Loan Agreements with the respective entities will be concluded to reflect these arrangements.
Retroactive financing is provided to allow for the early start up o f project activities. The Project Implementation Unit (PW) has been established in the Directorate on Investments and Technical Assistance Coordination (DITAC) in NBKR and will be responsible for implementation o f the entire project, including the parts for which SSC is the beneficiary. D I T A C is already managing the PHRD Grant and has built up some capacity in the management and administration o f IDA- financed projects. It i s staffed by about seven people, which wil l allow responsibilities for the project to be distributed appropriately among existing staff without entailing substantial additional costs, with only l imited needs to upgrade skills in financial management and procurement. Project accounting will be managed by a qualified accountant f rom N B K R ' s Accounting Department.
The PW has some procurement skills. Further capacity building will be provided under the project, including a provision for the participation o f i ts procurement officer in Bank-sponsored procurement training courses. In addition to the existing procurement officer, an additional member o f DITAC's staff wil l be trained to provide back-up to the procurement officer.
The main focus o f the project wil l be o n payments systems modernization, which is directly the responsibility o f NBKR. Having the implementation unit within NBKR will give N B K R ' s management better control o f this component and will facilitate its implementation. In addition, NBKR has a professional interest in the Banking Sector Reform component, and DITAC staff have a good understanding o f the activities and the issues involved. Moreover, DITAC has already established a good working relationship with SSC, the beneficiary o f this component. Lastly, the Ministry o f Finance has, under other IDA-funded operations, already established the reporting and information mechanisms that are needed for managing and monitoring external debt obligations, including details on the use o f funds from IDA credits.
Special arrangements have also been put in place to manage and monitor implementation o f the payment system program, including the establishment o f a steering committee, which has overseen the preparation o f these activities. Given the importance and scale o f the payments system program, the steering committee will also monitor implementation o f this component. I t wil l review progress and make decisions, as appropriate, during project implementation. I t meets at least quarterly and reports to N B K R ' s Chairman. Furthermore, a mid-term review o f the project i s planned for about end October 2006, to review project progress to date and agree on actions to be taken in the future to ensure that the project achieves i t s objectives, in accordance with the agreed monitoring indicators.
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Annex 7: Financial Management and Disbursement Arrangements KYRGYZ REPUBLIC: Payments and Banking System Modernization Project
Country Financial Management Issues. The Country Financial Management Assessment for the Kyrgyz Republic and prior experience o f the Wor ld Bank in the country show that public sector financial management i s extremely weak, including public sector budgeting, accounting, reporting and auditing. These areas wil l likely benefit from the ongoing GSAC and GTAC that target the strengthening o f the public sector. Overall, the status o f the accounting profession in the country is low. In April 2003, the Government promulgated International Accounting Standards (IAS) as the ruling standards in the Kyrgyz Republic. However, these standards are not widely used due to lack o f experience with IAS. Most project implementing entities use the cash basis o f accounting, which i s not in accordance with I A S but which, in many cases, i s sufficient for proper accounting. Internal audit i s found only in a few institutions. Extemal audit i s practiced by individuals and a small number o f audit firms. Most audits required by international organizations traditionally have been performed by the Big Four firms3, largely with staff based in Almaty, Kazakhstan. In M a y 2003, the Bank conducted a review o f audit firms to determine their acceptability to audit Bank-financed projects. Two f i rms have been pre- qualified (one belonging to the Big Four network), and one firm was conditionally pre-qualified. To minimize financial risk, there has been the need to “ring fence” financial resources in Bank- financed projects in order to provide the appropriate fiduciary safeguards.
Implementation arrangements
Project activities wil l be implemented by the PIU in the Directorate o n Investments and Technical Assistance Coordination (DITAC) o f NBKR. The Director o f D I T A C will be the Director o f the PIU and wil l be responsible for the implementation and coordination o f a l l activities funded under the project. DITAC has been managing the PHRD grant for the preparation o f the project and its current staff have developed some experience in project financial management. However, relevant staff will require additional training o n Bank procedures related to financial management, disbursement and procurement functions.
The financial management arrangements for the proposed project are being strengthened by establishing a financial management reporting system, satisfactory to IDA, and deploying staff, with the appropriate accounting skills and experience, who will maintain accounts, produce financial reports, manage the disbursement function and generally be responsible for the entire financial management f ~ n c t i o n . ~
Deloitte & Touche, Emst & Young, KPMG and PricewaterhouseCoopers. Based on reviews o f the financial management arrangements undertaken by IDA in October and December 2003 to
determine whether the financial management arrangements within the NBKR were capable o f supporting the proposed project, and acceptable to IDA. These arrangements include systems o f accounting, financial reporting, auditing, and internal controls. The FMS, when fully adopted, will be capable o f recording al l transactions and balances, supporting the preparation o f regular financial statements, and safeguarding project assets.
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In addition to the staffing arrangements, N B K R ’ s IT experts, in close consultation with the Accountant and the PIU, are developing an automated financial management reporting system for the project to produce Financial Monitoring Reports (FMRs). The system wil l be installed in the Accounting Department and will incorporate appropriate measures to ensure that PIU staff can access the different modules as needed. The general description, together with the modules for data entry and reporting, have been defined and, according to N B K R ’ s schedule, the system could be in place and tested by end-February 2004. However, this schedule may slip, especially if problems arise during the testing phase. Therefore, as agreed with IDA, the PIU, together with the Accountant, has developed a spreadsheet-based system that will be used to track project resources and expenditures, and produce FMRs in an acceptable format. During negotiations, IDA confirmed that this spreadsheet-based system and the sample FMRs generated are satisfactory. This interim system wil l subsequently be replaced by the automated one. Progress in the establishment o f the automated financial management reporting system, satisfactory to IDA, will be closely monitored by IDA prior to and after effectiveness o f the proposed Credit.
Staffing. An Accountant f i o m N B K R ’ s Accounting Department will be responsible for the financial management aspects o f the project and wil l carry out a l l accounting obligations (including maintenance o f books and accounts for the project, preparation and dissemination o f financial statements and FMRs, and timely audits o f the project), in accordance with terms o f reference that have been agreed with IDA. This individual, who has already been assigned, will report to the PIU Director o n project-related financial management matters. The recently appointed disbursement specialist will be responsible for the disbursement function o f the project. These individuals will require additional training to enable them to be fully conversant with Wor ld Bank procedures.
Accounting Policies and Procedures. Consistent with the implementation arrangements, and as reflected in the Manual o f Financial Procedures, accounts and records for the proposed project will be maintained by N B K R ’ s Accounting Department, o n behalf o f the PIU, using the project- specific financial management system (FMS). The F M S will be capable o f producing FMRs in accordance with formats that have been agreed with IDA. Books o f accounts for the project wil l be maintained based o n International Accounting Standards (US).
Financial Reporting and Monitoring. Quarterly FMRs, including Financial Statements, Physical Progress Reports and Procurement Reports, in formats acceptable to IDA, will be generated f i om the FMS, within 45 days o f the end o f each quarter. The first quarterly FMRs will be submitted to IDA after the end o f the first full quarter after disbursements commence. The Manual o f Financial Procedures, prepared by the PIU, describes budgeting, accounting, internal control, reporting and auditing arrangements for the project. I t has been reviewed by IDA and found to be ~at is factory .~ Formats o f the annual financial statements and the FMRs are incorporated in the Manual.
Auditing Arrangements There will be a comprehensive annual external audit o f the project financial statements, covering a l l aspects o f the project. The audits will be carried out as part of the annual audits o f NBKR, by independent auditors acceptable to IDA, and in accordance with International Standards o n Auditing (ISA). The annual audit reports will include an opinion o n
The Manual will be subject to further review during implementation.
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the project financial statements, including the Special Account and Statements o f Expenditure, as well as a management letter. The terms o f reference (TOR) o f the auditors will include both the audit o f financial transactions and an assessment o f the operation o f the financial management system, including a review o f the internal control mechanisms. The TOR for the audit and the proposed shortlist o f auditors will be provided to IDA for i t s no objection prior to the selection and appointment o f the auditor.6 The annual audit report wil l be submitted to IDA no later than six months after the end o f the fiscal year to which it relates (i.e. by June 30 o f each year). The Accounting Department and the P IU wil l provide the auditor with full access to project-related documents and records and with the information required by the auditor for the purpose o f the audit. Project records and books, as well as the internal control procedures, will be subject to periodic review by the NBKR Internal Audit Department in accordance with N B K R ’ s Internal Audit policy and program, which has been reviewed by IDA and i s satisfactory.
Disbursement Arrangements. Transaction-based disbursements will be made in accordance with established IDA procedures, e.g., replenishment o f the Special Account based on full documentation and/or Statement o f Expenditures (SOEs), direct payments and Special Commitments. Report-based disbursement (disbursements based on quarterly FMRs) i s not considered feasible in the Kyrgyz portfolio at present; and replenishment o f funds will be made through deposits into the Special Account. Additional project accounts may be set up for any counterpart contributions, and funds that may be provided by cofinanciers, if these are secured at a later date. These accounts will be audited annually by an auditing firm acceptable to IDA. In accordance with TORS that have been agreed with IDA, the Disbursement Specialist will be responsible for administration o f the disbursement function o f the project, including arrangements for the withdrawal o f funds from the Credit and Special Accounts. The Disbursement Specialist will work closely with the Accountant to ensure good coordination o f the financial management and disbursement responsibilities for the project. Withdrawal applications will be signed by an authorized representative o f the Borrower (Ministry o f Finance).
Special Account. To facilitate timely project implementation, the P I U wi l l establish, maintain and operate, under terms and conditions acceptable to IDA, a Special Account in U S dollars in the NBKR, which i s acceptable to IDA. The PKJ will be responsible for the appropriate accounting o f the funds deposited into this account, for reporting on their use, and for ensuring that they are included in the audits o f the financial statements. The PIU will also report on the status o f this account wi th any request for disbursement submitted to IDA. The authorized allocation o f the Special Account will be US$400,000. However, during the early stage o f the project, the initial allocation o f the Special Account wil l be limited to US$200,000. When the aggregate disbursements and sum o f all outstanding special commitments under the Credit have reached the level o f SDR 2.5 million, the initial allocation may be increased up to the authorized allocation o f US$400,000. The PIU will be responsible for submitting replenishment applications, with appropriate supporting documentation, on a monthly basis, or when 20 percent of the initially deposited funds have been used, whichever occurs first.
I t is N B K R ’ s usual practice to appoint one o f the “Big Four” auditing f i rms, based on a competitive selection process. The auditors must be approved by Parliament.
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Use o f Statements of Expenditures (SOEs). Disbursements m a y be made against SOEs as follows:
(a) Goods under contracts costing less than US$lOO,OOO equivalent each, except the first I S and N S contracts; (b) Consulting contracts with firms, costing less than US$lOO,OOO equivalent each; (d) Consulting contracts with individuals, costing less than US$35,000 equivalent each; (e) Training and incremental operating costs.
Documentation in support o f SOEs will b e retained by the PIU for at least one year after IDA has received the audit report for the fiscal year in which the last withdrawal f r o m the Credit Account i s made. The documents wil l b e made available for review during IDA supervision missions and for annual audits. All withdrawal applications for expenditures above the above SOE thresholds or for issuance o f Special Commitments will be supported by full documentation. The minimum application size for withdrawals directly from the Credit Account or fo r issuance o f Special Commitments will be communicated to the Borrower upon approval o f the Credit by IDA.
Financial Flows. The financial f lows will ma in ly comprise: (i) transfer o f funds from the Credit Account for replenishment o f the Special Account; (ii) transfer o f funds from the Special Account for payment o f local expenses; (iii) payment f rom the Special Account to foreign consultancy f i rms and individuals; and (iv) direct payment from the Credit Account for Goods and Services within predetermined thresholds, wh ich wil l be specified in a Disbursement Letter.
Supervision Plan. A s part o f i t s regular project supervision missions, IDA will conduct financial management reviews at regular intervals to monitor implementation; paying particular attention to: (i) the disbursement and financial management arrangements; (ii) a review o f the project's financial reports and audited financial statements, including remedial actions recommended in the auditors' Management Letters; and (iii) a review o f implementation progress. The progress reports on project implementation wil l be monitored in detail. F M R s will be reviewed o n a regular basis and the results or issues prompt ly followed up. The Bank's field-based financial management specialist will monitor the agreed action plan to ensure appropriate actions are being implemented by the PIU.
Agreed Action Plan. Based on assessment o f the financial management systems and processes, the assessment o f risks and mit igating measures, and the ongoing work to further strengthen the financial management systems, the financial management arrangements for the PIU will be capable o f recording al l transactions and balances, supporting the preparation o f regular f inancial statements, and safeguarding the project's assets. In accordance with the agreed Ac t i on Plan, the following i s the status o f steps to further strengthen the financial management system:
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I Action I Statudcomments Staffing: i. Assign a qualified accountant under TORS acceptable to IDA ii. Appoint a Disbursement Specialist acceptable to IDA iii. Prepare a training schedule for accountant, disbursement specialist
and other financial management staff Financial Management System: i. Design, install and test a spreadsheet-based accounting system ii. Ensure that the system i s implemented and running iii. Include sample FMRs acceptable to IDA in the Manual o f
Financial Procedures Procedures: i. Finalize the Manual o f Financial Procedures, including appropriate
sections o n budgeting, internal control, financial reporting and auditing requirements
ii. Submit them for review by Bank
i. Project Accountant assigned ii. Disbursement Specialist assigned iii. Training plan to be completed
during project implementation
Spreadsheet-based system in place. Working group i s developing a fully automated project accounting system. Sample FMRs have been reviewed
Manual reviewed and i s acceptable; minor revisions being made. Manual wil l be subject to periodic reviews during implementation.
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Annex 8: Procurement KYRGYZ REPUBLIC: Payments and Banking System Modernization Project
PROCUREMENT
General. Procurement o f al l goods under the Payment and Banking System Modernization Project wil l fol low the Procurement Guidelines “Procurement under IBRD Loans and IDA Credits” published in January 1995, revised January and August 1996, September 1997, and January 1999. Procurement o f consulting services will fo l low the Consultants Guidelines “Selection and Employment o f Consultants by Wor ld Bank Borrowers” published in January 1997, revised in September 1997, January 1999 and May 2002.
Notification of Business Opportunities. A General Procurement Notice (GPN) was published in the UN Development Business o n January 6,2004, and will be annually updated.
Procurement Management. The Project Implementation Unit (PIU) in the Directorate on Investments and Technical Assistance Coordination (DITAC) o f the National Bank o f the Kyrgyz Republic will have overall responsibility for implementing the project and for conducting procurement. For this purpose the PIU staff include a procurement officer who has already received training in international procurement in two Bank-organized seminars. D I T A C will also designate a suitable staff member to receive training in procurement to serve as a back- up procurement officer. The PIU will receive support f rom N B K R ’ s Information Technology Department in conducting procurement o f information technology and from the Legal Department for dealing with contractual issues.
Procurement Methods. The project wil l finance the procurement o f goods, technical and consulting services. The project components, their estimated cost and procurement methods are summarized in Table A and Al, the consultant selection arrangements in Table A2, the procurement methods and prior review thresholds in Table B. The procurement plan for the packaging and estimated schedule o f the major procurement actions is included in the Project File. The fol lowing methods o f procurement will be used:
(a) For Goods
(i) International Competitive Bidding (ICB) for contracts estimated to cost US$lOO,OOO or more per contract. Bidding documents for I C B wil l be prepared in accordance with the Bank Standard Bidding Documents (SBD) for procurement o f goods.
(ii) International Shopping (IS) for goods contracts estimated to cost less than US$lOO,OOO per contract.
(iii) National Shopping (NS) method for goods contracts estimated to cost less than US$50,000 per contract.
(b) Consulting Services (i) Quality and Cost Based Selection method (QCBS) for contracting consulting firms
for assignments estimated to cost US$lOO,OOO or more.
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(ii)
(iii) (iv)
Consultant's Qualifications (CQ) for contracting consulting f i r m s for assignments estimated to cost less than US$lOO,OOO. Least-Cost Selection method (LCS) for financial audits. Individual Consultants (IC) w i l l be selected in accordance with Section V o f the Consultant Guidelines. Individual consultants will be used for small assignments o f short-term duration and w i l l be selected based on the qualification o f the consultants.
Table A: Project Costs by Procurement Arrangements (US$ million equivalent)
Procurement Method'
Expenditure Category ICB N C B Other2 N.B.F. Total Cost
1. Goods 7.88 0.00 0.07 0.00 7.95. (7.07) (0.00) (0.07) (0.00) (7.14)
2. Consultant Services and 0.00 0.00 2.5 1 0.00 2.5 1 training (0.00) (0.00) (1.83) (0.00) (1.83)
3. Incremental Operating Costs 0.00 0.00 0.03 0.00 0.03 (0.00) (0.00) (0.03) (0.00) (0.03)
Total 7.88 0.00 2.61 0.00 10.49 (7.07) (0.00) (1.93) (0.00) (9.00)
'Figures in parentheses are the amounts to be financed by the Credit. All costs include contingencies. 21ncludes goods to be procured through national shopping, consulting services, services o f contracted staff o f the project management office, training, technical assistance services, workshops and incremental operating costs related to managing the project.
Table A1 : Consultant Selection Arrangements (US$ million equivalent)
Selection Method Total
QBs SFB LCS CQ Other N.B.F. Cost' Consultant Services QcBs Expenditure Category
~~~~
A. Firms 0.615 0.00 0.00 0.215 0.44 0.00 0.00 1.27 (0.44) (0.00) (0.00) (0.15) (0.31) (0.00) (0.00) (0.90)
B. Individuals 0.00 0.00 0.00 0.00 0.00 1.17 0.00 1.17 (0.00) (0.00) (0.00) (0.00) (0.00) (0.84) (0.00) (0.84)
Total 0.615 0.00 0.00 0.215 0.44 1.17 0.00 2.44 (0.44) (0.00) (0.00) (0.15) (0.3 1) (0.84) (0.00) (1.74)
Note: QCBS = Quality- and Cost-Based Selection QBS = Quality-based Selection SFB = Selection under a Fixed Budget LCS = Least-Cost Selection CQ = Selection Based on Consultants' Qualifications Other = Selection o f individual consultants (per Section V o f Consultants Guidelines), Commercial Practices, etc. N.B.F. = Not Bank-financed Figures in parentheses are the amounts to be financed by the IDA Credit.
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Prior Review: The fol lowing contracts shall be subject to prior review by Bank:
(i) All contracts awarded through I C B (estimated to cost more than US$lOO,OOO). For these contracts, bidding documents shall not be issued and contracts wi l l not be awarded until the Bank’s no objection is obtained. The f i rst I S contract for goods (estimated to cost US$50,000 or less per contract).
All TORS for consulting services, irrespective o f the contract value. Contracts with consulting f i r m s (2US$lOO,OOO) and contracts with individual consultants (US$35,000) or more. Single source or direct contracting is subject to justification
(ii) (iii) The first N S contract. (iv) (v)
(vi)
Ex-Post Review: Those contracts below the Bank’s prior review threshold are subject to the Bank’s ex-post review. Periodic ex-post review by the Bank will be undertaken during regular supervision missions. Procurement documents, such as bidding documents, bids, bid evaluation reports and correspondence related to bids and contracts wil l be kept readily available for Bank’s ex-post review during supervision missions or at any other point in time.
Table B: Thresholds for Procurement Methods and Prior Review Contract Value Contracts Subject to
Expenditure Category Threshold Procurement Method Prior Review (US$ thousands) (US$ millions)
1. Goods
2. Services
>loo ICB <IO0 International Shopping < 50 National Shopping
>loo QCBS >50 LCS
7.870 0.050 0.020 0.615 0.215
Total value o f contracts subject to prior review: US$9.69 mi l l ion
Overall Procurement Risk Assessment: High
Frequency o f procurement supervision missions proposed: One every 12 months (includes special procurement supervision for post-review/audits).
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Table C: Allocation o f Credit Proceeds
Expenditure Category Amount in U S $ mill ion Financing Percentage ~
1. Goods for:
(a) Part Al, 3 and 4, Part B, and Part D o f the Project
(b) Part A.2 o f the Project
(c) Part C.2 o f the Project
2. Consultants Services and audits for:
(a) Part A, B o f the Project
(b) Part C. 1 o f the Project
(c) Part C.2 o f the Project
3. Training for Part A and D o f the Project
4. Incremental operating costs
5. Unallocated
4.228
1.500
0.750
) ) 100% o f foreign expenditures ) and 100% o f local expenditures ) (ex-factory cost) and 83% for ) other items procured locally 1
) 85% o f expenditures for ) services o f consultants
1.100 ) domiciled within the territory ) o f the Borrower; 72% o f
0.150 ) foreign expenditures for ) services o f other consultants
0.300 ) and 100% o f eligible social ) charges
0.045 100%
0.027 90%
0.900
Total Project Costs 9.000
Incremental operating expenses include costs, net o f taxes, for office materials and supplies, communications, support for information systems, bank charges, advertising and other reasonable expenditures directly incurred by the PIU and associated with implementation o f project activities.
Retroactive financing o f up to US$0.6 m i l l i on i s provided for project-related expenditures incurred after January 15,2004 and prior to signature o f the Development Credit Agreement.
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Annex 9: Economic and Financial Analysis KYRGYZ REPUBLIC: Payments and Banking System Modernization Project
There i s extensive empirical evidence showing that the benefits to the economy o f an efficient payments infrastructure are substantial. The economic benefits o f payments systems are generally accepted around the world, as they are a necessary part o f modem financial systems. They offer substantial tangible and intangible economic and social benefits. Reliable and efficient payment systems substantially improve provision o f services to businesses and households, increase confidence in banks, and hence help to deepen financial intermediation and stimulate private sector growth. The benefits o f these types o f investments are described below.
Promotion of Economic Activity
With reliable and efficient payment mechanisms, companies and small and medium enterprises (SMEs) can benefit f rom the following:
0 to operate their day-to-day business (payment o f goods to suppliers and receiving t imely payments from their clients) more efficiently;
0 to optimize their liquidity needs and placements and to ensure that payment orders (funds transfer orders f rom current to saving accounts or from accounts in various banks or location ) are processed swiftly, at l o w cost and in a secure manner; to reduce the unproductive cash reserves by decreasing the use o f cash. This would be progressively transformed into deposits or savings and produce interest income, or be utilized in productive undertakings such as working capital or investments and hence contribute to the increased productivity o f economic agents.
0
Additionally, the potential benefits o f a reliable and efficient payment system are an incentive and a prerequisite for participants in the economy to switch from the informal economy, and r isks associated with it, to the formal economy to be able to take advantage o f financial sector services.
Social Benefit in Improving Access to Financial Services for the Households
Currently: there are less than 1.5 accounts per 100 inhabitants in Kyrgyz Republic, compared to an average o f 1.5 accounts per inhabitant in Europe; 28 branches per one m i l l i on inhabitants, compared to 700 in Europe; and 3 A T M s per one m i l l i on inhabitants compared to 600 in Europe. These factors combined make the impact o f A T M s and POS much more pronounced in Kyrgyz Republic, in terms o f access to banking services.
The objective is to enable the majority o f the population (especially the 300,000 public sector employees and 500,000 pensioners) to have access to basic banking services and benefit from safe deposits and short term advances. This will have an economic impact o n the consumption capacity o f the population and its ability to execute payments. I t could also contribute to increased levels o f investment.
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Improving Mobilization and Income of the Financial Sector
For the financial sector, the potential benefits o f the payments system modernization program will be realized through lower intermediation and transaction costs, and through additional revenues realized from new products. In addition, the improved services will attract a larger clientele and thus deposits.
At an average monthly salary o f 1,125 Soms, the wage bill for public-sector employees i s estimated to be about 335 mi l l ion Soms per month. Payments to pensioners are estimated at an additional 270 mi l l ion Soms per month. Currently, most o f these salaries are paid in cash and do not generally end up in the banks. However, a l l these funds, in accordance with the recent l eg i~ la t i on ,~ will have to be processed through the banking system. Thus, they could, depending o n client behavior, significantly increase banks’ access to cheap deposits. Furthermore, customers would be willing to pay small fees for the convenience o f using cards (cash withdrawal and payment). This would improve non-interest revenues for the participating banks. In other developing countries, it has been observed that clients benefiting f rom card services (easy cash withdrawal) progressively leave a share o f their salary in the bank instead o f withdrawing the whole amount on payment day. In the Kyrgyz Republic, this trend has been confirmed by Demir Bank (for its relatively wealthier customers) which i s currently offering l imited card services in Bishkek.
Improving Monetary Policy
Large and unpredictable levels o f cash float influence short-term liquidity in the economy and create uncertainty in controlling monetary aggregates. The new infrastructure and systems will improve the ability o f NBKR to manage the global liquidity o f the financial sector in real time, adjust reserve requirements efficiently and use indirect pol icy instruments through open market operations.
Improving the Fight against Money Laundering and Criminal Activity
The new infrastructure and the decrease o f cash transactions should enable a better monitoring and control o f financial transactions in a t imely and transparent manner. This will constitute a valuable tool in the fight against money laundering activity and in particular the follow-up o f the activity and funds transfers linked to suspicious clients.
In 2002, the Government and the NBKR issued a jo int Decree “On measures for improving the procedures for the payment o f salaries o f Government employees, customs and tax payments through the accounts o f the bank o f the Kyrgyz Republic. In anticipation o f the implementation o f this decree, together wi th the National program on the automation o f the Treasury system, the Government and the NBKR estimate sharp increases in payments transactions, including ut i l i ty payments, salaries and pensions, taxes and customs.
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Annex 10: Safeguard Policy Issues KYRGYZ REPUBLIC: Payments and Banking System Modernization Project
Not Applicable
39
Annex 11 : Project Processing KYRGYZ REPUBLIC: Payments and Banking System Modernization Project
Planned Actual PCD review May 29,2003 June 6,2003 Init ial PID to PIC June 25,2003 Init ial ISDS to PIC August 4,2003 Appraisal October 27,2003 October 27,2003 Negotiations January 26,2004 January 26,2004 BoardRVP approval March 16,2004 Planned date o f effectiveness July 15,2004 Planned date o f mid-term review April 15,2007 Planned closing date October 3 1,2008
Key institutions responsible for preparation o f the project: NBm ssc
Bank staff and consultants who worked on the project included: Name Title Unit Hormoz Aghdaey Lead Financial Analyst ECSPF Rochelle Hil ton Sr. Operations OfficedConsultant ECSPF Charlie Garrigues Sr. Payments Systems Spec. OPD Carlo Segni Consultant ECSPF Talaibek Koshmatov Operations Officer ECCKG John Ogallo Sr. Financial Management Specialist ECSPS Naushad Khan Lead Procurement Analyst ECSPS Nurbek Kurmanaliev Procurement Analyst ECCKG Anarkan Akerova Counsel LEGEC Nikolai Soubbotin Sr. Counsel LEGEC Hannah Ko i l t i l l a i Finance Officer LOAGl
Bank funds expended to date on project preparation: 1. Bank resources: $724,212* 2. Trust funds: 3. Total: $724,212
* Of this amount, about $325,000 was for business development activities whch were subsequently dropped from the project. In addition, the resources expended also reflect time spent on policy dialogue. (This project was originally the Financial Sector and Business Development Project - FINBUS). A PHRD Grant (Recipient executed) o f $700,000 was provided for project preparation. About 50 percent o f this grant was for the financial sector and 50 percent for the business development activities o f the FINBUS.
Estimated Approval and Supervision costs: 1. Remaining costs to approval: $10,000 2. Estimated annual supervision cost: $95,000
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Annex 12: Documents in the Project File KYRGYZ REPUBLIC: Payments and Banking System Modernization Project
Documents in the Project F i le include the following:
National Program for Payments System Reform M a i n Directions o f Payments System Development in KR for 2002-2005 General Agreement between NBKR and Commercial Banks (January 16,2004) Bulk Clearing System: 0 Clearing o f Low Value Retai l and Recurring Payments in the Ky rgyz Republic: Specific
0 User Requirements Specification Requirements
Card Processing System: 0 Specific Requirements - Card Processing Center (Business Plan) 0 Definition and Installation o f an Inter-bank Card Infrastructure - J-P Camelot, December 2003
RTGS: Business Plan General Ledger Project: Implementation Plan, prepared by NBKR. Updated January 21,2004
"Business and Action Plan for SSC" - ESBG Consortium, August 14,2003
Outline - Project Description and Implementation Handbook Procurement Capacity Assessment Procurement Plan Manual o f Financial Procedures (prepared by the PW)
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Annex 13: Statement of Loans and Credits KYRGYZ REPUBLIC: Payments and Banking System Modernization Project
(February 3,2004) Difference between expected and actual
disbursements Original Amount in US$ Millions Project ID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig. Frm. Rev’d
PO73973 2004 PO71063 2003
PO71061 2003 PO36977 2002 PO51372 2001 PO50719 2001 PO35810 2001 PO49719 2000 PO49723 2000 PO69814 2000 PO64585 1999 PO62682 1999 PO46042 1998 PO40721 1998 PO08519 1996
VILLAGE INVESTMENT
GOV TA GOV SAC RURAL WS & SAN
HEALTH 2 URBAN TRANWMAINT. CONSOLIDATION SAC
LAND REGISTRATION ON-FARM IRRIGATION CONSLD TA
RUR FIN 2 FLOOD EMERGENCY IRRIGATION REHAB
ASSP POWER & DIST HEAT
Total:
0.00 0.00 0.00 7.78 0.00 20.00 0.00 15.00
0.00 15.00 0.00 22.00 0.00 35.00 0.00 9.42 0.00 20.00 0.00 5.00
0.00 15.00 0.00 10.00 0.00 35.00 0.00 14.98 0.00 20.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00
0.00 0.00 0.00
0.00 0.00 0.00
0.00 0.00 0.00 2.03 0.00
15.68 0.00 0.00 8.23 0.03 0.00
15.45 1.68 0.00 16.62 4.91 0.00
10.31 4.04 -0.48 3.36 -19.41 0.00
17.66 17.75 17.75 5.41 3.04 0.00
18.44 6.73 0.00 3.28 2.25 0.00 3.47 2.64 0.00 0.00 0.40 0.45 9.25 6.82 0.00 5.78 7.16 -0.1 1
16.00 1.96 20.07
0.00 244.18 0.00 0.00 2.03 148.94 40.00 37.68
KYRGYZ REPUBLIC Statement of IFC’s
Held and Disbursed Portfolio (June 30,2003) in US$ Millions
~~
Committed Disbursed IFC IFC
FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic.
1996197 Demirbank Kyrgyz 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2001 FINCA 0.00 1 .oo 0.00 0.00 0.00 0.16 0.00 0.00 1995 Kumtor Gold 0.00 0.00 10.00 0.00 0.00 0.00 10.00 0.00 2001 SEF Akun Ltd. 1.40 0.00 1 .oo 0.00 0.40 0.00 1 .oo 0.00
1999 SEF Altyn-Ajydar 0.18 0.00 0.00 0.00 0.18 0.00 0.00 0.00 2000 SEF KICB 0.00 1.40 0.00 0.00 0.00 1.40 0.00 0.00
Total portfolio: 1.58 2.40 11.00 0.00 0.58 1.56 11.00 0.00
Approvals Pending Commitment
FY Approval Company Loan Equity Quasi Partic.
2003 Demirbank Kyr RI 0.00 0.00 0.00 0.00
Total pending commitment: 0.00 0.00 0.00 0.00
Annex 14: Country at a Glance KYRGYZ REPUBLIC: Payments and Banking System Modernization Project
POVERTY and SOCIAL
2002 Population, mid-year (millions) GNI per capita (Atlas method, US$) GNI (Atlas method, US$ billions)
Average annual growth, 1996-02
Population (%) Labor force PA)
Most recent estimate (latest year available, 1996-02) Poverty (% of population below national povedy line) Urban population ('A of total population) Life expectancy at birth (years) Infant mortality (per 1,000 live births) Child malnutrition (% of children under 5) Access to an improved water source PA ofpopulation) Illiteracy (% ofpopulation age 15+) Gross primary enrollment ('A of school-age population)
Male Female
KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1982
GDP (US$ billions) Gross domestic investmenffGDP Exports of goods and sewicedGDP Gross domestic savings/GDP Gross national savings/GDP
Current account balance/GDP Interest payments/GDP Total debffGDP Total debt service/exports Present value of debffGDP Present value of debffexports
1982-92 1992-02
GDP 1.3 0.7 GDP Der caDita -0.6 -0.4
(average annual growth)
KYrgYz Republic
5.0 290 1.5
1.2 2.0
64 34 65 54 11 77
101 103 100
I992
2.1 19.9 35.6
7.9 10.8
0.0 0.3 0.0
2001
5.3 4.5
Europe B Central
Asia
476 2,160 1,030
0.1 0.4
63 69 25
91 3
102 103 101
2001
1.5 18.0 36.7 17.7 16.8
-1.3 2.9
112.2 29.8 87.0
223.1
2002
-0.5 -1.5
Low- income
2,495 430
1,072
1.9 2.3
30 59 81
76 37 95
103 87
2002
1.6 18.1 38.6 14.4 14.9
1.5 112.7 24.2
2002-06
STRUCTURE of the ECONOMY
(% of GDP) Agriculture Industry
Services
Private consumption General government consumption Imports of goods and services
Manufacturing
(average annual growth) Agriculture Industry
Services
Private consumption General government consumption Gross domestic investment Imports of goods and sewices
Manufacturlng
1982 1992 2001
39.0 37.3 37.8 28.3 33.7 10.8 23.2 34.4
70.7 64.8 21.4 17.5 47.6 37.0
1982-92 1992-02
0.5 4.5 -3.5 -3.5
.. -10.7 6.4 -0.7
.. -3.2
.. -4.0 1.4
.. -5.7
2001
7.3 5.2
-3.0 3.3
2.2 -1.3 -5.6
-13.8
2002
38.6 26.2 10.5 35.2
72.7 12.9 42.3
Development diamond.
Life expectancy
7
GNI Gross per primary capita nrollment
I
Access to improved water source
-Kyrgyz Republic ~ Low-income group
Economic ratios.
Trade
Indebtedness
- Kyrgyz Republic ~ Low-income WOUD
1 Growth of investment and GDP (%) I
-GDI -O-GDP I
Growth of exports and imparts (%)
3.3 6o - -11.2 40- P
3.1 20
-1000 -2O - 4 2
-1000 - 4 0 1
0 0 -~xports *Imports 53 4
*The diamonds show four kev indicators in the countw lin bold) comoared with its income-arouo averaae If data are missino the diamond will be incomolete.
43
Kyrgvz Republic ~~
PRICES and GOVERNMENT FINANCE
Domestic prices ( “ 5 change) Consumer prices implicit GDP deflator
Government finance (% of GDP, includes current granfsj Current revenue Current budget balance Overall SUrDlusldeficit
TRADE
(US$ millions) Total exports (fob)
Electricity Gold Manufactures
Total imports (cif) Food Fuel and energy Capital goods
Export price index (1995=100) Import price index (1995=100j Terms oftrade (1995=100)
BALANCE of PAYMENTS
(US$ millions) Exports of goods and services Imports of goods and services Resource balance
Net income Net current transfers
Current account balance
Financing items (net) Changes in net reserves
Memo: Reserves including gold (US$ mii/ionsj Conversion rate (DEC, /oca//US$j
EXTERNAL DEBT and RESOURCE FLOWS
(US$ millions) Total debt outstanding and disbursed
IBRD IDA
Total debt service IBRD IDA
Composition of net resource flows Official grants Official creditors Private creditors Foreign direct investment Portfolio equity
World Bank program Commitments Disbursements Principal repayments Net flows Interest payments Net transfers
1982
1982
1982
1982
1992
830.2
1992
1992
400 -115
0 22
127
0.4
1992
6 0 0
0 0 0
0 4 0 0 0
0 0 0 0 0 0
2001
6.9 7.3
20.3 -1.7 -5.8
2001
480 47
225 106 472 36
121 58
104 95
110
2001
561 565
-5
-66 51
-20
38 -1 8
285 48.4
2001
1,712 0
389
177 0 3
35 86
-78 5 0
15 27 0
27 3
24
2002
2.1 2.3
22.6 -0.6 -5.2
2002
50 1 22
163 125 590 47
151 114
2002
630 69 1 -61
-57 66
-34
31 1 46.1
2002
i ,839 0
454
154 0 3
73 -17
15 33 0
33 3
30
“I 97 98 99 w 01
-GDP deflator +CPI i
Export and Import levels (US9 mill.)
1,om T
1 Current account balance to GDP (%)
1 Composition of 2002 debt (US0 mill.)
I G: 19
I D: 434
A - iBRD B - IDA D -Other multilateral F ~ Private C - IMF
E - Bilateral
G - Short-tem
Nore: I nis tame was producea trom tne ueveiopment t w n o m i a central database.
44