RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING NIGERIA PUBLIC SECTOR GOVERNANCE REFORM AND DEVELOPMENT PROJECT APPROVED ON JUNE 29, 2010

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1 Public Disclosure Authorized The World Bank RESTRUCTURING PAPER REPORT NO.: RES24803 Public Disclosure Authorized ON A PROPOSED PROJECT RESTRUCTURING OF NIGERIA PUBLIC SECTOR GOVERNANCE REFORM AND DEVELOPMENT PROJECT APPROVED ON JUNE 29, 2010 TO FEDERAL MINISTRY OF FINANCE Public Disclosure Authorized GOVERNANCE AFRICA Public Disclosure Authorized Regional Vice President: Country Director: Senior Global Practice Director: Practice Manager/Manager: Task Team Leader: Makhtar Diop Rachid Benmessaoud Deborah L. Wetzel Hisham Ahmed Waly Ikechukwu John Azubike Nweje, Helen Ogochukwu Okeke

2 ABBREVIATIONS AND ACRONYMS COFOG CS DA FAAC FGN FA FMF FMIS Gds GFS IGR NGN NPCU OpCst PAYE PPF RF SIFMIS SORT Trg USD Classification of Functions of Government Consultancy Designated Account Federation Accounts Allocation Committee Federal Government of Nigeria Financing Agreement Federal Ministry of Finance Financial Management Information System Goods Government Financial Statistic Internally Generated Revenue Naira National Project Coordination Unit Operating Cost Pay As You Earn Project Preparatory Fund Results Framework State Integrated Financial Management Information System Systematic Operations Risk Rating Training United States Dollars

3 Note to Task Teams: The following sections are system generated and can only be edited online in the Portal. BASIC DATA Product Information Project ID P Original EA Category Partial Assessment (B) Approval Date 29-Jun-2010 Lending Instrument Technical Assistance Loan Current EA Category Partial Assessment (B) Current Closing Date 31-Dec-2016 Organizations Borrower Federal Ministry of Finance Responsible Agency Ondo State Public Sector Governance Reform and Development Project,Kogi State Public Sector Governance Reform and Development Project Project Development Objective (PDO) Original PDO The project development objective is to improve transparency, accountability and quality in public finance and human resource management systems, with a view to strengthen governance in the participating states. Summary Status of Financing Ln/Cr/Tf Approval Signing Effectiveness Closing Net Commitment Disbursed Undisbursed IDA Jun Jun Nov Dec

4 Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No Note to Task Teams: End of system generated content, document is editable from here. I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING 1. The project was approved on June 29, At the request of the Government, a Level 2 restructuring was approved by the Country Director on December 28, The restructuring entailed (i) a change of the name of the project from Second State Governance and Capacity Building to Public Sector Governance Reform and Development Project (ii) dropping five participating States (Anambra, Bayelsa, Cross River, Edo and Yobe) which had in the intervening period received similar support under other Bank operations, and (iii) a reduction in the credit amount from USD$120 million to USD$80 million by cancelling the funds hitherto earmarked for the dropped States. The FA was signed on June 29, 2012, and the project became effective on November 8, The present extension of the project closing date will be the second since the approval of the project and will bring the cumulative extension to twenty three months. 2. Due to exchange loss arising from the depreciation of the United States Dollars against Standard Drawing Rights (SDR), the value of the credit available to the beneficiaries as of date is USD$68,321, The project has disbursed US$28 million (40.30 percent) of the credit amount. The total commitments across the states is estimated at about US$20 million. 3. Due to the effectiveness delay, the project initially lost implementation momentum, though this has now been overcome. The progress towards achievement of Development Objective (DO) and Overall Implementation Progress (IP) are currently rated Moderately Satisfactory. Based on current performance, the project is still on course to achieve its Project Development Objective PDO. Components Original USD Value (Million $) Current USD Value (Million $) Proposed Allocation (Million $) Component A: Modernization of PFM Systems Component B: HR Management Strengthening Component C: M & E System Development Component D: PFM Improvement in Tier

5 Component E: scaling up in Original Project Component F: Project Coordination Unallocated Total The two Tier I States (Kogi and Ondo), have achieved 100 percent coverage of government expenditure in their annual audits, while Ondo now meets the six-month timeline for completing and submitting Audit Report to the legislature, from the end of the financial year. Both States have adopted and are implementing the new National Budget Classification and Chart of Accounts system which is Government Finance Statistics/Classification of Functions of Government (GFS/COFOG) compliant, and are gradually and successfully transitioning to the use of International Public Sector Accounting Standards (IPSAS) in their public financial reporting practices. In the area of budgeting, both States have adopted and instituted programmatic and multi-year budgeting and fiscal planning. The Tier II States (Abia, Adamawa, Ekiti, Imo, Kebbi, Niger and Plateau), with exception of Abia, have successfully put in place modern legal frameworks and institutions for fiscal responsibility and public procurement. Similarly, in the original project States (Bauchi and Kaduna), the key legislations for fiscal responsibility and public procurement have been enacted and both have successfully developed and are implementing multi-year budgeting and fiscal planning. In Kaduna State, the reimplementation of the State integrated financial management information systems (SIFMIS) has advanced considerably. Kaduna is using SIFMIS to implement its Treasury Single Account system. 5. The objective of the proposed restructuring is four-fold: (i) to help address fiscal challenges at state level due to macro crisis and align the project with the 22-Point Fiscal Sustainability Plan which was recently agreed between the Federal Government of Nigeria and the thirty six States Governments; (ii) to address disbursement bottleneck; (iii) to align the project cost to the available US Dollar equivalent; and (iv) to extend the project closing date in order to ensure the project will attain its development objectives. 6. The restructuring will include the following changes (i) extension of support to tax authorities in the seven Tier II States, (ii) automation of treasuries/implementation of basic integrated financial management systems in the Tier II States, (iii) reallocation of the unallocated USD$5.6 million, (iv) a change to the disbursement arrangement, (v) a revision of the results framework and (vi) an assessment of the project risk using Systematic Operations Risk-Rating Tool (SORT), which was not available at the time of project approval. II. DESCRIPTION OF PROPOSED CHANGES

6 The proposed restructuring will include the following changes: (a) Extension of support to Tax Authorities in the seven Tier II states: This is to enhance the capacity for internally generated revenues (IGR). A sharp drop in prices of crude oil in the international market has resulted in serious revenue and expenditure management challenges, with some state governments struggling to meet their statutory financial obligations, including payment of workers salaries. This situation makes it imperative to support the states in developing a more sustainable financial base through domestic revenue mobilization. Thus, activities under Sub-Component A.5 of the project (Reform of the State tax Authority) is being extended to the seven Tier II States. Improvement of the weak revenue base at the state level will lead to more predictable fiscal planning and enhanced service delivery. (b) Automation of Treasuries in Tier II States: A major requirement of the 22-Point Fiscal Sustainability Plan adopted in May 2016, is the automation of the Treasuries of the States by adopting Financial Management Information Systems (FMIS). The project would extend support to the Tier II States to implement basic FMIS, which is essential for the States to receive financial assistance from the Federal Government. (c) Reallocation of the Unallocated Credit amounts: Reallocation of the unallocated amounts to Tier II and Kaduna States, in lieu of (a) and (b) above. (d) A change to the disbursement arrangement: A separate Designated Account will be created for every participating state, thus addressing the challenges around the disbursement arrangements. Under the current arrangement, the seven Tier II states disburse through a joint designated account domicile at the National Project Coordinating Unit (NPCU) of the Federal Ministry of Finance. This arrangement has not been optimal and has on some occasions led to some States being without fund for between six to eight months, thus delaying project implementation. The creation of a separate Designated Account for each participating State will help accelerate project implementation, improve disbursement and enhance financial reporting. A revised disbursement projection is provided in the table below. Net Commitment Amount Disbursed Undisbursed FY17/Q2 Dec FY17/Q3 Jan-Mar FY17/Q4 Apr-Jun FY18/Q1 Jul-Sep 68.3m 27.8m 40.5m 2.5m 7.5m 7.5m 18m 10m Based on current values: Exchange Rate 1 XDR = USD as of 29-Nov-2016 FY18/Q2 Oct-Nov

7 (e) A revision of the results framework (RF) to reflect and track changes introduced by this restructuring and also correct some hitherto existing errors in the RF. Summary of the changes in the RF is given in the table below. Changes to the Result Framework S/N Description of Indicator Action Description of Changes PDO Indicators 1 Annual State Auditor General's Report submitted to the legislature within 6 months from end of financial year (Tier I States). Indicator numbers 1 and 2 previously consolidated was split for ease of tracking and reporting. 2 State Government entities representing at least 75% of the total expenditure are audited annually in any State (Tier I States). 3 Decrease in deviation of actual expenditure from budgeted capital expenditure in the Tier 1 states 4 Growth in percentage of actual collection of projected IGR in Tier 1 states. 5 Growth in percentage of public contracts above threshold awarded through open competition. 6 Reduced discrepancy between personnel database and payroll database in participating (Tier 1) states 7 Direct project beneficiaries, % of which female (Tracked on the basis of persons trained under the project). Intermediate Indicators 8 Adoption of revised legal framework for commitment control and payment authorization/approval limits In Tier I States. 9 Development and use of medium-term (3 year rolling) sector strategies and fiscal planning in at least 5 MDAs in Tier I States. 10 The dimensions presented in budget classification using GFS/COFOG standards in Tier I States. 11 Number of MDAs in each participating state producing financial statements using new SIFMIS - Tier I States 12 Time taken by state legislature to scrutinize and issue report on external audit report in participating States (Tier I) 13 Increase in taxpayer coverage/tax database in participating states (Tier I States). Extension of end target date. New Indicator numbers 1 and 2 previously consolidated was split for ease of tracking and reporting. Extension of end target date. Aligned the end target date with the revised project closing date and revision of end target. Aligned the end target date with Aligned the end target date with Aligned the end target date with Aligned the end target date with the revised project closing date and clarification of basis for tracking. Aligned the end target date with Aligned the end target date with Aligned the end target date with Aligned the end target date with Aligned the end target date with 14 Number of participating states with FMIS (Tier I, Tier II Aligned the end target date with

8 and Original Project States). 15 Procurement legislation enacted and regulatory unit established in participating and selected states 16 Frequency of reconciliation between personnel records and payroll database in participating states (Tier I States) 17 Growth in the number of key MDAs that submit annual reports with updated data on agreed results indicators in participating State (Tier I States). 18 Growth in the percentage of public contracts published (Tier 2 States). 19 Number of selected (Tier 2) states with draft fiscal responsibility legislation submitted to state legislature. 20 BATMIS implemented in line ministries in original project states (Kaduna and Bauchi States). 21 MTEF/MTSS implemented in at least 10 sectors in each original project states 22 Number of Tier 2 States using the GFS/COFOG standards New National Chart of Accounts for budget presentation. 23 Increase in taxpayer coverage/database in Tier 2 states beyond the public service PAYE taxpayers. the revised project closing date and target implementation reduced to a basic Financial Management Information System. Aligned the end target date with Aligned the end target date with the revised project closing date Aligned the end target date with the revised project closing date Reduction of end target and aligned the end target date with the revised project closing date Revision of end target date. Indicator numbers 20 and 21 previously consolidated was split for ease of tracking and reporting. Extension of end target date. New Indicator numbers 20 from 21 previously consolidated was split for ease of tracking and reporting. Extension of end target date. New To track this sub-component which the Project had been supporting. New To track Tier II states that have just been included in the subcomponent (f) Introduction of SORT: an assessment of the project risk using Systematic Operations Risk-Rating Tool (SORT), which was not available at the time of project approval. (g) Closing date extension: The closing date of the project is extended cumulatively by twenty three months until October 31, 2017.

9 I. SUMMARY OF CHANGES Changed Change in Results Framework Not Changed Change in Loan Closing Date(s) Reallocation between Disbursement Categories Change in Disbursements Arrangements Change in Systematic Operations Risk-Rating Tool (SORT) Change in Implementation Schedule Change in Implementing Agency Change in DDO Status Change in Project's Development Objectives Change in Components and Cost Cancellations Proposed Change in Financing Plan Change in Disbursement Estimates Change in Safeguard Policies Triggered Change of EA category Change in Legal Covenants Change in Institutional Arrangements Change in Financial Management Change in Procurement Other Change(s) Change in Economic and Financial Analysis Change in Technical Analysis Change in Social Analysis Change in Environmental Analysis

10 PDO_IND_TABLE The World Bank IV. DETAILED CHANGE(S) DEFERRED DRAWDOWN OPTION (DDO) Change in DDO Status No Current DDO Status No OPS_DETAILEDCHANGES_RESULTS_TABLE RESULTS FRAMEWORK Project Development Objective Indicators Annual State Auditor General's Report submitted to the legislature within 6 months from end of financial year (Tier I States) Value State Government entities representing at least 75% of the total expenditure are audited annually in any State (Tier I States) Breakdown Value New Date 30-Jul Aug Oct-2017 Decrease in deviation of actual expenditure from budgeted capital expenditure in the Tier 1 states Unit of Measure: Percentage Value

11 Growth in percentage of actual collection of projected IGR in Tier 1 states Unit of Measure: Percentage Value Growth in percentage of public contracts above threshold awarded through open competition Unit of Measure: Percentage Value Reduced discrepancy between personnel database and payroll database in partiicipating (Tier 1) states Unit of Measure: Percentage Value Direct project beneficiaries, % of which female (Tracked on the basis of persons trained under the project). Unit of Measure: Percentage Value Intermediate Indicators IO_IND_TABLE Adoption of revised legal framework for commitment control and payment authorization/approval limits In all implementing States

12 Value Development and use of medium-term (3 year rolling) sector strategies and fiscal planning in at least 5 MDAs in Tier I States Value The dimensions presented in budget classification using GFS/COFOG standards in Tier I States Breakdown Value Date 29-Jun Dec Oct-2017 Number of MDAs in each participating state producing financial statements using new SIFMIS - Tier I States Value Time taken by state legislature to scrutinize and issue report on external audit report in participating States (Tier I) Unit of Measure: Months Value Increase in taxpayer coverage/tax database in participating states (Tier I States) Unit of Measure: Percentage

13 Value Number of participating states with FMIS (Tier I, Tier II and Original Project States) Value Procurement legislation enacted and regulatory unit established in participating and selected states Value Frequency of reconciliation between personnel records and payroll database in participating states (Tier I States) Value Growth in the number of key MDAs that submit annual reports with updated data on agreed results indicators in participating State (Tier I States) Value Growth in the percentage of public contracts published (Tier 2 States) Unit of Measure: Percentage

14 Value Date 29-Jun Dec Oct-2017 Number of selected (Tier 2) states with draft fiscal responsibility legislation submitted to state legislature Value Date 30-Dec Dec Oct-2017 BATMIS implemented in line ministries in original project states (Kaduna and Bauchi States) Value Date 30-Jul May Oct-2017 MTEF/MTSS implemented in at least 10 sectors in each original project states Supplement Value New Number of Tier 2 States using the GFS/COFOG standards New National Chart of Accounts for budget presentation Value New Date 22-Nov Oct-2017 Increase in taxpayer coverage/database in Tier 2 states beyond the public service PAYE taxpayers Unit of Measure: Percentage

15 OPS_DETAILEDCHANGES_LOANCLOSING_TABLE The World Bank Value New Date 22-Nov Oct-2017 LOAN CLOSING DATE(S) Ln/Cr/Tf Status Original Closing Closing(s) Proposed Closing Proposed Deadline for Withdrawal Applications IDA Effective 30-Nov Dec Oct Feb-2018 OPS_DETAILEDCHANGES_REALLOCATION _TABLE REALLOCATION BETWEEN DISBURSEMENT CATEGORIES Current Allocation Actuals + Committed Proposed Allocation Financing % (Type Total) Current Proposed IDA Currency: XDR ilap Category Sequence No: 1 Current Expenditure Category: Gds,Wks,CS,OpCst,Trg Pts A,B&C 24,500, ,442, ,500, ilap Category Sequence No: 2 Current Expenditure Category: Gds,CS,OpCst,Trg Pt D 10,480, ,659, ,530, ilap Category Sequence No: 3 Current Expenditure Category: Gds,CS,OpCst,Trg Pt E 9,850, ,454, ,080, ilap Category Sequence No: 4 Current Expenditure Category: Gds,CS,OpCst,Trg Pt F 1,830, , ,830, ilap Category Sequence No: 5 Current Expenditure Category: PPF REFINANCING

16 OPS_DETAILEDCHANGES_SORT_TABLE The World Bank 600, , , ilap Category Sequence No: 6 Current Expenditure Category: UNALLOCATED 3,280, Total 50,540, ,772, ,540, OPS_DETAILEDCHANGES_DISBURSEMENT_TABLE DISBURSEMENT ARRANGEMENTS Change in Disbursement Arrangements Yes Change in Disbursement Estimates No SYSTEMATIC OPERATIONS RISK-RATING TOOL (SORT) Risk Category Rating at Approval Current Rating Political and Governance Substantial Macroeconomic High Sector Strategies and Policies Moderate Technical Design of Project or Program Moderate Institutional Capacity for Implementation and Sustainability Substantial Fiduciary Substantial Environment and Social Low Stakeholders Low Other Overall Substantial

17 Note to Task Teams: End of system generated content, document is editable from here.